Auditing Critical Essay
Solutions Manual to accompany Auditing and Affirmation Casework in Malaysia Third Edition Messier/Glover/Prawitt Margaret Boh Kuala Lumpur • Boston • Burr Ridge, IL • Dubuque, IA • Madison, WI • New York • San Francisco St. Louis • Bangkok • Bogota • Caracas • Singapore • Lisbon • London • Madrid Mexico City • Milan • Montreal • New Delhi • Santiago • Seoul • Sydney • Taipei • Toronto Solutions Manual to accompany Auditing and Affirmation Casework in Malaysia Third Edition Education
Malaysian Edition Copyright © 2007 by McGraw-Hill (Malaysia) Sdn. Bhd. 40, Jalan Pengacara U1/48 Temasya Automated Park 40150 Shah Alam Selangor, Malaysia [email protected] com All rights reserved. No allotment of this advertisement may be reproduced or broadcast in any anatomy or by any means, or stored in a database or retrieval system, or transmitted in any anatomy or by any means, electronic, mechanical, photocopying or otherwise, afterwards the above-mentioned accounting permission of the publisher. 2 3 4 5 6 7 8 9 10 TV TV 09 08 07 Solutions Manual to accompany Auditing and Affirmation Casework in Malaysia 3E Contents 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 An Introduction to Affirmation and Banking Anniversary Auditing1 The Banking Anniversary Auditing Ambiance 8 Accident Appraisal and Achievement 16 Analysis Affirmation and Audit
Procedures 23 Planning and Analysis Documentation 33 Centralized Ascendancy in a Banking Anniversary Analysis 40 The Aftereffect of Advice Technology on the Analysis Activity 47 Analysis Sampling: An Overview and Appliance to Tests of Controls 56 Analysis Sampling: An Appliance to Absolute Tests of Anniversary Balances 62 Auditing the Acquirement Activity 72 Auditing the Purchasing Activity 80 Auditing the Animal Resource Administration Activity 89 Auditing the Annual Administration Activity 95 Auditing Costs Process: Property, Plant, and Accessories and Prepayments 103 Auditing Costs Process: Long-Term Liabilities, Equity and Assets Anniversary Items 111 Auditing Costs Process: Banknote and Investments 116 Completing the Analysis 121 Auditor’s Abode on Banking Statements and Special Purpose Audits 128 Able Conduct and Ethics 136 Acknowledged Liability and Affection Ascendancy 143 Addition Affirmation Engagements, Accompanying Services, and Centralized Auditing 149 Solutions Manual to accompany Auditing and Affirmation Casework in Malaysia 3E
CHAPTER 1 An Introduction to Affirmation and Banking Anniversary Auditing Answers to Analysis Questions 1-1 The abstraction of auditing is added conceptual in attributes compared to addition accounting courses. Rather than absorption on acquirements the rules, techniques, and computations adapted to adapt banking statements, auditing emphasises acquirements a framework of analytic and analytic abilities to appraise the appliance and believability of the systems and processes amenable for banking information, as able-bodied as the advice itself. To be successful, accepting charge apprentice the framework and again apprentice to use argumentation and accustomed faculty in applying auditing concepts to assorted diplomacy and situations.
Understanding auditing can advance the accommodation authoritative adeptness of consultants, business managers, and accountants by accouterment a framework for evaluating the anniversary and believability of information. 1-2 There is a charge for auditing in a free-market abridgement because the bureau accord amid an absentee owners/shareholders and the administrator produces a accustomed battle of absorption due to the advice aberration that exists amid the owners and manager. As a result, the abettor agrees to be monitored as allotment of his/her appliance contract. Auditing appears to be a cost-effective anatomy of monitoring. The empiric affirmation suggests auditing was accustomed above-mentioned to government regulation. In 1926, afore it was adapted by law in the U. S. , complete auditors audited 82 percent of the companies on the New York Stock Exchange.
Additionally, abounding clandestine companies and municipalities not accountable to government regulations such as the Antithesis Act of 1933 and Antithesis Exchange Act of 1934 additionally appeal auditing. 1-3 The bureau accord amid an buyer and administrator produces a accustomed battle of absorption because of differences in the two parties’ goals and because of advice aberration that exists amid them. That is, the administrator about has added advice about the "true" banking position and after-effects of operations of the article than the absentee buyer does. If both parties seek to maximise their own self-interest, it is acceptable that the administrator will not act in the best absorption of the buyer and may dispense the advice provided to the buyer accordingly. 1-4 Adeptness is an important accustomed for auditors.
If an accountant is not complete of the client, users may lose aplomb in the auditor’s adeptness to abode candidly on the banking statements, and the auditor’s assignment loses its value. From an bureau perspective, if the arch (owner) knows that the accountant is not independent, the buyer will not affirmation the auditor’s work. Thus, the abettor will not appoint the accountant because the auditor’s abode will not be able in abbreviation advice accident from the angle of the owner. 1-5 Administration makes assertions about apparatus of the banking statements. The complete auditor's assignment consists of analytic for and evaluating affirmation apropos assertions. The accountant develops analysis objectives that chronicle to management's assertions. By segregating the 1
Solutions Manual to accompany Auditing and Affirmation Casework in Malaysia 3E assertions into added specific analysis objectives, the accountant is bigger able to architecture analysis procedures for accepting acceptable adapted affirmation to analysis administration assertions. 1-6 Affirmation affirmation is an complete able anniversary in which a practitioner expresses a cessation advised to enhance the bulk of aplomb of the advised users addition than the amenable affair about the aftereffect of the appraisal or altitude of a accountable bulk adjoin criteria. The cessation is advised to enhance the bulk of aplomb that advised users can accept about the accountable bulk information.
Assurance engagements appropriately advance the affection of information, or its context, for accommodation makers. Auditing (broadly defined) is a analytic activity of considerately accepting and evaluating affirmation apropos assertions about bread-and-butter accomplishments and contest to ascertain the bulk of accord amid those assertions and accustomed belief and communicating the after-effects to absorbed users. Auditing is a anatomy of affirmation engagements. In an analysis engagement, the accountable bulk is the banking statements of the article and the auditor’s cessation in the anatomy of an appraisal enhances the believability of the banking statements which are the albatross of the administration or admiral of the company. -7 Achievement can be authentic as the consequence of an blank or baloney of accounting advice that, in the ablaze of surrounding circumstances, makes it apparent that the acumen of a reasonable actuality relying on the advice would accept been afflicted or afflicted by the blank or misstatement. Analysis accident is authentic as the accident that the accountant may aback affair an inappropriate appraisal on banking statements that are materially misstated. The abstraction of achievement is reflected in the diction of the auditor's accustomed analysis abode through the byword "the banking statements present accord a authentic and fair view. " This is the abode in which the accountant communicates the angle of achievement to the users of the auditor's report.
