UNIVERSITY OF CENTRAL PUNJAB

FALL 2020

SPRING 2023
Course Title: Advance Audit & Assurance
Course Code: AUD5933

Assignment No. 1
Course Instructor: Usman Rasheed

Section: C Program: BSAF Date: 10-04-2023

Submission Date: 16-04-2023 Maximum Marks: 20

Instructions:
i. You are required to solve this assignment in your own words on MS Word.
ii. As a student, it is important for you to understand that plagiarism and copying another
student's work are serious academic offenses that can have severe consequences.
(Plagiarized, Copied Content from fellow students will not be marked)
iii. Assignment should be uploaded on CMS portal. No other mode of submission is acceptable.
iv. No Late submissions are allowed.

Question 1
Mr. Ali, quality control manager of EY. Following situations are faced by him:
i. Qasim, who is partner in the firm, her wife is a legal consultant and is assisting an audit client
of that firm in filing its tax return.
ii. Audit Manager Hashim is offered a job by a company in which he is currently doing audit.
The directors asked him to join after the retirement of existing CFO on Feb 28, 2021. Audit of
their firm will be done in the Second week of December 2020.
iii. Major differences developed between the Arham (Chief Executive of XY Limited) and Harith
(engagement Partner of EY). The issue is regarding the disclosure and accounting treatment
of some specific items. Arham informed Harith that their company will not appoint his audit
firm EY unless the audit team agrees with their view point regarding the issue.
iv. Mr. Homaeer is the engagement partner for consecutively 6 years on the audit of Nuts &
Legumes Pvt. Ltd. conducted annually.
v. Your audit firm is providing valuation services to CW Pvt. Ltd. The Director of the co. is really
happy with the professionalism of the audit team & asked you to conduct their external audit
this year.
vi. Your audit client ZS Enterprise is in dispute with their LM traders their Raw Material supplier.
ZS believes that they have suffered financial losses due to breach of contract by that
supplier. ZS has decided to sue them in High court and asked your audit firm for calculating
the value of financial damages which they can claim. They have asked you to provide a
detailed calculation.
vii. Your audit firm is providing assurance services to Y ltd. for last 5 years. Mr. Nashit is
engaged throughout this period as the Head of the team engaged in providing services to Y
ltd.

Required
a. Identify the category of threat involved in each of the situations described above
b. Explain how it would affect the objectivity and independence of the auditor.
c. Explain the responsibility (if any) of the firm and the concerned member of the audit team

(NOTE: Discuss the above requirements separately for each case)

Question 2:
Mr. Harith, the director of Khilji Tech, has approached your firm with a request to terminate their
current auditors and appoint you as their new auditors. In exchange, they have offered a fee of Rs.1
million plus a bonus of 2% of the net profit. However, it has come to your attention that the directors
of Khilji Tech have a poor reputation in terms of employee welfare and the company has a high
turnover rate. Additionally, authorities have investigated their business practices in the past, but no
actions have been taken against them.
Required
Comment on the professional/ethical issues taken into consideration before deciding whether or not
your firm should accept the offer.
Question 3
As the Audit Manager for the year ended June 30, 2022, you are overseeing the audit of Caro Wings
Private Limited (CWPL), which manufactures a variety of plastic products. Upon reviewing the initial
work performed by the audit team, the following matters have been brought to your attention:

There is a material difference between the quantity of material scrapped during the year and the
quantity of scrap sold. The company's records show no balance at the beginning or end of the year,
and no reconciliation has been provided to account for the difference.

Sales for the year have increased by 7% compared to the previous year, but it has been noted that
sales in the last two weeks of June 2022 were exceptionally high, representing 15% of the annual
sales. Further review has shown that 70% of these sales were made to two new customers whose
credit assessments have not been documented. Additionally, a significant portion of the goods sold
to these customers were returned in the first week of July 2022. It is also worth noting that
management bonuses are tied to the company's operating performance.

During the year, CWPL purchased a machine for Rs. 25 million, which is supported by the invoice
from the supplier. However, the fixed assets schedule provided by the client shows the amount
capitalized as Rs. 2.5 million, and depreciation has been charged on this amount. As a result, there
is a difference of Rs. 22.5 million appearing in the Bank Reconciliation Statement.

Required:
(a) Analyse each of the above situations and assess whether it represents a fraud or an error.
(b) What action would you take to deal with the above matters?