Determine whether an auditor’s expert is needed

What the auditor does

Consider whether a material issue requires knowledge outside accounting or auditing. If an expert is used, the auditor evaluates the expert’s competence, capabilities and objectivity, agrees on the scope of work and assesses whether the findings provide suitable audit evidence.

Example and audit implication

Management uses a valuer to estimate the fair value of its factory building. If the valuation is material and complex, the auditor may engage a separate property valuation specialist to assess the market data and assumptions. The auditor remains responsible for the audit opinion

Identify related parties and their transactions

What the auditor does

Ask management about related parties, inspect ownership records and board minutes, and examine significant or unusual contracts. Identify the relationship, transactions and outstanding balances so the auditor can assess any required disclosures.

Example and audit implication

A Jengka Furniture director also controls the transport company that delivers its furniture. The auditor examines the transport agreement, checks the delivery charges and year-end amount payable, and assesses whether the financial statements disclose the relationship and transactions as required.

Understand the client’s industry and business

What the auditor does

Study both the industry conditions affecting the client and the business arrangements that determine how those conditions affect this particular company.

Example and audit implication

Timber prices have risen across the industry. Jengka Furniture sells under fixed-price contracts, so its gross profit margin would normally come under pressure. If its reported margin rises instead, the auditor investigates possible explanations, including whether all timber costs were recorded.

Tour the client’s facilities

What the auditor does

Visit the factory, warehouse and dispatch area. Observe how staff receive materials, store goods and record deliveries. Ask employees to explain what happens when something goes wrong.

Example and audit implication

During the warehouse tour, the auditor notices water-damaged tables stored with finished goods. Their condition raises a valuation concern. The auditor identifies the affected items and checks whether their expected selling price, after repair and selling costs, supports their recorded value.

Gain a better understanding of the client

What the auditor does

Identify the company’s owners, directors, main products, customers, locations and sources of finance. Ask management what has changed since the previous year and examine supporting records.

Example and audit implication

Jengka Furniture earns 60% of its sales from one retailer. The auditor learns that the retailer has started paying late. This directs attention to receivables valuation: how much of the outstanding balance can the company realistically collect?

Assessing and documenting the understanding of internal controls

To understand a process, the auditor combines enquiry, observation and inspection. A useful technique is a walkthrough: select one actual transaction and follow it from the point it began to its entry in the accounting records. For a credit sale, the auditor might follow a customer order through credit approval, dispatch, invoicing and posting to the sales ledger. A walkthrough gives evidence about design and implementation. Evidence of consistent operation throughout the year requires further work when the auditor intends to rely on the control. standards.xrb.govt.nz

Documentation method	What the auditor records	Example
Narrative description	A written account of who performs each step, which documents are used and how exceptions are resolved.	“Every Friday, the accounts supervisor compares the dispatch register with the invoice listing and follows up on deliveries that have no invoice number.”
Flowchart	The movement of transactions, documents and information between people or departments.	A sales flowchart shows where the warehouse sends delivery information to accounts and where the supervisor checks for unbilled deliveries.
Internal control questionnaire (ICQ)	Answers to questions about specific controls, with notes on the evidence examined.	“Who checks that every delivery has been invoiced?” The auditor records the supervisor’s name or role and the weekly report inspected.
Risk and control matrix	The link between a possible misstatement, the relevant assertion, the company’s control and the auditor’s assessment.	The auditor links unbilled deliveries to completeness of revenue, identifies the weekly review and records whether it has been implemented.

Worked examination example

During a walkthrough, the auditor finds that accounts staff check invoices for the correct selling price, but nobody checks whether every delivery has been invoiced. Identify the weakness, its effect, a recommended control and a test of that control.

Required point	Suggested answer
Weakness	No one reconciles completed deliveries to sales invoices. The price check covers only invoices that staff have already prepared.
Possible effect	Goods may be delivered without a sale being recorded. Revenue and trade receivables may be understated. The main assertion affected is completeness.
Recommended control	Each week, an accounts supervisor should match completed delivery notes to invoices, investigate unmatched deliveries and document how each exception was resolved.
Test of control	Once the control is in use, select weeks across the period, inspect evidence of the supervisor’s review, repeat selected matches and verify that the supervisor followed up on exceptions.

