SULIT FPN/APR 2000/AUD360/394

UNIVERS1TI TEKNOLOGI MARA

FAKULTI PERAKAUNAN
PEPERIKSAAN SEMESTER DISEMBER 1999 - MEI 2000

DIPLOMA PERAKAUNAN
DOCUMENT ID- rn<
MATA PELAJARAW : AUDITING

KOD MATA PELAJARAN : AUD360/394

TARIKH : 12 APRIL 2000

MASA : 3 JAM (9.00 -12.00 T/HARI)

ARAHAN KEPADA CALON:

1. Kertas ini mengandungi TIGA (3) bahagian.

2. Seksyen A - Jawab SEMUA soalan.

Seksyen B - Jawab TIGA (3) soaian sahaja.
Seksyen C - Jawab soalan WAJIB.

3. Jawapan bagi tiap-tiap soalan hendaklah dimulakan di muka surat yang baru.

4. Calon-calon tidak dibenarkan membawa barang-barang masuk ke bilik

peperiksaan kecuali dengan kebenaran pengawas.

* JANGAN BUKA KERTAS SOALAN SEBELUM ANDA DIARAH BERBUAT DEMIKIAN

Kertas soalan ini mengandungi 9 halaman yang bercetak

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SECTION A - Answer all questions

PART I-MULTIPLE CHOICE

Choose the most appropriate answer.

1. Financial statement audits may have a direct effect on a number of items. Such
audits are least likely to have a direct effect on:

a. the market price of a company's share.

b. employee honesty and efficiency.
c. cost of borrowed capital.
d. Management's role in the preparation of the financial statements.

2. In the standard audit report, the auditor's opinion on fairness relates:

a. to each financial statement taken as a whole,

b. only to the complete set of financial statement,
c. to individual accounts
d. to major components of each financial statement

3. A direct or indirect financial interest in the client would impair independence if the
interest were held during which of the following periods?

a. at the time of issuing the opinion

b. during the engagement or at the time of issuing the opinion
c. from the statement date to the time of issuing the opinion
d. from the beginning of the period covered by the statements to the time of
issuing the opinion

4. Which of the following would not be considered underlying accounting data?

a. sales invoices
b. the general ledger
c- books of original entry
d. accounting manuals

Reclassifying entries refer to primarily to the assertion:

a. existence or occurrence
b. completeness
c. valuation or allocation
d. presentation and disclosure

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The main purpose of the engagement letter is to :

a. avoid litigation
b. confirm the terms of the engagement
c. indicate the likely opinion to be issued
d. clearly delineate the auditor's responsibility for the conduct of the audit.

7. Which of the following is amongst the three components of audit risk?

a. rejection risk
b. occurrence risk
c control risk
d. acceptance risk

8. To determine an employee's understanding of his or her duties, the auditor would

most likely use:

a. inquiring
b. observing
c. inspecting
d. reperforming

The grandfather- father-son concept is an example of a:

a. systems development and documentation control

b. hardware and systems software control
c. access control
d. data and procedural control

10. A company policy states that annual vacations are mandatory for all employees.
This policy is most important for employees who:

a. are not bonded

b. handle cash receipts
c. maintain the detailed accounting records
d. serve as inventory clerks

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PART II - TRUE/FALSE QUESTIONS.

Indicate whether the following statements are True (T) or False (F).

1. Compliance auditing reports on fairness of the financial statements.

2. No impairment of independence occurs when management consultancy services are

confined to management decisions.

3. Clients often assist their auditors by preparing certain working paper schedules.

4. Detection risk relates to the nature, timing and extent of evidence that the auditor
gathers to test assertions that relate to the account balances and disclosures in the
financial statements.

5. A reason for using the primarily substantive approach to an audit is that heavy
reliance on substantive tests is more efficient.

6. If statistical sampling is used, the auditor will quantify the risk level.

7. An auditor will use the EDP test data approach in order to gain certain assurances
with respect to the degree of data entry accuracy.

8. If an auditor assesses inherent risk and control risk for an assertion as low,
substantive tests for that assertion should be expanded.

9. A confirmation reply is evidence of a receivable's collectibility.

10. An auditor's unqualified report implies that disclosure is adequate in the financial
statements and notes to the accounts.

(10 marks)

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SECTION B

Answer THREE (3) questions only.

Question 1

You are a company secretary for a number of private limited companies in the Klan Valley.
You are also an approved company auditor, Some directors of the companies have solicited
your advice on the appointment of new auditors for their companies

a. What are the provisions of the Companies Act, 1965 regarding qualification of an
auditor?
(6 marks)

b. Section 9 of the Companies Act, 1965 restricts the appointment of certain persons as
auditors of a company. What is the purpose of such a restriction?
(2 marks)

c. In each of the following cases, state with reasons and by citing the relevant
provisions of the Companies Act 1965 whether the appointment of the proposed
auditor would be allowed by the Act.

i. Tuan Haji Hashim, director of Syarikat Kancil Tua Sdn Bhd whose wife is a
partner of Linda,Tan & Co has requested Tan Lee Wai, one of the partners of
the firm to audit the accounts of Syarikat Kancil Tua for the Year ended 31
December,1999.
(2 marks)

ii. Sow Lian Tee, the director of Lebai Musang Sdn Bhd, one of your clients, has
requested you to be the company auditor. As company secretary you are
responsible for keeping the register of members and the company's seal.

