2017 Sep

Question 2(a)

Balli Sdn. Bhd. (Balli) was incorporated in year 2012. The company manufactures wafer rolls,
cupcakes, snacks and crackers. Niha & Co had been auditing Balli since the day Balli was first
incorporated. You are an audit manager in Niha & Co and had been handling the audit of Balli since
the first audit.

Muza Sdn. Bhd. (Muza), a competitor of Balli has approached your audit firm to act as their auditors.
Muza, was incorporated three years ago. Due to robust advertising strategy Muza had been able to
emerge into top three in the industry. Muza manufactures and supplies tidbits. The company offers
products such layer cakes and wafer products with many flavours. It markets its products under the
brand of Maja.

Recently both companies had received high attention from the media for achieving high sales in the
last financial quarter. Both companies are also highly competitive. Balli is concerned that if Niha & Co
audits both companies, confidential information and business strategies could be passed over to
Muza.

Required:

Suggest FOUR (4) safeguards that should be implemented to ensure that the auditor's conflict of
interest is properly managed. (4 marks)

翻译：
Balli Sdn. Bhd. 是一家成立于 2012 年的公司，生产威化卷、杯形蛋糕、零食和饼干。自成立以
来，Niha & Co 一直担任 Balli 的审计师。作为 Niha & Co 的审计经理，你自第一次审计以来一直
在处理 Balli 的审计工作。

Balli 的竞争对手 Muza Sdn. Bhd.成立于三年前，生产小吃。由于强大的广告策略，Muza 已能够

跻身该行业的前三名。Muza 生产并供应多种口味的层状蛋糕和威化产品，并将其产品市场品
牌命名为 Maja。

最近，两家公司在上一个财季实现了高额销售，因此受到媒体高度关注。两家公司都具有高度
竞争力。Balli 担心，如果 Niha＆Co 同时审计这两家公司，机密信息和商业策略可能会泄露给
Muza。
Answer:
1. Both Balli and its rival competitor Muza should be notified that Niha would be acting as auditors
for both of them and obtain their consent 允许 if necessary.

2. Niha Co could advise one of Balli and Muza or both to seek for additional audit service provider
which is totally independence and do not have any conflict of interest with Niha Co, Balli and Muza
to completely prevent the conflict of interest.

3. When implementing the audit of Balli and Muza, Niha Co should use two different audit team to
perform audit for each of them, and any members of Niha Co who have taking part of the audit of
any one of Balli and Muza should be prevented from taking part in auditing another competitor for a
period of time.

4. Niha Co should have procedures to ensure confidentiality, such as separating both audit teams
physically, and secure data filing.

5. Niha Co should implement confidentiality agreements and this agreement should be signed by
audit members and audit partners involved to prevent any information of auditing leaked to another
competitor or audit team.

6. Niha Co should implement a regular monitoring of the application and safeguards state above by a
senior individual or supervisor of Niha Co, who does not involved in audit of both Balli and Muza.

7. Niha & Co should monitor the communication channels between the audit team and the clients to
ensure that there is no unauthorized disclosure of confidential information. This would help to
prevent conflicts of interest from arising due to improper communication.
Question 2(b)

Niha & Co was appointed as internal as well as external auditors for Balli. The audit engagement
partner for the Balli audit has been responsible for the audit for approximately five years. Eight
months ago, her son, Amar was employed as an accountant in Balli. As part of Amar's remuneration
package, he would be entitled to shares in Balli. Balli has proposed that the audit fee for year to be
based on the profit before tax of the company. The engagement partners are excited about this
proposal as they believe it will increase the overall audit fee.

Required:

Identify and explain THREE (3) ethical threats which may affect the independence of Niha & Co in
respect of the audit of Balli Sdn. Bhd., and for each threat explain how it may be reduced.

(6 marks)

翻译：
Niha & Co 被任命为 Balli 的内部和外部审计师。Balli 审计的审计承包人已经负责审计工作约五
年了。八个月前，她的儿子 Amar 在 Balli 被聘为会计师。作为 Amar 的薪酬福利，他将有权获
得 Balli 的股份。Balli 提出，该年度的审计费应基于公司税前利润。审计承包人对此提议感到兴
奋，因为他们认为这将增加整体审计费用。

Answer:

1.Familiarity Threat: The engagement partner for the Balli audit has been responsible for the audit
for approximately five years, and her son has recently been employed as an accountant at Balli. This
creates a familiarity threat, as the engagement partner may become too familiar with Balli's
management, potentially compromising their independence.

