MULTIMEDIA COLLEGE JALAN GURNEY KIRI KUALA LUMPUR

Transcription

1 STUDENT IDENTIFICATION NO MULTIMEDIA COLLEGE JALAN GURNEY KIRI KUALA LUMPUR FOURTH, FIFTH, SIXTH SEMESTER FINAL EXAMINATION, 2013 / 2014 SESSION FIN2103 AUDITING DIAW-E-F 3/11, DIAW-E-F-1/12, DIAW-E-F-2/12, DIAA-E-F-1/12 DIAA-E-F-2/12 17 FEBRUARY AM PM (2 Hours) INSTRUCTION TO STUDENT 1. This Examination paper has SIXTEEN (16) printed pages. 2. This question paper consists of FOUR (4) sections. Section A : Answer ALL questions. Section B : Answer ALL questions. Section C : Answer ALL questions. Section D : Answer TWO (2) questions ONLY. 3. Please write all your answers in the Answer Booklet provided.

2 SECTION A : MULTIPLE CHOICE QUESTION (20 Marks). INSTRUCTIONS : Answer ALL Questions. 1. The primary objective of a financial statement audit is to. A. detect fraud B. examine individual transactions so that the auditor may certify as to their validity C. determine whether the client s financial statements are fairly stated D. assure the consistent application of correct accounting procedures 2. Which of the following best describes the reason why an independent auditor reports on financial statements? A. Management fraud may exist, and it is more likely to be detected by independent auditors than by internal auditors B. Different interests may exist between the entity preparing the statements and the persons using the statements, and thus outside credibility is needed C. A misstatement of account balances may exist, and all misstatements are generally corrected as a result of the independent auditor s work D. An entity may have a poorly designed internal control system 3. Forensic audits include all of the following EXCEPT? A. Criminal investigations. B. Manufacturer s claims about product quality. C. Employee fraud. D. Embezzlement of corporate funds. MSMK/CFCK Page 2 of 16

3 4. A company s financial statements are to be prepared in conformity with approved accounting standards, which are accounting standards issued or adopted by. A. Malaysian Institute Of Accountants B. International Accounting Standards Board C. Malaysian Accounting Standards Board D. The Securities Commission 5. External auditors are referred to as external because. A. they report to users outside of the audited entity B. they are paid by parties outside of the audited entity C. they are not employees of the entity being audited D. their offices are not at the entity s place of business 6. Which of the following procedures would provide the most reliable audit evidence? A. Inquiries of the entity s internal audit staff held in private. B. Inspection of pre numbered purchase orders filed in the vouchers payable department. C. Analytical procedures performed by the auditor on the entity s trial balance. D. Inspection of bank statements obtained directly from the entity s financial institution. 7. Professional skepticism means. A. an attitude that includes a questioning mind and a critical assessment of audit evidence B. a good communication with clients C. an attitude showing bad attitude D. an attitude to show the fraud in financial statements MSMK/CFCK Page 3 of 16

4 7. Which of the following statements concerning audit evidence is CORRECT A. To be appropriate, audit evidence should be either persuasive or relevant but need not be both. B. The measure of the validity of audit evidence lies in the auditor s judgment. C. The difficulty and expense of obtaining audit evidence concerning an account balance is a valid basis for omitting the test. D. An entity s accounting data may be sufficient audit evidence to support the financial statements. 8. An entity has decided to change its accounting policy and adopt the policy of revaluation for certain property, plant and machinery. This change has a material effect on the current year s financial statements. If the change is not properly disclosed in the notes to the financial statements, the auditor should issue a report with a (n). A. qualified except for opinion B. emphasis of matter paragraph C. unqualified opinion D. disclaimer of opinion 9. You have been assigned to audit the financial statements of Young Bhd after its fiscal year had ended. You neither observed the inventory count nor confirmed the receivables by direct communication with debtors but was satisfied concerning both after applying alternative procedures. Your audit report most likely would contain a (an). A. qualified opinion B. disclaimer opinion C. unqualified opinion D. unqualified opinion with an explanatory paragraph MSMK/CFCK Page 4 of 16

