JUNE 2019

QUESTION 1
A. a. - Independence of mind
- Independence in appearance

State 2 types of independence relating to the auditing profession.

b. - The audit opinion adds credibility and this value is lost if the auditor is not
perceived to be independent by outside users of the information.
- The auditor reputation will be tarnished and auditing profession will be impaired.
Explain briefly any 2 consequences if the auditor is not perceived to be independent
by the public. (3 marks)
c. - The close family member disposing as soon as practicable of all the
financial interest or disposing of a sufficient portion of an indirect financial
interest so that remaining interest is no longer material.
- Having a professional accountant review the work of the member of the
audit team.
- Remove the individual from the audit team.
A member of the audit team has a close family member who has a direct financial
interest in the audit client.
Determine any 2 safeguards to eliminate the self-interest threat arising from the above
situation. (3 marks)

Explain 1 requirement as per the MIA By-Laws that an auditor has to comply with.
B. a. i. A loan or guarantee is made under normal lending procedures, terms and
conditions. OR a loan or guarantee is immaterial to the member of the
assurance team.
i. Accepting a loan from an auditee
ii. The advertising, marketing and promotion is professionally dignified and in good
taste OR carried out in accordance with relevant legislation
ii. Advertising and promoting his professional services.
b.. i. Not violated: Member is allowed to advertise, promote or do marketing as long
as it is professionally dignified, good taste and carried out in accordance with
relevant legislation
.ii. Violated: This will create familiarity threat since a member of the engagement
team having a close or immediate family member who is director or officer of the
client.Tiara leads an audit engagement of PCB but her husband is an accountant there
iii. Violated: Fees charged for all engagement should be a fair reflection of the value
of the work involved and giving unnecessary substantial discounts may sacrifice
the quality of audit. Safia gives substantial discounts on first year's audit fees to clients
iv. Not violated: The value is trivial and is consequential to create self -interest
threat. The gift voucher is the normal practice of the company
Audit team received 10 gift vouchers worth RM100 from their audit client. The gift vouchers
will be used for purchase made by the customers. Similar gift vouchers were given to all
customers of the business as part of its marketing strategy.
QUESTION 2

A. a. - Industry conditions, regulatory environment and other external factors

including the applicable financial reporting framework.
- Nature of the entity including business operations (eg: product service,
geographic dispersion) investment, financing and financial reporting.
- Objectives and strategies and related business risk such as industry
development, new products and services and use of IT.
- Measurement and review of the entity’s financial performance (i.e: key
ratios, trends, credit rating and competitor analysis.
State any 3 areas of a client's business and its environment that the auditor should
understand in developing an audit plan. (3 marks)
b. Understanding of the client’s business and its environment establishes a frame
of reference within which the auditor assessing risk of material misstatement and
assess their consistency with the auditor knowledge of the business.
Explain briefly why an auditor should have an understanding of the client's business and
its environment when developing an overall audit plan. (2 marks)
c. - Auditors should consider the integrity of the client and does not have
information that would lead it to conclude that the client lack integrity.
- Auditors should assess his competence to perform the engagement and
has the capabilities, time and resources to do so and
- Auditor should ensure he can comply with ethical requirements.
- Auditor should communicate with the existing auditor for new client
Explain any 2 consequences if audit engagement is not planned properly. (3 marks)
-

d. The -starting point of any audit is the acceptance of a new client or the decision to
continue with an existing client. Discuss any 2 procedures for the acceptance and
continuance of client relationships.

B. a. - Extract or copies of the articles of association

- Contracts
- Lease agreement
- Organisation charts
List any 3 types of documents commonly filed in the permanent audit file.

b. - it might be difficult to maintain the quality of the audit since the manager
or supervisor unable to review of work carried out.
- Audit partner may decide inappropriate audit opinion due to incomplete
information.
- For the legal perspective, it may provide evidence that the work has been
carried with negligence and this will increase the liability of the auditor.
Explain any 2 implications if audit evidence obtained by an auditor are not properly
-
documented.
QUESTION 3

A. a. - Positive request
State the 2 types of audit confirmation requests. (2 marks)
- Negative request

b. - Positive request is generally used when the auditor is seeking to confirm a

relatively small audit population, or some amounts are of material size or when
the internal control system in week
- Negative request is typically used in seeking to confirm relatively small items
from a relatively large audit population or when the client’s internal control is so
good that there is little rise or error in the balance being confirmed.
Distinguish each of the confirmation requests in (a) above. (3 marks)

c. - Examination of subsequent cash receipts. This is the most useful alternatives

procedures because it is reasonable to assume that a customer would not make
a payment unless it was a valid receivable.
- Examination of customer order, shipping documents and duplicate sales
invoice-duplicate sales invoice are useful to verify the actual issuance of a sale
invoice and the actual date of the billing. While shipping document is important
to establish whether the shipment was actually made and as a test of cut-off.
- correspondence with the client customer-usually it is unnecessary to renew
correspondence as part of alternative procedures but it can be used to disclose
dispute and questionable receivable not covered by other means.
Determine any 2 alternative audit procedures to verify the existence of A/R if no
response is received from the confirmation requests. (5 marks)

