AUDIT & ASSURANCE

Time Allowed - 2 hours

Total Marks - 100

[N.B. The figures in the margin indicate full marks. Questions must be answered in English. Examiner will
take into account of the quality of language and of the way in which the answers are presented.
Differentparts,ifany,ofthesamequestionmustbeansweredinoneplaceinorderofsequence.]

1. (a) What are professional and ethical issues that may arise during an assurance engagement work? 4
(b) How do you differentiate Audit and Assurance Engagement? Explain the implications of laws,
standards and other requirements relating to assurance work. 4
(c) You are the audit senior with responsibility for directing, supervising and reviewing the work of
your team members during the external audit of Golden Co. Ltd. Explain how you would
discharge these responsibilities before and during the audit assignment. 4
(d) What is money laundering? What is your responsibilities and duty to report, as auditor when you
suspect or find any issue of money laundering? 4
(e) Why the level of assurance provided by a report on profit and cashflow forecasts differs from the
level of assurance provided by an audit report on financial statement? 4

2. (a) You are the Senior-in-Charge of the audit of Coral Garments Limited for the year ended
31December 2012. During the year under review the management of the company had been
changed. You also observe that the bin cards in the Raw Material Stores were not updated during
the last nine months. Further, Finished Goods were piled up in the factory as well as in the
Finished Goods Stores. New Management had informed you that due to the work load at the time
of management change the staff could not carry out their normal day to day work. Further, due to
these reasons a physical verification of stocks was not carried out at the end of the year.
(i) List the possible risks that can be identified in the above circumstances 6
(ii) List the audit procedures you need to carry out to mitigate one of the above identified risks. 6
(b) You are the Team Leader of the Audit Team of Butterfly (Pvt.) Limited. When performing audit
procedures you found that there are several unidentified balances in the bank reconciliations provided
by the Accountant. You also found that the debtors schedule has not been agreed to the ledger and
the client has not reconciled these amounts as of the year end. The debtor confirmations received
during the year did not agree with the ledger balances, and the Accountant claims it is the debtors
records that are in error. The audit partner is being pressurized by Finance Manager to finalize the
audit procedures within a very short period compared to last year, due to the budgeting process that is
scheduled to commence in a couple of weeks.
(i) Identify the factors that indicate possible frauds in the above scenario. 6
(ii) The audit manager has identified debtors as an area prone to fraud in the entity. List the
procedures you may perform to address the fraud risk relating to debtors. 6
(iii) An audit may act as a deterrent to fraud but does not certify that one has not occurred.
Explain. 3

3. Habib Brothers Ltd. has been in the business of manufacturing Electrical Appliances for last 25 years.
The company has grown rapidly over the past eight years and this is due partly to the warranties that
the company gives to its customers. It guarantees its products for five years and if problems arise in
this period it undertakes to repair them, or replace the product.

You are the manager responsible for the audit of Habib and you are performing the final review stage
of the audit and have come across the following two issues:

Receivable balance Khan & Sons.
Habib has material receivable balance owing from its customer, Khan. During the year-end audit,
your team reviewed the ageing of this balance and found that no payments had been received from
Khan over six months, and Habib would not allow this balance to be circularized. Instead
management has assured your team that they will provide a written representation confirming that the
balance is recoverable.

[Please turn over]
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Warranty provision
The warranty provision included within the statement of financial position is material. The audit team
has performed testing over the calculations and assumptions which are consistent with prior years.
The team has requested a written representation from management confirming the basis and amount
of the provision are reasonable. Management has yet to confirm acceptance of this representation.

Required
(a) Describe the audit procedures required in respect of accounting estimates. 5
(b) For each of the two issues above:
(i) Discuss the appropriateness of written representations as a form of audit evidence; and 5
(ii) Describe additional procedures the auditor should now perform in order to reach a conclusion
on the balance to be included in the financial statements. 5

(c) The directors of Habib have decided not to provide the audit firm with the written representation
for the warranty provision as they feel it is unnecessary. Explain the steps the auditor should now
take and the impact on the audit report in relation to the refusal to provide written representation. 5

4. (a) While planning the audit of Rolex Limited, you realized that part of the work you plan to carry out
has already been performed by the internal audit division of the company. Identify three factors
that may affect the external auditors determination of whether the work of internal auditors is
likely to be adequate for the purpose of the audit. 3
(b) Explain the meaning of the following terms with reference to BAS-505, External Confirmations. 4
(i) Positive confirmation request.
(ii) Negative confirmation request.
(c) When management has used a managements expertise in preparing the financial statements, the
auditor needs to decide whether to use an auditors expertise to assist in obtaining sufficient
appropriate audit evidence. State the factors that may affect auditors decision to use an auditors
expertise to obtain sufficient appropriate audit evidence on items shown in the financial
statements. 3
(d) Rolex Limited operates a chain of small retail counters in large shopping complexes in Dhaka and
Chittagong for direct selling of their products to customers. This is done in addition to its normal
wholesale distribution network that covers the entire country. Each retail counter is operated by
one employee. These employees are provided with a limited stock. Sales are on cash basis. A
cash collector visits these counters to collect the cash for banking once a day. State three
controls that should be in place at Rolex Limited for the auditor to rely on the system that all retail
sales are properly recorded and all cash collected is promptly banked. 3

5. (a) You are required to draft an Audit Report with qualified opinion arising from disagreement over
accounting treatment (revenue recognition of the company) with reasons for such qualified
opinion. Please use hypothetical name and address. 10
(b) Outline why you being the auditor of parent company, would wish to review the work of the other
auditors of subsidiaries not audited by your firm and state briefly the work you would carryout in
that review as per BSA 600. 10







The End