Advanced Auditing - ACF3003 (5) Question 3 (25 marks) ISA 240 provides guidance on the auditor's responsibility to consider fraud in an audit of financial statements. (a) Required: Explain the responsibilities of auditors for detecting material misstatements due to fraud in accordance to ISA 240. (b) [7 marks] You are the audit manager and you are reviewing the working papers prepared the audit team in respect to the audit of ABC Co Ltd for the year ended 30 June 2018. The Senior auditor have made a list of issues that need to be considered but two of them have particularly attracted your attention. On 30 December 2017, the company recorded a receipt of Rs 12m in its cash book. This was an amount of money received from YXZ Co Ltd as a loan to cater for the expansion of the business. On 31 January 2018, an identical amount of money was transferred to an account held overseas. The finance director is aware of this transaction but does not know the real nature of this transfer and stated that he acted under the directives of the board of directors. The senior auditor has sought additional information from the board, but nothing has been received yet. [9 marks) In the last financial year, there was a legal pursuit against ABC Co Ltd by a customer for an alleged case of negligence. A provision of Rs 500,000 was made in the financial year ended 30 June 2017 and the case is still ongoing. In the current financial year, the company has appointed a new legal adviser who believes that he will successfully defend the case. The finance director has reversed the provision in the financial year ended 30 June 2018. The senior auditor has received only a verbal explanation but no additional documentary evidence has yet been received. [9 marks] Required: Evaluate the implications for the completion of the audit, recommending any further actions which should be taken by your audit firm. Page 3 of 4