Balli 审计的审计承包人负责审计工作约五年，她的儿子最近在 Balli 被聘为会计师。这会产生熟

悉威胁，因为审计承包人可能会对 Balli 的管理过于熟悉，潜在地危及其独立性。

Reduction: To reduce this threat, Niha & Co could consider rotating the audit partner assigned to the
Balli audit, so that a new partner can bring a fresh perspective and mitigate any potential familiarity
threat.

减少威胁： Niha＆Co 可以考虑轮换指派给 Balli 审计的审计承包人，以便新的审计承包人可以

带来新的视角并减轻潜在的熟悉威胁。
2.Self-Interest Threat: Amar, the engagement partner's son, is entitled to shares in Balli as part of his
remuneration package. This creates a self-interest threat, as the engagement partner may be
incentivized to provide favorable audit opinions to protect her son's investment.

自我利益威胁：作为 Amar 的薪酬福利，审计承包人的儿子有权获得 Balli 的股份。这会产生自

我利益威胁，因为审计承包人可能会受到激励，提供有利的审计意见来保护她儿子的投资。
Reduction: To reduce this threat, the engagement partner should disclose the conflict of interest to
Niha & Co's leadership and withdraw from the Balli audit. Alternatively, the firm could modify Amar's
remuneration package so that it does not include shares in Balli.

减少威胁：审计承包人应将利益冲突披露给 Niha＆Co 的领导层，并退出 Balli 审计。或者，公

司可以修改 Amar 的薪酬福利方案，使其不包括 Balli 的股份。

3.Advocacy Threat: Balli has proposed that the audit fee for the year be based on the company's
profit before tax. The engagement partners are excited about this proposal, as it may increase the
overall audit fee. This creates an advocacy threat, as the engagement partner may prioritize the
firm's financial interests over the objectivity of the audit.

倡导威胁：Balli 提出，该年度的审计费应基于公司税前利润。审计承包人对此提议感到兴奋，
因为它可能会增加整体审计费用。这会产生倡导威胁，因为审计承包人可能会优先考虑公司的
财务利益，而不是审计的客观性。
Reduction: To reduce this threat, the engagement partner should maintain objectivity and
independence throughout the audit process. Niha & Co should also establish policies and procedures
to ensure that the audit fee structure does not compromise the independence of the audit team.
This may involve creating a fee structure that is not tied to the company's financial performance.

减少威胁：为了减少这种威胁，审计承包人应在整个审计过程中保持客观性和独立性。此外 ，
Niha＆Co 应建立政策和程序，以确保审计费用结构不会损害审计团队的独立性。这可能涉及
创建不与公司财务表现相关的费用结构。
4.Self-Review Threat: The fact that Niha & Co is also appointed as the internal auditors of Balli
creates a self-review threat. This may cause the auditors to overlook or downplay the significance of
their own findings during the internal audit process, which could affect the quality and reliability of
their external audit opinion.

Niha & Co 既被任命为 Balli 的内部审计员，又被任命为其外部审计员，这会产生自我审查的威

胁。这可能导致审计师在内部审计过程中忽略或淡化自己的发现，从而影响外部审计意见的质
量和可靠性。
To reduce this threat, Niha & Co should ensure that the internal audit and external audit functions
are kept separate and independent of each other. They should also communicate the internal audit
findings to the audit committee and external auditors for their consideration.

为减少这种威胁，Niha & Co 应确保内部审计和外部审计功能保持独立性和互不干扰。他们还

应将内部审计发现的结果通报给审计委员会和外部审计师进行考虑。
Question 2(c)

You are the audit senior in charge of the audit of Kavan Sdn. Bhd. (Kavan). During the year, a material
fraud was discovered by the internal auditors and you have been informed about this issue by your
audit manager. The payroll assistant had set up fictitious employee records in the payroll account and
the wages were paid into her and her relatives' personal bank accounts. As a result, the payroll
assistant was fired and a case was filed against her. The audit manager is concerned whether there
had been other frauds that have taken place in the payroll department.

Required:

Explain FIVE (5) audit procedures which should be undertaken in relation to frauds in the payroll
account. (5 marks)

翻译：
你是负责审核 Kavan Sdn. Bhd. (Kavan) 的审计高级职员。在审计期间，内部审计员发现了一项
重大欺诈行为，你的审计经理已向你通报了此事。薪资助理在薪资账户中设置了虚假员工记录，
并将工资支付到她和她亲属的个人银行账户中。因此，薪资助理被解雇，并被提起诉讼。审计
经理担心薪资部门是否发生了其他欺诈行为。
Answer
Testing of controls: The audit team should perform testing of controls to assess the effectiveness of
the internal controls in place over the payroll process. This can include reviewing the payroll policies
and procedures, testing the segregation of duties, and reviewing the authorization and approval
processes for payroll transactions.

