A.

For each of the following independent situations, assume you are the audit partner on
the engagement:
a. During your audit of Jentayu Bhd, you conclude that there is a possibility that
inventory is materially stated. The client refuse to allow you to expend the scope
of your audit sufficiently to verify whether the balance is actually misstated.
Types of audit report: Modified audit report –disclaimer opinion /
Reason: Auditor conclude that there is a possibility that inventory is
materially stated. /The client refuse to allow the auditor to expend the
scope of audit sufficiently to verify whether the balance is actually
misstated./

b. You are auditing Wood Wood Sdn Bhd for the first time. Wood Wood Sdn Bhd
has been in business for several years but has never had an audit before. After
the audit is completed, you conclude that the current year balance sheet is
stated correctly in accordance with approved accounting standard. The client did
not authorize you to do test work for any of the previous years.
Types of audit report: Modified audit report – disclaimer opinion
Reason: After audit is completed, the auditor conclude that the current
year balance sheet is stated correctly in accordance with approved
accounting standard. The client did not authorize the auditor to do test
work for any of the previous years.

c. You were engaged to audit Wonder Steel Bhd’s financial statements after the
close of the corporation’s fiscal year. Because you were not engaged until after
the balance sheet date, you were not able to physically observe inventory, which
is highly material. On the completion of your audit, you are satisfied that Wonder
Steel Bhd’s financial statements are presented fairly, including inventory about
which you are able to satisfy yourself by the use of alternative audit procedures.
Types of audit report: Standard unmodified audit report.
Reason: The auditor were not able to physically observe inventory, which
is highly material. On the completion of the audit, the auditor are satisfied
that Wonder Steel Bhd’s financial statements are presented fairly,
including inventory about which the auditor are able to satisfy herself by
the use of alternative audit procedures.

d. Four week after the year end date, a major customer of Mahamod Bhd declared
bankruptcy. Because the customer had confirmed the balance due to Mahamod
Bhd at the balance sheet date, management refuses to charge off the account or
otherwise disclose the information. The receivable represents approximately
10% of account receivable and 20% of net income before taxes.
Types of audit report – modified audit report – adverse opinion
Reason- the customer had confirmed the balance due to Mahamod Bhd at
the balance sheet date, management refuses to charge off the account or
otherwise disclose the information. The receivable represents
approximately 10% of account receivable and 20% of net income before
taxes. The misstatement is material and pervasive
 e. You complete the audit of Jonny Store Sdn Bhd and, in your opinion, the
financial statements are fairly presented. On the last day of the field work, you
discover that one of your supervisors assigned to the audit had a material
investment in Jonny.
Types of audit report – modified audit report – disclaimer opinion
Reason - The financial statements are fairly presented. On the last day of
the field work, the auditor discover that one of supervisors assigned to the
audit had a material investment in Jonny.

f. Super Truck Sdn Bhd has a gleet of several delivery trucks. In the past, the
company had followed the policy of purchasing all equipment. In the current
year, they decided to lease the trucks. The method of accounting for the trucks is
therefore changed to lease capitalization. This change in policy is fully disclosed
in footnotes.
Types of audit report – unmodified audit report.
Reason- In the past, the company had followed the policy of purchasing all
equipment. In the current year, the company decided to lease the trucks. The
method of accounting for the trucks is therefore changed to lease capitalization.
This change in policy is fully disclosed in footnotes.

Required:
Identify the reason for and appropriate types of audit report that you would issue.

B. For each of the following independent situations, assume you are the audit partner on
the engagement:
a. Gurney Sdn Bhd had prepared financial statements but has decided to exclude
the statement of cash flow. Management explains to you that the users of their
financial statements find this statement confusing and prefer not to have it
included.
Types of audit report: modified audit report – except for opinion
Reason: The company exclude the statement of cash flow. Management
explains that the users of their financial statements find this statement
confusing and prefer not to have it included. The misstatement is material
but not pervasive
b. Hardware Supply Bhd is an internet based start-up company created to sell
home hardware supplies online. Although the company had promising start, a
downturn in e-commerce retailing has negatively affected the company. The
company’s sales and cash position have deteriorated significantly, and you have
reservations about the ability of the company to continue in operation for the next
year.
Types of audit report: Emphasis of matters
Reason: The company’s sales and cash position have deteriorated
significantly. The auditor have reservations about the ability of the
company to continue in operation for the next year.

