Serba Dinamik Holdings Berhad is an oil and gas firm in Malaysia. On May 25, 2021, Serba Dinamiks external auditor, KPMG, had raised some audit issues, for example, that it is not able to verify contracts and transactions totaling RM3.5 billion ($848.90 million) in its financial year ended Dec 31, 2020. Despite responding to these concerns, Serba Dinamik was still reported to the Securities Commission, which led to the suspension of its shares trading and a loss of RM3 billion in market capitalisation. Serba Dinamiks dispute with KPMG has since gone to court. The company filed a lawsuit against KPMG on June 22, claiming that the auditor negligently red-flagged some issues. Ernst & Young Consulting was appointed to conduct a special independent review on the audit issues raised by KPMG.

The four areas that EY Consulting was tasked with assessing are:

(i) The validity and veracity of the transactions and balances with respect to 11 identified customers on sales transactions, trade receivables and materials on site and to quantify the possible financial impact;

(ii) The validity and veracity of the purchases from six identified local suppliers;

(iii) The validity and veracity of the IT contracts/transactions entered with the six identified customers and two identified suppliers as well as to assess the appropriateness of the revenue and costs recognised in the financial year in relation to the identified customers and suppliers; and finally

(iv) The existence, where possible, and validity of the transactions and balances of one identified customer and one identified supplier located in Bahrain.

Based on the above mentioned scenario, answer the following question:

Required:

In the context of Serba Dinamik, discuss and justify the audit procedures (each scenario can have one or more than one) that should be carried out to address the four audit areas mentioned in the above scenario. (20 marks, 600 words)

-Audit procedures could include

Physical examination

Confirmation

Inspection

Observation

Recalculation

Reperformance

Analytical procedures

Inquiries of the client