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QUESTION 1
A.
Briefly explain the following terms:
a)
b)
c)
Audit Expectation Gap
Deep Pocket Syndrome
Audit Oversight Board
(6 marks)
B.
With reference to the MIA By-Laws on Professional Ethics, Conduct and Practice,
identify and discuss the ethical issues raised in the cases stated below:
a)
You are a senior audit manager at Rahim & Partners and you are required to
review a situation which has arisen in respect of your audit client. Setia Jaya
Bhd, a large plantation company and a significant audit client for Rahim &
Partner, is planning to expand its plantation business to Thailand. Due to time
constraint, the company has asked Rahim & Partners to find potential
candidates for its managerial position and shortlist for interviews.
(3 marks)
b)
Being one of the partners of Tan & Co you are responsible for the audit of
Smart Tech Sdn Bhd. The company has asked your firm to conduct due
diligence review for the company’s investment activity. Due to shortage of
staff at Tan & Co you have assigned Sherena, a new graduate that joined the
firm six month ago to perform the due diligence review. The due diligence
review involves valuation of inventory that Sherena has never had any
previous experience.
(3 marks)
c)
You are a manager in KS & Co and one of your audit clients is Mesra Alam
Sdn Bhd a business which deals with construction and property. For the past
two years you have found that Mesra Alam Sdn Bhd were struggling with its
manual accounting system and can no longer cope with the expanding
business. You have advised Mesra Alam Sdn Bhd to change to a
computerized accounting system and recommended a specific accounting
software which has been developed by AZ Sdn Bhd, the business partner of
KS & Co. Based on your advice, Mesra Alam Sdn Bhd agreed to buy the
accounting software and KS & Co received a commission from the software
developer, AZ Sdn Bhd.
(3 marks)
[Total: 15 marks]
QUESTION 2
Kalsom & Co has been appointed as an external auditor for Tang Construction Sdn Bhd for
the year ended 31 December 2013. The company’s financial statements reflect a substantial
amount of mobile construction equipment used in the company’s business operations. The
auditor has obtained an understanding of internal control and assessed the inherent and
control risk as moderate.
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Required
a)
List four types of property, plant and equipment (PPE) transactions.
(2 marks)
b)
Describe three (3) factors that the auditor should consider in assessing the
inherent risk for PPE.
(6 marks)
c)
Identify and explain six (6) substantive procedures, with the related
assertions, the auditors should use in verifying the mobile construction
equipment and the related depreciation in Tang Construction Sdn Bhd.
(12 marks)
d)
Identify five (5) substantive procedures that can be used to audit the
impairment of PPE
(5 marks)
(Total: 25 marks)
QUESTION 3
In addition to the audit service, auditor may also be involved in non-audit engagements with
the clients. These services such as review of financial information and due diligence
engagement are intended to enhance the degree of confidence of the intended users about
the subject matter.
Required
Discuss the differences between review of financial information and due diligence
engagement in terms of the following.
a)
objective
(2 marks)
b)
review procedures
(8 marks)
[Total: 10 marks]
QUESTION 4
A.
Tests of controls are performed to obtain audit evidence about the operating
effectiveness of controls in preventing, detecting and correcting material
misstatements. When control testing is completed, auditors make a final assessment
of control risk and revise the nature, timing and extent of substantive procedures
accordingly.
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MIA QE MARCH 2014
Required
a)
Briefly explain four (4) procedures for tests of controls.
(4 marks)
b)
Describe three (3) types of substantive tests.
(6 marks)
B.
The control environment includes governance and management functions, attitudes,
awareness, and actions of those charged with governance and management concern
over the entity’s internal control and its importance to the entity.
Required
List four (4) elements of the control environment that may be relevant when obtaining
an understanding of the control environment.
(4 marks)
C.
Computer-assisted audit techniques (CAATs) make use of computer applications to
automate and facilitate the audit process. The use of CAATs ensure that appropriate
coverage is in place for an application control review.
Required
a)
List two (2) benefits and two (2) disadvantages of using CAATs.
(4 marks)
b)
Explain two (2) common types of CAATs.
(3 marks)
c)
Briefly explain four (4) major steps to be undertaken by the auditors in the
application of CAATs.
(4 marks)
[Total: 25 marks]
QUESTION 5
K & H Bhd was the world’s leading provider of speech and language technology products,
solutions and services to business and individuals worldwide. Both Telekom and Astro
invested millions in K & H. However, accounting scandals and fraud allegations caused the
company’s stock to crash, and forced the company to seek bankruptcy protection in Vietnam
and China. The following selected information pertains to K & H’s sales and accounts
receivable:
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 Consolidated revenue increased 184 percent from 2009 to 2010.
 Revenue in Korea, which has a reputation as a difficult market for foreign companies to
enter, increased from RM97,000 in the first quarter of 2011 to approximately RM59 million
in the first quarter of 2012.
 In the second quarter of 2012, sales grew by 104 percent but accounts receivable grew
by 128 percent.
 Average days outstanding increased from 138 days in 2010 to 160 days for the six-month
period ended 30 June 2012.
Required
a)
Explain the assertion(s) that the auditor should be most concerned with regards to:
(i)
Sales
(2 marks)
(ii)
Accounts receivable
(4 marks)
b)
Explain the audit procedures the auditor should perform to verify the assertion(s) for
sales and accounts receivables.
(4 marks)
[Total: 10 marks]
QUESTION 6
A.
The following are independent situations relating to audit report. For each of the
independent situations below, indicate the type of audit report that you would issue,
and briefly explain your reason. Assume that each item is material.
a)
The management of Ikhwan Corporation Bhd decided to exclude the
statement of cash flows from its financial statements because it believes that
its bankers do not find the statement to be very useful.
(2 marks)
b)
You are auditing Gas Carbon, a manufacturer of nerve gas for the hospitals,
for the year ended 30 September 2013. On 1 September 2013, one of its
manufacturing plants caught fire, releasing nerve gas to the surrounding area.
Thirteen people were killed and numerous others paralysed. The company’s
legal counsel informed that the company is liable but the amount of the
liability cannot be reasonably estimated. The company refuses to disclose this
information in the financial statements.
(3 marks)
c)
During your audit of Gucci Gold Bhd, John the financial controller, refused to
allow you to confirm accounts receivable because he is concerned about
complaints from his customers. You are unable to satisfy yourself about
accounts receivable by other audit procedures and questioned John’s true
motives.
(3 marks)
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d)
On 31 January 2013, AZ Toy Manufacturing hired your firm to audit the
company’s financial statements for the year 2012. You were unable to
observe the client’s inventory count on 31 December 2012. However, you
were able to satisfy yourself about the inventory balance using other auditing
procedures.
(2 marks)
e)
PHN Bhd leases its manufacturing facility from a partnership controlled by the
chief executive officer and major shareholder of PHN. Your review of the
lease indicated that the rental terms are in excess of rental terms of similar
buildings in the area. The company refused to disclose this related-party
transaction in the notes to accounts.
(2 marks)
ISA 700 Forming an Opinion and Reporting on Financial Statements requires that a
statement should be included in the audit report to affirm that management is
responsible for the preparation and the fair presentation of the financial statements.
Required
Explain the specific responsibilities of management to be included in the audit report.
(3 marks)
[Total: 15 marks]
END OF QUESTION PAPER
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