UNIVERSITI TUNKU ABDUL RAHMAN

FACULTY OF BUSINESS AND FINANCE

ACADEMIC YEAR 2020 (MAY TRIMESTER)
BACHELOR OF COMMERCE (HONS) ACCOUNTING
BACHELOR OF ACCOUNTING (HONS)
UBAF2144/UKAF2124 AUDITING & ASSURANCE SERVICES II
GROUP ASSIGNMENT (20%)
TEACHING METHODOLOGY

This teaching method uses a self-directed learning approach, where students are expected to
take initiatives towards active self-learning. The topic covered is within the syllabus, but has
yet to be taught. Therefore, students will have to source for learning resources entirely on
their own, without the assistance of the lecturer/tutor and learn up the topic through self-
studies and group discussions.

PLAGIARISM
All answer scripts will be Turnitin for similarity check. In the case of plagiarism being
suspected, the evidence will be submitted to the University Examination Disciplinary
Committee for further action. Disciplinary action will be taken against any candidate who is
found plagiarised in the answer submitted. Hence, candidates are advised to comply strictly
with the University Examination Rules and Regulations and any other guideline/policy
relating to University examinations.

WRITTEN REPORT
The written assignment is to be prepared on a group basis, i.e. not more than 5 members in a
group. The selection of the group MUST be from the same tutorial group that the students
registered. After the formation of groups, each group leader shall fill up their names of the
group members and email to their respective tutor before end of WEEK 2.The written
assignment should be submitted by WEEK 8, 07/08/2020 (Friday), latest by 12.00 noon to
your respective tutors via Microsoft team & Email

REPORT GUIDELINES

1. The report MUST NOT EXCEED 30 PAGES (MAX). Nevertheless, the page count
does not include the preliminary pages and end materials such as title page, table of
contents, appendices and references.

2. The main text should be typed using 1.5 spacing with font size of Times New Roman
12pt. The text should be also aligned to both left and right margins. Table, figures and
references should be single-spaced.

3. Kindly name your file as UKAF2124_TUTORIALGROUP for submission. For

example, UKAF2124_T1.pdf and UKAF2124_T1.word

4. The written report must be prepared in both Microsoft Word and PDF format.
You are required to answer both questions

QUESTION 1

COVID-19 has created an environment of uncertainty. In short the world has come to a
standstill, causing global downturn and bringing in new risks for companies and these risks
have started to pose challenges both operationally and financially. In coming days and weeks
companies would be evaluating the risks with greater clarity and responding to the new
challenges with greater certainty. The companies would also have to consider the
consequences of COVID-19 in context of their financial reporting. The considerations and
efforts of management may revolve around preparation of complete books of account, going
concern assessments, preparation of accounting estimates and determination of fair values
and making appropriate disclosures in the financial statements and other information.
Auditors play an important role in the financial reporting process by providing an
independent opinion on financial statements. The indications of adverse consequences of
COVID-19 on reporting companies’ can be observed and implications may further increase in
coming periods. There could be range of challenges such as liquidity crunch, resource
constraints, under-utilised assets, legal and contractual non-compliances, and in certain cases
there would be existential concerns. The COVID-19 crisis and related economic uncertainty
present a unique set of challenges for auditors. The stakeholders would demand quality
audits, having effective and efficient approach and appropriate and timely audit reports. The
auditors are expected to put in more extensive efforts while conducting the audits in current
and post COVID-19 environment. The auditors may not have previously considered the
COVID-19 related risks in their planning and audit strategies. While auditing and reviewing
the financial statements the auditor’s focus area would be evaluating the reporting
companies’ response to the COVID-19 related identified risks. Despite these challenges,
auditors are still expected to conduct the audit in accordance with the approved standards on
auditing in Malaysia and International Standards on Auditing. Therefore, auditors are
expected to ensure that they have sufficient time and resources to perform the affected audit
engagements. Where necessary, auditors may need to communicate with management and/or
those charged with governance to consider applying for extension of time to lodge financial
statements and reports in accordance with Section 259(2) of the Companies Act 2016 or other
applicable regulations.

