CONFIDENTIAL, ACIJAN 2018/AUD589 UNIVERSITI TEKNOLOGI MARA FINAL EXAMINATION COURSE : AUDITING 1 COURSE CODE AUD589 EXAMINATION : JANUARY 2018 TIME : 3HOURS INSTRUCTIONS TO CANDIDATES 1 This question paper consists of five (5) questions. 2 ‘Answer ALL questions in the Answer Booklet. Start each answer on a new page. 3, Do not bring any material into the examination room unless permission is given by the invigilator. 4 Please check to make sure that this examination pack consists of i) the Question Paper ii) an Answer Booklet — provided by the Faculty 6. Answer ALL questions in English. DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO This examination paper consists of 6 printed pages (© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL,CONFIDENTIAL 2 ACIJAN 2018/AUD589 QUESTION 1 A. ISA 320 Materiality in Planning and Performing an Audit state that judgments about materiality are made in light of surrounding circumstances, and are affected by the size or nature of a misstatement, or a combination of both Required: a. Define the concept of ‘materiality’ (3 marks) b. Identify three (3) steps in the application of materiality to an audit. (3 marks) c. Briefly explain two (2) qualitative factors and two (2) quantitative factors that may affect the preliminary judgement on materiality. (6 marks) B. Analytical procedure is an important procedure in an audit. It consists of evaluation of financial information made by a study of comparisons and relationships among both financial and non-financial data. Required: a. Explain three (3) benefits of analytical procedures performed during the planning stage. (6 marks) b. Provide two (2) examples of analytical procedures that can be performed on current assets. (2 marks) (Total: 20 marks) QUESTION 2 A. ISA 500 Audit Evidence state that auditor is required to obtain sufficient and appropriate evidence to be able to draw conclusions and issue an audit opinion based on the financial statements. Required: a. Define audit evidence (2 marks) b. Describe the term ‘sufficient’ and ‘appropriate’ audit evidence, with one (1) relevant example for each of these terms. (8 marks) (© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL,CONFIDENTIAL 3 ACIJAN 2018/AUD589 B. ISA 230 Audit Documentation state that an auditor is required to adequately record his work. Required: a. Discuss two (2) circumstances under which the working paper can be used by other people. (4 marks) b. Explain three (3) reasons why it audit work with sufficient information. important for the auditor to document (6 marks) C. One of the issues that affect the reliability of documentary evidence is whether the documents are internal or extemal. The following are examples of documentary evidence, i Bank reconciliation Debtors aging report iii, Bank statements iv. Supplier invoice v. Purchase requisition form State whether the documents given above either as internal or external evidence. (5 marks) (Total: 20 marks) QUESTION 3 Iskandar Ali is the partner in charge of the audit of Suria Emas (Wholesale) Sdn Bhd, a leading department store in Malaysia. Suria Emas uses punch card system to record the attendance of its employees. The punch cards are identified by the name of each employee but the cards are not assigned with serial numbers. On the last working day of each week, the payroll clerk will collect all punch cards and keep them on his table. Every month, the human resource supervisor reviews the punch cards and once the review is completed, a staff in the human resource department will key in the actual hours worked by the employees into the payroll system. The system then automatically updates the summary payroll files, At the end of each month, the payroll clerk prints the payroll summary report and prepares a payment instruction to ArRizq Bank Malaysia Bhd to directly credit the monthly salary to each individual employee's bank account. The payment instruction is presented to the bank a day before the payday. (© Hak Cipta Universiti Teknologl MARA CONFIDENTIALCONFIDENTIAL 4 ACIJAN 2018/AUD589 On the payday, the employees are required to collect their pay-slips, which contains only the net salary amount figure, from their supervisors. Once the debit advice is received from the bank, the payroll clerk immediately sends it to the accounting department for filing purposes. This advice shows the details of the bank's deduction amount inclusive of bank charges. ‘The accounts clerk will normally prepare bank reconciliation once in every two months, Required: a. _ Discuss four (4) weaknesses in the payroll system of Suria Emas (Wholesale) Sdn Bhd as described above, (8 marks) b. Explain the possible effect of each weaknesses identified in (a), (6 marks) c. Suggest three (3) recommendations to tackle the weaknesses identified in (a). (6 marks) (Total: 20 marks) QUESTION 4 A. Explain three (3) audit procedures that can be performed for the audit of shareholder's equity. (6 marks) B. _ In the audit of bank balances, one of the procedures performed by the auditor is to send for bank confirmation. Explain two (2) advantages for getting the bank confirmation as audit evidence. (4 marks) C. Auditing standards require auditors to satisfy themselves about the effectiveness of the client’s methods of accounting for inventory. Required: a. Explain two (2) requirements that need to be fulfilled by the auditor to ensure the effectiveness of client's internal control in handling the inventory. (4 marks) b. Briefly explain four (4) factors that could affect the complexity of auditing the inventory. (6 marks) (Total: 20 marks) (© Hak Cipta Universiti Teknologi MARA, CONFIDENTIALCONFIDENTIAL 5 ACIJAN 2018/AUD589 QUESTION 5 A Reporting the finding is the final phase of the financial statements audit. The auditor is required to provide a clear written expression of his opinion based on the audited financial information. Required: Briefly explain any four (4) content of an audit report. (6 marks) Based on the information provided for each of the following situations, identify the type of audit report that you as an auditor would issue and justify the reason(s) to issue such an audit report i. One of your clients, EcoGreen Sdn Bhd has incurred massive losses in recent years and unable to repay the various bank loans which are falling due. The company's ability to continue as a going concem is in doubt, but the client disagree to disclose information in the financial statement. ji, The supervisor of New Fashion Sdn Bhd does not allow you to confirm the receivable balance from five of its major customers. The amount is considered as extensive in relation to company's financial position. As an auditor, you are unable to satisfy yourself as to the receivable balance by any other alternatives procedures. iii, Cahaya Violet Sdn Bhd incurred a net loss of RM150,000 during the year ended 31/12/2017 and the company's current liabilities exceeded its total assets by RM120,000. Those matters raise substantial doubt that the company will be able to meet its obligation and continue its operation. iv. As at 30 June 2017, you as a new auditor of Melur Berhad are not able to observe the inventory counting since that date was prior to the time you were initially engaged as auditor of Melur Berhad. However, due to the nature of the client's record, you were able to satisfy yourself to the inventory quantities by other alternatives. (8 marks) Suggest three (3) matters that need to be considered by the auditor before a standard unqualified opinion is issued. (6 marks) (Total: 20 marks) END OF QUESTION PAPER (© Hak Cipta Universiti Teknologt MARA CONFIDENTIAL,