ou are the audit engagement partner and you noted the following during the review of the audit files of your clients: For each situation, describe with reason(s) the form of audit report that you should issue. (i)The audit team for 1st client could not observe the inventory count that was held at the year-end since the firm’s appointment as auditors was made after the company’s year-end and no alternative procedures could be used to confirm the inventory balance. (ii)Your 2nd client is currently building a distribution centre using its own employees on its own premises. In total, the company recorded a net profit of RM 40 million. The cost of direct labour amounted to RM 4 million, based on the cost records kept. This direct labour cost was included in the distribution center's cost. However, it is discovered that the direct labour costs are not supported as the related costing record have been accidentally destroyed. The collapse of many public companies in the last few years has raised questions about the ability of external audits to detect fraud, and whether having stronger internal control systems could have saved the concerned companies from collapsing. (i) Describe the responsibilities of external auditor with regards to the entity’s internal control system. (ii) Explain the responsibilities of external auditors in detecting fraud in the financial statements.
You are the audit engagement partner and you noted the following during the review of the audit files of your clients: For each situation, describe with reason(s) the form of audit report that you should issue.
(i)The audit team for 1st client could not observe the inventory count that was held at the year-end since the firm’s appointment as auditors was made after the company’s year-end and no alternative procedures could be used to confirm the inventory balance.
(ii)Your 2nd client is currently building a distribution centre using its own employees on its own premises. In total, the company recorded a net profit of RM 40 million. The cost of direct labour amounted to RM 4 million, based on the cost records kept. This direct labour cost was included in the distribution center's cost. However, it is discovered that the direct labour costs are not supported as the related costing record have been accidentally destroyed.
The collapse of many public companies in the last few years has raised questions about the ability of external audits to detect fraud, and whether having stronger internal
(i) Describe the responsibilities of external auditor with regards to the entity’s internal control system.
(ii) Explain the responsibilities of external auditors in detecting fraud in the financial statements.
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