Question 1

According to ISA 300, planning starts at audit engagement as it is essential to ensure the efficiency and effectiveness of audit. During audit planning, auditor will consider the potential risks of material misstatement in the financial statements.

Required:

1. Indicate SIX (6) purposes in planning the audit for your client. ( 6 marks)
2. Explain briefly TWO(2) benefits of conducting ratio analysis for the analytical procedures. (4 marks)

Question 2

You are the audit manager in charge of Medic Frame Bhd., a company which involves in supplying medical equipment for the elderly people. You are required to assess audit risks on the audit of Medic Frame Bhd. In planning the audit for the year ended 31 March 2015, the following information was made available to you:

Medical equipment is supplied by Medic Frame to both private and government hospitals on credit terms. Due to the economic downturn, Medic Frame has been suffering increasing level of bad debts as collections from the government are relatively slow. The management of Medic Frame plans to expand its business overseas, particularly in Japan and Philippines in its future plan. As part of the plan, the management is looking into upgrading its accounting system from manual to computerized system. The management is of the view that with the implementation of the computerized accounting system, staff cost can be reduced substantially. Medic Frame has trade receivables balance that is material to the financial statements.

1. Discuss THREE (3) risks associated with the audit of Medic Frame Bhd.

(6 marks)

1. Discuss how the components of audit risk interrelated to each other.

(4 marks)

Question 3

ISA 500 Audit Evidence, defines audit evidence as information used by the auditor in arriving at the conclusions on which the auditor's opinion is based. Audit evidence includes both information contained in the accounting records underlying the financial statements and other information.

Required:

Discuss the type of audit procedure and audit assertions for each of the following specific procedures:

Audit procedures

1. Sending a written request to the company's customers requestingthat they report the amount owed to the entity
2. Examining large sales invoices for a period of two days before and after year end to determine if sales are recorded in the proper period.
3. Agreeing the total of the accounts receivable subsidiary ledger to the accounts receivable general ledger account.
4. Discussing the adequacy of the provision for doubtful debts with the credit managers.
5. Comparing the current-year gross profit percentage with the gross profit percentage for the last four years

Answer Type of audit procedures Audit assertions

1-

2-

3-

4-

5-