In general, the audit evidence obtained from inspection of tangible assets is considered
as more reliable as compared to inquiry of the client. Discuss whether you agree or
disagree with the above statement. (5 marks).
B. a. I agree with the statement. Inspection of tangible assets involves the auditor
inspecting the physical asset. Audit evidence obtained directly by the auditor is
considered more reliable because auditor has direct knowledge. Inquiry is a set
of questions directed to client. inquiry alone does not provide sufficient evidence
of the absence of material misstatement or internal control effectiveness. Inquiry
is considered as less reliable because it requires further corroboration by
auditors.

b. - select sample of purchase orders and inspect evidence that they have been
approved and matched with purchase requisitions, vendor invoice and receiving
report.
- select sample of transaction from purchase journal and vouch back to
supporting documents (eg vendor: invoice, receiving report, purchase order and
purchase requisition) for existence.
Determine any 2 audit procedures that should be performed to ensure that the items
recorded in the purchase journal represent purchase transactions that really exist.
(5 marks).
QUESTION 4

A. a. - Increase reliability and credibility of financial statements. Unaudited financial

statement is less reliable because they have not been verified by independent
third party(auditor).
- shareholders are more confident when making economic decision based on
financial statement since the information on the financial statements has been
verified by external auditor.
- it helps shareholders to hold the most accountable if the financial statements
show unfavorable opinion.
- Audit report contains auditor’s expression of opinion on the fair presentation of
the financial statement, shareholders can rely on the financial statement when
making investment decision.
Explain the significance of an auditor's report to the shareholders. (2 marks)

b. - If the auditor is unable to obtain sufficient appropriate audit evidence to

conclude that the financial statements as a whole are free from material
statement.
- If the auditor concludes that the financial statements as a whole are not free
from material misstatement based on audit evidence obtained.
Discuss any 2 circumstances when the auditor may issue a qualified/modified auditor's
report.

c. Auditor’s opinion - reason

i. Unqualified report with ‘Emphasis of matter’ paragraph – Financial
statement reflects time and fair view but auditor needs to emphasize the going
concern problem.
-ve working capital and incurred substantial net loss and failed to obtain additional financing.
ii. Unqualified standard wording – Financial statement reflects true and fair view
of company’s financial performance.

iii. Unqualified standard wording – Financial statement reflects true and fair view
of company’s financial performance.
iv. Qualified ‘except for’ – as there is no provision for depreciation seems that there
is a material disagreement with management regarding the application of
accounting methods in preparing the financial statement.
v. Qualified report with disclaimer opinion. – The auditor is not able to obtain
sufficient evidence due to scope limitation and effect is material and pervasive.

B. - control environment
It refers to the governance and management functions and the attitudes,
awareness and actions of these charged with governance and management
about entity’s internal control and its importance. By setting the basic to
organization, they would foster good working relationship with employees,
increase the likelihood that employees will carry out work diligently with integrity
in the best interest in the company, they reducing risk of material misstatement.
- Risk assessment
Every company faces risks from internal and external source. Risk will adversely
affect the achievement of objectives. Risk assessment is the process of
identifying and responding and analyzing the risk and establishing the control
measures. Risk assessment forms the basis for determining how risks will be
managed, resulting in a reduced risk to an acceptable level.
Discuss the importance of each of the following components of internal control in
reducing the risk of material misstatement in the financial statements:
i. Control environment
ii. Risk assessment
 Identify 1 internal control procedure to ensure that all sales transactions are
QUESTION 5 correctly billed. (2 marks)
A. a. ● There should be procedure for independent internal verification of invoice
preparation (pricing, extension and footings).
● Good shipped are independently counted and description and quantities
on shipping documents are compared with sale order.
b. ● Occurrence – all sales have been recorded have recorded and pertain to
the entity.
● Completeness – all transactions have been recorded completely.
● Accuracy – Amounted related to sales have been recorded appropriately.
● Cut-off – All sales have been recorded in correct accounting period.
● Classification – All sales have been recorded in the proper accounts.

Explain any 2 mgmt assertions related to the sales transactions. (3 marks)

