@) a} a! Cc M A RISK MANAGEMENT oper ‘SEMESTER-5 SPRING 2015 EXAMINATIONS __Pakistan Monday, the 31st August 2015 Time Allowed: 3 Hours Maximum Marks: 100 Roll (Attempt all questions. (il) Answers must be neat, relevant and brief (i) Read the instructions printed inside the top cover of answer scrip! CAREFULLY before attempting the paper. (iv) In marking the question paper, the examiners take into account clarty of exposition, logic of arguments, effective presentation and language. (¥) DONOT write your Name, Reg. No. or Roll No., or any irrelevant information inside the answer script (v)_Question Paper must be returned to invigilator before leaving the examination hall. Marks 1 (2) Suppose you have been working as a Risk Manager in M/s. Global Motors Company, a world renowned cars manufacturer. The company’s management expects from you that as an experienced Risk Manager you are well aware of your portfolio's responsibilities. The management has given you a task to carry out planning to control the risks to overcome alll existing and future challenges and add value to the organization. Required: In this context, prepare a presentation for the company's management by discussing the following methods’ measures which can be taken to mitigate the existing and future expected organizational risks: i) Control of losses keeping in view physical and psychological aspects (il) Procedural approach to risk control (lil) Risk pooling and diversification 288 (b) Mis. Joy Limited is an exporter of cotton products. The business of the company is ‘expanded over the various foreign countries due to which its transactions largely include foreign currencies, financial instruments and interest rates etc. As the business of the company has been growing rapidly all over the world, various risks associated with business are also increasing. Recently the audit committee is responsible for risk management. However, some directors on the board is considering that there should be a separate risk management committee, with responsibilty for monitoring and supervising risks identification and management. Suppose you are one of the directors on the board and is in favour of having a separate risk management committee. Required: w your arguments in favour of having a separate risk management committee instead of assigning the responsibilities of risk management to audt committee. 04, Discuss the role and function which may be performed by risk management committee of the company. 05 {c) International Federation of Accountants (IFAC) has highlighted two aspects of risk ‘management i.e. ‘conformance’ and ‘performance’. Discuss. 03, Q2 (a) The partner of a newiy established audit fim M/s. Bajl and Co., asked its Manager Audit to arrange an orientation program for audit trainees on the use of standardized working papers Which certainly improve the audit efficiency. In the light of ISA 230 ‘Audit Documentation’ explain the following: Required: (i) As the preparation of working papers is an integral part of the auditor's responsibilities. Identify the factors that the auditor should consider while determining the form, content and extent of audit working papers. 04 PTO MA-Sprng 2015 10f3.{b) (o) Required: 3 (a) (b) (ii) Enumerate any eight (08) possible consequences, f the auditors do not maintain proper working papers. Recording the characteristics of specific items or matters tested enables the engagement team to be accountable for its work and facilitates the investigation of exceptions or inconsistencies. Identify the characteristics to be recorded under each of the following procedures for a: * detailed test of entity-generated purchase orders; ‘+ procedure requiring selection or reviews of all items over a specific amount from given populatio ‘+ procedure requiring inquiries of specific entity personnel Assume yourself an Audit Manager in Malik and Co., and have been appointed auditor of a retailer having annual revenue of Rs. 400 million. During the planning stage of the audit you found that the retailer is using services of a service company for the majority of their accounting functions. As you are carying out the audit of such companies first time, therefore, you are seeking advice from your senior in respect of the following queries in the light of ISA 402 “Audit Consideration Relating to an Entity Using a Service Organisation” (i) Discuss the objectives stated in ISA-402 with which you will concern, while carrying ‘out the audit of the retailer uses the services of a service organization, (il) Describe type 1’ and type 2° reports which may be received from the service organization while conducting the audit of the retailer. (ili) Being the auditor if you are unable to obtain sufficient understanding from the retailer in respect of service organization, what procedure will you perform to obtain the understanding of the service provided by the service organization? ISA 500 states that reliability of audit evidence is influenced by its source, its nature and the circumstances under which it is obtained, including the controls over its preparation and maintenance where relevant. In the light of the ISA 500 ‘Audit Evidence’ briefly state the sources through which reliability of audit evidence may be ensured. The audit of Three Stars Limited (TSL) for the year ended December 31, 2014 was completed and initial report was issued on February 15, 2015. The meeting of the board of directors was held on February 22, 2015 to approve the accounts and thereafter, being an auditor you have been requested to issue signed auditor's report for the purposes of issuing financial statements to shareholders. As per the provisions of International Standards on Auditing you also need to obtain a written representation from your client (TSL) before issuing the signed auditor's report. The management refused to provide any written representation, however informed the auditor that they are not accustomed to provide any \wtitlen representations to the external auditor. Required: In the light of the given situation, answer the following: (i) Briefly explain the term “written representation’. Why does an auditor need to obtain a written representation from management and those charged with governance? (il) What is the most commonly used form of a written representation and what should be the date of written representation in the above scenario? Discuss in the light of ISA- 580. (iii) Whois responsible to provide the written representation on behalf of the company? (lv) Suggest appropriate steps to be undertaken if the company refuses to provide required varitten representation. saspring 2015 20f3 MarksQ4 (a) Mis, XYZ Limited is a retailer of home appliances. An officer of the company takes orders from customers on email or telephones. The company has a computerized built-in pro forma ‘on which basic data related to customers are recorded i... details of the home appliance to be delivered, address and accounts details of the customers. This data is automatically integrated with the company's inventory control system. The customers allow credit term of 2/10, 1/30 from the date of the order is dispatched. Most of the customers pay online via credit card or debit cards. The statements of receivable are sent to customers at the end of the every month. Required: Being the auditor of M/s. XYZ Limited, describe to the management about the necessary internal control that should be in place to strengthen the sales system of the company over the receipt, processing and recording of orders. (b) As an Audit Manager, you have been given a task to carry out the audit of Ms, Alpha Limited. During the audit you came up with the conclusion that the depreciation had not been provided on building and equipments for a number of years, the effect of whioh if corrected, would reduce the profit significantly. Unfortunately you have been unable to resolve the matter regarding the depreciation as the directors of the company decided not to provide depreciation on building and equipments. Required: Keeping in view of the above matter, draft a qualified auditor's report to shareholders including all necessary part of an auditor's report. (Assume necessary rates! method for depreciation and other information regarding the above matters) (c) Where expertise is necessary to obtain sufficient appropriate audit evidence in a field other than accounting or auditing, the auditor has to use the work of an auditor's exper. In such a situation from which sources the audilor may get the information regarding the expert's, competency, capabifties and objectives. Q5 (a) Mis. Mari Enterprises is a manufacturer and exporter of iron tools. The annual turnover of the company is over ten million rupees. You have been given a task to undertake the cost audit of the company first tine as you are very diligent in your work. Before commencement of cost audit of the company you have to seek advice of your senior Cost Audit Manager in respect of the factors that should be reviewed by the cost auditor. Required: List dovm any six factors that should be reviewed by the cost auditor before the commencement of cost audit with regard to each of the following: ‘+ company ‘© industry’ in which the company operates (b) Draw out the cost audit program which may be applied in respect of the audit of the following: () Material (li) Labour THE END saspring 2015 30f3 Marks 07 09