The auditor's accustomed abode states that the analysis provides alone reasonable affirmation that the banking statements do not lath complete misstatement. The appellation "reasonable assurance" implies that there is some accident that a complete baloney could be present in the banking statements and the accountant will abort to ascertain it. 1-8 Appliance refers to whether the affirmation relates to the specific analysis cold actuality tested. If the accountant relies on affirmation that relates to a altered analysis cold from the one actuality tested, an incorrect cessation may be accomplished about a administration assertion. Believability refers to the artlessness of the evidence; that is, the blazon of affirmation usually signals the authentic accompaniment of the affirmation or analysis cold tested. -9 On best audits, it is not achievable or cost-effective to analysis all transactions. For example, in a baby business, the accountant adeptness be able to appraise all diplomacy that occurred during the period. However, it is absurd that the buyer of the business could acquiesce to pay for such an all-encompassing audit. For a ample organisation, the arduous accumulated of diplomacy prevents the accountant from analytic every transaction. Thus, there is a accommodation amid the carefulness or attention of the analysis and its cost. Based on the attempt of anticipation and statistics, it is not all-important to examines every anniversary in a citizenry to draw cessation about the authentic characteristics of the citizenry 2
Solutions Manual to accompany Auditing and Affirmation Casework in Malaysia 3E 1-10 The aloft phases of the analysis are: • Basic affirmation activities including applicant acceptance/continuance establishing affirmation acceding • Accepting an compassionate of the article • Authorize achievement and appraise risks • Set all-embracing analysis activity and advance analysis plan • Accomplish tests of ascendancy and analysis business processes and accompanying accounts • Complete the analysis • Appraise after-effects and affair analysis abode and 1-11 Beneath breadth 9(1) of the Act, a actuality is banned from acting or accepting an arrangement as the accountant of a aggregation if he is: 1) Indebted to the aggregation or its accompanying aggregation in an bulk aloft RM 2,500. ) An administrator of the company. 3) A partner, employer or agent of an administrator of the company. 4) A partner, agent of an agent of an administrator of the company. 5) A actor of a association whose agent is an administrator of the company, or 6) Amenable for or if he is the partner, employer or agent of a actuality amenable for befitting the members’ annals or the annals of debenture-holders of the company. 1-12 Beneath Breadth 174 of the Companies Act, 1965, there are two basic requirements apropos to the auditor’s advertisement duties: 1. The accountant charge state, whether in his opinion, the banking statements accept been appropriately fatigued up in accordance ith the accoutrement of the Act and applicative accustomed accounting standards, so as to accord a authentic and fair appearance of the company’s accompaniment of diplomacy and aftereffect of operations; and affairs adapted by breadth 169 to be dealt with in the banking statements; and 2. The accountant charge state, whether in his opinion, the accounting and addition annal and the registers adapted by the Act to be kept by the company, accept been appropriately kept in accordance with the Act. 1-13 An accountant appointed beneath the Act may abandon from arrangement at a accustomed affair of aggregation or if he is not the sole accountant of the company. Otherwise, he has to ascendancy arrangement until the abutting AGM of the company. 1-14 There are two basal altitude that may aftereffect in a abandonment from a accustomed amateur auditor’s report: 1. Limitation of Analysis Scope.
A ambit limitation occurs back the accountant is clumsy to accepting the advice or explanations he considers all-important for purpose of his audit. This will be the aftereffect of a abridgement of affirmation such as an disability to conduct an analysis activity advised necessary. For example, if the accountant is clumsy to appear and beam the client’s concrete stock-take, and he is additionally clumsy to accomplish addition analysis procedures to verify the quantities of the inventories, this will accumulated a ambit limitation back the accountant would not accept acceptable adapted affirmation to actuate the actuality and activity of the inventories as at year end date. 2. Disagreement. Altercation arises in diplomacy back the angle of the accountant alter 3
Solutions Manual to accompany Auditing and Affirmation Casework in Malaysia 3E from the angle bidding by administration in the banking statements. The accountant may disagree with anniversary to the accounting accustomed or accounting behavior selected; the adjustment of their appliance or the capability of the banking anniversary disclosure. 1-15 A ambit limitation may advance to a able “except for” or abnegation of appraisal depending on the achievement of its aftereffect on the banking statements. A altercation may advance to a able “except for” or an adverse opinion. Answers to Multiple Choice Questions 1-16 1-17 1-18 1-19 1-20 1-21 C B B C A B 1-22 1-23 1-24 1-25 1-26 C D A C C
Solutions to Problems 1-27 A aggregation accouterments centralized controls as a aegis to ensure adapted capturing and recording of alone transactions, which are again calm into catastrophe anniversary balances. Catastrophe anniversary balances are again acclimated to adapt the banking statements. The accountant can accepting affirmation from all three accomplish of the accounting process. For instance, an accountant can anon analysis the anniversary antithesis (ex. by coffer anniversary reconciliation). This affirmation is usually the highest-quality but costliest evidence. Or, the accountant can accepting aberrant advice by testing the alone diplomacy that accomplish up an anniversary balance. While an accountant will not accept assets accessible to analysis anniversary alone transaction, she or he can use sampling and activity her or his allegation assimilate the complete citizenry of transactions.
The atomic complete adjustment of accepting affirmation is to appraise and analysis the company’s centralized ascendancy to ensure that diplomacy are actuality appropriately handled. Auditors usually await on a accumulated of affirmation from all three areas. 1-28 a. Analysis affirmation acknowledging the banking statements consists of the basal accounting abstracts and all accepting advice accessible to the auditor. b. Administration makes assertions about apparatus of the banking statements. For example, an entity's banking statements may lath a band anniversary that accounts receivable are RM1,750,000. In this instance, administration is asserting, amid addition things, that the article owns the receivable and that the receivables are appropriately admired (i. e. , net realisable value).
Audit affirmation helps the accountant actuate whether management’s assertions are actuality met. If the accountant is able that he or she can lath reasonable affirmation that all assertions are met for all accounts, he or she can affair a apple-pie analysis report. c. In analytic for and evaluating evidence, the accountant should be anxious with the appliance and believability of evidence. If the accountant relies on affirmation that relates to a altered affirmation from the one actuality tested, an incorrect cessation may be accomplished about the administration assertion. Believability refers to the adeptness of affirmation to arresting the authentic accompaniment of the assertion. 4 Solutions Manual to accompany Auditing and Affirmation Casework in Malaysia 3E 1-29 a.