Evaluation of internal controls

The auditor evaluates a control by asking three different questions. The evidence needed depends on the question. standards.xrb.govt.nz

Stage	Auditor’s question	Application to the weekly review
1. Evaluate design	If staff perform the control as intended, can it prevent, or detect and correct, the misstatement?	To detect missing sales, the review must start with the delivery records and look for the corresponding invoices. Starting with invoices already issued would miss a delivery that was never invoiced.
2. Determine implementation	Has the company actually put the control into use?	The auditor asks the supervisor to demonstrate the review, inspects a completed weekly report and traces an exception to the action taken. Enquiry is supported by documentary evidence.
3. Test operating effectiveness, when required	Did the control work consistently during the period on which the auditor intends to rely?	The auditor selects weekly reports from different parts of the year, checks who reviewed them and when, and inspects whether staff investigated exceptions. The auditor may independently repeat selected matches.

The auditor tests controls when planning to rely on their operating effectiveness, or when substantive procedures alone cannot provide sufficient appropriate evidence. If testing reveals that the supervisor frequently skipped the weekly review, the auditor reassesses reliance and may perform more direct testing. For example, the auditor can trace additional year-end deliveries to invoices and the sales ledger to look for omitted sales.

Components of internal control

The five components describe how the control system works as a whole. The following examples show how each component contributes to recording credit sales completely. standards.xrb.govt.nz

Component	Question it answers	Example
1. Control environment	What example does management set, and who is accountable?	Management gives the warehouse responsibility for dispatch and the accounts department responsibility for invoicing. Supervisors also have authority to investigate missing documents, even during busy periods.
2. Entity’s risk assessment process	How does management identify and assess what could go wrong?	Before opening a second warehouse, management identifies a risk that delivery notes from the new location may reach accounts late or go missing.
3. Control activities	What specific actions address the identified risks?	The company uses sequentially numbered delivery notes. Each week, a supervisor reviews a report of deliveries without invoices and assigns outstanding items for investigation.
4. Information system and communication	How is relevant information captured and passed to the people who need it?	When warehouse staff confirm delivery, the system sends the delivery note number, customer name and quantity to accounts so that staff can prepare the invoice.
5. Monitoring of controls	How does management know whether the controls continue to work?	Each month, the finance manager checks whether supervisors completed the weekly reviews and whether unresolved items are recurring at the same warehouse.

A useful distinction is control activity versus monitoring. The supervisor who investigates an unbilled delivery is performing the control. The finance manager who checks whether supervisors consistently carry out those reviews is monitoring the control.

Objectives of internal control

Objective	What it means	Practical example
Effective and efficient operations	Help the company use its resources properly, meet operating targets and safeguard assets.	Warehouse staff release furniture only against an authorised dispatch document. This reduces the risk of theft or delivery to the wrong customer.
Reliable reporting	Produce complete, accurate and timely information for management and financial statement users.	Accounts staff match delivery notes to sales invoices so that all completed deliveries that qualify as sales are recorded in the correct period.
Compliance with laws and regulations	Help the company meet its applicable legal and regulatory obligations.	A payroll officer prepares a schedule of statutory deductions. A supervisor checks the amounts and confirms that payment is made by the applicable deadline.

Controls can serve more than one objective. For example, restricting access to the warehouse safeguards inventory and helps maintain reliable inventory records. They provide reasonable assurance because mistakes, collusion and management override can still occur.

Management’s and auditor’s responsibilities

Party	Responsibility	Example at Jengka Furniture
Management	Designs, implements and maintains internal controls. Assigns duties, reviews exceptions and corrects weaknesses.	The finance manager requires accounts staff to match each delivery note to an invoice. A supervisor reviews outstanding deliveries each week and follows up on missing invoices.
Those charged with governance	Oversee management’s approach to internal control and follow up on significant weaknesses. This role may be performed by the board or audit committee.	The audit committee asks why deliveries repeatedly went unbilled and requests evidence that management’s corrective action has worked.
External auditor	Obtains an understanding of relevant controls, assesses the risk of material misstatement and designs audit procedures in response. The auditor tests operating effectiveness when required and communicates significant deficiencies identified during the audit.	The auditor examines how the weekly review works. If planning to rely on it, the auditor tests whether the supervisor performed the review and followed up on exceptions during the period. www.icaew.com

Exam distinction: If the question asks for a control, describe what the company does. If it asks for a test of controls, describe what the auditor does to obtain evidence that the control operated effectively.

