CONFIDENTIAL 1 AC/JULY 2021/AUD339

UNIVERSITI TEKNOLOGI MARA

SUGGESTED SOLUTION
TEST 2

COURSE : AUDITING
COURSE CODE : AUD339
EXAMINATION : JULY 2021

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 CONFIDENTIAL 2 AC/JULY 2021/AUD339

SUGGESTED SOLUTION

QUESTION 1
A
i. No violation. Adam Ali only mentions particulars that are permitted by the MIA by
Laws and does not contain any exaggerated claims
ii. Violation. There will be a self – review threat involved. Adam Ali has the possibility of
reviewing the ICS developed by himself.
(6 marks)
B. 2 measures that auditor can take to minimize the threats
i. Firm – wide safeguard – training, HR policies
ii. Engagement safeguard – ethical clearance, selection of staff
(3 marks)
C. 2 situation that may create conflicts of interest
i. Having financial interest in the client company
ii. Received material gifts and hospitality
(3 marks)
D. Independence in fact indicates that the auditor possesses an independent mindset
when planning and executing an audit, and that the resulting audit report is unbiased.
Independence in appearance indicates whether the auditor appears to be independent
(3 marks)
(Total: 15 marks)

QUESTION 2
A.
i. to exhibit the highest standards of ethics, professionalism and professional
conduct that are expected of the profession
ii. Important for gaining public confidence in auditors’ services
(2 marks)
B. TWO (2) situations where Jang & CO. do not violate the MIA’s By-Laws and explain
the reasons
Situations Reasons
decline the reappointment It is permissible to turn down the
for the audit of the current reappointment if the fees are not payable for
year 2 years consecutively
Mr Jang also accepted the It is permissible to accept an offer provided
offer to be the auditor for that he has resigned for more than 12
MOBEN Bhd, his previous months
employer 4 years ago
(4 marks)
C. THREE (3) situations where Jang & CO. might violate the MIA’s By-Laws and
explain the reasons for the violation and the types of threats involved
Situations Types of Threats Reasons for violation
Yusuf, who is still not the Self-review threats Yusof does not have the
MIA Member and just qualification to be the partner
graduated from UiTM will thus may impose self-review
be one of the partners for threats to its client
the firm

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 CONFIDENTIAL 3 AC/JULY 2021/AUD339

Johan agrees to pay Mr Self-interest threats It is not allowed to receive or

Jang 15% of the fee for the give commission for any
referral referral.
advertises his new firm by Advocation threats Advertising only allowed if
sending his firm brochures given to existing clients
and business cards to
potential clients in Melaka
and Negeri Sembilan
(9 marks)
(Total: 15 marks)

QUESTION 3
A.
a. Any 2 types of property, plant and equipment transactions:
1. Acquisition of capital assets by cash/cheque or other non-monetary
considerations. √
2. Disposition of capital assets through sale, exchange, retirement or
abandonment. √
3. Depreciation of capital assets over their useful economic life.
4. Leasing of capital assets.
(Any 2√ x 1 mark each = 2 marks)

b. Any 2 audit objectives for PPE are:

1. Disclosed PPE transactions have occurred and pertained to the entity. √

2. Additions and disposals of PPE in recorded in the correct account. √

(Any 2√ x 2 marks each = 4 marks)

c. Related assertions:

i. Occurrence√
ii. Valuation√
iii. Occurrence /Rights & Obligations√
iv. Presentation & Disclosure√
( 4√ x 1 mark each = 4 marks)

B. a. Reason why verification of cash needs more audit time:

i.
Almost all business transactions will ultimately pass through the cash account,
so that the audit of cash also assists in the verification of other assets and
liability accounts; √ or
ii. Cash being the most liquid of all assets, there is a higher relative risk of
defalcation than other assets; it is an area of high inherent risk.
(Any √ x 2 marks = 2 marks)
b. Substantive audit procedures for verifying cash in hand:

i. Count all material cash, record details and reconcile:

-count cash in the presence of a member of the client’s staff and ask him to confirm
the amount counted. √
-ensure all cash is received at the same time to avoid substitutions.
ii. Prepare a list of IOU’s and obtain confirmation from the individuals. √
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 CONFIDENTIAL 4 AC/JULY 2021/AUD339

iii. Discuss with management or any staff with IOU’s to ensure that they are properly
authorized. √
iv. Obtain explanations of all material differences. √
v. Obtain certificates for all cash which not being counted.
or any acceptable answer. (Any 4√ x 1 mark each = 4 marks)

c. TWO control procedures for cash

i. amount received through the mail are listed when post opened √
ii. evidence of receipt of cash by issuing serially – numbered receipts forms √
iii. Daily banking of all receipts of cash and cheques
iv. Control disbursements made out of the cash must be made
v. Limit should be set for cash advancements and disbursements
(any other acceptable answers)
(2 √ x 2 marks = 4 marks)
(Total: 20 marks)

END OF SUGGESTED SOLUTION

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