[SOLVED] A Qualified Report
You have been the partner in charge of the audit of Concord Engineering Berhad.for many years. You have never given a qualified report because the internal control system of the company was satisfactory, the business in which the company engaged was quite stable and the results of compliance and substantive tests indicated that the account balances were fairly stated. In the current year’s audit, you assigned a recently recruited member of staff as senior in charge of the job and reporting to you. You informed the senior in charge that the time budget should remain the same as in previous years and he agreed that he would try his best to maintain the same audit time frame.An interim audit was conducted and the following issues were reported. The company recently computerized its stock and general ledger systems; the chief accountant had resigned and the position was vacant for two months; and a number of errors were detected in the compliance tests of the system. The original time budget was not revised despite the above findings. Because of the tight time budget, the computerized systems were not tested by the IT auditors.The year-end audit was completed just within the time budget. You were very pleased as this implied effectiveness and efficiency of the audit team. A few months after your end, Concord Engineering Berhad was in financial difficulties. The newly appointed chief accountant fled and took with him RM2 million cash. Subsequent investigation revealed that stocks had been overstated because wrong prices had been used in the computer system and obsolete stock was not adequately provided for. Sales and debtors were overstated as the chief accountant had falsified some sales invoices in order to maintain the sales volume at a similar level to previous years. It was also revealed that the audit assistant responsible for auditing stock, who was a fresh graduate, had only tested a few items. Errors in stock pricing revealed from this sample were deemed as immaterial and no detailed work relating to subsequent sales of year-end stock was carried out. Further, debtors’ confirmation was not carried out because of time constraints.
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