5 11. Use ratios, analysis, comparisons and relationships to the items of financial statement such as assets, liabilities, equity, revenues and expenses, to analyze whether account balances or other data appear reasonable. The above audit procedure is an example of. A. documentation A. analytical procedure B. inquiry C. reperformance 12. The measurement of the auditor s assessment of the likelihood that there are material misstatements due to error or fraud in an account balance before considering the effectiveness of internal controls is defined as. A. audit risk B. inherent risk C. sampling risk D. detection risk MSMK/CFCK Page 5 of 16

6 13. There are three main reasons why the auditor should properly plan engagements of the audit. Which of the following are the purpose plan audit engagements? i. To help keep audit costs reasonable. ii. To avoid misunderstandings with the client. iii. To enable the auditor to obtain sufficient competent evidence for the circumstances. iv. To reduce auditing duration A. i,ii, and iii B. i, ii and iv C. i, iii and iv D. ii, ii, iii and iv 14. When planning an examination, an auditor should. A. consider whether the extent of substantive procedures may be reduced based on the results of the internal control questionnaire B. make preliminary judgments about materiality levels for audit purposes C. conclude whether changes in compliance with prescribed internal control justify reliance on them D. prepare a preliminary draft of the management representation letter 15. Not involve high cost compared to the other tests because only involves inquiry, observation, planning the analytical procedure and documents checking. The above statement best describe. A. risk assessment procedure B. substantive test of transactions C. analytical procedure D. test of detail of balance MSMK/CFCK Page 6 of 16

7 16. Which of the following is the example of error? A. Misappropriation of assets B. Intentional overstatement of sales C. Management fraud D. Mistake in exceeding prices times quantity on a sale invoice 17. Below are the flow of strategic system understanding of the client business and industry. Choose the best combination that fill the flow correctly. 1. Understand client business and industry Business operation and processes Client objectives and strategies 6. Client acts and conduct an evaluation A. 2. Understand the industry and the external environment. 4. Understand the company's management and governance. B. 2. Understand the company's management and governance. 4. Understand the industry and the external environment. C. 2. Understand the industry and the internal environment. 4. Understand the company's management and governance. D. 2. Understand the company's management and governance. 4. Understand the industry and the internal environment. MSMK/CFCK Page 7 of 16

8 18. One way to prevent and avoid fraud and also material misstatement is to set up a good internal control in the company. Below are the descriptions of one component of internal control. This activities deal with ongoing or periodic assessment of the quality of internal control performance by management to determine that controls are operating as intended and that they are modified as appropriate for changes in conditions. Which is the component that relates to the description? A. Monitoring. B. Control activities. C. Risk assessment. D. Control environment. 19. Which following are including in the test of audit? i. Risk assessment procedure ii. Substantive test of transactions iii. Analytical procedure iv. Test of detail of balance A. i,ii, and iii B. i, ii and iv C. i, iii and iv D. All above MSMK/CFCK Page 8 of 16

9 20. Which of these statements concerning non compliance with laws and regulations by clients is CORRECT? A. An auditor should communicate with management regarding non compliance that has come to his attention. B. It is an auditor s responsibility to ensure that the client s operations and system can detect all non compliance with applicable laws and regulations. C. An audit in accordance with approved auditing standards normally includes audit procedures specifically designed to detect any non compliance with laws and regulations. D. When the auditor suspects that there may be possible non compliance with laws and regulations by the client, he should refer the matter in the audit report. MSMK/CFCK Page 9 of 16

10 SECTION B : TRUE AND FALSE (10 Marks). INSTRUCTION : Answer ALL Questions. 1. Auditing is the process whereby the financial statements of an entity are subjected to an examination by qualified auditor to express an opinion. 2. Opinion paragraph it shows the factual statement about what the auditor did in the audit 3. Unqualified opinion also called as an clean opinion. 4. The scope paragraph in audit report high light the auditor conclusion based on results of the audit. 5. The concept of reasonable, but not absolute assurance indicates that the auditor is not an insurer or guarantor of the correctness of the financial statements. 6. Observation is the auditor s examination of the client s documents and records to substantiate the information that is or should be included in the financial statements. 7. Misstatements considered material if there are errors in the statements. 8. The auditor should plan the audit work so that the audit will be performed in an effective manner. 9. One of the factors affect setting of preliminary judgment about materiality is materiality is a relative rather than an absolute concept. 10. Purpose of test of control is to determine the appropriateness of the design and operating effectiveness of specific internal control. MSMK/CFCK Page 10 of 16

11 SECTION C : SHORT QUESTIONS (30 Marks). INSTRUCTIONS : Answer ALL Questions. Question 1 May Gems Sdn Bhd is a succesful jewellery business. The company was recently bought over by Boon who engages his brother in law, Wan to perform the audit. Wan has experience in auditing small business companies but has no experience or knowledge with the jewellery or gems business. After completing all the steps of the audit process, Wan issues an unqualified opinion that provides reasonable assurance that the company s financial statements contain no material misstatements. Required : Identify and explain THREE (3) potential issues that may arise from the above situation. Question 2 (6 Marks) Explain the following terms : a) Assurance service b) Attestation services c) Auditing d) Professional scepticism (8 Marks) MSMK/CFCK Page 11 of 16

12 Question 3 Define audit risk. Provide ONE (1) example of audit risk (4 Marks) Question 4 List TWO (2) conditions that may cause that auditor produce unqualified report with explanatory paragraph. (4 Marks) Question 5 Define error. Provide ONE (1) example of error. (4 Marks) Question 6 What is the advantage and disadvantage of audit? (4 Marks) MSMK/CFCK Page 12 of 16

13 SECTION D : LONG ESSAY QUESTIONS INSTRUCTION : Anwer TWO (2) Questions Only Question 1 Explain FIVE (5) types of audit, explain your answer and support each type of audit with one example. (20 Marks) Question 2 Discuss in detail about types of audit test and give one example for each type. (20 Marks) MSMK/CFCK Page 13 of 16

14 Question 3 COMPANY OF PARK HE-TARM BHD COMPARATIVE BALANCE SHEET RM RM Asset Current asset Cash 1,000 8,000 Inventory 4,000 15,000 Short term investment 2,000 7,000 Account receivable 3,000 10,000 Non-current asset 10,000 40,000 Land and building 30,000 35,000 Office equipment 10,000 35,000 Liability and equity Liability Current liability 40,000 70,000 50, ,000 Account payable 2,000 10,000 Short term note 3,000 30,000 5,000 40,000 MSMK/CFCK Page 14 of 16

15 Non-current liability Debenture 13,000 50,000 18,000 60,000 Total equity 32,000 50,000 50, ,000 COMPANY OF PARK HE-TARM BHD COMPARATIVE INCOME STATEMENT RM RM Sales 30,000 15,000 Cost of goods sold 5,000 2,000 Gross profit 25,000 13,000 Advertising 2, Office salaries 3, Insurance 2,500 1,000 Depreciation 1, Interest 1, ,000 3,000 Profit 15,000 10,000 MSMK/CFCK Page 15 of 16

16 Required: Based on the comparative Balance Sheet and Income Statement, calculate the following ratios for (Show all formula involved) a) Current ratio (2 Marks) b) Acid Test Ratio (2 Marks) c) Total Asset Turnover (2 Marks) d) Debt to total asset ratio (2 Marks) e) Equity Ratio (2 Marks) f) Return On Total Asset (2 Marks) g) Inventory Turnover (2 Marks) h) Average Collection Period (2 Marks) i) Times Interest Earned (2 Marks) j) Return On Equity (2 Marks) Question 4 (20 marks) Kim & Co has been engaged to perform a special audit for Trendy Store which leases the property that it uses as its business premises. The lease agreement stipulates that the monthly rental shall be based on a minimum rental plus a percentage of the gross sales per month. In compliance with the lease agreement, Trendy has requested Kim to audit the store s sales as a basis for verifying the rental payments for year ended 31 December Kim is provided with the sales schedule for the year and she has gathered sufficient appropriate audit evidence to be satisfied that the sales schedule presents fairly the gross sales of Trendy Store for year ended 31 December You are required to prepare the auditor s report to accompany the sales schedule of Trendy Store. (20 marks) End of Page. MSMK/CFCK Page 16 of 16