AUD 610

PAST YEAR EXAM QUESTION

APRIL 2011 QUESTION 5

Question 5 (A)
The auditors assumes full responsibility for the opinion he
expresses on the financial statements. Explain the above
statement in the context of the auditors reliance on the work of
another independent auditor.
Answer:
Auditor may have to delegate his work to another independent
auditor when he is not in a position to carry out the work himself
ISA 620 clearly states that when the auditor uses the work of
another auditor, he continues responsible for the opinion
expressed
Required to obtain a reasonable assurance that work done by
other is adequate and reliable

Question 5 (B)
The circumstances and the possible type of audit
depart from unqualified audit report
Type of Audit
Report

Circumstances

Emphasis Matter

Auditor having formed his opinion on the financial

statement draws the user intention to matter eg; going
concern status of client company.

Qualified opinion

Auditor cannot express an unqualified opinion when he

faced with financial matter that will affect the audit
opinion due to limitation on scope and disagreement.
However, the effect to the financial statement is
material but not pervasive

Disclaimer
opinion

Adverse Opinion

Auditor not able to form an

opinion whether the
financial statement present
true and fair view because
of limitation of scope this FS
is material and pervasive
This opinion should be
expressed when the effect of
disagreement between auditor
and management on financial
issues is material and pervasive
to FS

Question 5 C
a) ABC Bhd. (Profit before tax is RM300.000)
On 5 January 2011, a letter was received informing the
company that a customer, who owed the company RM60,000 as
at the year end had been declared bankrupt on 31 December
2010. At the time of the audit, it was expected that ABC Bhd
being an unsecured creditors would receive nothing in respect'
of this debt. The directors refuse to change the financial
statements to provide for the loss, on the ground that the
notification was not received by the financial year end. Total
debts shown in the statement of financial position amounted to
RM1.2 million.

Answer
The amount of loss at RM60,000 represent 20 % pre tax profit
and 5% account receivable and its seem to be material in both
income statement and FS.
It shows that the company has over stated profit and asset by
RM 60,000.
The company should treat as an adjusting event in the FS as
at 31 December 2010.
The management refuse to adjust the account for the loss and
it show that a disagreement between management and
auditor, so the auditor should made decision the loss is
pervasive or material not pervasive.

b) DEF Bhd. (Profit before tax is RM 125,000)

The audit work revealed that a trade investment amounted to
RM250,000 had suffered a permanent fall in value of RM 150,000.
The company admitted that the loss had occurred, but refused to
make an allowance for it as other trade investments (not held for
resale) had increased in value and were stated at amounts
considerably below their realisable values.

Answer:
- the investment from RM250,000 to RM150,000 is clearly
material loss 60% and it shows the matter was pervasive
- The company profit is overstated by RM 100,000
- Fall in value of one asset cannot be offset against increasing
in other value of another asset
- Regarding to the matter of this agreement the auditor will
provide and adverse opinion