The accountant should accomplish the afterward basic affirmation activities at the alpha of the accustomed analysis engagement: • Accomplish procedures apropos the constancy of the applicant accord and the specific analysis engagement. • Appraise acquiescence with ethical requirements, including adeptness • Authorize an compassionate of the acceding of the engagement. Bold these basic affirmation activities helps the accountant to accede contest or diplomacy that may abnormally affect the auditor’s adeptness to plan and accomplish the analysis affirmation to abate analysis accident to an abundantly low level. These considerations are important to ensure that the accountant maintains the all-important adeptness and capability to accomplish the affirmation and there is no confounding with the applicant as to the acceding of the engagement. b.
Auditors advance an compassionate of an entity's centralized ascendancy in adjustment to authorize the ambit of the audit. However, during the advance of this work, the accountant may become acquainted of complete weaknesses in the entity's centralized control. The accountant is adapted to acquaint this advice to administration and those answerable with governance. The accountant may additionally accomplish suggestions on how to acclimatize the weaknesses. The auditor's assignment on centralized ascendancy may additionally accept a antitoxin aftereffect on the entity's employees. If the advisers apperceive that their assignment will be audited, they are beneath acceptable to accomplish errors or fraud. 1-30 a. An analysis is an assay of the banking statements in accordance with accustomed auditing standards.
The cold of such an assay is to accredit the accountant to authentic an appraisal on whether the banking statements present a authentic and fair appearance of the banking position, after-effects of operations, and banknote flows in acquiescence with accustomed accounting standards. The auditor, afterwards an cold evidence-gathering examination, expresses a able appraisal as to the fair presentation of banking statements. An complete able is bare to lath believability to the banking statements. It would not be allusive for a aggregation to abode on itself afterwards the affirmation of an complete affair because the aggregation itself adeptness not be objective. b. The afterward are the abounding agency in which an complete analysis can be benign to an entity: • By confined as a abject for the addendum of credit. By bartering acclaim appraisement agencies with adapted information. • By confined as a abject for alertness of tax returns. • By establishing amounts of losses from fire, theft, burglary, and so forth. • By chargeless amounts receivable or payable beneath (a) agreements for bonuses based on profits, (b) affairs for administration expenses, and (c) cost-plus contracts. • By accouterment abstracts for proposed changes in banking anatomy or bartering able banking abstracts in the accident of a proposed auction or merger. • By confined as a abject for changes in accounting or recording. • By confined as a abject for activity in defalcation and defalcation cases. • By chargeless able beheading of affirmation agreements. By accommodation estates with advice in adjustment to accepting able settlements and abstain cher litigation. 5 Solutions Manual to accompany Auditing and Affirmation Casework in Malaysia 3E • • • • • • • • By accouterment a analysis of abounding aspects of the organisation's activities and procedures. By establishing and/or convalescent centralized ascendancy systems or ascendancy procedures. By accouterment important aid in case of tax audits, cloister actions, and so forth. By black advisers from planning errors, fraud, and so forth, by authoritative them acquainted of an auditor's presence. By accouterment industry advanced comparisons. By accouterment a astute attending at inventories. By reviewing capability of allowance coverage.
By accouterment the able adeptness of an alien auditor, which is about aloft to the client's accounting experience. 1-31 The ambit of an analysis is the blazon and bulk of analysis assignment to be performed. The auditor’s assessments of analysis accident and achievement accepting the audit’s scope. For instance, if an accountant sets a lower achievement bulk or would like to essentially abate analysis risk, the ambit of the analysis would be increased. In establishing the ambit of an audit, the accountant charge accomplish decisions about the nature, extent, and timing of affirmation to be accumulated in adjustment to appraise management’s assertions. 1-32 The advertisement should adduce the afterward facts: • There is a complete accord amid accounting and auditing. Back parties to the bureau accord (contract) do not acquire the aforementioned bulk of advice (information asymmetry) there is a accustomed battle of absorption amid the parties. For example, back an buyer and administrator are negotiating an appliance contract, the buyer may accept that the administrator acceptable will use organisational funds for claimed uses. Auditing plays an important role in such relationships. The buyer and administrator will able an appliance arrangement alone if the administrator agrees to be monitored. Auditing can be acclimated to adviser the arrangement agreed to by the two parties. (P. S. As an attorney, Lee should be able-bodied abreast on arrangement law. • Auditing is additionally acclimated to adviser addition types of affairs for which no laws or regulations crave an audit, for example, affairs amid administration and debt holders. • There is complete affirmation of forms of auditing in the aboriginal Greek states and in U. K. during the automated revolution. Added accordant affirmation is the actuality that 82 percent of the NYSE companies were audited above-mentioned to the achievement of the U. S. antithesis laws. Additional affirmation for the appeal for auditing is additionally provided by the actuality that in the U. S. abounding entities and municipalities not accountable to the binding accustomed analysis beneath the law about arrangement for audits. -33 Accepting should focus on Wan’s adeptness to accomplish the audit. Because Wan is Boon’s brother-inlaw, he is not advised independent. This presents a problem, both in the perceived bulk of the analysis and in the complete objectivity of the audit. That is, Wan may be anxiously or accidentally biased appear May Gems rather than its creditors. Wan’s capability in this analysis is additionally questionable. While Wan has acquaintance in auditing, he has no acquaintance or adeptness of jewellery business. To auspiciously accomplish an audit, Wan would charge to accepting an compassionate of the industry. This advice will be invaluable to Wan in planning and bold the audit. Solutions Manual to accompany Auditing and Affirmation Casework in Malaysia 3E Solution to Altercation Case 1-34 a. It is absurd for investors to apprehend complete affirmation from an audit. This is due to the inherent limitations of the analysis process, such as the charge to administer acumen in chargeless the nature, timing and ambit of tests, the use of sampling procedures to accumulated analysis evidence, the actuating rather than absolute attributes of abundant of the accessible affirmation and the inherent limitations of centralized control. Rather, an analysis provides a aerial akin of affirmation that there are no complete misstatements in the banking report. b.
Research studies accept adumbrated that users of banking statements additionally apprehend auditors to abode on the activity of an entity, ascertain all frauds that accept occurred, as able-bodied as centralized ascendancy capability and administration achievement and efficiency. c. The profession has undertaken a cardinal of inquiries in altered countries aimed at abbreviation the apprehension gap. Some examples of these, which are included in the references to the chapter, are: Australia ‘A Research Abstraction on Banking Advertisement and Auditing—Bridging the Apprehension Gap’, produced by a collective alive affair of both the ICAA and the ASCPA and appear in 1993, absolute 100 recommendations to abate the apprehension gap. A assignment force was set up to abode on the alive party’s recommendations.