(2 marks)

iii. Cik Suseela a/p Manimaran is a board member of Hati Murah Sdn Bhd. Her
term as a director will end at the next annual general meeting in March 2001.
Being a certified accountant and an approved company auditor, she has been
asked by the remaining directors to become the company auditor after the
conclusion of the annual genera! meeting. She will not be re-elected as a
director.
(4 marks)

iv. Sumpah Abang Tak Buat Sdn Bhd (SATBSB) has a subsidiary, Janji Jangan
Buat Lagi Sdn Bhd (JJBLSB). En Don Juan, who has retired from the Board
of JJBLSB six months ago has been requested by the directors of SATBSB to
act as SATBSB's auditor.
(4 marks)
(Total: 20 marks)

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Question 2

Evidence is defined as any information used by the auditor to determine whether the
information being audited is stated in accordance with the established criterion.

a. Explain why external evidence is more reliable than internal evidence?

(2 marks)

b. List two examples of audit evidence that the auditor can use in support of each of the
following situations:

i. Ownership of land
ii. Physical existence of inventory
iii. Valuation of debtors
iv. Recorded value of entries in the purchase journal
(8 marks)

c. Explain why external confirmation is more reliable than inquiry to the client.
(3 marks)

d. Classify each of the following items according to the type of documentation

a. internal documentation
b. external documentation

i. Articles of Association
ii. Minutes of the board of directors meeting
iii. Signed lease agreements
iv. Purchase requisition
(2 marks)

e. Explain the importance of analytical procedures as evidence in determining the truth

and fairness of the presentation of financial statements?
(3 marks)

f. It is important that the auditor follows up all material differences discovered through
analytical procedures
What factors would affect such an investigation?
(2 marks)
(Total: 20 marks)

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Question 3

Inventory can take many different forms depending on the nature of the business.

a. Why is the audit of inventories often the most complex and time consuming part of
the audit?
(5 marks)

b. Amongst the concerns of an auditor in the audit of inventory is slow- moving or

obsolete inventory.

Describe the audit procedures to determine whether there are slow-moving or

obsolete stock.
(8 marks)

c. What factors would determine the amount of time needed to perform the physical
observation of inventory?
(5 marks)

d. Identify two analytical procedures commonly used in auditing inventory.

(2 marks)
(Total: 20 marks)

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Question 4

Al 300 Planning states that auditors should plan audit work so that the audit will be
performed in an effective manner.

a. What factors should an auditor consider before accepting appointment from a new
client? What is his responsibility to the predecessor auditor?
(6 marks)

b. What information should the auditor obtain when gaining background information on
the new client?
(3 marks)

c. The engagement letter is an agreement between the audit firm and the audit client.
What are the objectives of the engagement letter?
(4 marks)

d. Working papers are an essential part of every audit for effectively planning the audit.
Care must be taken to protect the working papers at all times and maintain
confidentiality of it.

Who owns the working papers and under what circumstances can they be used by
other people?
(5 marks)

e. Auditors review the board of directors minutes as part of audit procedures. List 2
types of information that could be gained from the review of the minutes.

(2 marks)
(Total: 20 marks)

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SECTION C

Question 1

You are the auditor in charge of the audit of Vision 2020 Sdn Bhd. You have been assigned
to review and evaluate the accounting system and the related internal controls in the
purchasing system. A member of the audit team has provided the following description of the
purchasing system and there are no other controls apart from those described here.

The company has no purchasing department so employees place orders in their own
department. A three part order form is used; copy 1 is retained by the originator, copy 2 is
sent to the goods inward department and copy 3 is sent to supplier.

Goods are received , but not checked, by the goods inwards clerk. Once received, the
despatch note and purchase order for those goods are sent to the purchase clerk.

When the supplier's invoice is received, the purchase ledger clerk checks the calculations on
it, initials it and staples the despatch note and purchase order to it. She enters the invoice on
to the purchase ledger.

The invoice is then sent to the manager responsible for the employee who ordered the
goods. The manager codes the invoice and returns it to the purchase ledger clerk. The
coded purchase invoices are entered in the purchases journal and posted to the general
ledger monthly by journal entries.

The cashier pays suppliers monthly on instructions from the purchase ledger clerk. The
purchases ledger control account is reconciled monthly by the purchase ledger clerk who
also reconciles suppliers' statements.

Required:

a. Identify any 2 internal control weaknesses for 2 different operating areas in the
purchasing system as described above and state briefly the possible errors that
could result from each of the weaknesses identified.
(12 marks)

b. Describe the four (4) types of audit tests (for the purchases system) that are
normally performed before completing the audit procedures of account balances.
Each test must be supported by an example of audit procedure.
(8 marks)
(Total: 20 marks)

KERTAS SOALAN TAMAT

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