B. (a) weaknesses (b) possible effects (c) Recommendations

1. No multicopy of cash bill and
sale invoice prepared.
2. There are no proper
segregation duties whereby
the accounts clerk has access
to cheque and she is also in
charge of updating the cash
receipt journal.
3. Only softcopy of purchase
order sent to supplier.
4. Supplier invoice was not
verified against receiving
(GRN) report from the
warehouse before processing
the payment.
5. No proper approval on the
payment voucher and no
proper verification against
supporting document prior to
sign of the cheque.
6. The schedule of salary
payment prepared by account
clerks not reviewed by another
responsible officer (ie. The
accountants) against
supporting document.
7. No proper verification against
supporting document prior the
preparing the payment
instruction form by the
accountant. Payment is only
based on schedule of salary.
Might be missing document
not be detected.
The accounts clerk may
misappropriate the cheques or
manipulate the records.
Information might be
misleading due to email being
deleted or delivery of wrong
item.
Supplier might be over pay if
quantity received may be less
than quantity ordered.
Errors made by account clerks
might not be detected or there
may be over or under payment
to suppliers.
Incorrect salary calculation
might not be detected.
Payment made might not be
detected resulting over or
under payment of salary.
A multicopy cash bill and sale
invoice should prepared.
There should be proper
segregation duties between
recording functions and physical
custody cheques.
A hardcopy from purchase order
should be send to the supplier
after the email.
A confirmation email should be
sent to the supplier after the
email.
Particulars on supplier invoice
should be properly verified and
receiving report.
There should be proper approval
on the payment voucher and
proper verification against
supporting document prior to
signee of the cheque.
There should be proper
verification by responsible officer
on the salary schedule payment
and be independent review.
There should be proper internal
verification done by the
accountant against supporting
document prior to prepare the
payment instruction.
DEC 2018
QUESTION 1

A. a. - Integrity
- Objectivity
- Professional competence and due care
- Confidentiality
- Professional behaviour
b. ● Self-interest threat – the auditor has financial interest or material indirect
financial interest in the audit client
● Self-review threat – the auditor is also involved in the preparation of
accounting records and financial statement of the audit client
● Familiarity threat – explanation
● Intimidation threat - explanation

c. - For the purpose of discharge his duties to his client

- In accordance with the provision of any written law or where disclosure is
compelled by the process the law
- Where disclosure is reasonably necessary to protect the member’s
interest

B. a. - Information must be honest and truthful

- Should not downgrade the reference or unsubstained comparison to the
work of others
- Material should be professionally dignified and in good taste and carried
out in accordance with the relevant legislation
b. i. Violated – competence and due care
o the auditor should not accept the offer since the firm did not have
the experience in the area
ii. Violated – confidentiality
o A member is prohibited from using confidential information
acquired in the course of professional work for personal
advantage

iii. Not violated – method of practice

o A member in public practice should not allow any person who is
not a member of the auditor to practice in partnership with him or
her as a chartered accountant
iv. Violated – fees
o Professional fees charged should be a fair reflection of the value
of the work performed for the client
QUESTION 2
A. a. ● To help keep audit cost reasonable
● To achieve audit objectives / procedures
● To avoid misunderstanding with client
● To minimize the possibility of audit failures

b. ● Management integrity
● The reason that caused such changes (business risk)
● Any disagreement with management about accounting policies and
auditing procedures

c. ● Identifying the characteristic of the engagement that define its scope

● Considering the result of preliminary engagement activities
● Ascertaining the nature, timing and extent of resources necessary to
perform the engagement

d. Disagree. (ambil ayat first then sambung ayat ni) To determine whether there are
reasons for not continuing to do audit. Issues such as previous conflicts over the
appropriate scope of the audit, the type of opinion to issue, unpaid fees, or other
matter may cause the auditor to discontinue engagement must be evaluated

B. a.
● A record of the evidence accumulated
● It includes the results of the test
● Data in determining the proper type of audit report
● It includes documentation about significant audit findings

b. i. Permanent
ii. Current
iii. Current
iv. Permanent
v) Current
QUESTION 3
A. a. ● Obtain directly by the auditor
● Obtain from the management
● Obtain form 3rd parties
b ● The client personnel might have left the company
● Time and cost constraint where sampling is usd by auditors to gather
evidence
● The auditor are not there as the event develop thus evidence not perfectly
reliable
c. i. Documentation
ii. Analytical procedure
iii, Confirmation from 3rd parties

iv Inquiries of client
v Recalculation

B. a. i. Disagree. Vouching is a process related to inspection of documentation where

the audit objective is to verify the existence of transaction. Vouching provides
evidence that item included in the accounting journal or ledgers have occurred.

ii. Disagree. Substantive test is performed to obtain evidence about the validity &
propriety of the accounting treatment of transaction and balances. There are two
general categories of substantive test which are analytical procedures and test
of details

b. i. Account for a sequence of sales invoices

ii. ● Recomputed hours work from time card

● Compare pay rate with union contract
● Recomputed gross and net pay
● All payroll transactions recorded at proper amount
QUESTION 4