c. Approximately 20% of the audit of Best Farm Sdn Bhd was performed by
different audit firm, selected by you. You have reviewed their working papers and
believe they did an excellent job on their portion of the audit. Nevertheless, you
are unwilling to take complete responsibility for their work.
Types of audit report: Emphasis of matters
Reason: The audit report involves other auditor. The auditor unwilling to
take complete responsibility for the other auditor’s work.

d. The controller of Megah Hotel Bhd will not allow you to confirm the receivable
balance from two of its major customers. The amount of the receivables are
material in relation to Megah Hotel Bhd’s financial statements. You are unable to
satisfy yourself as to the receivable balances by alternative procedures.
Types of audit report: modified audit report – disclaimer opinion
Reason: The company not allow the auditor to confirm the receivable balance
from two of its major customers. The amount of the receivables are material in
relation to Megah Hotel Bhd’s financial statements. The auditor are unable to
satisfy with the receivable balances by alternative procedures.

e. In the last 3 months of the current year, Bagus Oil Bhd decided to change
direction and go significantly into the oil drilling business. Management
recognizes that this business is exceptionally risky and could jeopardize the
success of its existing refining business, but there are significant potential
rewards. During the short period of operation in drilling, the company has had
three dry wells and no success. The facts are adequately disclosed in footnotes.
Types of audit report: standard unmodified audit report.
Reason: The company had unsuccessful business and risky operation. However,
the company was adequately disclose the risky business in footnotes.

(10 marks)
C. For each of the following independent situations, assume you are the audit partner on
the engagement:
a. A CA firm is engaged in the audit of the financial statements of a large
manufacturing company with branch office in many widely separated cities. The
CA was not able to count the substantial un-deposited cash receipts at the
close of business on the last day of the fiscal year at all branch office.
As an alternative to this auditing procedures used to verify the accurate cutoff of
cash receipts, the CA observed that deposits in transit as shown on the year-end
bank reconciliation satisfied as to the cutoff of cash receipts by the use of the
alternative procedures.
Types of audit report: standard unmodified audit report

b. On 2 January 2016, the Retail Auto Parts Bhd received a notice from its primary
supplier that effective immediately, all wholesale prices would be increased 10%.
On the basis of the notice, Retail Auto Parts revalued its 31 December 2015,
inventory to reflect the higher costs. The inventory constituted a material
proportion of total assets; however, the effect of the revaluation was material to
current assets but no total assets or net income. The increase in valuation is
adequately disclosed in the footnotes.
Types of audit report: standard unmodified audit report

c. E-Lotion Bhd id an online retailer of body lotions and other bath and body
supplies. The company records revenues at the time customer orders are placed
on the web site rather than when the goods are shipped, which is usually 2 days
after the order is placed. The auditor determined that the amount of orders
placed but not shipped as of the balance sheet date is not material.
Types of audit report: standards unmodified audit report

d. For the past 5 years, a CA has audited the financial statements of a

manufacturing company. During this period, the audit scope was limited by the
client as to the observation of the annual physical inventory. Because the CA
considered the inventories to be material and he was not able to satisfy himself
by other auditing procedures, he was unable to express an unqualified opinion
on ten financial statements in each of the 5 years.
Types of audit report: modified audit report – disclaimer opinion
Reason:
e. During the course of his audit of the financial statements of a corporation for the
purpose of the expressing an opinion on the statements, a CA is refused
permission to inspect the minute books containing the significant decisions from
the board of directors’ meetings. The corporation secretary instead offers to give
the CA a certified copy of all resolutions and actions involving accounting matter.
modified audit report – disclaimer opinion

f. A CA has completed her audit of the financial statements of a bus company for
the year ended 31 December 2015. Prior to 2011, the company had been
depreciating its buses over a 10-year period. During 2015, the company
determined that a more realistic estimated life for its buses was 12 years and
computed the 2011 depreciation on the basis of the revised estimate. The CA
has satisfied herself that the 12 year-year life reasonable.
The company has adequate disclose the change in estimated useful life of its
buses and the effect of the change on 2011 income in the notes to the financial
statements.
Standard unmodified audit report.
Reason: