Fakultas Ekonomi Universitas Andalas

Mid Term Examination Academic Year 2022/2023

Subject : Auditing I
Day/Date : Tuesday/ October 11, 2022
Time : 08.00-09.40 WIB
Lecturer : Dra. Husna Roza, MCom(Hons), Akt. CA
Answer All Questions below!!
1. For the following independent situations, assume that you are the audit partner on the
engagement:
a.) Auto Delivery Company has a fleet of several delivery trucks. In the past, Auto Delivery had
followed the policy of purchasing all equipment. In the current year, they decided to lease the
trucks. The method of accounting for the trucks is therefore changed to lease capitalization.
This change in policy is fully disclosed in footnotes.
b.) You are auditing Deep Clean Services for the first time. Deep Clean has been in business for
several years but over the last two years has struggled to stay afloat given the economic
conditions. Based on your audit work, you have substantial doubt that Deep Clean will be in
business by the end of its next fiscal year.
c.) One of your audit clients has a material investment in a privately held biosciences company.
Your audit firm engaged a business valuation specialist to assist in evaluat- ing the client’s
estimation of the investment’s fair value. You conclude that the valuation specialist’s work
provides sufficient appropriate audit evidence. For each situation, do the following: a. Identify
which of the conditions requiring a deviation from a standard unmodified opinion audit
report is applicable, if any. b)State the level of materiality as immaterial, material, or highly
material. If you cannot decide the level of materiality, state the additional information
needed to make a decision. c)Given your answers in parts a. and b., state the type of audit
report that should be is- sued. If you have not decided on one level of materiality in part b.,
state the appropriate report for each alternative materiality level.

2. At the completion of every audit, Brown White , CPA, calculates a large number of ratios and
trends for comparison with industry averages and prior-year calculations. He believes the
calculations are worth the relatively small cost of doing them because they provide him with an
excellent overview of the client’s operations. If the ratios are out of line, White discusses the
reasons with the client and often makes suggestions on how to bring the ratio back in line in the
future. In some cases, these discussions with management have been the basis for
management consulting engagements. Discuss the major strengths and shortcomings in White's
use of ratio and trend analysis.
3. Auditors provide “reasonable assurance” that the financial statements are “fairly stated, in all
material respects.” Questions are often raised as to the responsibility of the auditor to detect
material misstatements, including misappropriation of assets and fraudulent financial
reporting.

a)Discuss the concept of “reasonable assurance” and the degree of confidence that financial
statement users should have in the financial statements. b) What are the responsibilities of the
independent auditor in the audit of financial statements? Discuss fully, but in this part do not
include fraud in the discussion. c)What are the responsibilities of the independent auditor for
the detection of fraud involving misappropriation of assets and fraudulent financial reporting?
Discuss fully, including your assessment of whether the auditor’s responsibility for the
detection of fraud is appropriate.

4. Explain why the statement “Analytical procedures are essential in every part of an audit, but
these tests are rarely sufficient by themselves for any audit area” is correct or incorrect.

Good Luck