Prepare an Audit Planning Memorandum not exceeding 4,000 words. Your Audit Planning Memorandum: Audit Assignment, Malaysia

Subject Audit Assignment

ASSIGNMENT QUESTION
You are the audit senior at Giga & Bytes, Chartered Accountants. Giga & Bytes are a reputable mid-sized professional accounting firm that provides auditing, taxation and advisory services. The firm’s main practice is in Kuala Lumpur, with branch offices located in Penang, Johor Baharu, Kuantan, Kota Bharu, Kota Kinabalu and Kuching. Their clients are mostly small and mid-sized companies. Since the firm joined the Consortium of MidSized Accounting Practices, LLP (CMAP) five years ago, the firm witnessed a growth in
revenue based on referrals from fellow members of CMAP in other countries. CMAP is an international firm of accountants based in Frankfurt with member firms located in more than 120 countries, providing accounting, auditing, taxation, and advisory services to clients from various industries.

Being a member firm of CMAP, Giga & Bytes have benefitted in terms of technical support, international affiliation and recognition as well as
client referrals among member firms. As a result, the firm’s clientele includes companies that are listed on the stock exchange of Bursa Malaysia.
Giga & Bytes have recently been appointed to provide statutory audit services to a company listed on Bursa Malaysia. This is a new audit client, and your team is assigned to this audit engagement. The appointment process has been completed and a copy of the signed letter of engagement is available in the permanent file of this new client. Your immediate task is to plan for the audit and prepare an Audit Planning Memorandum for the forthcoming financial year-end. Your team is responsible for gathering, analyzing and
summarizing information about the new client that is necessary to evaluate your client’s business risk and the risk of material misstatement, based on the information obtained from official company sources, external literature and public domain (e.g. analyst reports, reputable news sources, etc.).

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Required:
Prepare an Audit Planning Memorandum not exceeding 4,000 words. Your Audit Planning Memorandum must be written in report-style, and clearly divided into five (5) sections, with one section devoted to each of the tasks specified in the following paragraphs. Guidance notes for each section is provided in Appendix B.

1. Engagement objective and deliverables (10%) (no more than 500 words)
Briefly describe the objective and scope of the upcoming audit, the company’s
financial year-end being planned, the statutory and regulatory requirements
concerning the audit, and the reports that are likely to be produced by the auditors.

2. Understand the entity and its environment, including its internal control (20%)(between 1,200 and 1,500 words)

a) Understanding the entity and its environment

Provide a brief overview of the business(es) of your chosen company, the industry that it operates in and its group structure. An overview of the company’s business strategy may be provided as well. Incorporate the latest information about the business of the company including but not limited to
principal activities, major products, customers, suppliers, markets, industry,
and segmental information as reported in the lasted annual report/interim
financial report.

Use PESTEL/PESTLE to assess the inherent risks of the main business of the
company. Indicate clearly the extent to which the identified risk factors affect
the inherent risks of the company. Conclude your discussion with an assessment of the inherent risk of the company.

b) Understanding the internal control environment and risk management practices of the company.
Provide an overview of the internal control environment of the chosen company together with an assessment of the internal control environment based on publicly available information provided by the company. This assessment requires a review of the information disclosed in the company’s latest annual report (Chairman Statement, Statement of Corporate Governance, Audit Committee Report, Statement of Risk Management and Internal Control, and other reports provided by the chosen company), and determine the extent to which the company has complied (or not complied) with the recommendations of the Statement of Risk Management and Internal Control: Guidelines for Directors of Listed Issuers and Principles A and B of the Malaysian Code of Corporate Governance 2021.

Where there are “gaps” in the internal control environment, students are required to conduct academic research using journal articles and other academic literature to determine the importance of compliance with the recommendations of the Statement of Risk Management and Internal Control: Guidelines for Directors of Listed Issuers and Principles A and B of the Malaysian Code of Corporate Governance 2021.Conclude your review with an assessment of the control risk of the company. ACC2034/Group Assignment (Q)/Sept 2023 ACC 2034 Principles of Auditing 5

3. Identify and assess key business risks (20%) (between 1,200 and 1,500 words)
This section requires students to critically identify and assess those business risks that may result from significant conditions, events, circumstances, and actions or inactions that could adversely affect the company’s abilities to execute strategies and to achieve its objectives. Discussion about the business risks should include the following five (5) matters:

a) A review of the financial information of the company for the past three (3) financial years and from the latest interim financial report to identify potential areas of risks. This review should be performed using preliminary analytical procedures covering:
(i) The company’s financial performance and position, including but not
limited to, the company’s revenue, net profit, cash flows, assets, liabilities and equity; and
(ii) It’s financial analysis, which assesses operating management,
investment management, and financial leverage.

b) The company’s accounting framework used in the preparation of its financial information, and the implication of new accounting standards on the audit.

c) Significant corporate exercises, if any, that may have an impact on the audit.

d) Considerations of multi-locations or business units, and their implications on the audit.

e) Identification of related parties, and its implications on the audit.
Conclude with an assessment of the company’s business risks. Where possible, link your findings in this section with the analysis in Section 2 about the company’s business and general environment.

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4. Assess audit risk and determine materiality (20%) (between 1,000 – 1,200
words)
a) Assessing audit risk
Assess the detection risk, risk of material misstatements and audit risks of the
company using the Audit Risk Model. Your assessment should include a
discussion of the consequence of assessed detection risk on the audit. Key risk factors discussed in Sections 2 and 3 (i.e. inherent and control risks) should be summarized in a table to support your assessment of audit risk.

b) Determining materiality
Calculate and discuss the appropriate materiality level, for both overall
materiality (or preliminary judgement about materiality) and performance
materiality (or tolerable misstatement) for the chosen company. Performance
materiality and clearly trivial materiality should be determined for all assets and liabilities of the company. The planned materiality should be clearly linked to the assessed risks in Sections 2 and 3.

 

5. Propose an overall audit strategy (20%) (between 1,000 – 1,200 words)
Based on the analysis and assessment in the earlier sections, discuss the overall audit strategy that you, as the auditor, plan to apply for the audit. The strategy should include the nature, timing and extent of the audit procedures to be adopted to conduct an efficient and effective audit.

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