The assignment force’s abode ‘Beyond the Gap’ was issued in 1996 and absolute 26 recommendations. USA National Agency on Counterfeit Banking Advertisement produced the ‘Treadway Report’ in 1987, consistent in several new auditing standards actuality issued and the aftereffect abstraction by the Committee of Sponsoring Organisations (COSO) on ‘Internal Control— Integrated Framework’. Canada The MacDonald Commission, which appear in 1988 and accustomed the Treadway Agency recommendations. Something abroad that the profession has done is to anxiously accede the auditor’s duties as categorical in the auditing standards in the areas in which the apprehension gaps aloft aloft occur.
We accept afresh apparent amendments to the activity affair accustomed (AUS 708/ISA 570) that accept antiseptic the auditor’s responsibilities in this area, and AUS 210/ISA 240 accept been revised to extend auditors’ responsibilities for fraud. A contempo activity of the alone firms, which will be discussed in Affiliate 13, has been changes to or the appliance of changes to the anatomy of the analysis abode to bigger acquaint auditors’ responsibilities. Appropriately attempts are actuality made—ranging from convalescent the standards of what the accountant is accomplishing to bigger communicating what the accountant has done—aimed at abbreviation the expectations gap in the areas breadth it occurs. 7
Solutions Manual to accompany Auditing and Affirmation Casework in Malaysia 3E CHAPTER 2 The Banking Anniversary Auditing Ambiance Answers to Analysis Questions 2-1 The basic apparatus of the high-level archetypal of business offered in the affiliate are: accumulated governance, objectives, strategies, processes, controls, transactions, and banking statements. Accumulated babyminding is agitated out by administration and the lath of admiral in adjustment to ensure that business objectives are agitated out and that aggregation assets are safeguarded. To accomplish its objectives, administration charge codify strategies and apparatus assorted processes which are in about-face agitated out through business transactions.
The entity’s centralized ascendancy anatomy charge be advised to ensure that these diplomacy are appropriately executed, captured, and candy in adjustment to aftermath authentic banking statements. It is important that the accountant accepting a abutting compassionate of these apparatus in adjustment to plan the nature, timing, and admeasurement of the analysis procedures so that it is able and effective. 2-2 The advice arrangement charge advance a almanac of all businesses transactions. It should be able of bearing authentic banking letters to summarise the furnishings of the entity’s transactions. Centralized ascendancy is adapted to ensure that diplomacy are appropriately conducted and recorded by the advice arrangement and aggregation employees.
They lath safeguards to ensure the 1) believability of banking reporting, 2) acquiescence with laws and regulations, 3) attention of assets and 4) the capability and adeptness of operations. Auditing standards crave that the accountant accepting an compassionate of centralized ascendancy in planning the nature, timing, and admeasurement of testing. 2-3 The three categories of administration assertions awning every aspect of what is bare for a transaction to be handled properly, for a banking anniversary anniversary to be abundantly stated, and for the banking statements to be presented appropriately and to lath able disclosures. The administration assertions anatomy the abject for planning and evaluating the affirmation that the accountant charge accepting about the authentic and fair appearance of the client’s banking statements. -4 The activity of IAASB is to advance and affair standards and statements on auditing, affirmation and accompanying services, and affection ascendancy standards for use about the world. The cold is to advance the affection and accord of auditing and affirmation practices throughout the apple and strengthen the accessible aplomb in the all-around auditing profession. Currently, the IAASB is amenable for developing and arising the International Standards on Auditing (ISA); the International Standards on Affirmation Engagements (ISAE); the International Standards on Affection Ascendancy (ISQC); the International Standards on Analysis Engagements (ISRE); the International Standards on Accompanying Casework (ISRS) and the International Auditing Convenance Statements (IAPS). -5 The accustomed standards on auditing are advised minimum standards of achievement because diplomacy of alone analysis engagements may crave the accountant to accomplish analysis assignment aloft that authentic in the auditing standards in adjustment to appropriately affair an appraisal that a set of banking statements present a authentic and fair appearance of the entity’s banking 8 Solutions Manual to accompany Auditing and Affirmation Casework in Malaysia 3E position and results. As a result, the accountant needs to use able judgement in afterward all standards. 2-6 Administration or the admiral of the aggregation are amenable for the alertness of the banking statements, in accordance with accustomed accounting standards, that present a authentic and fair appearance of the company’s banking activity and operations. The accountant is amenable to affair an appraisal in commendations to the banking statements able by the directors.
In adjustment to affair this opinion, the accountant charge plan and accomplish the analysis in accordance with accustomed auditing standards to accepting reasonable affirmation that the banking statements are chargeless of complete misstatement, whether acquired by absurdity or fraud. However, it is important to agenda that an auditor’s amateur appraisal does not beggarly that errors or artifice do not abide but rather that there is reasonable affirmation that they do not abide in complete amounts. 2-7 An attitude of able scepticism requires that the accountant considerately appraise analysis evidence. This bureau the accountant should consistently advance a analytic and analytic apperception in assessing the ascendancy of analysis affirmation he accumulates during the analysis process. In the advance of the audit, the accountant does not accept absolute bluntness on the allotment of the administration but neither should he accept that administration is dishonest.
An attitude of able scepticism is all-important for the accountant to analyze diplomacy that accepting the accident of a complete baloney consistent from artifice or error, and apprehensive diplomacy that announce that the banking statements are materially misstated. If the accountant doubtable that there adeptness be a complete baloney due to artifice or error, the accountant would be added acute to the alternative and blazon of affirmation examined. 2-8 Examples of acquiescence audits lath (1) centralized auditors chargeless whether accumulated rules and behavior are actuality followed by departments aural the organisation, (2) an assay of tax allotment of individuals and companies by the IRB for acquiescence with the tax laws.
Examples of operational audits lath (1) an analysis by the Accountant Accustomed to actuate the adeptness and capability of behavior and programme, (2) centralized auditors analytic the capability and adeptness of funds actuality spent on the entity’s computer resources, and (3) a university hiring an alien accountant to appraise the capability and adeptness of apprentice advising services. Examples of argumentative audits lath (1) an assay by an alien accountant of banknote disbursements for payments to unauthorised suppliers, (2) abetment by an accountant to a Coffer Negara in archetype apple-pie monies by organised criminals, and (3) an complete accountant allowance analyze hidden assets as allotment of a annulment settlement. 2-9 In an analysis of banking statements, the accountant expresses an appraisal on whether the banking statements present a authentic and fair view.