A. a. ● To inform the users that the audit is conducted in accordance with ISAs
to provide reasonable assurance that financial statement are free from
material misstatements
● Obtain audit evidence - sufficient / appropriate

b. ● Non-compliance with provision of Companies Act 2016

● Non-conformity with MFRS & GAAP
● Disagreement with the facts / amounts included in the financial statement
● Inadequate disclosure with the facts / amounts included in the financial
statement

c. i. Modified – ‘ except for ‘ due to disagreement

- The Garden Bhd adopt the revaluation but has material effect
- Material consequence but not pervasive
-
ii. Modified – disclaimer
- Highly material pervasive and the auditor unable to give opinion due to
scope limitation which is material and pervasive since all the
documentation were destroyed during the fore at the year end
-
iii. Unmodified – standard wording
- Financial statement are fairly stated

iv. Modified – adverse due to disagreement

- The intangible asset is highly material and they did not agree with the
auditor with regards to accounting treatment of their intangible asset as
stated in MFRS138
v. Unmodified – emphasis of matter
- Financial statements stated but auditor want to emphasize on uncertainty
(long-term contract) faced by company
B. - Management over right of the internal control
- Collusion among employees with 3 rd parties
- Personnel error of mistakes/ human error
- Cost constraints
QUESTION 5
A. a. ● Examination indication of cancellation
● Examination indication of internal verification
● Examine procedures manual and observe whether unrecorded vendor’s’
invoice exist
b. i. A document used by an authorized employee to request the purchasing
department of purchase goods by an authorized employee
ii. ● A document prepared by vendors showing beginning balance,
purchases, payment to the vendor & ending balance.
● To tally the record of purchasing

B. (a) weaknesses (b) possible effects (c) Recommendations

1. There is no suppliers Invoice might include - Supplier invoice must be

invoice before payment is
made
2. Due to authorization for
purchase <RM10k , there is
may no proper recording of
the order under RM10k
3. Only purchase orders more
than RM10k are authorised
unordered goods approved and match the
receiving report
- Before payment to made
company should request
supplier’s invoice
Payment may be recorded The payment of order under
incorrectly RM10k should be recorded also
- There might be All purchase order has to
missing good’s order authorised regardless of amount
- Possibility of
unauthorized
purchased

4. Warehouse staff not doing
physical examination upon
receiving the material as
they just doing quantity
examination
5. There is no proper
segregation of duties
whereby the account clerk
has access to cheque, he is
also in charge of processing
the payment
6. Purchase requisition form is
not authorized &
immediately sent to the
purchase department
7. Warehouse staff only
compare total on the goods
received
There might be some
damage on the material
receive or the material
might not meet the
requirement
The account clerk may
misappropriate the cheque /
manipulate the record
Request are made for
unauthorized purpose
The quantity and types of
goods received are not in
agreement with the
purchased order
Warehouse staff should do the
physical examination
There should be proper
segregation of duties between
processing the payment &
preparing the cheque
The requisition are authorized
prior to approved of the good
requested
All goods issued checked
against approved purchased
order in the terms of quantity
and types of goods by
independent personnel.
JUNE 2018
QUESTION 1

A. a. Integrity is the attitude of being straightforward and honest in professional and

business relationships.
b. Competence means a person has attained and maintained his professional
qualification whereas due care means a person acts carefully and diligently in
carrying out a particular assignment.

c. If the external auditor is not independent from his audit client, he might not be
able to perform audit objectively. A biased opinion might be issued and the users
might be reluctant to rely on his opinion.

B. a. ● The level of skill and knowledge required for the work: High fee is the
engagement is complex.
● The level of training and experience of the persons involved: High fee if
the engagement requires experience auditor.
● The time spent by each member: High fee if the time spent is long
● The degree of responsibility and urgency of the work: High fee if the
deadline is very tight.
b. i. Violate: the acceptance of appointment might cause a self -review threat. Nazura
might be biased in issuing her opinion.
ii. Not violate: there is no requirement for the auditor to provide reason for turning
down reappointment.
iii. Violate: it is a requirement of the MIA By-Laws that the proposed auditor should
communicate with the existing auditor prior to accept appointment as an auditor.
iv. Non violate: the auditor may disclose confidential information of the client
without seeking permission when there is a professional duty to disclosure such
information.
QUESTION 2
A. a. ● The objective of the audit of financial statements.
● Management’s responsibility for the financial statements.
● The scope of audit.
● Degree of auditor assurance.
● The inherent limitations of an audit.
● Auditor’s right to access records, documents ad information.

b. Engagement letter is a letter issued by the auditor to the client describing the
important terms of the agreement.

c. ● Management integrity – do not accept if the management integrity is

questionable.
● Overall risks in the engagement – do not accept If the overall is
unnecessarily high.
● Familiarity with the nature of client’s business – do not accept if the
auditor is not familiar with the industry and the business.
● Ability to perform the audit work – do not accept if the auditor does not
have adequate manpower and expertise.
● Ability to comply with the ethical requirements such as the MIA By- Laws
– do not accept if there is a threat to independence.
d. Disagree because without properly planning the audit work, the audit work might
not be performed systematically in accordance with requirement of auditing
standard and there might be duplication of the audit work performed (the auditor
might not be efficient). The audit objective might not be achieved and
inappropriate opinion might be issued by auditor (the auditor might not be
effective.
● To provide guidelines for the junior audit staff in carrying out the audit
B. a. procedures.
● To ensure that requirement of quality standards is achieved in performing
the audit.
● Evidence of work done is available for use as defense in the court.
● Review of work done by seniors/partners can be easily done.
b. ● Without keeping proper audit documentation, the supervisor might not be
able to monitor the performance of audit work whether the necessary
audit procedures were carried out properly by the audit staff in
accordance with the audit planning requirement or not.
● Without keeping proper audit documentation, the partner might not be
able to make a right decision on the appropriate type of auditor’s opinion
that should be issued arising from the audit of the financial statements.
● Without keeping proper audit documentation, the auditor might not be
able to defend himself in court if legal action is taken against the auditor,
resulting in legal liability on the part of auditor.
QUESTION 3

