FACULTY OF BUSINESS

PRESIDENT UNIVERSITY

FINAL EXAM 2024

ACCOUNTING STUDY PROGRAM
COURSE : Auditing I ID NO :
DAY / DATE : December 18, 2024 NAME :
LECTURER : Drs. Gatot Imam Nugroho,Ak.,MBA,CA SIGNATURE :
TIME : 120 Minutes
TYPE : CLOSED BOOK
COMPUTER : Not allowed Internet : Not allowed
CALCULATOR : Allowed. Hand-phone : Not allowed
ALL EXAM MATERIALS HAVE TO BE RETURNED

Instructions to Students:
1. This examination consists of 4 (four) pages and 10 (ten) questions.
2. Sanctions will be given to those students who are not following the examination rules.
3. All answers to be written in answer sheet provided. The number to the corresponding question must
be written correctly.
4. Students are to use proper English and are required to write neatly and clearly.
5. This is a closed book examination.
6. Students are allowed to use calculator.
7. Students are not allowed to use any dictionary.
8. No electronic devices allowed and need to turn-off any communications devices.
9. Students are not allowed to borrow any equipment, etc. from fellow students, nor can they
communicate with each other while the examination is going on.

Questions:

1. As the auditor for XYZ Company, you discover that a material sale ($500,000 sale; cost of goods
sold of $300,000) was made to a customer this year. Because of poor internal controls, the sale was
never recorded. Your client makes a management decision not to bill the customer because such a
long time has passed since the shipment was made. You determine, to the best of your ability, that
the sale was not fraudulent. Using the framework for ethical decision making, determine whether
the auditor should require either a recording or a disclosure of the sales transaction. Explain your
reasoning.

2. When an auditing team conducts an audit engagement on a client, it has an audit risks that consist
of Inherent Risk, Control Risk, and Detection Risk. These risks sometimes can be classified as high or
low risk. These risks will affect the amount of audit evidence that must be obtained by the auditors.
Describe comprehensively your understanding regarding these risks that can be considered as high
or low risks and how is the impact on evidence that must be obtained.
3. You have worked as a staff auditor for two and one-half years and have mastered your job. You will
likely be promoted to a senior position after this busy season. Your current senior was promoted
about a year ago. He appreciates your competence and rarely interferes with you. As long as he can
report good performance to his manager on things she wants , he is satisfied. The manager has
been in her position for three years. She is focused on making sure audits run smoothly and is good
at this. She is not as strong on the softer skills. Although she is approachable, her attention span can
be short if what you are saying does not interest her. You are aware that she expects her team to
perform excellently during this busy season and she hopes to be promoted to senior manager as a
result, bringing her closer to her goal of making partner early.
The audit engagement on which you are working has become increasingly difficult since last year
because of some complicated accounting transactions that the client made. There has also been
unexpected turnover in accounting personnel at the client. This has made interacting with the client
and getting the information you need in a timely manner problematic. However, the engagement
time budget and the audit fee remain the same as last year’s. Further, four staff auditors are
assigned to the engagement, and there are no additional staff available to transfer in to ease the
workload. Your senior now tells you that the manager has requested that you, he, and the other
staff auditors do an additional analysis of a potential misstatement in one of the client’s accounts.
Even with your team’s current workload, there is significant danger that the engagement will run
over budget. You know that if you do the analysis thoroughly, it will further endanger meeting the
time budget the manager had planned. The more time you spend on the engagement, the less
profitable it will be for the audit firm, which clearly will displease the manager and her superiors.
As a group, the staff auditors discuss the situation and express their concerns regarding the
perceptions that running over budget will create and the reputational issues that short-circuiting
the analysis could create. When your senior stops by to discuss the new plan, the group raises its
concern. He talks to the group and implies that he would be satisfied if the team did either of the
following: complete the analysis and simply not record the hours (doing so would prevent the
reported audit hours from going too far over budget) or do a minimal job on the analysis, which
would save time and avoid having to question the client too much. You and a few other staff
members express discomfort with both of these strategies. It is suggested that the ramifications of
the new order be made clear to the manager. The senior wants nothing to do with this. He says,
”She doesn’t want to hear these details so just use one of the ideas I have already given you.”
When he leaves, several staff members start griping about what they are being asked to do. A
couple say they are going to leave the firm after this busy season, so they don’t really care about
this issue. Another says, “We’ve been told what to do. Let’s just get on with it.”
a) Using the framework for ethical decision making, decide what you would do. Explain your
rationale.
b) How can you do what you think is the right thing without undermining your senior or
undermining the manager’s confidence in your ability to get a job done?

4. Segregation of duties is an important concept in internal control. However, this is often a challenge
for smaller businesses because they do not have sufficient staff. Normally, the segregation of duties
deficiencies identified here results in either a significant deficiency or a material weakness in
 internal control. For each segregation of duties deficiency identified as (1) – (5), complete the
following three tasks:
a) Indicate the risk to financial reporting that is associated with the inadequacy of the segregation
of duties.
b) Identify other controls that might mitigate the segregation of duties risks.
c) Identify possible tests of controls for the mitigating controls selected in (b).

The inadequate segregation of duty situations to be considered are as follows:

1) The same individual handles cash receipts, the bank reconciliation, and customer complaints.
2) The same person prepares billings to customers and also collects cash receipts and applies them
to customer accounts.
3) The person who prepares billings to customers does not handle cash but does the monthly bank
reconciliation, which, in turn, is reviewed by the controller.
4) The controller is responsible for making all accounting estimates and adjusting journal entries.
The company does not have a chief financial officer (CFO) and has two clerks who report to the
controller.
5) A start-up company has very few transactions, less than $1 million in revenue per year, and has
only one accounting person. The company’s transactions are not complex.

5. Which of the following statements is true regarding audit documentation?

a) Auditors document only those significant issues that have not been resolved by the audit report
date.
b) Audit documentation provides the principal support for the audit opinion expressed by the
auditor.
c) Audit documentation would identify who reviewed the audit work but not who performed the
audit work.
d) Documentation must be in paper format.

6. Which of the following items would typically not be included in the heading of a working paper?
a) Client name.
b) Client balance sheet date.
c) Audit firm name.
d) A descriptive explanatory title.

7. Which of the following statements describe a purpose of an audit program?

a) An audit program is used to specify the procedures to be performed in obtaining audit evidence.
b) An audit program is used to record the completion of each audit step.
c) An audit program is useful for monitoring the progress of the audit.
d) All of the above statements describe the purpose of an audit program.

8. The sufficiency of audit evidence is affected by which of the following factors?

a) The reliability of audit evidence.
 b) The relevance of the audit evidence gathered.
c) The risk of material misstatement of the assertion being examined.
d) All of the above.

9. Which of the following statements is true regarding the sufficiency of evidence needed to test an
account?
a) Evidence sufficiency is a measure of evidence quality.
b) Evidence sufficiency is affected by the quality of evidence.
c) A relationship does not exist between evidence sufficiency and evidence quality.
d) For a specific client, evidence sufficiency will be the same across all accounts.

10. Which of the following is a reason that accounts containing management estimates pose a high
level of risk of material misstatement for auditors?
a) Accounting estimates are especially susceptible to management bias.
b) Accounting estimates are a means for management to manage or misstate the financial
statements.
c) Accounting estimates are sensitive to variations in management assumptions.
d) All of the above are reasons that accounts containing management estimates pose a high level
of risk of material misstatement for auditors.