UTM

Fakulti Pengurusan

UNIVERSITI TEKNOLOGt MALAYSIA

PEPERIKSAAN AKHIR SEMESTER II

SESI2017/2018
(FINAL EXAMINATION SEMESTER II
2017/2018 SESSION)

KOD KURSUS SHAC 2173

(COURSE CODE)

NAMA KURSUS AUDIT 1

(COURSE) (AUDIT 1)

PROGRAM SARJANA MUDA

(PROGRAMME) (BA CHELOR DEGREE)

MASA 3 JAM
(DURATION) (3 HOURS)

TARIKH JUN 2018

(DATE) (JUNE 2018)

MARKAH 100 (MENYUMBANG 50 PERATUS KEPADA

(MARKS) MARKAH KESELURUHAN)
(CONTRIBUTING 50 PERCENT TO THE
OVERALL MARKS)

ARAHAN KEPADA CALON:

(INSTRUCTION TO CANDIDATES)

Jawab SEMUA soalan.

(Answer ALL questions)

KERTAS PEPERIKSAAN INI TERDIRIDARIPADA 5. MUKA SURAT SAHAJA

(TERMASUK MUKA SURAT INI).
THIS EXAMINATION PAPER CONSISTS OF J_ PAGES ONLY (INCLUDING THIS
PAGE).
1. Auditors need to obtain appropriate and sufficient audit evidences to enable them
to establish an opinion whether a financial statement is fairly stated or otherwise.

Required:
(a) Explain the differences between internal and external documentations
required as audit evidence.
(5 marks)
(b) Discuss five types of audit evidence and provide an example for each.
(10 marks)

2. Audit sampling applies whenever an auditor plans to come into a conclusion

pertaining to a population. Auditor must carefully identify the sample size and
determine the characteristics being tested.

Required:
(a) Describe what is meant by a representative sample and its importance in
sampling audit populations.
(5 marks)
(b) Explain how an auditor select 20 sample numbers from a total population
of 402 items (start with no 1 in the list) using a systematic sample
selection.
(10 marks)

3. The audit o f cash balances is important because cash is susceptible to theft and
exposed to a higher risk of embezzlement. Auditors perform independent bank
reconciliation to verify the cash receipts and disbursements transactions.

Required:
(a) Describe three types of misstatement which are not discovered during the
audit of bank reconciliation.
(3 marks)

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 (b) Explain the objective of each following audit procedures which are related
to test o f details of general cash balances.
(i) Obtain a standard bank confirmation from each of clients’ bank.
(ii) Compare the balance on the bank reconciliation obtained from the
client with the bank confirmation
(iii) Compare the returned cheques along with the cutoff bank
statement with the list of outstanding cheques on the bank
reconciliation.
(iv) List the check number, payee and amount of all material cheques
returned with the cutoff bank statement.
(v) Prepare a four-column proof of cash.
(vi) Trace deposits in transit on the bank reconciliation to the cutoff
bank statement and the current year cash receipts journal.
(12 marks)

4. The issuance o f audited financial statements is a requirement under Section 169 of

the Companies Act 1965. In fact, the same is stated under section 259 o f the new
Companies Act 2016. Additionally, the enhanced audit report (EAR) which
comes as a requirement for all annual reports with financial periods ending on or
after 15 December 2016, is seen as a development in the presentation o f the
auditor’s report.

Required:
(a) Describe the two of the conditions for the issuance of a standard
unqualified report.
(5 marks)
(b) The new EAR is no longer using the standard wordings commonly found
in previous auditor’s report. Key audit matters which is entity specific
comments by auditor, becomes a vital part o f EAR. Discuss the
importance of disclosing key audit matters in EAR.
(10 marks)

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5. Adrian, the senior auditor of Faz and Associates, has been assigned to perform the
field audit for financial statements o f Bintang Sports Sdn. Bhd. (Bintang Sports),
a company which is based in Johor. The company sells sports clothing and
distribute their apparels throughout Malaysia.

Bintang Sports purchases inventory directly from local manufacturers and sell the
finished goods of sports apparels to authorized dealers within Malaysia. Dealers
or potential customers can browse through their items or product via Bintang
Sports’ official website to enable them to view product information and details,
thus allow them to assess the availability and quality o f products. When dealers or
customers place an order, the clerks computes the approximate ringgit amount of
the order and send it to the credit department for approval. Credit approval is
verified and stamped by an officer on the order and sent to accounting department.

Following that, a two copied sales invoice is printed using computerized system.
The shipping copy o f sales invoice then routed through the warehouse for
arrangement of shipments of the merchandise to customers. The clerk in this
department prepares the order and manually prints a three-copy bill o f lading: the
original copy is then mailed to the customer. The second copy is attached with the
shipped items and the third copy is kept in the bill o f lading file. The sales invoice
shipping copy is sent to the accounting department. The data processing clerk in
accounting enters the sales invoice data into the computer which links to the sales
journal and updates the accounts receivable master file. No checking of sales
transactions done by any higher authority or executives after the credit approval
process. They assume that the computerized system is error free and can be
trusted.

The purchasing of inventory from suppliers (manufacturers) is monitored by the

purchasing personnel, Alana. Bintang Sports grants their suppliers with an access
to its inventory management system through its internet website. Real time
information relating to level o f inventories, quantities, storage location and

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forecasted demand are accessible to suppliers. The suppliers then submit a report
to the purchasing department which includes the items and amount that Bintang
Sports requires to meet their customer needs. Alana will confirm this with the
production supervisor (manufacturer) and then request for approval from the
purchasing manager. Usually, the purchasing manager would just check if the
detail o f items, quantities and amount to be ordered has been entered correctly by
Alana in the computer system, before she approves the purchase order. On the
other hand, the physical inventories of inventories or goods in the warehouse are
being kept in a separate building where it is monitored by only one store
supervisor. All stock in and out transactions are recorded via secured computer
listings by the warehouse clerk and then verified by a supervisor. Physical
stocktaking is performed once a month by the clerk and supervisor.

Required:
(a) Discuss two strengths and two deficiencies of the internal control
procedures related to the sales invoices and the customer billings.
(12 marks)
(b) Provide recommendations for improvement for each deficiency in (a).
(8 marks)
(c) Explain two types of evidence that Adrian could use in performing test of
acquisitions of inventories.
(4 marks)
(d) Discuss the reasons why it is important for Adrian to coordinate the test
with physical observation of inventory, when testing the cut-off accounts
payable at the balance sheet date.
(6 marks)
(e) A physical observation test of inventory is essential considering that it is
an area which is exposed to high incidents o f fraud. Describe the balance-
related audit objectives in the tests of details balances for physical
inventory observation.
(10 marks)