A. a. Audit evidence is the information obtained by the auditor from the performance
of audit procedure to support the conclusion made during the audit.

b. A test of control is performed in order to determine the effectiveness and

efficiency of the internal control system.
A substantive audit procedure is performed in order to identify possible monetary
error in the financial record.

c. i. Inspection of tangible asset @ physical examination.

ii. Confirmation from the third party.
iii. Checking and reperformance @recalculation
iv. Inquiry of client
v. Inspection of document
B. a. i. Disagree although both are external documents, creditors statement’s already in
the hand of client and exposed to risk of alteration while confirmation is obtained
directly by auditor from independent sources outside the entity.
ii. Disagree-written responses are more persuasive than oral ones. Although inquiry
may provide important audit evidence inquiry alone ordinarily does not provide
sufficient audit evidence.
b. i. Recalculate the hours worked from employee timecards, the gross and net pay
for selected samples of employees and the total recorded in the payroll register.
ii. Prepare a reconciliation of payments from the payroll register to the payroll bank
statement.
QUESTION 4
A. a. Key Audit Matter (KAM) refers to additional information to intended users of
financial statements to assist them in understanding these matters that in the
auditor professional judgement, were of most significance in the audit of financial
statements in the current period.
b. i. The auditor having obtained sufficient appropriate evidence, concludes that a
misstatement individually or aggregate are material but not pervasive to the
financial statements.

ii. The auditor is unable to obtain sufficient appropriate evidence on which to base
the opinion, but the auditor concludes that the possible effects on the financial
statements of undetected misstatements, if any could material but not pervasive.

C. i. Unmodified report with emphasis of matter. There is a question about the

ability of the company to continue as going concern.
ii. Qualified with except for opinion. The financial statements reflect a true and
fair view except for disagreement regarding the misclassification of capital and
revenue expenditure. The effects of disagreement are not pervasive to the entire
financial statements.
iii. Unmodified report with standard wording. The charge in percentage of
allowance for doubtful debts is considered as a charge in accounting estimation.
The facts are adequately disclosed in financial statements.
iv. Qualified with disclaimer opinion. Due to inability to perform audit procedures
on joint venture. The effects of scope limitation are highly material and pervasive
to the financial statements.
v. Qualified with adverse opinion. Due to financial statements are arising from
non -consolidation of its subsidiary, the financial statements do not reflect true
and fair view. The effect of disagreement is highly material and pervasive to the
financial statements.
B. The advantage of using ICQ is that it acts as a checklist cover all aspects of a
normal internal structure. Unfortunately, the ICQ can omit some highly unusual
areas that are not included in standard internal control structure. Moreover, with
the standardized format they may be questions that may not apply to a particular
client thus requiring extensive modification in particular cases. Despite these two
problems, questionnaires have proved to be highly useful devices for obtaining
information on the internal control structure of a firm.
QUESTION 5
A. a. i. Employees wage rate could be inflated so that
the employee is overpaid.
Employees clocking in timecards of absent or
fictitious employees.
iii. Payment to non-existing employees.
b. i. Recalculate the gross pay, net pay and payroll
deductions for a sample of employees.
ii. Review the payroll tax return to IRB in which the
details of employees’ remuneration and
deduction are listed.
iii. Prepare a reconciliation of payments from the
payroll bank statements.
B. (a) weaknesses (b) possible effects (c) Recommendations

1. The sale orders Missing sales orders He sales order and invoices should pre
and sale invoice and invoices might numbered and accounted for.
are not serially not be detected
numbered. resulting in non-
recording of
transactions.
2. There is no The service crew The sales order and sales invoices should be
authorization for might record fictitious approved by a responsible person.
sale order and sales order or errors
sale invoice. in particulars of sales
invoice might not be
detected.
3. There is no The customer might Acknowledgement of receipt of pizza should be
acknowledgment deny receiving the obtained from the customer by signing the
by the customers pizza or the pizza delivery documents.
when the rider order might deliver to
delivers the good. wrong customer.
4. The cashier did The pizza rider might The cashier should count the cash received
not count the misappropriate the before keying-in the information into the
cash received monies and the system.
from riders before cashier has to bear
entering the cash the consequence of
receipt any shortage.
information into
the computer
system.
5. There is no The cashier might There should be a segregation of duties
segregation of misappropriate the between custodian of cash, the recording and
duties between collection by reconciling the function.
handling cash, manipulating the
recording and accounting records
reconciliation and documents.
function.
JAN 2018
QUESTION 1

