Question 1

Ros invests in Fitness Sdn. Bhd. ('FSB'), selling a range of sports equipment and clothing to

retail customers. The business operates by her friend, Jason who is the managing director and

paid a salary. Ros is a majority shareholder but she does not involve in the management of

the business.

At the end of the first year of trading, profits and dividend are lower than expected. Ros knows

that Jason is paid a salary so does not care as much as her that profits are low. Ros wants further

assurance on the financial statements.

Ros contacts Jason for an explanation. He tells her that the financial statements are accurate.

He gives further assurance to Ros that he believes the company's performance will be improved

in view that the company is considering to establish an internal audit function in the next six

months in order to improve the accounting and internal control system, especially on the issue

of delayed delivery in warehouse department.

Required:

(a) Briefly explain the differences of scope and responsibility of an internal auditor's work for

a limited liability company with that of an external auditor. (4 marks)

(b) Give two examples of work that can be done by an internal auditor in Fitness Sdn. Bhd.

(4 marks)

(c) Ros wants further assurance on the financial statements. Suggest a solution to Ros.

(6 marks)

(d) By law, auditors are required to give an audit opinion on the truth and fairness of the

financial statements they are auditing. In this context, demonstrate what true and fair of

financial statements mean. (6 marks)

(Total: 20 marks)