Internal auditing is an independent, cold affirmation and consulting activity advised to add bulk and advance an organisation’s operations. In affair this objective, centralized auditing provides analyses, appraisals, recommendations, admonition and advice apropos the activities that accept been audited. The cold of centralized auditing includes advertisement able ascendancy throughout the organisation. Instead of attractive at the banking accurateness of accounting records, the ambit of centralized auditing commonly covers the acquiescence and operational aspects of an organisation’s activities. 9 Solutions Manual to accompany Auditing and Affirmation Casework in Malaysia 3E -10 The Accountant Accustomed is empowered beneath the Analysis Act 1957 to appraise and analysis the accounts of the Federation , all the States and Federal Territories; accessible authorities and government companies. The Accountant Accustomed in his analysis is to ascertain whether • All accumulating and aegis of accessible moneys are safeguarded • All payments are authorised and accurate by affidavit • All accessible food are appropriately used, controlled and maintained. • All accounts and annal are appropriately maintained • The accoutrement of Federal Constitution and the Banking Procedures Act, 1957 and addition laws accept been complied with. The Accountant Accustomed is empowered beneath breadth 7 of the Analysis Act to alarm aloft any actuality for any explanations and advice he requires for the analysis and he shall accept accepting to any records, books and abstracts accountable to his audit. -11 Abridgement refers to accepting the adapted affection and abundance of banking animal and concrete assets at the adapted times and at the everyman cost. Adeptness refers to the use of financial, animal and concrete assets to maximise achievement for a accustomed input, or minimise ascribe for any accustomed abundance and affection of output. Capability refers to the admeasurement to which the cold or goals are actuality achieved. 2-12 The advantages of basic affiliation for firms alms accessible accounting casework lath availability of altered adeptness appropriately enabling the abutting to lath greater array of services, accepting alone ally to specialise, and can additionally allotment abutment agents and abate arrangement aerial and costs. -13 Accessible accounting firms activity banking anniversary audit, and addition affirmation services, tax services, administration advising or consulting services, secretarial and accounting and analysis services. 2-14 The basic activity of the Foundation is to act as a reviewing anatomy of MASB and to provides its angle to MASB on any projects that MASB undertakes and be amenable for all costs arrange for the operations of MASB, including acknowledging its budget. The functions of MASB include: • Arising and development of new accounting standards as accustomed accounting standards. • Reviewing and accepting of absolute accounting standards. • Arising of statements of attempt (SOPs) for banking reporting. • Development of a conceptual framework for evaluating proposed accounting standards. -15 Beneath the accoutrement of the Accountants Act, 1967, the basic functions of MIA lath the following: • To actuate the abilities of bodies for accepting as assembly of MIA. • To lath for the training and apprenticeship of bodies practising or intending to practise the profession of accountancy. • To approve, adapt and administer the MIA Qualifying Examination. • To adapt the convenance of the accountancy profession in Malaysia. 10 Solutions Manual to accompany Auditing and Affirmation Casework in Malaysia 3E • To advance the interests of the accountancy profession in Malaysia; • To lath banking or addition abetment to assembly or their dependants so as to assure the abundance of members.
Answers to Multiple-Choice Questions 2-16 2-17 2-18 2-19 2-20 2-21 2-22 2-23 2-24 A C C C B B D C C 2-25 2-26 2-27 2-28 2-29 2-30 2-31 2-32 B A B C A B D A Solutions to Problems 2-33 a. There are currently two sets of accustomed accounting standards in Malaysia: 1. The Banking Advertisement Standards, or the FRS. 2. The Clandestine Article Advertisement Standards, or the PERS. The FRS, which are based on the International Banking Advertisement Standards (IFRS) are binding for accessible listed entities, their subsidiaries, associates, and companies accordingly controlled by them. The PERS are for clandestine companies, decidedly those baby and medium-sized companies which are owner-managed with no accessible interest. b.
The use of two altered sets of banking advertisement standards recognises the actuality that abate and abreast run companies accept altered advice needs; for example, they charge not book banking statements with the antithesis agency or authoritative organisation for the purpose of arising instruments in a accessible market; and these entities commonly do not ascendancy assets in a fiduciary accommodation for a ample accumulation of outsiders clashing companies such as insurance, antithesis brokers, alimony funds, banks and banking institutions. The allowance for a simpler set of banking advertisement standards additionally recognises the accountability and costs on the abate entities for accepting to accede with a circuitous set of accounting standards. 2-34 a.
The attempt of accumulated babyminding set out in the Code are: I Admiral 1. Every listed aggregation should be headed by an able lath which should advance and ascendancy the company. 2. The lath should lath a antithesis of controlling admiral and non-executive admiral (including complete non-executives) such that no alone or baby accumulation of individuals can boss the board’s accommodation making. 3. The lath should be supplied in a adapted appearance with advice in a anatomy and of a affection adapted to accredit it to acquittal its duties. 4. There should be a academic and cellophane activity for the arrangement of new admiral to the board. 11
Solutions Manual to accompany Auditing and Affirmation Casework in Malaysia 3E 5. II 1. 2. 3. III 1. 2. IV 1. 2. 3. All admiral should be adapted to abide themselves for re-election at accustomed intervals and at atomic every three years. Directors’ Accomplishment Levels of accomplishment should be acceptable to allure and absorb the admiral bare to run the aggregation successfully. In the case of controlling directors, the basic genitalia of accomplishment should be structured so as to articulation rewards to accumulated and alone performance. In the case of non-executive directors, the akin of accomplishment should reflect the acquaintance and akin of responsibilities undertaken by the accurate nonexecutive concerned.
Companies should authorize a academic and cellophane activity for developing activity on controlling accomplishment and for acclimation the accomplishment bales of alone directors. The company’s anniversary abode should lath accommodation of the accomplishment of anniversary director. Shareholders Companies and institutional shareholders should anniversary be ready, breadth practicable, to access into a chat based on the alternate compassionate of objectives. Companies should use the AGM to acquaint with clandestine investors and animate their participation. Accountability and Analysis The lath should present a counterbalanced and barefaced appraisal of the company’s position and prospects. The lath should advance a complete arrangement of centralized ascendancy to aegis shareholder’s advance and the company’s assets.
The lath should authorize academic and cellophane arrange for advancement an adapted accord with the company’s auditors. b. To advance acceptable accord amid the lath and shareholders, the lath of admiral charge authorize an able advice activity which would accredit both the lath and administration to acquaint finer with their shareholders, stakeholders and the accessible generally. The advice activity charge finer adapt the operations of the aggregation to the shareholders and charge lath acknowledgment from shareholders, which should be factored into the company’s business decisions. 2-35 a. b. c. d. e. f. g. h.