A. a. - Integrity
- Objectivity
- Professional competence and due care
- Confidentiality
- Professional behaviour
b. Is the auditor needs to respect the confidentiality of information acquired as a
result of professional and business relationship, not disclose any such
information to 3rd parties without proper and specific authority, unless is legal or
professional right or duty to disclose, nor use the information for the personal
advantage of the professional accountant or 3erd parties.
c. - To ensure that chartered accountant exhibits the highest standard of
ethics, professionalism and professional conduct that is expected of the
accounting profession
- To ensure that the public has trust on the quality and reliability of services
provided by the chartered accountant to the public

B. a. - Information must be honest and truthful

- Should not downgrade the reference or unsubstained comparison to the
work of others
- Material should be professionally dignified and in good taste and carried
out in accordance with the relevant legislation

b. i. Violated – self review threat

o Arise when Aryan, as a company auditor prepared the interim
financial statement because auditor’s professional judgement and
objectivity will be impaired
ii. Violated – auditor is not independent to the audit client. The acceptance of offer
will create self –interest threat or threat to independence in issuing audit opinion.
He might be biased in performing audit
iii. Not violated – the action done by auditor is in accordance to confidentiality
principle because this is a professional duty of auditor to report unethical action
done by client for legal purpose
iv. Violate – the independence of auditor will be impaired when he accepted the
offer from his client and auditor’s objectivity and integrity will be tarnished.
QUESTION 2

A. a. - Has considered the integrity of the client

- Can comply with ethical requirements
- The auditor is competent to perform the engagement and has the
capabilities, time and resources to do so

b. ● Major change in management, directors and ownership

● Business risk
● Scope of engagement change

c. ● Industry conditions, regulatory environment and other external factors

● Measurement and review of the entity’s financial performance
● Objectives and strategies and related business risk

d. i. When the business risk is high, auditors should perform more audit procedures,
in order to lower audit risk. If the auditor assesses the business risk to be too
high, he may resign from the engagement. Billing the rate also could be adjusted.
ii. If business risk high, the auditor may not increase audit risk and perform less
audit procedures since the auditor has a responsibility to conduct the minimum
audit procedures necessary to establish an opinion on the audit report.
B. a. A detailed audit planning (the procedures selected in the planning stage). It
states the nature, timing and extent of planned audit procedures to be used at
level for each material class of transactions, account balance and disclosure. The
audit program should be tailored to meet the circumstances of each client
b. Permanent audit file – this file provide source of information about the audit that
is of continuing interest from year to year since it contain data of historical &
continuing nature.
- Eg : extracts or copies of such company document of continuing
importance as the articles of incorporation, by laws & contracts

Current audit file – this file includes all audit documentation applicable to the
current year audit. Therefore, it is important to provide a basis for planning the
audit, a record of the evidence accumulated & the result of the tests, data for
determining the proper type of audit and a basis for review by supervisors &
partners.
QUESTION 3
A. a. Audit are the detailed instructions for the collection of a type of audit evidence
that is to be obtained
b. - Documented evidence
- Independence of information provider
- Effectiveness of internal control system related
- Evidence obtained directly by the auditor

c. i. Inquiry the client

ii. Inspection of tangible assets
iii. Confirmation from 3rd party

iv. Analytical procedures

v. Inquiry of client
B. a. i. Appropriateness – degree to which evidence can be considered believable or
worthy of trust
- Eg : if an auditor counted the inventory, that evidence would be
inappropriate than if management gave the auditor its own figures
ii. Sufficiency – the quantity of evidence and it is related to a sample size and items
to select.
- Eg ; if the auditor concludes that a client has effectiveness rather than
ineffective internal controls over recording fixed asset, a smaller sample
size in the audit of acquisitions of fixed asset is warranted
b. i. Test of control
ii. Test of control / test of details of balances
iii. test of details of balances
iv. Analytical test
v. Test of control
QUESTION 4

A. a. They inform the users of the audit of the auditor’s opinion as to whether or not
the statements are fairly stated or whether no conclusion can be made with
regard to the fairness of the presentation
b. - All statement – SOFP, income statement or retained earnings, statement
of cash flow – are included in the financial statement
- The three general standards have been followed in all respects on the
engagement
- There are no circumstances requiring the additions of an explanatory
paragraph or modification of the wording of the report

c. I. Unmodified – standard wording . the amount immaterial, the facts are

adequately disclosed in the footnote.
ii. Unmodified – standard wording. All items are included and the financial
statement present true and fair view
iii. Unmodified – emphasis of matter. There is a question about the ability of the
company to continue as a going concern

iv. Modified- disclaimer. the client has restricted the scope of the audit and the
auditor was not able to satisfy him or herself by alternative procedures. Because
it was a client restriction rather than a condition beyond the client’s control
causing the limitation and because the limitation is highly material, a disclaimer
is appropriate.
v. Unmodified – standard wording. There is no indication questioning the ability
of the business to continue operation
B. Management’s philosophy and operating styles – the auditor needs to
evaluate management’s overall attitude towards the communication and
enforcement of the integrity and ethical value and commitment to competence.
Organizational structure – an effective organizational structure facilitates good
internal control, since it provides an overall framework for planning, coordinating
and monitoring the operation of business.
Internal audit function – explanation
Policies on use of Human Resources - explanation
QUESTION 5
A. a. - Existing payroll transactions are recorded
(completeness)
- Payroll transactions are recorded on the
correct fates (timing)
- Payroll transactions are correctly satisfied
(classification)
- Explanation (occurrence)
- Explanation (accuracy)

