TUTORIAL FOR QUIZ 1 (AUDB323) EXTENDED SPECIAL SEM 19/20 B

QUESTION 1 [4 marks]
A senior partner in an accountancy firm is also a director of Cakna Berhad. Recently, Cakna Berhad has
approached the audit firm, and asked it to become the company’s auditors.
What are the ethical threat that might exist and identify the safeguard that can be taken by the auditor.
[4 marks]
QUESTION 2 [4 marks]

Luthor is the senior partner in a firm of accountants that specializes in preparing financial
statements for clients, tax work and auditing. Luthor has decided to advertise the services of his
firm in the local newspaper. The advertisement states that his firm is a highly experienced firm
with numerous clients, including foreign and domestic companies. It adds that the services of the
firm are of the highest standard, unrivalled by any other local firm of accountants.
His colleagues challenges him by commenting that Luthor’s firm does not have any foreign
companies as clients. Luthor replies that it is only an advertisement, and no one ever believes the
marketing claims in advertisements.

Has Luthor acted in a professional way? If not, why not? What are the fundamental principles that will
be violated by Luthor?
[4 marks]
QUESTION 3 [20 marks]
You are a manager in Jung Park & Co., a Certified Chartered Accounting firm. As public accountant, you
have a responsibility for undertaking annual reviews of existing clients and advising whether an
engagement can be properly continued. The following matters arose in connection with the audit of RJ
Corporation Berhad, a listed company, for the year ended 31 December 2017:
(i) The audit team members consist of a manager, two supervisors, two qualified seniors and 5
trainees. The final audit, which lasted approximately six weeks, was very time-pressured and the
team worked overtime towards the end of the audit. RJ Corporation Berhad’s staff were very
supportive throughout and paid for evening meals that were bought in so that the audit team
could work with minimum disruption.
(ii) RJ Corporation Berhad’s chief finance officer, Kim Joon, was so impressed with the commitment
of the audit staff that he asked Jung Park & Co. pay the staff involved with bonus through
increment in the audit fees. In April 2018, Jung Park & Co. paid all the staffs involved except the
manager with a bonus amounting to a week’s salary. The bonus was processed through Jung Park
& Co.’s payroll, in the same way as overtime payments, and recharged to RJ Corporation Berhad
as part of audit expenses.
(iii) One of the points initially drafted for possible inclusion in the report to the company’s audit
committee concerned the illegal dumping of drums, containing used machine oil, on nearby river.
Notes of disccusions between the audit manager and Kim Joon shows that it is the company’s
unwritten policy to disregard the local environmental regulations and risk incurring the fines,
which are only small, as it would be costly to use the nearest licensed disposal unit. The matter is
not referred to in the final report.
TUTORIAL FOR QUIZ 1 (AUDB323) EXTENDED SPECIAL SEM 19/20 B

Required:

(a) Based on each of the situation above, discuss whether Jung Park & Co. would violate the MIA ethical
standard.
[12 marks]

(b) Briefly design TWO (2) appropriate safeguards for Jung Park & Co. as the auditor to RJ Corporation
Berhad
[4 marks]

SRS