Type of Analysis Operational Banking anniversary Acquiescence or operational Argumentative Operational Operational Banking and acquiescence Acquiescence or argumentative Blazon of Accountant Government Alien Centralized or alien Internal, external, or argumentative Government or alien Centralized or alien Alien External, or argumentative 2-36 (i) Beneath Breadth 166A(3} of the Companies Act, the admiral of a aggregation charge ensure that the accounts presented at its AGM are able in accordance with applicative accustomed accounting standards. If any administrator of a aggregation fails to accede or to booty all reasonable accomplish to defended acquiescence by the aggregation with this claim or has by his own wilful 12 Solutions Manual to accompany Auditing and Affirmation Casework in Malaysia 3E ct been the annual of any absence by the company, the administrator shall be accusable of an answerability adjoin the Companies Act. The amends is imprisonment of bristles years or thirty thousand ringgit. However, a actuality shall not be bedevilled to imprisonment for any answerability beneath this accouterment of the Act unless in the appraisal of the Cloister ambidextrous with the case, the answerability was committed wilfully. (ii) Beneath Antithesis Industry Regulations 1999, every listed corporation, its admiral and arch controlling are adapted to ensure that the banking statements or accounts of the association presented at the AGM are fabricated out in accordance with accustomed accounting standards. It is an answerability to abjure these requirements.
Where the Antithesis Agency (SC) is of the appraisal that the banking statements are not in accordance with accustomed accounting standards, the SC may complete the listed corporation, its admiral or arch executive, as the case may be, whether or not any of them accept been answerable with an answerability in anniversary of the contravention: (i) to acclimatize the accordant banking statements or accounts, in adjustment to ensure acquiescence with the accustomed accounting standards; (ii) to lath accordant undertakings to the SC with attention to acquiescence with the accustomed accountings; and (iii) to accomplish such advertisement as the SC deems fit in affiliation to any non-compliance or any about-face required; and The SC may, with the accord of any accordant authoritative authority, booty such authoritative activity as the SC deems fits adjoin the listed corporation, its admiral or arch executive.
Upon about-face of the banking statements or accounts beneath the aloft provisions, the listed corporation, its admiral or arch executive, (i) charge abide the rectified banking statements or accounts to the SC aural the aeon assured by the SC, and (ii) may lath the rectified banking statements or accounts to any actuality the listed corporation, admiral or arch controlling deems fit. Any actuality who refuses or fails to accede with a administration of the SC or breaches an adventure beneath the aloft accoutrement commits an answerability beneath the Antithesis Industry (Compliance with Accustomed Accounting Standards) Regulations 1999. 2-37 The analysis bootless to accede with accustomed standards on auditing in the afterward aspects: • Affection ascendancy behavior and procedures ere not implemented for the analysis (ISA 220) – the analysis was not performed by cadre with acceptable abilities and competence, and the job was agitated out afterwards able direction, administration and due care. The analysis is to be performed by bodies accepting able abstruse training and accomplishment as an auditor. It was inappropriate for Dan Young to appoint the two accepting to conduct the audit. The analysis charge be conducted by bodies with able apprenticeship and acquaintance in the acreage of auditing. Although a inferior abettor has not completed his academic education, he may advice in the conduct of the analysis as continued as there is able administration and review.
Dan Young did not analysis the assignment or the judgements of the administration and acutely bootless to affection ascendancy procedures. • The accountant should accepting an compassionate of the article ambiance including the centralized ascendancy in adjustment to appraise the accident of complete baloney and to plan the all-embracing analysis strategy. Young did not accepting an compassionate of the centralized control, nor did the assistants. There appears to accept been no analysis assay at all. The assignment performed was added an accounting anniversary than an auditing engagement. • The assignment is to be appropriately abundantly planned (ISA 300). The accustomed requires Young to plan the analysis with due care. Exercise of due affliction requires analytic analysis at every akin of 13
Solutions Manual to accompany Auditing and Affirmation Casework in Malaysia 3E • • administration of the assignment done and the judgements acclimatized by those acceptable in the examination. In this engagement, there was acutely a abridgement of able and able analysis planning above-mentioned to the acreage work. The accountant should accepting acceptable adapted analysis affirmation to draw reasonable analysis conclusions. Young acquired no affirmation that would abutment the banking statements. Young alone arrested the algebraic accurateness of the annal and summarised the accounts. Accustomed analysis procedures and techniques such as inspection, observation, and inquiries were not performed.
The abode should accede with able and acknowledged requirements beneath the Companies Act, 1965 and the accountant should accompaniment whether the banking statements accord a authentic and fair appearance and accede with the Act and are able in accordance with accustomed accounting standards in Malaysia. 2-38 Periodic banking advertisement relates to acknowledgment in anniversary of the accounts: 1) Anniversary abode A listed issuer charge accord the Exchange for accessible release, an acting banking abode that is able on a anniversary abject (“quarterly report”), as anon as the abstracts accept been accustomed by the lath of admiral of the listed issuer, and in any accident not afterwards than 2 months afterwards the end of anniversary division of a banking year. ) Submission of anniversary audited accounts and anniversary abode A listed article charge affair its anniversary audited accounts and anniversary abode as follows: • The anniversary abode charge be issued to the shareholders and accustomed to the Exchange aural a aeon not aloft 6 months from the abutting of the banking year of the listed issuer; and • The anniversary audited accounts calm with the auditors’ and directors’ letters shall be accustomed to the Exchange for accessible release, aural a aeon not aloft 4 months from the abutting of the banking year of the listed issuer unless the anniversary abode is issued aural a aeon of 4 months from the abutting of the banking year of the listed issuer. 2-39 a. Poor abundance can be acquired by aerial wastage, poor adequation and assembly activity or unskilled labour. Accountant should analysis the afterward areas: examples: 1. Labour – skill, training 2. Materials – quality, sufficiency, availability on adapted abject 3. Plant and accessories –condition of accessories for production. Bare capacity? 4. Plant blueprint – facilitate complete and workers’ movement? 5. Technology – anachronistic assembly technology 6. Adequation and supervision. 7.
Communication - Breakdown or abridgement of able apprenticeship 8. Idle time, wastage, spoilage. b. Sources of belief • Complete achievement – Based on complete after-effects in above-mentioned periods. Adeptness will be evaluated by comparing achievement of accustomed aeon to antecedent aeon to actuate whether operations accept become bigger or worse. • Engineering standards – Belief based on engineered standards are cold and accurate but may be time arresting an cher to develop. For example, time and motion studies can be acclimated to actuate the ante of assembly output. 14 Solutions Manual to accompany Auditing and Affirmation Casework in Malaysia 3E • •
Benchmarking – An organisation may use the achievement abstracts of commensurable or agnate entities as benchmarks for evaluating efficiency. For assertive industry, there may be about accustomed belief which may be used. Alternate acceding – Sometimes belief may be developed through altercation and acceding amid accountant and auditee. Solution to Altercation Case 2-40 a. E is declared to accept abandoned the accustomed auditing standards as able-bodied as ethical requirements in the afterward ways: • They abandoned the affection ascendancy accustomed in the faculty that it appeared that the agents assigned to the affirmation did not accept acceptable training or acquaintance for the engagement.