Required:

(a) How COVID-19 has affected the company and how it would impact the auditor’s risk
assessment and materiality? (16 marks)
(b) How could an auditor obtain sufficient appropriate audit evidence, and whether
mobility and/or access restrictions result in scope limitation? (8 marks)
(c) Whether company has appropriately reflected the impact of COVID-19 in the
financial statements, including going concern and subsequent event considerations.
(18 marks)
 (d) What could be the impact of COVID-19 on fraud risk? (8 marks)
(e) Due to Covid-19, the auditors incurred lots of challenges while performing their audit
work from home. Explain how the auditors were able to use information technology
(IT) to help them to complete their audit procedures virtually on a timely manner.
(10 marks)

[Total: 60
marks]

QUESTION 2

Kailash an auditor, is the engagement partner on the financial statement audit of Super
Computer Services Bhd (SCS) for the year ended 30 April 2019. On 5 May 2019, the senior
auditor assigned to this assignment, had the following conversation with Kailash concerning
the planning phase of audit.

Kailash: Do you have all the audit programs updated yet for the SCS engagement?

Shazman: Mostly, I still have work to do on the fraud risk assessment.

Kailash: Why? Our “errors and irregularities” program from last year is still OK. It has
passed peer review several times. Besides, we don’t have specific duties
regarding fraud. If you find it, we’ll deal with it then.

Shazman: I don’t think so. That new CEO, Mawi, has almost no salary, mostly bonuses and
stock options. Doesn’t that concern you?

Kailash: No. Mawi’s employment contract was approved by the Board of Directors just
three months ago. It was passed unanimously.

Shazman: I guess so, but Mawi told those stock analysts that the SCS’s earnings would
increase 30 percent next year. Can Mawi deliver numbers like that?

Kailash: Who knows? We’re auditing the 2019 financial statements, not 2020. Mawi will
probably amend the forecast every month between now and next May.

Shazman: Sure, but all this may change our other audit programs.

Kailash: No, it won’t. The programs are fine as is. If you found fraud in any of your tests,
just let me know. Maybe we’ll have to extend the tests. Or maybe we’ll just
report it to the audit committee.

Shazman: What would they do? Ghani is the audit committee chair, and remember, Ghani
hired Mawi. They’ve been best friends for years. Besides, Mawi is calling all the
shots now. Borhan, the old CEO, is still on the Board, but Borhan’s never around.
 Borhan’s even been skipping the Board meetings. Nobody in management or on
the Board would stand up to Mawi.

Kailash: That is nothing new. Borhan was like that years ago. Borhan caused frequent
disputes with Jones, CPA, the predecessor auditor. Three years ago, Jones told
Borhan how ineffective the internal audit department was then. Next thing you
know, Jones is out and I’m in. Why bother? I am just as happy that those
understaffed internal auditors don’t get in our way. Just remember, the bottom
line is…are the financial statements fairly presented? And they always have been.
We don’t provide any assurances about fraud. That’s management’s job.

Shazman: But what about the lack of segregation of duties in the cash disbursement
department? That clerk could write a cheque for anything.

Kailash: Sure. That’s material weaknesses every year and probably will be again this year.
But we’re talking cost effective here, not fraud. We just have to do lots of testing
on cash disbursements and report it again.

Shazman: What about the big layoffs coming up next month? It’s more than a rumour. Even
the employees know it’s going to happen, and they’re real uptight about it.

Kailash: I know, it’s the worst kept secret at SCS, but we don’t have to consider that now.
Even if it happens, it will only improve next year’s financial results. Borhan
should have let these people go years ago. Let’s face it, how else can Mawi even
come close to the 30 percent earnings increase next year?

Required:

(a) Describe the fraud risk factors that are indicated in the dialogue above.
(16 marks)
(b) Describe Kailash’s misconceptions regarding the consideration of fraud in the
audit of SCS’s financial statement that are contained in the preceding dialogue,
and explain why each is a misconception. (16 marks)
(c) Describe an auditor’s audit documentation requirements regarding the assessment
of the risk of material misstatement due to fraud. (8 marks)
[Total: 40 marks]