b. - Examine time records for indication of

approvals
- Review human resources policies
- Examine the procedures manual & observe
when recording takes place
- Account for a sequence of payroll cheques
B. (a) (b) possible (c) Recommendations
weaknesses effects
1. No proper - Possibility Proper procedure to recruit staff must be
procedure for of bias implemented. For instance, interview process must
recruitment - Selection be attended by at least head department and the
new staff, of human resources manager
where new incompete
staff will go nt staff
through one
to one
interview
process with
the head
department
2. Pay slip is Error on the salary The payroll department should provide pay slip to
only or allowances or each staff either through hard or soft copy
generated deduction
once calculation and
requested by record will not be
staff detected
3. No adequate Possibility of over Proper documentation to record an instruction for
documentatio claim for the extra extra hours & must be authorized by the supervisor
n, when the hours worked
staff is since no
requested documented
verbally by evidence
their
supervisor to
work extra
hours as
overtime
4. Using time possibility of The chalet may use an up to date attendance system
card to record attendance its such as fingerprint sensor or RFIP badge sensor
every day recorded for
attendance of absent staff
the staff
 without
supervision
5. Staff record Possibility that the The head of department should verify the claims
their own staff may claim against the documented instruction for overtime
overtime more hours than
worked on he actually worked
weekly
overtime
sheet and no
verification on
the overtime
claims
6. - No Possibility of error The head of payroll department should verify and
verification in record resulting authorize the transactions before release the
are made on in over or under payment
the salary payment
and
deductions
calculation
- no
authorization
of the
standard
hours on the
system
MARCH 2017
QUESTION 1

A. a. The MIA By- Laws are important to ensure that the auditors practice good moral
principles, values or acceptable behavior in performing the audit and to ensure
that the public may trust on the auditing profession. The MIA By Laws would also
ensure that auditing I performed by the auditors who have a high level of integrity.

b. Competence means the auditor should be knowledgeable in performing the audit

ie, by possessing a recognized professional qualification and the relevant
working experience that would enable him to perform the audit proficiently.

c. If the auditor is not independent from his audit client, he might be biased by not
issuing his opinion objectively. Besides, the public might not trust the opinion
issued by the auditor who lacks independence from his audit client.
B. a. 1. Self – interest threat
The threat that a financial or other interest will inappropriately influence the
professional accountant judgement or behavior.
2. Self – review threat
The threat that a professional accountant will not appropriately evaluate the
results of a previous judgement made or activity of service performed by the
professional accountant, or by another individual within the professional
accountant’s firm or employing organization on which the accountant will rely
when forming a judgement as part of performing a current activity or providing a
current service.
3. Advocacy threat
The threat that a professional accountant will promote a client’s or employer’s
position to the point that the professional accountant’s objectivity is comprised.
4. Familiarity threat
The threat due to a long or close relationship with a client or employer, a
professional accountant will be too sympathetic to their interest or to accepting
of their work.
5. Intimidation threat
The threat that a professional accountant will be deferred from acting objectively
because of actual or perceived pressure, including attempts to exercise undue
influence over the professional accountant.

b. i. Not violated because the loan was granted to the audit partner from a financial
institution and no special treatment was given to the borrower.
ii. Violated because there is a self -review threat and the auditor might be biased
when auditing financial statements (and accounting record) that they were
involved within before.
iii. Not violated because the appointment as auditor was made before the
accounting firm provides the tax consultancy services.
iv. Violate because there is a self – interest threat and the auditor might be biased
by receiving a huge amount of discount on the car price.
QUESTION 2
A. a. ● Procedures regarding acceptances and continuance of client.
● Evaluation of independence and other ethical requirements.
● Establishing terms of engagement.
b. Understanding of the client’s business and its industry is important to ensure that
the auditor is alert to the risk of misstatements in the client’s financial statements.

c. ● The management and ownership of the business such as the profile of

the directors and shareholders.
● Nature of the business whether it is highly competitive or not.
● The profitability of the business such as whether it is highly profitable or
otherwise.
d. ● Staff must be knowledgeable about the client’s industry.
● Staff must have several experience levels in doing audit.
● Staff need for continuing from year to year.
● Staff need to be competent.
B. a. ● Copy of the client’s memorandum and articles of Association
● A written documentation of the client’s internal procedures
● List of registered offices and branches of the client.
b. If the audit procedures performed by the auditor are not properly documented, it
might be difficult to maintain the quality of the audit since the audit supervisor will
not be able to review and monitor closely the audit work perform need by
subordinates. Furthermore, the audit partner might issue inappropriate opinion
on the financial statements due to incomplete information about the audit findings
collected by the auditor.
QUESTION 3
A. a. Appropriateness is the degree of suitability of the audit evidence in meeting a
particular audit objective.
b. Internal documents are those documents that are prepared and used by an entity
without ever going to an outside party whereas external documents are those
documents that are originated, endorsed or authenticated by an outside party.

c. i. Confirmation from third party

ii. Examination of tangible asset
iii. Inspection of document
iv. Inquiry
v. Re - performance
B. a. 1) a particular audit evidence is generally reliable if it is obtained by the auditor
from an independent sources ie, outside the client’s entity. For example,
confirmation of accounts receivables aging schedule.