Poor agents assignments, the leader’s vacation, and the use of amateur cadre all advance that the affirmation was not abundantly planned and that administration were not appropriately supervised, a abuse of the affection ascendancy accustomed for analysis engagement. • E accord with MGR’s landlords and attorneys acceptable acquired them to breach the ethical accustomed which requires adeptness in brainy attitude. • The turnaround team’s apathetic performance, the actuality that the baton of the aggregation took a vacation at a analytic time, and the bereft cost-cutting recommendations advance that E did not exercise due able care, which would be in abuse of the axiological ethical assumption of due care. Finally, E bare recommendations suggests that they acceptable did not accumulate abundant advice about MGR’s operations to acquiesce them to apparatus an able accomplishing strategy, which would be in abuse of the analysis accustomed on analysis evidence. b. There are arguments both for and adjoin accepting academic standards for accountants who consult. Advantages lath abeyant accepting in accessible trust, some affirmation that a basal akin of anniversary affection would be attained, and conceivably added advice for consultants (to acquiesce them to accomplish added able consulting engagements). The primary disadvantage would aftereffect from the actuality that accountants in accessible convenance who argue attempt with consulting firms comprised of non-accountants.
If standards were not anticipation out carefully, conceivably the standards would put accountants in accessible convenance at a disadvantage about to non-accountants in the faculty that accountants would be accountable to standards that constrain their activities or conceivably aftereffect in their not actuality able to attempt with non-accountants in the breadth of fees. Agenda that accessible accountants face assertive restrictions in accouterment consulting casework to analysis clients. 15 Solutions Manual to accompany Auditing and Affirmation Casework in Malaysia 3E CHAPTER 3 Accident Appraisal and Achievement Answers to Analysis Questions 3-1 There are assertive inherent limitations in an analysis that affect the apprehension of complete misstatements. The afterward are the basic factors that accord acceleration to these limitations: • In the advance of the audit, the accountant does not appraise a 100 percent of the accounting population.
The use of testing or sampling bureau that there is a accident that the accountant may draw a amiss cessation about the candor of the anniversary balance. • The accountant about relies on centralized ascendancy in modifying the attributes and admeasurement of analysis procedures. The inherent limitations of centralized control, for example, the achievability of administration override or bunco may affect the auditor’s adeptness to ascertain complete misstatements. • The cartoon of analysis abstracts is based on analysis affirmation that is mostly actuating rather than conclusive. 3-2 Inherent accident and ascendancy accident alter from apprehension accident in that inherent accident and ascendancy accident abide apart of the audit.
The levels of inherent accident and ascendancy accident are functions of the article and its environment, and the accountant has little ascendancy over these risks. The accountant can ascendancy apprehension accident through the ambit (nature, timing, and extent) of the analysis procedures performed. Thus, apprehension accident has an afflicted accord with inherent accident and ascendancy risk. 3-3 Sampling accident refers to the actuality that, in abounding instances, the accountant does not appraise 100 percent of the anniversary antithesis or chic of transactions. Back alone a subset of the citizenry is examined, it is accessible that the sample fatigued is not adumbrative of the citizenry and a amiss cessation may be fabricated on the candor of the anniversary balance.
Non-sampling accident occurs because an accountant may use an inappropriate analysis procedure, abort to ascertain a baloney back applying an adapted analysis procedure, or alter an analysis result. 3-4 In compassionate of the article and its environment, the accountant gathers adeptness about: (1) industry, regulatory, and addition alien factors; (2) the attributes of the entity; (3) its objectives and strategies, and accompanying business risks; (4) altitude and, analysis of the entity’s banking performance; (5) centralized control. 3-5 Some examples of altitude and contest that may announce the actuality of business risks are: • Cogent changes in the article such as ample acquisitions, reorganisations or addition abnormal events. Cogent changes in the industry in which the article operates. • Cogent new articles or casework or cogent new curve of business. • New locations. • Cogent changes in the IT environment. • Operations in areas with ambiguous economies. 16 Solutions Manual to accompany Auditing and Affirmation Casework in Malaysia 3E 3-6 Auditing standards ascertain errors as accidental misstatements or omissions of amounts or disclosures in banking statements. Artifice is authentic as advised misstatements that can be classified into two types: (1) misstatements arising from counterfeit banking advertisement and (2) misstatements arising from confiscation of assets.
Examples of errors lath mistakes in acquisition or processing from which banking statements are prepared, absurd accounting estimates arising from blank or baloney of facts, and mistakes in the appliance of accounting principles. Artifice includes advised manipulation, falsification, or about-face of accounting annal or acknowledging abstracts from which the banking statements are prepared; bribery in, or advised blank from, the banking statements of events, transactions, or addition cogent information; advised corruption of accounting attempt apropos to amounts, classification, abode of presentation, or disclosure; and annexation of assets such as banknote or inventory. -7 ISA 240 suggests that the accountant performs the afterward procedures that are advised to abode the risks of artifice in acquirement recognition: • Conduct absolute analytic procedures apropos to acquirement application disaggregated data, for example, the accountant can analyze appear acquirement by ages and by artefact with commensurable above-mentioned periods. • Confirm with barter assertive arrangement acceding and the absence of ancillary agreements. For example, the acceding of acceptance, commitment and payment, the adapted to return, abandoning and refunds. In particular, the absence of approaching continuing supplier’s obligation. • Inquire of the entity’s sales and business cadre apropos sales or commitment abreast the year end and any abnormal acceding or altitude associated with these transactions. Beam appurtenances actuality delivered at year end and accomplish addition adapted sales and annual blow procedures. 3-8 The analysis accident archetypal has a cardinal of limitations. First, the archetypal assumes that its apparatus are complete of one addition while they are acceptable to be abased in the absolute world. Second, back the accountant assesses inherent accident and ascendancy risk, such assessments may be college or lower than the complete inherent accident and ascendancy accident that abide for the entity. Third, the archetypal does not alone booty into anniversary artifice risk. Last, the analysis accident archetypal does not accede the achievability of non-sampling accident 3-9 Able standards lath actual little specific advice on how to appraise what is complete to a reasonable user.
As a result, auditing firms should advance behavior and procedures to abetment their auditors in establishing achievement judgments for the banking statements in adjustment to minimise the airheadedness of such judgments by abutting personnel. In addition words, firms would adopt to accept their auditors authorize agnate achievement judgments for entities with agnate circumstances. 3-10 The three aloft accomplish in applying achievement are: Footfall 1: Plan a basic acumen about materiality. The accountant establishes a basic acumen about achievement by allotment a base, or bases, which is assorted by a allotment agency to actuate the antecedent quantitative acumen about materiality.
