AUD 610 EXERCISE: CHAPTER 1 (MIA BY LAW)

QUESTION 1
The following situations involve a possible violation of the MIA By-Laws. For each situation, (1) determine whether
or not the By Law has been violated, and (2) briefly explain how the situation violates (or does not violate) the By Law.
1 On August 20, 2011, Ammar Azri, Chartered Accountant and partner, was offered and accepted the engagement to
audit the annual financial statements of Jungmann Sdn Bhd for the financial year ended December 31, 2011. The
audit began on September 15, 2011, and ended on March 7, 2012. Ammar Azri served as controller of Jungmann
Sdn Bhd from November 5, 2001, until January 10, 2011.
2 Hadaina, Chartered Accountant, is a senior auditor in the Kota Bharu office of Coopers & Snoopers, Chartered
Accountants. Hadainas father is employed as the controller of Line Electronics Bhd, a large, publicly held
company in Kuala Lumpur. Line Electronics is one of Coopers & Snoopers audit clients. Neither Hadaina nor
the Kota Bharu office of Coopers & Snoopers is involved in the audit of Line Electronics Bhd.
3 Aleya Insyirah, Chartered Accountant, is a partner in the Chartered Accountant firm that audits Alltech Sdn Bhd.
Aleya Insyirahs cousin is the chief financial officer at Alltech Sdn Bhd.
4 Anas Syahmi, Chartered Accountant, is a member of the engagement team that performs the audit of Badak
Berendam Bhd. Anass daughter, Najwa, received ten shares of Badak Berendam Bhds share capital for her 25th
birthday. The stock was a gift from Najwas grandmother.
5 The Chartered Accountant firm of Iman & Faris, is negotiating a fee with a new audit client. They agree the client
will pay RM75,000 if Iman & Faris issues a clean, unqualified opinion, RM50,000 if a qualified opinion is
issued, RM40,000 if an adverse opinion is issued, and RM10,000 if a disclaimer of opinion is issued.

QUESTION 2
A. The following are independent and material situations:
a) An auditor hires an actuary to assist in corroborating a clients complex pension calculations concerning accrued
pension liabilities that account for 35 percent of the clients total liabilities. The actuarys findings are reasonably
close to the clients calculations and support the financial report.
b) A client holds a note receivable consisting of principal and accrued interest receivable. The notes maker recently
filed a voluntary bankruptcy petition, but the client failed to reduce the recorded value of the note to its net realisable
value, which is approximately 20 percent of the recorded amount.
c) An auditor is engaged to audit a clients financial report after the annual physical inventory count. The accounting
records are not sufficiently reliable to enable the auditor to become satisfied as to the year-end inventory balances.
d) A client changes its method of accounting for the cost of inventories from FIFO to weighted average. The auditor
agrees with the change although it has a material effect on the financial report and has not been disclosed.
e) Due to losses and adverse key financial ratios, an auditor has substantial doubt about a clients ability to continue
as a going concern for a reasonable period of time. The client has adequately disclosed its financial difficulties in a
note to its financial report, which do not include any adjustments that might result from the outcome of this
uncertainty.
Required:
For each of the above situations you are required to indicate the type of audit opinion you would issue, as well as the
reasons for issuing the particular audit opinion.