Internal control

Internal control is the system of policies, procedures and actions a company uses to give it reasonable assurance that it can achieve its objectives. In everyday terms, a control is something the company does to prevent a problem, detect it, or ensure someone corrects it.

Consider Jengka Furniture Sdn. Bhd., a fictional company that sells furniture on credit. A warehouse employee delivers 20 tables, but the delivery note never reaches the accounts department. The customer receives the tables without being invoiced. A weekly check that matches delivery notes to invoices would help the company detect the missing sale. This example connects all five topics below.

Obtaining the Client’s Legal Information

During audit planning, the auditor examines documents that establish who owns and controls the company, what decisions it has authorised, and what rights and obligations it has. These documents help the auditor identify transactions, balances and disclosures that may need closer examination.

Three common sources are the company’s incorporation and constitutional documents, minutes of meetings, and significant contracts. Using Jengka Furniture Sdn. Bhd. as an example:

Legal document or source	What the auditor looks for	Practical example
1. Incorporation records and company constitution, if adopted	The company’s registered identity and any provisions affecting share rights or decision-making.	The company has issued two classes of shares. The auditor reads the terms attached to each class and checks whether the share capital note describes those rights correctly.
2. Statutory registers and company secretarial records	Changes in directors, shareholders and shares issued during the year.	The register of members shows that the company issued new shares in June. The auditor agrees the issue to the relevant resolution, checks the proceeds against bank records and traces the amount to share capital.
3. Minutes of directors’ and shareholders’ meetings	Decisions about borrowings, asset purchases, dividends, guarantees and legal disputes.	The board approved the purchase of a delivery lorry in December. To determine whether the lorry belongs in the year-end accounts, the auditor checks the purchase agreement, invoice and delivery date. The minutes provide evidence of approval.
4. Significant contracts and agreements	Terms that affect when to record revenue, assets, liabilities or expenses. Examples include sales, purchase, lease and loan agreements.	A sales contract states that control of furniture passes to the customer on delivery. The company invoiced the customer on 29 December and delivered the furniture on 3 January. The auditor uses both documents to test sales cut-off.
5. Title deeds and security documents	The company’s rights over assets and whether it has pledged any assets as security.	The factory title identifies the company as the registered owner. A bank agreement also shows that the factory secures a loan. The auditor checks both the company’s rights to the property and the disclosure of the security.
6. Legal correspondence and claims	Existing or potential disputes that may require a provision or disclosure in the financial statements.	A customer claims RM150,000 for defective furniture. The auditor examines the claim, considers the lawyer’s assessment and evaluates whether management’s accounting treatment is appropriate. The amount claimed may differ from the amount the company expects to pay.

Classroom application

The board minutes dated 20 December state that Jengka Furniture approved a RM500,000 bank loan. The bank released the funds on 5 January. The company’s year-end is 31 December.

Is the board resolution alone sufficient evidence to record RM500,000 as a year-end borrowing? No. The resolution establishes that the board authorised the borrowing. The auditor should inspect the signed loan agreement, bank confirmation and evidence of drawdown to determine when the obligation arose. If the facility was undrawn at 31 December and the principal became payable only upon drawdown, the company would record the RM500,000 borrowing in January.

Client business risk

Client business risk is the possibility that an event or condition prevents the company from achieving a business objective. The auditor then considers whether that business problem could cause a material misstatement in the financial statements. The connection is easiest to see by identifying the affected account and explaining how it could be wrong. mia.org.my

Client business risk	Possible financial statement misstatement	Relevant audit response
A major retailer is struggling to pay. The company may lose cash it expected to collect.	Trade receivables may be overstated if the allowance for doubtful debts is too low.	Review the aged receivables report, inspect payments received after year-end and assess management’s allowance.
A furniture design has gone out of fashion. The company may have to offer steep discounts.	Inventory and profit may be overstated if the company continues to carry the furniture at full cost.	Inspect the condition of the goods and compare their cost with recent selling prices, after allowing for selling costs.
The company is under pressure to meet a sales target. Managers may have an incentive to record sales early.	Revenue and receivables may be overstated if January deliveries are recorded as December sales.	Test deliveries around year-end against customer acceptance records, contract terms and sales entries.

Classroom application. During the factory tour, an auditor sees 40 damaged tables. Which assertion should the auditor investigate first?