2) an audit evidence is generally reliable if it is obtained from client implement

the necessary control procedures compared to the client that disregards the
importance of implementing such control procedures.

b. Analytical procedures:

1) compare the amounts of net sales recorded in the current year with the amount
of net sales reported in prior year.

2) compare the gross profit margin of the client with average gross profit margin
of other companies in the same industry.
QUESTION 4
A. a. The auditor’s responsibility paragraph is important in order to prevent
misunderstanding regarding the scope of work performed by the auditor or the
inherent limitations of the audit procedures.

b. 1)Disagreement of the auditor with the misstated information contained in the

client’s financial statements.
2) scope limitation faced by the auditor due to inability to obtain the necessary
audit evidences or restrictions to perform the planned audit procedures.

c. i. Disclaimer opinion – Due to inability to perform most of the important audit

procedures, the effects of scope limitation are highly material and pervasive to
the financial statements.
ii. Adverse opinion – due to the material misstatements, the financial statements
do not reflect a true and fair view. The effects of disagreement are highly material
and pervasive to the financial statements.
iii. Standard unqualified opinion – the financial statements reflect a true and fair
view of the company’s financial position and comply with the requirements of the
reporting standards.
iv. Emphasis of matter – the financial statements reflect a true and fair view of the
company’s financial position. However, the auditor needs to emphasis on the
going concern problem currently faced by the company.
v. Qualified opinion – the financial statements reflect a true and fair view except
for disagreement regarding omission in recording provision for damages. The
effects of disagreement are not so pervasive to the entire financial statements.
B. 1) A proper system should be used in recording the attendance of employees
such as by using the biometric technology.
2) The process of recording the attendance of employees should be closely
monitored and supervised by responsible officer.
3) The detailed calculation of salary and deductions should be verified by a
responsible officer.
4) Pay slips stating details of salary of salary and deductions should be issued to
every employee on a monthly basis.
5) There should be adequate segregation of duties between personnel, time
keeping, salary processing and payroll disbursement functions.
QUESTION 5
A. a. 1) To ensure effectiveness and efficiency in handling the entity’s operations.
2) To ensure that the financial information is reliable and free from material
misstatement.
b. 1) The management may use his authority to override the internal control
procedures.
2) Human mistakes or errors might happen in processing a particular transaction
3) Small sized entity with limited financial resources might not be able to
implement a sophisticated internal control system.

B. (a) weaknesses (b) possible effects (c) Recommendations

1. There is no discussion made There is a possibility that Price quotations should be

for the price of the service or
repair jobs by the workshop
supervisor before a job is
performed. The particulars
on the service order form are
also not reviewed by a
responsible person.
2. There is no segregation
duties by the General Clerk
over the safe keeping,
ordering and issuance of
the spare parts and
components.
3. There is no proper
documentation and
approval made for the cash
payment for the supplier.
4. Ordering of spare parts and
components from the
supplier management
documented in writing.
Besides, the General Clerk
is allowed to choose the
supplier without any
restriction.
5. The cash bills are not pre
numbered
6. There is no proper
segregation duties between
handling of physical cash
and maintenance of the
cash receipt journal.
the customers might not
agree with the price for the
service or repair job after it
performed. Besides, the
workshop supervisor might
not write particulars of the
service or repair jobs
properly.
There is possibility that
General Clerk might easily
misappropriate the spare
parts and components.
The General Clerk might
easily misappropriate the
business cash. The general
clerk might also pay
incorrect amount to the
supplier.
The General Clerk might
order improper parts and
components at expensive
price.
Missing cash bills might not
be detected resulting in not
recording of the cash
receipts.
The General Clerk might
not easily misappropriate
the cash collection by not
recording the amount in the
cash receipt journal.
given to the customer before
the service or repair job is
undertaken. The particulars
on the service order form
should be reviewed by
another person such as by the
owner of the workshop.
The various duties of the
General Clerk should be
monitored and supervised by
a responsible officer.
A proper document such as
payment voucher should be
prepared and approved prior
to issuance of the business
cash.
The process of ordering the
spare parts and components
and selection of supplier
should be closely supervised
by a responsible person such
as store officer or the owner
of the business.
The cash bills should be
prenumbered and accounted
for.
The handling of physical cash
and maintenance of the cash
receipt journal should be
handled by two different
employees.