Analytical procedures: The audit team should perform analytical procedures to identify any unusual
trends or fluctuations in the payroll account, such as unexpected changes in the number of
employees or changes in the payroll expense ratio. This can help to identify potential fraud risks and
inconsistencies.

Re-performance of transactions: The audit team should re-perform key payroll transactions, such as
payroll calculations and reconciliation of payroll accounts, to verify the accuracy of the information
reported in the financial statements. This can help to detect any errors or discrepancies that may be
indicative of fraud.

Inspection of supporting documentation: The audit team should inspect the supporting
documentation for payroll transactions, such as employee time sheets, payroll registers, and bank
statements, to verify the accuracy and completeness of the payroll information. This can help to
identify any fictitious or unauthorized transactions.

Interviews and investigation: The audit team should interview key personnel involved in the payroll
process, including the payroll assistant, to gather additional information about the fraud that
occurred and to identify any other potential fraud risks. The audit team should also investigate any
red flags or suspicious activities that are identified during the course of the audit, such as
unexplained payroll expenses or unusual payments to employees.
Question 2(d)

ISA 570 (Revised) Going Concern states that the auditor's responsibilities are to obtain sufficient
appropriate audit evidence regarding, and conclude on, the appropriateness of management's use of
the going concern basis of accounting in the preparation of the financial statements, and to
conclude, based on the audit evidence obtained, whether a material uncertainty exists about the
entity's ability to continue as a going concern.

Due to the inherent limitations of an audit, there is an unavoidable risk that auditor may not detect
material misstatements which may cause an entity to cease to continue as a going concern. The
auditor cannot predict such future events or conditions.

Accordingly, the absence of any reference to a material uncertainty about the entity's ability to
continue as a going concern in an auditor's report cannot be viewed as a guarantee as to the entity's
ability to continue as a going concern.

Required:

Explain the ANY FIVE (5) audit procedures that the auditor should perform in assessing whether or
not a company is a going concern. (5 marks)
1. Obtaining a written representation from the directors confirming their view that the
company is a going concern to help auditor to confirm that the management has assessed
the company's ability to continue as a going concern, and the representation supports the
management's assessment. This helps the auditor to evaluate the appropriateness of
management's assessment and consider whether there is a material uncertainty about the
entity's ability to continue as a going concern.
2. Obtain the company's cash flow forecast and review the cash in and outflows, Assess the
assumptions for reasonableness and discuss the findings with management to understand if
the company will have sufficient cash flows.
3. Enquire of the lawyers of the company as to the existence of any litigation as lawsuits and
legal claims can have a significant impact on a company's financial position and cash flows,
and may affect the company's ability to continue as a going concern.
4. Perform a sensitivity analysis on the cash flows to understand the safety margin of the
company in terms of its cash inflow or outflow which helps to evaluate the company's
liquidity position by assessing the impact of changes in key assumptions on the company's
cash flows.
5. The auditor should evaluate management's plans for the future and assess whether or not
those plans are feasible. This may involve reviewing the company's strategic plans, budgets,
forecasts, and other relevant documentation.
6. Review post year-end management accounts to assess if in line with cash flow forecast
because it helps to identify any issues that may have arisen after the year-end that could
affect the company's ability to continue as a going concern, such as significant decreases in
revenue, increases in expenses, or unexpected cash outflows.
7. The auditor should evaluate the company's payment history to determine if there have been
any material delays or defaults in payments to suppliers or creditors. Late payments or
defaults may indicate cash flow problems and a going concern issue.
8. The auditor should review bank statements and confirm balances directly with the bank to
verify the accuracy and completeness of the company's bank balances. This will also enable
the auditor to identify any unusual transactions, overdrafts or other indicators of financial
difficulty.

Cashflow forecast
Lawsuit
Bank balances
Payment history
Sensitivity analysis
Written representative
Question 3

You are an audit manager in Alphine & Co, an audit firm. Your team has been assigned to perform
the audit on revenue for a client, Memoriz Sdn. Bhd. (Memoriz). Memoriz provides wedding planning
services in Malaysia. The wedding planning services include bridal wear, photography and
videography, entertainment, wedding MC, wedding decor suppliers, wedding caterers, florists,
transportation, favors and jewelry and many more. You are given three audit trainees to assist you in
completing the audit of Memoriz's revenue.

