Assignment

Question 1.
You were recently requested to give a presentation to a group of people who are
attending a start their own business course run by the Local Islamic Financial
Institution. The course organiser has requested you to address the issue of
accounting and auditing requirements of companies. He has asked you to set out
for the attendees what is involved in a statutory audit and in particular to
address in your presentation:
a. What is an audit?
Auditing is the evaluation process of the evidence of economic activity in an
organization that aims to find fault or fraud in annual financial report. Audit
can be done by internal auditor or external auditor. An audit performed
critically and systematically by an independent party, the financial
statements have been prepared by management along with the copy of
records and supporting evidence, in order to be able to give an opinion on
the fairness of the financial statements. Auditing for the company is quite
important because it provides a major influence in the activities of the
company.
b. Who can be appointed as auditor?
A person who is a registered company auditor.
A person who is independent and competent.
Auditors cannot have a financial interest or hold an office in the
company they audit, nor can they be related or close family with
someone who holds large ownership interests or has major
responsibility in the company.
c. Who is responsible for the appointment of the auditor?
Board of Directors of company is required to appoint auditor before annual
general meeting. Shareholders also can appoint an auditor if an auditor has
not been appointed by the Board of Directors.
d. What is / are the duty / duties of the auditor?
One of duties of external auditor is to give an opinion whether the
financial statements are presented fairly, in all material respects, in
accordance with the financial reporting framework. To form the
opinion, the auditor gathers appropriate and sufficient evidence and
observes, tests, compares and confirms until gaining reasonable
assurance. The auditor then forms an opinion of whether the financial
statements are free of material misstatement, whether due to fraud or
error.
Collect and analyze all the data and evidence of financial and detect
whether there is an error, fraud, or illegal act in the financial
statement.
Review data about material assets, liabilities, capital stock, surplus,
income, expenditures, and etc.
Confirming accounts receivable and other accounts with a third party
Prepare detailed reports on audit findings and inform the report to
shareholders company.

e. Who decides on the amount of audit work the auditor must undertake?
Before the auditor conducting the audit, auditor must prepare engagement
letter. Engagement letter is an important document indicating that a contracts
exists between the auditor and client. There are several matters that included in
an audit engagement letter, such as the objective and scope of the audit, the
responsibilities of the auditor, and to avoid misunderstanding between auditor
and client. From this engagement letter the auditor can know what his scope that
he must audit.
f.

Who will the auditor report to?

The auditor will report to members or shareholders company when annual
general meeting held.

g. What are the outputs of an audit?

When we talk about the output of an audit, we usually focus on the output
report prepared by auditor to shareholders, which has some elements in the
report, such as the auditor's opinion on the financial statement.
h. Why do some companies not require an audit?

Question 2
Outline the relationship that exists between control risk, detection risk and
inherent risk and how this relationship would impact your audit planning work on
an audit assignment.
Question 3
You are auditor to Orange Juice Limited. At a recent meeting with the Board of
Directors the vulnerability of the company to fraud was discussed in detail. Many
of the board members appeared to be of the opinion that the external auditors
principal role was to detect instances of fraud. You are concerned that the Board
members have a mistaken opinion as to the role of the auditor in detecting fraud
and you have decided to write to the Board to set out the actual role of the
auditor in relation to fraud.
You are required to address the following matters:
1. Duty of the directors and auditors in relation to the prevention and detection
of fraud.
2. The approach the auditor should take in discharging his responsibility in
relation to fraud.