Importance of Statistics in Business

The Institute of rent Accountants of Pakistan Auditing Intermediate Examination evenfall 2012 Module D Q. 1 5 September 2012 100 tag 3 hours Additional reading time 15 minutes Shahrukh and Company, charter Accountants, have conducted the statutory analyse of the fiscal lines of Karim Limited, a listed assistantship, for the class finish 30 June 2012 on a lower floor the Companies Ordinance, 1984.The job incharge has drafted the following canvass report Auditors news report to the Members We have audited accounted the annexed balance sheet of Karim Limited (the Company) as at 30 June 2012, and the related Income and Expenditure Account, bid of Comprehensive Income, Cash Flow Statement and Statement of Changes in Equity together with the notes forming part thereof, for the year consequently ended and we state that we have obtained all the information and ex aimations which were necessary for the purposes of our audit.It is the indebtedness of the troupes direction to establish and maintain a scheme of internal control and prep atomic number 18 and present the supra said statements in conformity with the approved auditing standards and the requirements of the fourth schedule to the Companies Ordinance, 1984. Our responsibility is to audit these statements. We conducted our audit in accordance with the auditing standards as relevant in Pakistan.These standards require that we plan and perform the audit to obtain reasonable and limited assurance round whether the above statements be free of any misstatement. An audit includes examining evidence encouraging the occurs and disclosures in the above said statements. An audit likewise includes assessing the accounting policies and probative estimates made by management, as well as, evaluating the overall presentation of the above said statements.We believe that our audit provides a reasonable introduction for our persuasion and, after due verification, we report that (a) in our opinion, prope r books of accounts have been unbroken by the company. (b) in our opinion (i) the balance sheet and profit and red account together with the notes thereon have been drawn up in conformity with the Companies Ordinance 1984, and are in agreement with the books of account and are further in accordance with accounting policies consistently applied (ii) the expending incurred during the year was in ccordance with the objects of the Company and (iii) the business conducted, investments made and the expenditure incurred during the year were for the purpose of the Companys business(c) in our opinion and to the opera hat of our information and according to the explanations given to us, the balance sheet, profit and loss account, statement of comprehensive income, cash flow statement and statement of changes in truth together with the notes forming part thereof, conform with the approved accounting standards as applicable in Pakistan and give the information needful by the Companies Ord inance, 1984, in the bearing so required and respectively give a true and bazar view of the state of the Companys affairs as at 30 June 2012 and (d) in our opinion, no zakat was deductible at source under the Zakat and Ushr Ordinance, 1980. Chartered Accountants Date 01 September 2012 Required Identify the errors in the above report vis-a-vis a standard statutory audit report. (Note You are not required to redraft the report. ) (12 marks) Auditing Page 2 of 3 Q. 2 As the engagement partner, you have reviewed the audit working papers of Samarkand Limited (SL). The audit team has highlighted the following matters in the working papers. (a) Twenty percent of the companys recorded turnover (revenue) comprises of cash sales. Proper records of cash sales have not been maintained.Consequently, the audit team was unable to design audit procedures to verify the cash sales. During the current year, the company changed the method of charging depreciation on its fixed assets from the straigh t line to the diminishing balance method. However, all the required disclosures have been included in the notes to the fiscal statements. The previous years financial statements were audited by another firm of chartered accountants which has issued an un-modified opinion on those financial statements. (b) (c) Required Discuss the impact of for each one of the above matters on your audit report. (10 marks) Q. 3 You are currently in the planning anatomy of the audit of Mineral Water Limited (MWL) for the year ended 30 June 2012.The following information is available to you Customer Segment Super markets Wholesalers Retailers vanadium star hotels No. of Customers 12 65 553 7 Balance 10 10-20 21-30 31-90 > 90 outstanding age days days days days Rs. in thousand.. 20,014 8,125 5,053 6,396 311 129 14,910 5,078 6,019 3,150 454 209 4,743 1,756 1,798 724 278 187 7,694 2,805 2,793 1,784 201 111 47,361 17,764 15,663 12,054 1,244 636 50% provision for doubtful debts has been made by MWL ag ainst balances outstanding for more than 30 days whereas the balances outstanding for more than 90 days have been fully provided. Required (a) Indicate what would be the basis for selecting debtors for circularising positive and negative requests for confirmations. 06 mark) (b) Briefly explain as to how would you deal with a situation where a debtor confirms a balance which is different from the amount appearing in the confirmation request. (08 mark) Q. 4 (a) Classification of certain items account in the financial statements is based on the managements intentions. In such a situation the hearer has to rely on management representations. Required disposition the factors that the auditor should consider in evaluating the managements intentions with regard to their future course of action, as stated in their pen representations. (04 mark) (b) Briefly discuss how the auditor would deal with a situation where he is in doubt regarding the reliability of the written representations pr ovided by the management of the company. (05 mark) Q. 5List the indispensable procedures that may be performed by an auditor to verify the following (a) (b) (c) deposit reconciliation statements Payroll Raw material purchases (06 marks) (08 marks) (06 marks) Auditing Page 3 of 3 Q. 6 List the audit procedures that may be performed by the auditor in order to ensure that all events occurring between the date of the financial statements and the date of the auditors report that require adjustment of, or disclosure in, the financial statements are identified and appropriately reflected in the financial statements. (10 marks) Q. 7 Discuss the categories of threats that may be involved in each of the following independent situations and advise the partners of the concerned firm with regard to the mathematical course of action that may be followed, in each case.a) Burewala lingo Limited (BBL) is a listed audit client of Umer and Company, Chartered Accountants (UCC). BBL has granted a h ouse loan of Rs. 5 million to a partner in UCC. (04 marks) Kamal was the audit manager during the last years yearly audit of Faisalabad Textile Mills Limited (FTML). He has joined FTML as their Manager Finance, prior to the commencement of the current years audit. (08 marks) (b) Q. 8 Comment on each of the following independent situations with reference to the applicable rules and regulations. (a) Zaman is a partner in a firm of Chartered Accountants and holds 5,000 shares in Mardan Limited (ML). His firm has received an head for appointment as auditors of Khanewal Limited (KL).ML and KL are subsidiaries of Dera Khan Limited (DKL). (03 marks) Bilal and Company has received an offer for appointment as auditors of IJK Limited. The total paid up capital of the company is Rs. 990 million whereas its ordinary share capital is Rs. 130 million. Faryal, the wife of a partner in Bilal and Company, is a director in LMN Limited which holds 50 million non-voting preference shares and 2 million ordinary shares in IJK Limited. Faryal also holds 10,000 shares in LMN Limited. The par value of both types of shares is Rs. 10 each. (04 marks) (b) Q. 9 List the important matters that are required to be included in an audit engagement letter. (06 marks) (THE END)