12 Test 2 Aud339 June 2022 SS 1 PDF

CONFIDENTIAL AC/JUNE 2022/AUD339
AUD339
SUGGESTED SOLUTION
TEST 2 JUNE 2022
QUESTION 1
a. List any THREE (3) fundamental principles a professional accountant is required to comply
with:
1. Integrity√
2. Objectivity√
3. Professional competence and due care√
4. Confidentiality√
5. Professional behavior √
(Any 3√ x 1 mark = 3 marks)
b. With regards to the answers above, outline the implications on the auditing profession if
such principles are not complied with:
1. Integrity – implication – non-existence of the observance of accepted standards of

honesty which must underlie all professional decisions and actions. √
2. Objectivity – implication – A fair and impartial attitude is not maintained; auditor’s
judgements are influenced by bias. This significantly affects auditor’s independence.
√
3. Professional competence and due care – implication – members may be revoked of
their membership. √
4. Confidentiality – implication – auditors may not be relied on personal integrity and
values to make the right decision. √
5. Professional behavior – Lead to breach of contract, dishonorable practice or conduct
as professional accountant. √
c. Define confidentiality and identify any THREE (3) situations that may allow the auditor to
disclose the confidential information to the third party:
Confidentiality is to respect the confidentiality of information acquired as a result of

professional and business relationships. √
1. Disclosure is permitted by law√,

2. Disclosure is required by law for legal court case evidence and public safety√.
3. Professional duty to disclose (when not prohibited by law) √.
(4√ x 1 mark = 4 marks)
(TOTAL: 10 marks)
1
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QUESTION 2
A.
a. Identify any TWO (2) safeguards to eliminate the self-interest threat arising from the
above situation:
1. The close family member disposing of all of the financial interest or disposing of
a sufficient portion of an indirect financial interest so that the remaining interest is
no longer material. √
2. Having a professional accountant review the work of the member of the audit
team. √
3. Remove the individual from the audit team. √
(Any 2√ x 1.5 marks = 3 marks)
b. Explain briefly with reason the possible threats that may arise if an audit client states
that a non-assurance contract will not be awarded to the firm if the auditor disagrees
with the client’s suggested tax treatment on the business transaction:
Intimidation threat √ – By forced cancellation of contract by the client to withdraw

auditor from conduction subsequent audit, indirectly affecting auditor’s revenues. √
B.
No. Violated/ Explanation
Not
1. Spa & Not The substantial discount is available to all existing
Relax violated√ customers on a widespread basis, not on a selected
person or group of staff in certain company. √
2. Client Violated√ The MIA By-Laws clearly states that an audit firm may
recent not enter into a contingent fee arrangement, as the self-
board interest threat would be too great for safeguards to
meeting reduce the threat to an acceptable level. √
3. Software Violated √ A professional accountant in public practice may receive

Supply Sdn a commission from a third party (e.g., a software vendor)
Bhd in connection with the sale of goods or services to a
client.
However, there is a self-interest threat and compromise

the independence and objectivity for Hasan & Aleia
Associates since no safeguard exist (e.g. obtain written
confirmation that the client is aware of the referral fee)
since Hasan not aware of such transaction take place. √
4. National Violated√ The MIA By-Laws clearly states that advertisement must
newspaper be both honest and truthful. The advert claims that
Hasan & Aleia Associate is the most professional cannot
be proven, and could imply that other firms are not
professional, bringing the profession into disrepute. √
5. Telma Sdn Not Hassan communicated with previous auditor and reject
Bhd violated√ the offer as suggested by MIA By-Laws. √
(10 marks)
(TOTAL: 15 marks)
2
QUESTION 3
A.
a. Verification of income statement accounts should be an integral part of the auditor’s
examination of the balance sheet item. Below is the table on the relationship
between major items in the Statement of Profit or Loss and Statement of Financial
Positions. Determine the blanks space with the most suitable item.
Statement of Financial Statement of Profit or Loss (SOPL)

Position (SOFP) item item
1 Account receivable Sales / Bad debts √
2 Long term loan Interest expenses √
3 Investments √ Dividend received
4. Prepaid expenses Insurance /Road tax/Rent expenses √
5. Non-current assets Depreciation/repairs & maintenance

expenses/gain or loss on disposal √
b. Any THREE (3) questions included in the internal control questionnaire of non-
current assets.
Internal control questionnaire for PPE:

1. Do procedures involved in disposals, retirements and depreciation require
authorization? √
2. Are there procedures for the proceeds from fixed assets disposal to be deposited
and are they recorded properly? √
3. Are fixed assets disposal and retirements recorded promptly? √
4. Are the insurance companies notified to alter insurance coverage? √
5. Are there procedures for adjustment depreciation records for additional,
disposals and retirements? √
6. Are there procedures for depreciation methods, useful lives and salvage values?
√
c. Determine a documentary evidence that should be obtained by auditors to verify
the ownership of the following non-current assets:
Non-current assets Documentary evidence
i. Motor vehicles Registration certificates (i.e. road-tax) and

insurance policies √
ii. Freehold property Title deeds, property rate bills, mortgage

payment receipts and fire insurance policies,
review public record (i.e. Pejabat Tanah). √
3
B. .
a. Explain THREE (3) objectives for audit of long-term liability.
a. Internal controls over long-term liability. √

b. Transactions for principal and interest involving liability are properly authorised
and recorded. √
c. The liability and related expenses and accrued liabilities and properly stated. √
(3 √ x 1 marks = 3 marks)
b. Explain the objectives and related assertions in the audit of cash.

Assertion/ Audit Explanation
objectives
1 Existence, rights and The cash balance shown in the Balance sheet
obligations and valuation represents all the cash an entity claims to
and allocation have. √
2 Completeness All transactions that should be recorded have

been recorded √
3 Presentation and Restriction on the use of cash are properly

disclosure disclosed, classified and described √
c. For each audit procedures below, determine the most appropriate audit objectives
for owners’ equity:
No Audit procedures Assertion/ Audit

objectives
i. Select a sample of share certificate and check the

name of shareholders that appear on the certificate Existence√
same as in the register of members
ii. For dividend paid, agree dividends paid and

declared per year end to authority in minute books Valuation√
and re-perform calculation with total share capital
issued
iii. Check whether the owner’s equity is properly Presentation and

disclosed, classified and described in accordance disclosure√
with Malaysia disclosure standards.

d. Explain TWO (2) of the detailed substantive tests to be conducted on entertainment
expenses when the internal control of the company is not effective.
1) Trace the transactions to the entertainment expenses claimed by employee. √

2) Trace the transactions to the suppliers’ invoices/other supporting documents √
3) Ensure there is no personal expenses claimed by the employee. √
4
(Any 2 √ x 1.5 marks = 3 marks)
e. Explain the TWO (2) reasons why to audit cash, a lot of time will be use and give
ONE (1) example cash at bank.
1) All business transactions will ultimately pass through the cash account √
2) Cash is most liquid so higher relative risk of defalcation and itis an area of high
inherent risk √
Example: current account or savings accounts√
(TOTAL: 25 marks)
(TOTAL: 50 marks)
END OF QUESTIONS
5
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CONFIDENTIAL AC/JUNE 2022/AUD339

1. Integrity – implication – non-existence of the observance of accepted standards of

Confidentiality is to respect the confidentiality of information acquired as a result of

1. Disclosure is permitted by law√,

Intimidation threat √ – By forced cancellation of contract by the client to withdraw

3. Software Violated √ A professional accountant in public practice may receive

However, there is a self-interest threat and compromise

Statement of Financial Statement of Profit or Loss (SOPL)

1 Account receivable Sales / Bad debts √

2 Long term loan Interest expenses √

3 Investments √ Dividend received

4. Prepaid expenses Insurance /Road tax/Rent expenses √

5. Non-current assets Depreciation/repairs & maintenance

(5√ x 1 mark = 5 marks)

Internal control questionnaire for PPE:

i. Motor vehicles Registration certificates (i.e. road-tax) and

ii. Freehold property Title deeds, property rate bills, mortgage

(2√ x 1 mark = 2 marks)

a. Explain THREE (3) objectives for audit of long-term liability.

a. Internal controls over long-term liability. √

b. Explain the objectives and related assertions in the audit of cash.

2 Completeness All transactions that should be recorded have

3 Presentation and Restriction on the use of cash are properly

No Audit procedures Assertion/ Audit

i. Select a sample of share certificate and check the

ii. For dividend paid, agree dividends paid and

iii. Check whether the owner’s equity is properly Presentation and

(3√ x 1 mark = 3 marks)

1) Trace the transactions to the entertainment expenses claimed by employee. √

(Any 2 √ x 1.5 marks = 3 marks)

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