CONFIDENTIAL SS ACIJUN 2018/AUD589 a ee UNIVERSITI TEKNOLOGI MARA FINAL EXAMINATION COURSE AUDITING 1 ‘COURSE CODE AUDS589 EXAMINATION : JUNE 2018 TIME : 3HOURS INSTRUCTIONS TO CANDIDATES 1 This question paper consists of five (5) questions. 2 ‘Answer ALL questions in the Answer Bookiet. 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 5. 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 ACIJUN 2018/AUD589 QUESTION 1 Your audit firm is the newly appointed auditor of Restaurant Laksa Sedap Sdn Bhd. On the first day of the audit fieldwork for the year ending 31 March 2017, you assigned two audit assistants for the engagement and had advised them on the importance to apply ratio analysis for the analytical procedures. Later, you had a conversation with the client's accountant, and you noted the following details: 1. The restaurant installed a sales system that was fully operated on 1 September 2016. The purchase contract of the sales system includes a two-hour training session for two employees only. 2. There is only one account executive and he is responsible for all the accounting functions. 3. The account executive is a fresh graduate and just started working on 1 January 2017. 4, JAKIM Department inspects the company's operations for Halal Certification on a yearly basis. 5. The company’s kitchen workers are from Bangladesh and hired on a contract basis. 6 All cash received from the customers in the afternoon are kept in the safe and bank- in on the next day. Required: a. __ Indicate six (6) purposes in planning the audit for your client (6 marks) b. Explain briefly two (2) benefits of conducting ratio analysis for the analytical procedures. (4 marks) c. Analyse five (6) risks of material misstatements observed from the conversation above. (10 marks) (Total: 20 marks) © Hak Cipta Universiti Teknolog! MARA CONFIDENTIAL,CONFIDENTIAL, 3 ACIJUN 2018/AUD589 QUESTION 2 A. ISA 230 states that the audit documentation is the principal record of auditing procedures applied, evidence obtained and conclusions reached by the auditor in the ‘engagement. The objectives of audit documentation are to provide a sufficient and appropriate record of the basis for the auditor's report and as evidence that the audit was planned and performed in accordance with auditing standards, and applicable legal and regulatory requirements. Required: Discuss four (4) characteristics of good audit documentation. (8 marks) ISA 500 indicates an external confirmation represents audit evidence obtained by the auditor as a direct written response to the auditor from a third party, in paper form, or by electronic or other medium, Required: Explain two (2) factors that may affect reliability of external confirmation. (4 marks) Auditors may engage in quite a large number of inventory audit procedures before they are comfortable that the inventory valuation is reasonable. If inventory is considered as material to the financial statements, the auditor shall obtain sufficient appropriate audit evidence, including attendance at physical inventory stocktaking. Required: a. _ Identify two (2) audit procedures for inventory. (4 marks) b. Determine the importance of auditor's attendance during physical inventory stocktaking. (4 marks) (Total: 20 marks) (© Hak Cipta Universiti Teknologi MARA, CONFIDENTIALCONFIDENTIAL, 4 ACIJUN 2018/AUD589 QUESTION 3 Amiri is the team leader who is assigned to conduct risk assessment procedures for the audit of MRE-Food Sdn Bhd. This is his third year leading the audit engagement for MRE-Food Sdn Bhd. Amri needs to perform risk assessment procedures at the initial stage of the audit to identify the risks of material misstatement through understanding the entity and its environment. During the engagement, Amri has assigned two audit assistants to carry out audit procedures of the purchase cycle. The audit assistants have completed the audit procedures, and have prepared the following narrations: 1. Acclerk in the respective departments that request for inventory purchase prepared a Prenumbered purchase requisition in duplicate. The original copy is sent to the purchasing department and the second copy is kept by requesting department and filed according to the date issued. 2. The purchasing department then issued a purchase order in duplicate. The original copy is sent to the supplier. The second copy is stapled with the original copy of purchase requisition and filed according to the serial number of the purchase order. 3. Goods are received by a clerk in the receiving department. He performed the counting, agreed the counting with the suppliers’ shipping documents, raised a receiving report and sent the goods to the storeroom for safekeeping. The suppliers’ shipping documents is stapled with the receiving report and submitted to the account department. The clerk forwarded the suppliers’ invoices to the account department. 