UNIVERSITI MALAYA

UNIVERSITY OF MALAYA

PEPERIKSAAN PERTENGAHAN IJAZAH SARJANA MUDA PERAKAUNAN

MID EXAMINATION FOR THE DEGREE OF BACHELOR OF ACCOUNTING

SESI AKADEMIK 2018/2019 : SEMESTER 2

ACADEMIC SESSION 2019/2019 : SEMESTER 2

CIA2004 : Prinsip Pengauditan

: Principles auditing

12th April 2019 Masa: 1 jam 30 minit

Time: 1 hours 30
minutes

ARAHAN KEPADA CALON:

INSTRUCTIONS TO CANDIDATES:

Calon dikehendaki menjawab SEMUA soalan.

Candidates are required to answer ALL questions.

Tunjukkan semua jalan kerja.

Show all workings.

Taburan markah adalah seperti berikut:

Allocation of marks is as follows:

Soalan/Question Markah/Marks
Seksyen/Section 1 20
Seksyen/Sectrion 2 30

Jumlah/Total 50

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 MID – TERM TEST (12th APRIL 2019)
CIA 2004 PRINCIPLES AUDITING
1 HOUR 30 MINUTES

REQUIRED: ANSWER ALL QUESTIONS

SECTION 1
(20 QUESTIONS: 1 mark each)

1) In "auditing" financial accounting data, the primary concern is with:

A) determining whether recorded information properly reflects the economic events that
occurred during the accounting period.
B) determining if fraud has occurred.
C) determining if taxable income has been calculated correctly.
D) analyzing the financial information to be sure that it complies with government
requirements.

2) Three common types of attestation services are:

A) audits of historical financial statements, reviews of historical financial statements,

and audits of internal control over financial reporting.
B) audits of historical financial information, verifications of historical financial
information, and attestations regarding internal controls.
C) reviews of historical financial information, verifications of future financial information,
and attestations regarding internal controls.
D) audits of historical financial information, reviews of controls related to investments,
and verifications of historical financial information.

3) An examination of part of an organization's procedures and methods for the

purpose of evaluating efficiency and effectiveness is what type of audit?

A) Operational audit
B) Compliance audit
C) Financial statement audit
D) Production audit

4) An audit must be performed with an attitude of professional skepticism.

Professional skepticism consists of two primary components: a questioning mind
and:

A) the assumption that upper-level management is dishonest.

B) a critical assessment of the audit evidence.
C) the assumption that all employees are motivated by greed.
D) verification of all critical information by independent third parties.

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5) When an auditor believes that an illegal act may have occurred, the auditor
should first:

A) obtain an understanding of the nature and circumstances of the act.

B) consult with legal counsel or others knowledgeable about the illegal act.
C) discuss the matter with the audit committee.
D) withdraw from the engagement.

6) The auditor has considerable responsibility for notifying users as to whether or

not the statements are properly stated. This imposes upon the auditor a duty to:

A) provide reasonable assurance that material misstatements will be detected.

B) be a guarantor of the fairness in the statements.
C) be equally responsible with management for the preparation of the financial
statements.
D) be an insurer of the fairness in the statements.

7) If the auditor were responsible for making certain that all of management's
assertions in the financial statements were absolutely correct:

A) bankruptcies could no longer occur.

B) bankruptcies would be reduced to a very small number.
C) audits would be much easier to complete.
D) audits would not be economically practical.

8) Which of the following statements is usually true?

A) Materiality is easy to quantify.

B) Fraudulent financial statements are often easy for the auditor to detect, especially
when there is collusion among management.
C) Reasonable assurance is a low level of assurance that the financial statements are
free from material misstatement.
D) An item is considered material if it would likely have changed or influenced the
decisions of a reasonable person using the statements.

9) Smith, CPA has requested permission to communicate with the predecessor

auditor in order to review certain work papers for high risk accounts for a new
audit client. The new audit client's refusal to allow this communication to occur
would impact Rodgers decision concerning:

A) the auditor's ability to design audit tests.

B) possible scope exception due to lack of access.
C) the desirability of accepting the prospective engagement.
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D) violation of the GAAP rules concerning consistency and comparability of financial
information.

10) When dealing with audit risk:

A) audit risk should not be a factor when determining if a new client should be accepted.
B) audits with a low acceptable audit risk generally result in lower audit fees.
C) if management of a company has a reputation of integrity, but is also known to take
aggressive financial risks, the auditor should not accept the company as a new client.
D) if the auditor concludes that acceptable audit risk is low, but the client is still
acceptable, the auditor may still accept the engagement but increase the audit fee.

11) A written understanding detailing what the auditors will do in determining if

the financial statements are fair representations of the company's financial
statements and what the auditor expects from the client in performing an audit
will normally be expressed in the:

A) Management letter requested by the auditor.

B) Engagement letter.
C) Audit Plan.
D) Audit Strategy for the client.

12) The two major factors affecting acceptable audit risk are:

A) inherent risk and the intended uses of the financial statements.

B) control risk and the intended uses of the financial statements.
C) the likely statement users and the intended uses of the statements.
D) the audit firm and the intended uses of the statements

13) The preliminary audit strategy:

A) is set before the auditor understands the client's reasons for the audit.
B) guides the development of the audit plan.
C) is determined after the engagement staffing is set.
D) is the detailed steps to be followed for the substantive audit tests.

14) Which of the following best expresses the understanding of the terms of the
engagement that exist between the client and the CPA firm?

A) Management asserts there are no errors, material or immaterial, in the general

ledger.
B) Auditors assert that the primary audit goal is audit efficiency.
C) Auditors assert that their primary responsibility is to plan and perform the audit in
order to provide reasonable assurance as to the detection of material misstatement due

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to error or fraud.
D) Management asserts that they will provide the auditor with a risk assessment as to
material misstatements due to errors or fraud in the company's financial statements.

15) The auditor must gather sufficient and appropriate evidence during the
course of the audit. Sufficient evidence must:

A) be well documented and cross-referenced in the audit documents.

B) be based on sources that are external to company.
C) provide evidence that prove or disprove an audit objective/assertion.
D) be persuasive enough to enable the auditor to issue an audit report.

16) Which of the following forms of evidence would be least persuasive in

forming the auditor's opinion about marketable securities and other investments
held by the company?

A) Responses to auditor's questions by the president and controller regarding the

investments account
B) Correspondence with a stockbroker regarding the quantity of client's investments
held in street name by the broker
C) Minutes of the board of directors authorizing the purchase of stock as an investment
D) The auditor's count of marketable securities

17) For audit evidence to be compelling to the auditor it must be sufficient and
appropriate. Which statement below is not correct regarding the appropriateness
of audit evidence?

A) The more effective the internal control system, the more assurance it provides the
auditor about the reliability of financial reporting by the client.
B) An auditor's opinion, to be economically useful and profitable to the auditing firm
needs to be formed within a reasonable time and based on evidence obtained that
assures profits for the auditing firm.
C) Evidence obtained from independent sources outside the entity is generally more
reliable than evidence secured solely within the entity.
D) The independent auditor's direct personal knowledge, obtained through inquiry,
observation and inspection, is generally more persuasive than information obtained
indirectly.

18) Which of the following statements is not a correct statement regarding audit
evidence?

A) Evidence obtained from an independent source outside the client organization is

more reliable than that obtained from within.
B) Documentary evidence is more reliable when it is received by the auditor indirectly

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rather than directly.
C) Documents that originate outside the company are considered more reliable than
those that originate within the client's organization.
D) External evidence, such as communications from banks, is generally regarded as
more reliable than answers obtained from inquiries of the client.

19) When setting a preliminary judgment about materiality:

A) more evidence is required for a low dollar amount than for a high dollar amount.
B) less evidence is required for a low dollar amount than for a high dollar amount.
C) the same amount of evidence is required for either low or high dollar amounts.
D) there is no relationship between it and the dollar amount of evidence needed.

20) Which of the following is an incorrect statement regarding the allocation of

the preliminary judgment about materiality to balance sheet accounts?

A) Auditors expect certain accounts to have more misstatements than others.

B) The allocation has virtually no effect on audit costs because the auditor must collect
sufficient appropriate audit evidence.
C) Auditors expect to identify overstatements as well as understatements in the
accounts.
D) Relative audit costs affect the allocation.

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SECTION 2 (CASE STUDY)
You have been appointed the auditor of DOGGIESCATTIES HAVEN which has a year-end of
31st May. DOGGIESCATTIES HAVEN is a small registered charity based in a small town in
Georgetown. The organization provides shelter for abandoned dogs and cats with the aim of
finding new homes for as many as possible.
The charity is managed by a voluntary committee, including a Chairman (Alan Chong), a
treasurer (Prakash Sindhu) and a secretary (Maisarah Hamzah). Appointment is by annual
election by the committee each year. However, Alan, Prakash and Maisarah have held their
posts for a number of years as other committee members feel unable to give the required time
commitment.
DOGGIESCATTIES HAVEN also employs a number of paid employees. The shelter is
managed by Brandon and Sofia Jane, who are husband and wife. There is a maid and a part
time bookkeeper. In addition, a number of unpaid volunteers help out at the shelter ad and when
they are needed depending on the number of animals at the center at a particular point in time.
The main sources of income are as follows:
a) Charity shop:
This is run by a full time manager, assisted by a team of volunteers. Members of the
public make donation (primarily clothes and toys) which are then sold during dog and cat
show. All transactions are in cash. The show does not accept cheques or credit cards.
The transactions are recorded by the till, with completed till rolls being passed on to the
bookkeeper.

b) Collections:
Volunteers make house to house calls on a regular basis. In addition, on Saturday
mornings, volunteers make collections in three town centers. All cash is counted by the
volunteers and returned to the bookkeeper with a receipt confirming the amount.

c) Dog and cat show

Each year on 1st June, a Friendship Festival is held in the town. As part of this event,
DOGGIESCATTIES HAVEN organize a dog and cat show. Any member of the public
can enter their dog and cat by completing an entry form which can be obtained from the
shelter home.

d) Sponsorship
DOGGIESCATTIES HAVEN is sponsored by a local pet supplies company. The
company makes an annual donation and provides prizes for the winners of the dog and
cat show. In return for this their services are advertised in the event programme and
their logo is printed on the T-Shirt.

The Main Expenses are as follows ;

No Expenses
1 Rent, rates, heat and light
The shelter is a rented property. The expenses is all paid by monthly directly
debit

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 2 Employee Costs
Brandon and Sofia Jane are salaried. They are paid directly into their bank
accounts on a monthly basis. The maid and the bookkeeper are paid by the
hour. They are paid by cheque on a weekly basis.
3 Vet Bills
The local vet provides his time free but any medicines etc. do need to be paid
for. Payments are made by cheque on receipt of the invoice
4 Printing Costs
Leaflets are produced to support fund raising campaigns. The most significant
element of this cost is the dog show programme which outlines the timetable of
the events. The programme are printed and delivered to DOGGIESCATTIES
HAVEN in May. The printer invoices at the time of delivery.

The accounts are maintained by the bookkeeper on a computerized spreadsheet.

Occasionally the treasurer may also assist with the preparation of accounting information
at particularly busy times in the year, for example, immediately after the dog show.

Required:
a) List the factors specific to the audit of a charity (based on the above said scenario) which
would affect inherent and control risk.
(8 marks)

b) As the auditor of DOGGIESCATTIES HAVEN, discuss the key planning issues based on
the scenario.
(14 marks)
c) Outline the audit work you would plan to perform in respect of the following expenses:
(i) Rent, rates, light and heat
(ii) Employee costs
(iii) Vet Bills
(iv) Printing costs
(8 marks)
TOTAL MARKS: 30