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Test 2 AUD 339 Tutorial Exercise - SS
Auditing (AUD339)
Universiti Teknologi MARA
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Test 2 Tutorial Exercises
QUESTION 1
MIA’s By-Laws (On Professional Ethics, Conduct and Practice) is a set of standard of conduct for members in view of the professional responsibilities and duties owed by all members whether in public practice or otherwise, to their clients, employers, authorities and the public.
Required:
a. Explain the requirements of the MIA By-Laws (On Professional Ethics, Conduct and Practice) standard of conduct in respect of:
i. Confidentiality; and ii. Advertising, Marketing and Promotions (4 marks)
i. Confidentiality - The principle of confidentiality imposes an obligation on all Professional accountants to refrain from:
(a) Disclosing outside the firm or employing organization confidential information acquired as a result of professional and business relationships without proper and specific authority or unless there is a legal or professional right or duty to disclose; (b) Using confidential information acquired as a result of professional and business relationships to their personal advantage or the advantage of third parties.
ii. Advertising, Marketing and Promotions - In general advertising is not permitted, however;
a. It does not preclude members from issuing circulars to his/her clients with whom there has already been established a professional connection b. A member is allowed to publish firm’s name and address for purposes – advertisement for vacancies, sale of business or property on behalf of client or for certain announcement c. A member must ensure that firm’s stationery or business cards do not include a claim that the member is a specialist in any aspect of public practice.
b. Identify any THREE (3) examples of behavior that are considered discreditable to the accounting profession. (3 marks)
Careless, Neglect, Incapable, improper conduct, retaining of client (companies that auditors are engaged to audit), making false entries in the Financial Statements records,
advising client with intention to evade (avoid) tax.
(Any 3)
c. Determine any TWO (2) reasons the need for ethical conduct in auditing profession.
The need for the public confidence in the quality of service by the accounting/auditing profession. It is essential that the client and the external financial statement users have confidence in the quality of audits and other services If users do not have confidence, thus the ability of the professionals to serve the clients/public effectively is diminished/decreased.
(3 marks) (TOTAL: 10 marks) QUESTION 2
A. The MIA By-Laws (On Professional Conduct and Ethics) prescribes the standard of conduct expected of its members. Role of ethics is vital for all the accountants in conducting their jobs of accounting and auditing in a justified way.
Required:
a. State any TWO (2) basic guidance on professional behaviour of the auditors as prescribed by the fundamental principles under MIA By-Laws. (2 marks) i. In accepting or continuing a professional assignment, a member should always have regard to any factors that may affect his integrity or objectivity in relation to that assignment. ii. A member should carry out his professional work with proper regard for the technical and professional standards expected of him as a member.
b. Discuss briefly the expectation of standard of conduct of an auditor in respect of professional independence. (3 marks) Auditors must possess an attitude of mind characterized by integrity and objective approach to professional work. Auditor should be and be seen to be free from any conflict of interest. A member cannot accept appointment as auditors if he is also being appointed for providing NON-AUDIT services or vice-versa, if the appointment can impair his independence.
B. Discuss whether each of the following independent situations has violated the MIA By-Laws (On Professional Ethics, Conduct and Practice) or not. Support your answer with appropriate reasons.
i. Ahmad is an audit partner of AN, Ahmad & Co. He is an engagement partner for the audit of an audit client. His son, a fresh graduate in Civil Engineering from Universiti Teknologi MARA is an employee of the audit client.
ii. Johannsen is a Chartered Accountant; he provides audit, tax, management advisory and accounting for the same private company clients.
ii. Completeness – Check whether the existing acquisitions are recorded. Examine vendors’ invoices of closely related accounts such as repairs and maintenance to uncover items that should be recorded as equipment
b. Identify any THREE (3) examples of substantive tests, which are helpful in conducting the audit of PPE. (3 marks) i. Perform analytical procedures ii. Verify current year acquisitions iii. Verify the ending balance in the asset account iv. Verify the current year disposals
c. State any TWO (2) audit procedures in verifying disposals of PPE. (2 marks)
i. Analyze gains and losses on the disposal of assets and miscellaneous income for receipts from the disposal ii. Make inquiries of management and production personnel about the possibility of the disposal of assets.
(Any other acceptable answers) B. Cash is the only account included in every cycle except inventory and warehousing. It makes sense to study this audit area last because the evidence accumulated for cash balances depends heavily on the results of the tests in other cycles.
Required:
a. Briefly explain the importance of auditing of cash. (2 marks) Auditing of cash is importance because of its susceptibility to theft and embezzlement is greater than any other types of assets. Cash can also be significantly misstated.
b. Suggest any TWO (2) assertions with the relevant control objectives of cash balances. (4 marks) i. Existence – cash in the bank as stated on the reconciliation statement does exist. ii. Cutoff – cash receipts and cash disbursements transactions are recorded in the proper period.
c. State any FOUR (4) examples of misstatements as a result of improper payment of cash. (4 marks)
i. Duplicate payment of a vendor’s invoice ii. Improper payments of officers’ personal expenditures iii. Payment for raw materials that were not received. iv. Payment to an employee for more hours than he or she worked.
(Any other acceptable answers)
d. For each audit procedures, determine the related assertions.
i. The auditor performs the physical examination of motor vehicles. ii. The auditor concerns about the cost that entity include or exclude from the cost of capitalization of its office building. iii. The amount of entertainment expenses recorded is correct. iv. The auditor concerns about the repair and maintenance costs might be treated as capital expenditure. v. The auditor re-calculates the depreciation expenses and assess if there any difference between auditor’s calculation and its client’s calculation.
(5 marks)
No. Assertion i. Existence Ii. Valuation iii. Accuracy iv. Classification v. Accuracy
(TOTAL: 25 marks)
(TOTAL: 50 MARKS)
Test 2 AUD 339 Tutorial Exercise - SS
Course: Auditing (AUD339)
University: Universiti Teknologi MARA
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