Question 1 (25 Marks)
(a) Mr Shafiq owns a private company in Malaysia and does not understand why his company must be audited. In his opinion, paying auditors fees is a waste of money and time. He stated that there are some instances where even companies with audited financial statements have collapsed.
(i) Explain the primary objective of an audit and FOUR (4) benefits that can be derived from auditing financial statements.
(i) State FOUR (4) limitations of an audit.
(b) Auditors are required to maintain their independence in performing their jobs to enable them to express an objective opinion on whether financial statements are true and fair.
Explain the FIVE (5) threats to independence and provide an example of each threat.
(Total 25 marks)
Question 2 (25 Marks)
One of your audit clients is Transnational Co, a company specialising in trading of beauty products. Transnational have been an audit client for five years and since then, the audit partner has remained unchanged.
As the audit manager, you are currently planning the audit for the year ending 31 December 2015. Transnational has notified you that they are in the process of becoming a listed company on Bursa Malaysia. In this regard, the management invited the audit partner to attend a meeting with existing major shareholders and banks to discuss their listing arrangements. Additionally, Transnational has inquired if it’s possible for your firm to prepare the financial statements to avoid issues during the audit.
The audit partner has informed you that the audit fees for the previous financial year has not been settled. You have also been notified that one of the audit seniors on the audit team has received some of Transnational’s shares as a gift from his relative.
(a) Briefly explain the FIVE (5) rules of professional conduct.
(b) Explain whether there are any threats to the independence of Transnational Co’s auditors AND briefly explain how each threat can be resolved or eliminated.
(c) Explain SIX (6) corporate governance recommendations that Transnational Co should adhere to as a listed company.
(d) Explain the advantages of having an audit committee.
(Total 25 marks)