4. The account clerk matched the invoices with the receiving reports, supplier's shipping documents and purchase order. Here, if all the documents are in order, he approved the payment voucher and keyed-in the double entry to raise the liability. 5. The accounts clerk prepared the cheques and obtained the authorization from the accountant. 6. Every month the suppliers send the statement of account to the company. These documents are immediately filed in the correspondence file. Required: a. Identify two (2) procedures that Amri can perform to assess risks of material misstatements at the planning stage. (6 marks) b. Determine three (3) audit procedures for test of control to verify the completeness of the recorded purchases in MRE-Food Sdn Bhd. (6 marks) ©. Propose three (3) control activities to improve the internal control of the purchase cycle in MRE-Food Sdn Bhd. (9 marks) (Total: 20 marks) (© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL,CONFIDENTIAL 5 ACIJUN 2018/AUD589 QUESTION 4 A. The most important internal control for petty cash is the use of an imprest fund system. Additionally, petty cash funds should not be mixed with other receipts, and the fund should be kept separate from all other activities. An auditor must also obtain reasonable assurance that the cash and bank balances of the company are stated accurately and proper accounting procedures have been followed accordingly. Required: a. Determine the meaning of imprest petty cash fund, (2 marks) b. Explain two (2) objectives of testing the bank reconciliation statement. (3 marks) cc. Identify three (3) audit procedures that can be performed for cash and bank balances. (6 marks) B. Property, plant and equipment are assets that have expected lives more than one year which are used in the business operation and not acquired for sale. Required: a, Explain two (2) benefits of maintaining a proper property, plant and equipment register. (4 marks) b. Initiate two (2) analytical review procedures that can be used in auditing the property, plant and equipment. (5 marks) (Total: 20 marks) QUESTION 5 ‘A. 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. q During the audit of Terus Gemilang Berhad, the Senior Account Manager refuses to allow you to confirm account receivables because he is concerned about complaints from his customers. You are unable to satisfy yourself about the account receivables by other audit procedures and are concerned about the Senior Account Manager's motive. 2. The management of Bistari Mewah Berhad has decided to exclude the statement of cash flows from its financial statements because they believe that the bankers do not find the statement to be useful. (© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL 6 ACIJUN 2018/AUD589 3. The auditor has detected that the information about this year’s sales in the management report of Geliga Utara Berhad is inconsistent with the sales reported in the draft financial statements. The auditor has advised the company's management that the information in the management report needs revision but the information has not been revised, 4. Orochimaru Bhd has incurred a net loss of RM10 million during the year ended 31 December 2016 and as of that date, the company’s current liabilities exceeded its current assets by RMS million. In addition, its total liabilities exceeded its total assets by RM25 million. However, the management of Orochimaru has assured that it will obtain financial assistance from a third party and has disclosed this matter in its notes to the accounts. (8 marks) 8B, Uniformity and consistency of wordings in the audit report are desirable to promote the reader’s understanding and to identify unusual circumstances when they occur. Required: a. _ Explain the significance of the following basic elements of the audit report: i. Report title. ii, Addressee. ii, ‘Scope paragraph (6 marks) b. A careful reading of an audit report indicates several important phrases. Elaborate why each of the following phrases are used rather than the alternative provided: i “In our opinion, the financial statements present fairly” rather than “The financial statement presents fairly”. “We conducted our audit in accordance with approved Standards on Auditing issued by the Malaysian Institute of Accountants" rather than “Our audit was performed to detect material misstatements in the financial statements’. “Basirun, Chong & Co (firm name)" rather than “Basirun Hamid, CA (individual partner's name)’. (6 marks) (Total: 20 marks) END OF QUESTION PAPER (© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL,