Reference no: EM132509077

BAAC4203 Auditing and Control Assignment - Higher College of Technology, Oman

Read the cases carefully and understand the underlying concept or situation before you start answering.

Question 1 - Ali Partners are famous audit firm in Muscat. They have many clients both in Oman and UAE. Last month they signed an engagement letter with a client based in UAE. The client is a large-scale manufacturing company spanning its operation across middle east. Ali partners sent a team of 25 auditors consisting of one audit manager, 3 audit leads 5 subject expert and remaining all audit assistant. After a week of audit, audit team realised that the team strength is insufficient to handle such a big client, they requested the headquarters to send some more people to the client premises.

Since there is a complete lock down across the world due to COVID 19, Ali partners could not sent the additional team to UAE. The head office of Ali partners requested the client management to depute some employees of the company to overcome the shortage, they sent 5 of their senior members to join the audit team. Ali Partners are having comfortable level of staff now to complete the audit work. After two weeks of audit work, the audit lead realised that the general manager in charge of finance of the company is one of his cousin Mr. Mazin and they studied together in schools and college. The general manager assisted the audit team to get all material evidence they required throughout the audit process. In some area of audit, Mr. Mazin assured to the team that there will not be any mistake or error. The team believed this and proceeded to the other risky areas of financial statements.

The audit manager realised that the team members are not able to find any errors or frauds even after third week of audit. When he observed the work of the team, he realised that they are casually checking the books of accounts and evidences. The team only listen to the response to inquiries but did not do any cross checking. Once Mr. Ali asked his team members to evaluate one of the management estimate, the team came up with different argument. They cannot take a call on which one is correct and which one is wrong. He would like to give a refresher training to the team to increase overall effectiveness of audit.

You are required: -

1. Do you find any ethical issues in the above cases? Give reason for your answer.

2. What do you think the important qualities of an auditor this team doesn't possess to identify errors and frauds?

Question 2 - Your audit firm has to start an audit engagement urgently and you have been appointed as a senior auditor in that client -Thomson Reuters, UAE. Your primary duty is to help your audit assistants in getting audit evidences and evaluate the collected audit evidences. Since the client is a large-scale information processing company in Middle east, you have a lot of evidences to be collected and analysed for its reliability and relevancy. Sometime if you were not able to judge reliability of certain evidences, you used to send the same to your friend who is working in similar company in UAE to get help. One of your team members collected evidences of a few high value transaction and she was not able to finalise which is most appropriate for the assertion. The evidence she collected include the bank details of customer, the bank statements, companies cash account details and confirmation from some of the customers about occurrence of the transaction.

When your manager assigned you to prepare bank reconciliation statement of the firm to see whether there is any mistakes or issues within two days, you really find it difficult complete the work because of limited time allocated to you. You cannot say that the time is insufficient because you fear it may affect your performance appraisal in the company. Finally, you concluded that there is no issues in the BRS of the company without actually preparing one.

When you tried to collect evidences from the creditor of the company directly to confirm the amount of discount received, your manager objected that there is no point in collecting the evidence from external parties, and he said internal source is more accessible and reliable. After four weeks of audit, you and your team realised that you may not be able to complete the audit on time because many of the audit work is still pending. You were not able to move further due the resources allocated is not matching with the requirement.

You are required to -

1. Do you agree with your managers statement that internal sources of audit evidences are more reliable? Give reason for your answer?

2. Is there any violation of ethical principles by the auditor in this case? Give reason for your answer.

3. What do you think is /are the reason for the team's realization that they were not able to complete the audit on time? Suggest some measures to overcome such situation in future engagement?

Question 3 - You are the senior auditor with KPMG Oman. You went to the office of your new client Al Fajar LLC Muscat with your team to audit their recent financial statement (2019). The manager assigned you the verification of transactions related to revenue recognition. Your client is specialised in large construction contract across Oman. When you checked the books of account, some of the transaction you found that the company received advance payment from customers, but they considered it as revenue recognised for the year. When you enquired this with the financial manager, he said that it is a usual practice with the firm. You have collected more details of revenue of the company for last few years as follows.

You are required to -

1. Based on the analysis, what is your conclusion about the revenue of the client for the audited period? Give reason for your answer.

2. How do you decide suitability of analytical procedure for a given assertion?

3. Based on the result of analytical procedure, can an auditor make conclusion about material misstatement siting the above example?

Question 4 - Al Maza Company is one of the leading investment firm in Oman. They have investment in portfolio nationally and internationally. You have been appointed as the chief auditor in this company last year. Management of the company have been cooperating with you to get required audit evidence. You identified that one of the companies' American customer sued the company for 1.5 million RO for a breach of contractual obligation. The case is still pending under a court in New York. You found something messy, but management did not divulge any further information to you.

When you evaluated the portfolio of the company, you found that the value of company's investment portfolios are less than its cost due to the international economic slowdown. This is reflecting in their current years earning also. You enquired the management and finance director about this, they could not chart a plan to get out of this crisis. Even if management did not get you the evidence, you have collected all required evidence through third parties.

Now it is the time for you to compile all the audit evidence to express your audit opinion. When you and your team evaluated the audit evidence, you found that the company is prepared its financial statement by following the rules and regulation applicable. Even at the time of final assessment and critical evaluation of audit evidence, you could not find any material misstatement in the financial statement prepared by the company.

You are required to:-

1. Why does an auditor must assess the ability of the firm to continue as going concern? Can you consider the report given by the auditor in this regard as an absolute guarantee for companies ability to continue as going concern? Give reason for your answer.

2. Are you able to find any threat for this company to continue as going concern? You can write more than one if applicable. Give reason for your answer.

Question 5 - Recently you completed the audit of your client ABC LLC Muscat. The client is a conglomerate in the financial sector in Oman. It was challenging for you and your team to collect all the required evidence to unearth material misstatement because of the size of the firm. You have audited the financial statement of ABC LLC comprising of Income statement, Balance sheet including the notes, statement of changes in equity and cash flow statement including the summary of significant accounting policies and other explanation.

Following additional information is also derived based on your evaluation.

1. Based on the audit evidence obtained, the auditor has been concluded that there is no material misstatement exist in companies' financial statement.

2. The auditor has followed the relevant ethical requirement for performing the audit as per ISA.

3. Last year the company lost two of its cargo ships while transiting goods from US to Oman which made a huge financial loss for the company. Company has disclosed this in the financial statement in one of the notes. In auditor's judgement, the matter is so much important for users to understand the financial statement.

4. Those charged with responsibility of oversight differs from those charged with preparation of financial statement in client's business.

5. Last year's financial statements were audited by some other auditor.

6. The auditor finds that changes in accounting policies by the client makes significant increase in the profit of the company. In the professional judgement of auditor, this is most significant to be highlighted in his report.

7. Auditor found that the company is under net loss for many quarters and this made erosion of companies' net worth for the second year now. Based on professional judgement of the auditor, the company may not be able to continue its operation in the coming years.

Based on the available information, you are required to prepare an audit report in a proper format with the following heading/paragraph with detailed explanation.

1. Opinion Paragraph

2. Basis of opinion Paragraph

3. Key audit matters if applicable

4. Other matters if any.

5. Responsibilities of management and TCWG for the financial matters.

6. Going concern paragraph if any.