You, as one of the audit managers of KPNG International Cooperative, has been assigned to lead the audit of AXP Telco Bhd, a public listed telecommunication service provider which based in Malaysia since 2000. The Company is principally engaged in the establishment, maintenance and provision of telecommunication and related services.

In the preliminary stage of the audit, you acknowledged that there were several issues faced by the company related to (i) the internal risk assessment and management; and (ii) internal control for the information system relevant to financial reporting. Alvin, your subordinate, highlighted to you that the company might fail to address the risk of duplicate sales records, and pre-recognition of revenue. However, the management report for the year ended 2019 shows the following:

Postpaid services

“We extended our market leadership on postpaid growth despite aggressive competition, anchored by our growing postpaid subscriber base from 2.5 million to 2.8 million. We also recorded favourable increase in plan upgrades and stronger retention rate among existing customers, fuelled by the launch of our easy device ownership programme: PhoneFreedom 365. Along with solid acquisition and base management activities, we registered strong growth in active postpaid internet subscribers to 2.5 million or 89.1% of postpaid subscribers while postpaid internet revenue grew 28.7% to RM1.63 billion.”

2021 Outlook and priority

Although market conditions remain challenging, we believe our solid foundation established in 2020 with our persistent drive for solid execution and digital transformation will support AXP’s ambitions in 2020.

Looking ahead, key priorities will be on:

• Capturing growth from existing customers

• Continue to drive postpaid growth and SME/B2B opportunities

• Deploy network for best internet experience

• Continue focus and execution of OE initiatives

• Build ‘Customer Obsessed’ and ‘Innovation 360’ culture, cultivate growth and efficiency mindset

Consistent with our strategic ambition, we aspire to deliver sustainable revenue growth and efficient operations to connect customers to what matters by empowering more Malaysians to enjoy affordable, quality internet and digital services.

Alvin also showed you some of the information he obtained through inquiries of management which he believed could provide valuable insight into the control environment of the company:

“AXP is led by an effective Board who is collectively responsible for the longterm success of the Group.

In order to ensure effective discharge of the Board’s functions, the Board has delegated its specific powers of the Board to the relevant Board Committees.

The following Board Committees have been established to assist the Board in its oversight function with reference to specific responsibility areas: (i) Audit and Risk Committee (ii) Nomination Committee (iii) Remuneration Committee

It should however be noted that at all times, the Board has collective oversight over the Board Committees. These Board Committees have been constituted with clear Terms of Reference (TOR) and are actively engaged to ensure that the Group is in adherence to good corporate governance practices.

The Chief Executive Officer (CEO) heads the Management team for the day-today management of the business. The CEO has been given certain powers to execute transactions guided by the rules and procedures for the CEO and in accordance with the authority limits as defined and formalised.”

a. Develop an audit work plan for the year ended 2019 which responds to the identified risks above with reference to the following International Standards on Auditing (ISA).

- ISA 315 Identifying and assessing the risks of material misstatement

through understanding the entity and its environment

- ISA 330 The auditor’s responses to assessed risks

- ISA 500 Audit evidence

You must present your work plan in this structure:

i) Evaluation of the factors and implication of the issues

ii) Explain how these issues affect your audit risk model and assessed risk of material misstatement at the assertion level.

iii) Design of control testing and substantive procedures.