Professional Documents
Culture Documents
Description :
ASSIGNMENT
15 MARKS
You are an audit senior in a public accounting firm. The audit manager of your firm, Rositah, gives you the
financial statements of Adibah Berhad for the year ended 31 December 2014 and asks you to carry out the audit
for this year.
Adibah Berhad is a public listed company, whose sales, for the year 2014 was over RM 40 million. Adibah Berhad
has been your firms client for the past three years.
The audit fee is RM 100,000.
You are required to describe how you would carry out the audit.
No. of words: Not less than 2,500 words.
Due date: Not later than 18 September 2015.
Group members: Not more than five members in a group.
Before starting an audit, it is essential for the auditor to have a copy of the previous year
audited files of Adibah Berhad. In the given assignment, the 2014 file is given by Rositah, my
audit manager. The file is used only as a guide as the auditing must always be tailored
according to the events which occur during the financial year. Once last years file is
retrieved, a new audit file for Adibah Berhad current years audit will be opened.
Next, the senior auditor is required to contact the client to make arrangements as to when the
audit can commence. It is required that an audit should always be done at the clients place in
order to obtain all the information needed for auditing. The client should also be free and
available throughout the whole period to assist and provide the auditors all the necessary
information.
An audit can be divided into 3 major stages which are:
1. Planning Stage
2. Field Work Stage
3. Review Stage
STEP 1: PLANNING
As a senior auditor in a public accounting firm, I will start off with a well-planned schedule
before carrying out the audit. The planning stage is essential as it helps the auditor to obtain
sufficient and appropriate evidence for the circumstances, help to keep the audit costs at a
reasonable level and to avoid any misunderstanding with the client. According to ISA 300
Planning an Audit Financial Statements, the planning stage of the audit should be used to
establish an overall strategy for the audit, develop an audit plan, and reduce audit risk to an
acceptable low level. Moreover, the standard procedure also requires that auditors should
plan the audit work so that the engagement is performed in an effective manner. Firstly, I
will establish an updated overall audit strategy and an amended version if necessary, during
the procedure of the auditing. I will then take the following procedures in order to respond
quickly (if there are any unexpected events that occur):
the characteristics of the audit engagement, such as the reporting framework that is
I will gather all the information about my clients business and industry, understand their
external environment, including the economic condition, impact of competition, reporting
obligation, legal and regulatory requirements. Besides that, I will make inquiries on the
management and others within the entity to identify factors such as major sources of income,
key customers and suppliers, sources of finance, transactions with related parties and any
requirement of disclosure that might be high-risk for the client. Furthermore, I will also
scrutinise all the financial statements, perform rational analysis, and inquire about key
performance indicators that they use to measure progress towards the companys objectives.
In addition, previous reports can also be inquired from the management as a reliable source of
reference to carry out this years audit. Other audit procedures to be performed before the
beginning of the audit fieldwork includes:
discussing matters that may affect the audit with the firms personnel responsible for
auditors
considering the effects of applicable accounting and auditing pronouncements,
Next, I will select the appropriate staff. In the selection process, the one who is more
knowledgeable on the clients industry will carry out the audit. In this case, Adibah Berhad is
the continuing client. ISA 300 states that the auditor should plan the nature, timing, and
extent of direction and supervision of engaging team members and review of their work.
Thus, reviewing the work of engaging team members will be done first to ensure that:
1. work will been performed in accordance with professional standards and regulatory
2.
3.
4.
5.
6.
necessary
7. significant matters have been raised for further consultations.
8. appropriate consultations have taken place and resulting conclusions have been
properly documented and implemented.
Lastly, I will evaluate the need for outside experts. ISA 620 defines an expert as a person or
firm possession of special skills, knowledge and experience in a particular field other than
accounting and auditing. Evaluating an experts skills and competency will include the
consideration of professional qualifications, experiences, reputation and objectives before
allowing them to have access to the report.
Based on the auditing standards, it has been stated that throughout the fieldwork process ,
professional judgment will be used to determine whether sufficient evidence that has been
gathered is relevant, competent and useful to conclude on the established objectives. Apart
from ensuring that my professional judgment is based on the information available,
reassessment of the audit objectives, scope and procedures are crucial in ensuring the
efficient use of audit resources. For example, I will determine whether:
i. should the remaining audit steps be eliminated,
ii. should the audits objectives or scope be modified,
iii. Rectification of any additional procedures to increase efficiency,
iv. should additional hours be allocated to achieve an extension of the audits objectives,
v. any documental changes in audit objectives, scope and procedures in the working papers.
In order to determine whether there is a change in the company environment, a review of the
companys financial statement, examining its assets and accounting, business and other
operational records are needed. A better understanding of the clients industry and external
environment help me to identify the risks related to the specific industries that may affect the
auditors assessment of the clients business and audit risks.
Every industry has its own unique accounting requirements. Thus, it is essential for the
auditor to evaluate whether the clients financial statements are prepared in accordance with
the generally accepted accounting principles. Besides, auditor should also evaluate the
clients external environment, including the economic conditions, the extent of competition,
and regulatory requirements that are related to clients industry. I also will note down any
relevant information such as the information systems, software, people, procedures (manual
and automated), and data. It is of utmost importance to obtain sufficient knowledge about the
information system thats relevant to financial reporting: the classes of transactions, the
procedures by which transactions are initiated, recorded, processed, and reported with its
supporting information including significant accounting estimates and disclosures.
