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TEST 1 AUD339 APR2019 SS
Auditing (AUD339)
Universiti Teknologi MARA
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UNIVERSITI TEKNOLOGI MARA
COMMON TEST
ANSWER SCHEME
COURSE : AUDITING
COURSE CODE : AUD
EXAMINATION : APRIL 2019
TIME : 1 HOUR 30 MINUTES
QUESTION 1
a. The auditing standards contain basic principles and essential procedures for performing the audit. Compliance to the standards would ensure consistency of practices among auditors and maintenance of high quality standards that are expected from the audit. √√√ (3 √ x 1 mark = 3 marks)
b. Management responsibilities Auditor’s responsibilities
i. Preparation of yearly financial statements √ ii. To maintain adequate accounting records and internal control systems. √ iii. Prevention and detection of errors, irregularities and fraud.
i. To state an opinion on the financial statements in the auditor’s report based on his independent examination. √ ii. To provide reasonable assurance that financial statements are free from material misstatements. √ iii. Audit performed with due care and professional competence. (Any 4 √ x 1 mark = 4 marks
c. The agency theory: It is about a contract under which one or more persons (the principal/s engage another person (the agent) to perform services on behalf, which involve delegating some decision making auhority to the agent. In the context of auditing, the agency relationship exists between owners (shareholders) and management (agent) resulting in conflict of interest due to information asymmetry. Audit is needed to safeguard the interest of the shareholders. √√√√ (4 √ x 1 mark = 4 marks)
d. (i) Regulations – Malaysian Companies Act 2016 requires that companies must undergo an examination by external auditors. In addition, when companies want to issue new shares, a report by auditors is required to be part of the prospectus. √√
(ii) External parties – Various external parties interested with the financial statements prepared by management. There is a potential conflict of interest between the preparer and those who use the financial statements. The independent auditor (by furnishing an independent opinion on the financial reports prepared by management) provides some assurance of the reliability of the financial reports. √√
(4 √ x 1 marks = 4 marks)
b. FOUR (4) situations where the auditor will be disqualified to be appointed as an independent auditor:
i. He is not an approved auditor ii. He is indebted to a company or to a corporation that is deemed to be related to the company by virtue of Section 7 in amount exceeding RM25,000. iii. He is or his spouse is an officer of the company iv. A shareholder or his spouse is a shareholder of a corporation. v. He is working for the company and leave the company less than 12 months. vi. He is an undischarged bankrupt within or outside Malaysia except with leave of the Court vii. He has been convicted of any offence involving fraud or dishonesty punishable with imprisonment for three months or more. (Any 4 points x 1 mark = 4 marks)
c. The Board shall appoint an auditor of the company:
a) In the case of newly incorporated companies, at least thirty days before the end of the period for the submission of the first financial statements to the Registrar, or √√√ b) To fill a casual vacancy in the office of auditor. √ (4 √ x 1 mark = 4 marks)
B.
Situation Violated/
Not violated
Reason
a. Violated √ Section 274 CA 2016: Auditor’s remuneration shall be paid by the member, Board and Registrar. In this case, Zamri fixed the amount, therefore, violated the Act. √
b. Not violated √
Section 282 CA 2016: Where an auditor resigns his office, the company shall send a copy of the notice to the Registrar within seven (7) days from the receiving of the notice of resignation. In this case, the company seven the notice three days after receiving the notice. Thus, not violated. √
c. Violated √ Section 276(1) CA2016: The members of a company may remove auditor from office at any time by ordinary resolution at a general meeting, and in accordance with section 277 (special notice for resolution to remove auditor). In this case, the management removes the auditor by issuing a removal letter. Thus, violated the CA 2016. √
d. Violated √ S281(1) states that an auditor may resign his office by giving
notice in writing to that effect to the company at its registered office. In this case, auditor immediately resign by emailing the resignation letter has violated the act. Thus, violated. √
e. Not violated
√
Section 264(1)(c)(ii) states that a person shall not act as the auditor if he is indebted to the company in an amount exceeding RM25,000. In the situation, Ismail is indebted RM10,000. As such, he did not violate the CA 2016.√
(10 √ x 1 mark = 10 marks)
(Total: 20 marks)
TOTAL: 50 MARKS
END OF SUGGESTED SOLUTION
TEST 1 AUD339 APR2019 SS
Course: Auditing (AUD339)
University: Universiti Teknologi MARA
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