During a recent discussion with Memoriz's finance director, you have been informed that the
accounts executive had made mistakes in the closing of the purchases ledger and several expenses
ledgers related to cost of sales at the year end. The company had accidentally closed the purchases
ledger and several expenses ledgers related to cost of sales account five days earlier on 26 July 2017
instead of 31 July 2017. All purchases and expenses invoices in relation to goods which had been
received from 26 July till the year end have been posted to the following year's respective ledgers.

You are required to provide a brief explanation to the audit trainees on the following matters:

(i) FIVE (5) important assertions in the audit of revenue.(5 marks)

(ii) FIVE (5) types of audit procedures to obtain audit evidence.(5 marks)

(iii) An example of each procedure in (ii) above that is relevant to the audit of revenue for Memoriz
Sdn. Bhd. (5 marks)

(iv) FIVE (5) substantive procedures to be performed to obtain sufficient and appropriate audit
evidence in relation to the valuation of trade payables and accruals of Memoriz Sdn. Bhd. at the year
end. (5 marks)
(i)There are five important assertions in the audit of revenue, which are as follows:

Occurence: This assertion concerns whether the reported revenue actually exists and has been
earned by the company. It requires the auditor to ensure that the revenue recorded in the financial
statements represents legitimate transactions with customers.

Completeness: This assertion concerns whether all the revenue that should be recorded has been
recorded in the financial statements. It requires the auditor to ensure that all transactions related to
revenue have been properly recorded, including those that may have been missed or intentionally
excluded.

Accuracy: This assertion concerns whether the amounts recorded for revenue are accurate. It
requires the auditor to ensure that the revenue recorded in the financial statements is based on the
appropriate accounting principles and that the calculations are accurate.

Cut-off: This assertion concerns whether the revenue has been recorded in the appropriate period. It
requires the auditor to ensure that revenue transactions have been properly recorded in the period
in which they occurred.

Classification: This assertion concerns whether the revenue has been recorded in the correct
account. It requires the auditor to ensure that the revenue transactions have been properly classified
according to the company's accounting policies and the applicable accounting standards.

(ii)

Inspection: This involves the physical examination of documents or assets to obtain evidence. For
example, the auditor may inspect sales invoices, purchase orders, bank statements, or physical
inventory counts.

Observation: This involves watching a process or procedure being performed to obtain evidence. For
example, the auditor may observe the process of inventory control, or the process of cash handling.

Enquiry: This involves seeking information from knowledgeable individuals within or outside the
company to obtain evidence. For example, the auditor may inquire with management about the
company's internal controls, or with external parties about their transactions with the company.

Analytical procedures: This involves the analysis of data or relationships between data to obtain
evidence. For example, the auditor may perform ratio analysis, trend analysis, or variance analysis to
identify potential misstatements or irregularities.

Recalculation and Reperformance: This involves the independent execution of a control or process to
obtain evidence. For example, the auditor may reperform a control test, or a calculation of a financial
statement amount, to ensure accuracy and completeness of the recorded information.
(iii) Inspection: The auditor can inspect the sales invoices and purchase orders of Memoriz to verify
the accuracy of revenue reported in the financial statements.

Observation: The auditor can observe the process of inventory control and cash handling to ensure
that the company has adequate controls in place to prevent any misstatement or fraud in revenue.

Inquiry: The auditor can inquire with management about the company's revenue recognition policies
and procedures, as well as external parties, such as customers and suppliers, to confirm the existence
and completeness of revenue transactions.

Analytical procedures: The auditor can perform trend analysis to compare the revenue of Memoriz
with its competitors in the industry, or ratio analysis to assess the reasonableness of the company's
gross profit margin.

Reperformance: The auditor can reperform the calculation of revenue for a sample of transactions to
verify the accuracy and completeness of the recorded revenue amount. For example, the auditor can
reperform the calculation of revenue for a sample of wedding planning services to ensure that the
revenue has been properly recognized and recorded in the financial statements.

(iv)

Trace selected samples from the trade accounts payables listing and accrual listing to the supporting
documentation (purchase orders, minutes authorizing expenditure, suppliers’ invoices, etc.) to
ensure that the recorded balances in the trade accounts payables listing and accrual listing are
supported by appropriate documentation. By tracing a sample of these balances to supporting
documents, the auditor can verify the accuracy and completeness of the balances.

Obtain selected suppliers’ statements and reconcile these to the relevant suppliers’ accounts. For a
sample of accruals, recalculate the amount of the accrual to ensure the amount accrued is correct to
help the auditor confirm the completeness and accuracy of the recorded balances. For accruals,
recalculating the amount of the accrual helps ensure that the amount accrued is correct and
supported by appropriate documentation.

Compare the current year balances for trade accounts payables and accruals to the previous year to
help identify significant fluctuations and investigate any significant changes. This can help the auditor
determine whether the balances are reasonable and whether any adjustments are required.