3. Interviewing people.
I will interview the people from Adibah Berhad to obtain more information especially on the
internal accountant and auditors whenever I have doubt on the financial statement. I will
inquire for the service form from the internal auditors of Adibah Berhad to enhance the
efficiency of the auditing process and at the same time, lowering the cost rather than seeking
service from other party.
4. Examining assets, account, business, other operational records and analyzing data
and information.
For the clients business operation and processes, an auditor should consider the factors
which include the sources of revenue, finance, and information on related party that may
indicate areas of increased clients business risk. In order to obtain a better understanding of
the clients business operations, I will have a tour of the clients facilities as it provides an
opportunity for an auditor to observe operations first-hand and to meet key personnel. The
auditor will be able to assess physical safeguards over assets and interpret accounting data
that are related to the assets by viewing the physical facilities. Such first-hand knowledge will
enable the auditor to discuss with non-accounting employees which are helpful in assessing
the clients business inherent risk.
relevant to the financial reporting includes the accounting system and consists of procedures
and records established to initiate, record, process, and report an entity's transactions and to
maintain accountability for the related assets and liabilities.
4. Control Procedures
Control procedures refer to the policies and procedures that help ensure that management's
directives are carried out accordingly.
Performance Reviews
A strong accounting system should have controls that independently check the
performance of the individuals or processes in the system. Some examples include
comparing actual performance with budgets, forecasts, and prior-period performance ;
investigating the relationship of operating and financial data followed by analysis,
investigation of unexpected differences and corrective actions; and reviewing
functional or activity performance.
Physical Controls
These controls include the physical security of assets. Physical controls include
adequate safeguards, such as physical safeguards of inventory, security over facilities,
authorisation for access to information and data files, and periodic counting of assets
such as inventory and comparison to control records.
Segregation of Duties
It is important for an entity to segregate the authorisation of transactions, recording of
transactions, and custody of the related assets. Independent performance of each
function reduces the opportunity for any one person to be in a position to both
perpetrate and conceal errors or fraud in the normal course of his duties.
5. Monitoring of Controls
Monitoring of controls is a process that assesses the quality of internal control over time. To
provide reasonable assurance that an entity's objectives will be achieved, the management
should monitor controls to determine whether they are operating effectively. Management
should also use internal auditors to monitor the effectiveness and efficiency of operating
internal controls.
A verification that the intended system under development meets the configuration and
lockdown standards requested by the customer.
9. Determining if appropriate action has been taken with regards to significant audit
concerns and corrective actions reported in prior audits.
Standards for documenting fieldwork (for example, the evidence gathered, the analyses made,
the tests performed) to support the findings and conclusions are presented in the sections
Work papers and Audit Observations. In general, all audit work performed should be well
documented. Each audit procedure should be supported by and have DocLinks to work papers
(schedules, memos, spreadsheets) on which testing performed and results achieved are
properly documented.
Fieldwork should be performed at the auditee's location to facilitate communication with the
auditee. The auditor should maintain contact with the auditees management and keep them
informed of the audit observations and other development throughout the audit. They may be
able to provide additional information or may wish to adopt procedures quickly to rectify
deficiencies.
STEP 3: REVIEW
Review is the process of working on an issue-by-issue basis and typically occurs after the
completion date so that agreed-upon corrective actions can be implemented. When the first
analysis is completed, the Audit Assistant has to write all the balances in the audited year
column; however he has to make sure that there is no adjustment or reclassification. I will
ensure that he monitors the way of balances were calculated according to the working papers.
For the final report, one has to express opinions, present the audit findings and discuss
recommendations for improvements. The Internal Audit discusses the rough draft with the
client prior to issuing, facilitate communication and ensure that the recommendations
presented in the final report are practical.
On the other hand, one can prepare the draft audit report in order to ensure that the financial
statement link to the notes of the accounts. Before the financial statement is presented to the
client, the audit management thoroughly reviews the audit working papers and the discussion
draft. The discussion draft is prepared for the units operating management and is submitted
for the clients review before the exit conference. The written report includes an overall
assessment of the clients control structure, recommendations to the management (including
the anticipated benefits and basis), and managements action plan. In addition, the Internal
Audit has to work closely with its client to refine the wordings of the final report before it is
issued to ensure that it reflects the collaborative nature of the audit process.
The draft audit report needs to be printed out when the draft report is completed. The Audit
Assistant needs to read, check, cast the draft report for the first time before passing it to the
Audit Senior. After that, I will mark down all the errors and incomplete work. When there is
an error, the Audit Assistant needs to answer those queries and do the necessary corrections
until the top manager is satisfied with the draft audit report. Then the draft audit report will be
sent to the director for his review and approval.
Next, the manager and I will do the frontal clearance with the partner and discuss issues
before it will be tabled at the Audit Committee meeting. After getting the approval from the
director, the master copy of the report, an overall engagement memo, and billing will be
printed out. Then, the signing pages of the audit report with the firms letterhead at the top
will be printed out and it will be sent to the partner for review and signature. In addition, the
client also will receive the copies required so that it can be signed and declared valid by the
commissioner of oaths.
Besides that, two copies of the audited account will be sent to the firms secretary to be kept
as the audit working files: one copy for government income tax department and the other one
for keeps with the client. The Audit Assistant also needs to chop the declaration page on the
audit report with the same dates.
When finalising the process, it is better for the clients management and Internal Audit to
have a solid working relationship based on clear and continuing communication between
them. The auditor has the responsibility to interview the staff, perform tests and review the
new procedures which can support the verification. The client has the opportunity to
participate in each of the audit process such as preliminary review, field work, audit reports,
and follow-up. The purpose of the follow up is to verify that the implementation of the
agreed-upon corrective actions have been completed.