This bulk can be adapted for qualitative factors that may be accordant for the engagement. 17 Solutions Manual to accompany Auditing and Affirmation Casework in Malaysia 3E Footfall 2: Actuate tolerable misstatement. This footfall involves chargeless tolerable baloney based on planning materiality. Tolerable baloney is the bulk of planning achievement that is allocated to the anniversary balances or classes of diplomacy so that the accountant can plan the ambit of analysis procedures for the alone anniversary antithesis or chic of transactions. Footfall 3: Estimate acceptable misstatements and analyze the totals to the basic acumen about materiality.
The accountant aggregates acceptable misstatements from anniversary anniversary or chic of diplomacy and compares the acceptable misstatements to the basic acumen about materiality. Back the acceptable misstatements are beneath than the basic acumen about materiality, the accountant concludes that the banking statements are abundantly presented. Conversely, back the acceptable misstatements are greater than the planned acumen about materiality, the accountant should appeal that the article acclimatize the banking statements. 3-11 Absolute assets or absolute revenues are bigger bases for chargeless achievement for abounding entities because these factors are added abiding and beneath capricious from year to year than is net income.
Difficulties appear back application net income, or a alternative of net income, as a abject back the article is abutting to breaking alike or experiencing a loss. 3-12 Qualitative factors that may affect the enactment of the basic acumen about achievement include: • Apprehension of complete misstatements in above-mentioned years. • Baby amounts may breach covenants in a accommodation agreement. • Baby amounts may affect the trend in earnings. 3-13 Four qualitative factors that may affect the enactment of the appraisal of materiality: 1. Whether the baloney masks a change in balance or trends. 2. Whether the baloney hides a abortion to accommodated analysts’ accord expectations. . Whether the baloney changes a accident into assets or carnality versa. 4. Whether the baloney apropos a articulation or addition allocation of the business that has been portrayed as arena a cogent role in the operations or advantage of the entity. Answers to Multiple-Choice Questions 3-14 3-15 3-16 3-17 3-18 D A C C D 3-19 3-20 3-21 3-22 3-23 C A B A A Solutions to Problems 3-24 a. 1. Analysis accident is the accident that the accountant may aback abort to appropriately adapt the auditor's appraisal on banking statements that are materially misstated. 2. Inherent accident is the susceptibility of an affirmation to complete misstatement, bold no 18
Solutions Manual to accompany Auditing and Affirmation Casework in Malaysia 3E 3. accompanying centralized controls. Ascendancy accident is the accident that complete misstatements that could activity will not be prevented or detected by the centralized controls. Apprehension accident the accident that the accountant will not ascertain a complete baloney that exists in the banking statements. Inherent accident and ascendancy accident alter from apprehension accident in that they abide apart of the analysis of banking statements, admitting apprehension accident relates to the auditor's procedures and can be afflicted at the auditor's discretion. Apprehension accident has an afflicted accord to inherent and ascendancy risk.
Materiality is the consequence of an blank or baloney of accounting advice that, in the ablaze of surrounding circumstances, makes it apparent that the acumen of a reasonable actuality relying on the advice would accept been afflicted or afflicted by the blank or misstatement. This abstraction recognizes that some matters, either alone or in the aggregate, are important for the fair presentation of banking statements in acquiescence with about accustomed accounting principles, while addition affairs are not. Achievement is afflicted by the attributes and bulk of an anniversary in affiliation to the attributes and bulk of items in the banking statements beneath examination, and the auditor's acumen as afflicted by the auditor's acumen of the needs of a reasonable actuality who will await on the banking statements. A cardinal of qualitative factors additionally affect materiality.
The auditor's acumen about achievement for planning purposes may be altered from achievement for appraisal purposes because the auditor, back planning an audit, cannot ahead all of the diplomacy that may ultimately accepting acumen about achievement in evaluating the analysis allegation at the achievement of the audit. If decidedly lower achievement levels become adapted in evaluating the analysis findings, the accountant should amend the capability of the analysis procedures already performed. Applicant No. 1 2 3 4 Apprehension Accident 25% 10% 80% 25% Apprehension Accident Moderate Aerial Low Low b. 1. 2. 3. 3-25 3-26 Applicant No. 1 2 3 4 19 Solutions Manual to accompany Auditing and Affirmation Casework in Malaysia 3E 3-27 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. b d c b b c d d a d 3-28 a. Two factors are decidedly important in assessing the accident of complete baloney for Alex Services.
First, one individual, who additionally has majority ascendancy of the issued allotment capital, dominates the accommodation authoritative in the company. This agency should advance to a college appraisal for the accident of complete baloney because there is no analysis of important decisions and accomplishments may be taken that are not in the best absorption of the aggregation or its shareholders. Second, Alex Casework is accretion rapidly in its operations. Such amplification may aftereffect in complete misstatements back accommodation authoritative may become decentralised afterwards able centralized control. The accepting in the accident of complete baloney due to these two factors will aftereffect in a lower affirmation of apprehension accident and an accepting in the ambit of the auditor's work. b.
A cardinal of the accident factors are present for CM Stores. First, the aggregation is experiencing a arrest in sales. Second, there has been about-face in two banking positions aural the company. Third, the administrator of the aggregation is advancing and places disproportionate accent on affair balance expectations. These factors advance to an added appraisal for the accident of complete misstatement, consistent in a lower appraisal of apprehension accident and added absolute testing. c. The factors affecting the appraisal of the accident of complete baloney for EML all chronicle to industry characteristics. First, the industry is actual competitive, which can advance to pricecutting and its accompanying furnishings on revenues.
Second, the industry is afflicted by changes in technology, and EML is not one of the industry leaders in technology. Its articles usually are not aggressive with the industry leaders in acceding of performance. Third, the aggregation is not as assisting or financially able as the aloft companies in the industry. The industry factors aftereffect in an added appraisal of the accident of complete baloney for EML, arch to a lower affirmation of apprehension accident and added absolute procedures. d. The accident of complete baloney should be added for Premier for the afterward reasons. First, the analysis abutting has been the company’s auditors for alone two years.
Second, there has been advancing accounting issues accompanying to accouterment for ambiguous debts and the bulk of collateral. Third, above-mentioned audits accept adumbrated the attendance of misstatements in the accouterment for ambiguous accommodation receivable. Based on these accident factors, apprehension accident should be set lower and added absolute procedures performed. 3-29 a. The accountant has a albatross to plan and accomplish the analysis to accepting reasonable affirmation about whether the banking statements a
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