Compare the amounts owed to a sample of individual suppliers in the trade accounts payables listing
to amounts owed to these suppliers in the previous year which allows the auditor to identify any
significant changes in amounts owed to individual suppliers. Any significant changes can be further
investigated to determine the reason for the change and to confirm the accuracy of the recorded
balances.

Compare the payables’ turnover and payables’ days to the previous year and industry data which
helps the auditor assess whether the company's payment terms and practices are reasonable and
consistent with industry practices. Any significant changes in payables turnover or payables days can
be further investigated to determine the reason for the change and to confirm the accuracy of the
recorded balances.
Question 4
Damar Sdn. Bhd. (Damar) was established in 1999 and has grown to become one of the largest glass
suppliers in Malaysia. It is the one and only 'One Stop' glass supplier of its kind that provides end to
end solutions. Damar offers design services, manufacturing and delivery right to the customer's
doorstep.

Damar's year end was 31 July 2017. You are the audit senior of Dilip & Co, an audit firm, and are
currently preparing the audit programmes for the year end audit of Damar. You are reviewing the
notes of last week's meeting between your audit manager and the finance director of Damar where
the following material issue was discussed:

Land and buildings

Damar owns land and buildings which are located in the remote areas and also in industrial areas in
Johor Bahru. Damar revalues its land and buildings every three years. During the year, Damar
revalued all of its buildings, including the two factories and three warehouses which were newly
purchased in January 2017. To reduce the valuation fee, Damar has engaged Vikas Sdn. Bhd. to
perform the revaluations. The directors of both companies are family related. Depreciation is
charged on reducing balance basis.

Required:

(i) Explain FIVE (5) factors that Dilip & Co should consider when placing reliance on the valuation
work performed by Vikas Sdn. Bhd. (5 marks)

(ii) Explain FIVE (5) substantive procedures the auditor should perform to obtain sufficient and
appropriate audit evidence in relation to the revaluation of all the lands and buildings.

(5 marks)

翻译：

Damar Sdn. Bhd.（以下简称“Damar”）成立于 1999 年，并已成长为马来西亚最大的玻璃供应

商之一。它是唯一一个提供端到端解决方案的“一站式”玻璃供应商。Damar 提供设计服务、
制造和交付服务，直接送到客户的门口。

Damar 的年终截止日期是 2017 年 7 月 31 日。您是 Dilip & Co 的审计高级主管，目前正在为

Damar 的年终审计编制审计方案。您正在审查上周您的审计经理与 Damar 的财务总监之间会
议的笔记，讨论了以下重要问题：

土地和建筑物
Damar 拥有位于柔佛州远离市区和工业区的土地和建筑物。Damar 每三年重新评估其土地和建
筑物的价值。在本年度，Damar 重新评估了其所有建筑物，包括在 2017 年 1 月新购买的两个
工厂和三个仓库。为了降低估值费用，Damar 聘请了 Vikas Sdn. Bhd.执行重新评估。两家公司
的董事是家族成员。采用减值余额法计提折旧。
(i) ISA 500 Audit Evidence requires auditors to evaluate competence, capabilities including
expertise and objectivity of a management expert. This would include consideration of
the qualifications of the valuer and assessment of whether they were members of any
professional body or industry association.

The expert’s independence should be ascertained, with potential threats such as undue
reliance on Damar or a self-interest threat such as both of them are family related
companies.

Besides, Dilip & Co should meet with the expert and discuss with them its relevant
expertise, in particular whether it has valued similar land and buildings to those of
Damar in the past. Dilip & Co should also consider whether the valuer understands the
accounting requirements of IAS16 Property, Plant and Equipment in relation to
revaluations.

The valuation should then be evaluated. The assumptions used should be carefully
reviewed and compared to previous revaluations at Damar. These assumptions should be
discussed with both management and the valuer to understand the basis of any
valuations.

(ii) Obtain a schedule of land and buildings revalued this year and cast to confirm the
completeness and accuracy of the revaluation adjustment.

Consider whether the valuation undertaken provides sufficiently objective audit

evidence. Discuss with management whether Dilip & Co has any financial interest in
Damar as they are family related companies which will have an impact on its
independence.

On a sample basis, agree the revalued amounts to the valuation statement provided by
the valuer.

Recalculate the total revaluation adjustment and agree correctly recorded in the
revaluation surplus.

Review the valuation report and consider if all assets in the same category have been
revalued in line with IAS16 Property, Plant and Equipment.

Review the financial statements disclosures of the revaluation to ensure they comply
with IAS16 Property, Plant and Equipment.