Suggested answer: Valuation. The auditor has seen the tables, which provides evidence of existence. The damage raises a different question: can the company recover their recorded cost? The auditor should inspect the damage and compare the carrying amount with the expected selling price after repair and selling costs.

Knowledge of the client’s business and industry - Business operations and processes

Business operations and processes. The auditor also studies what happens inside the company. A walkthrough means following one transaction through the process, asking the employees involved what they do and inspecting the records they use. For example, the auditor follows a customer order from approval to delivery, invoicing, posting and collection.

Business process	Documents the auditor may inspect	What could go wrong?
Purchasing and receiving timber	Purchase order, goods received note and supplier invoice	Timber received in December is recorded only when the invoice arrives in January, understating year-end payables.
Production and storage	Production orders, job cost sheets and inventory records	The company counts the same batch as both work in progress and finished goods.
Sales and delivery	Customer order, delivery note and sales invoice	The company records a December sale even though control passes to the customer in January.
Collection from customers	Bank statement, remittance advice and customer ledger	The company receives payment but credits the wrong customer’s account.

Knowledge of the client’s business and industry — Industry and external environment

Industry and external environment. The auditor asks what is happening outside the company that could affect its operations or accounts. Two furniture manufacturers may face the same increase in timber prices but experience different effects because one can raise its selling prices while the other has fixed-price contracts. Understanding the client’s circumstances helps the auditor interpret its financial results. mia.org.my

External factor	Possible effect on the client	Audit question
Falling demand for a furniture design	Older models accumulate in the warehouse.	Can the company still sell those models for enough to recover their carrying amount?
Exchange rate changes	The ringgit amount needed to settle foreign-currency supplier invoices changes.	Were outstanding foreign-currency payables translated using the appropriate year-end rate?
Financial difficulties among retailers	Customers take longer to pay.	Does the allowance for doubtful debts reflect the risk of non-payment?

Balance-related audit objectives

Balance-related objectives concern what the company owns or owes at a particular date. Suppose Jengka Furniture reports inventory of RM100,000 at 31 December. The auditor needs evidence about the goods, the company’s rights to them and the amount reported. standards.xrb.govt.nz

Objective	Question the auditor asks	Example of an audit procedure
Existence	Are the goods on the inventory list physically present?	Select tables from the inventory list and locate them in the warehouse.
Completeness	Has the company included all inventory that should be recorded?	Select tables in the warehouse and trace them to the inventory list. Follow up on any missing item.
Rights and obligations	Does the company have rights to the recorded goods? For a liability, does the company owe the amount?	Inspect supplier agreements to establish whether timber held in the warehouse belongs to the company or is held on consignment for a supplier.
Accuracy, valuation and allocation	Are the quantities, unit costs and carrying amounts appropriate?	Recalculate quantity × unit cost. For damaged tables, compare cost with the estimated selling price less the costs needed to complete and sell them.
Classification	Has the company placed the goods in the correct category?	Check whether unfinished tables are classified as work in progress and completed tables as finished goods.
Presentation	Does the company present and disclose inventory appropriately?	If inventory is pledged as security for a bank loan, inspect the loan agreement and check the relevant disclosure.

Two textbook terms help students describe specific tests. Detail tie-in means checking that the detailed inventory listing adds up and agrees with the general ledger. Realisable value focuses on recoverability. For example, if a finished table costs RM500 and its net realisable value has fallen to RM350, the required write-down is RM150. A listing can add up correctly even when the goods are overvalued.

Transaction-related audit objectives

Transaction-related objectives concern what the company recorded during the financial year, such as sales, purchases, wages and cash receipts. Suppose Jengka Furniture records a credit sale of 20 tables at RM500 each, totalling RM10,000. Each objective asks a different question about that sale. mia.org.my

Objective	Question the auditor asks	Example of an audit procedure
Occurrence	Did the recorded sale actually take place?	Select the RM10,000 entry from the sales journal and inspect the customer’s order and signed delivery note.
Completeness	Did the company record all sales that should have been recorded?	Select signed delivery notes and trace them to the sales journal. Investigate a completed delivery with no corresponding sales entry.
Accuracy	Did the company record the correct quantity, price and amount?	Agree the 20 tables to the delivery note and RM500 to the agreed price. Recalculate the invoice as 20 × RM500 = RM10,000.
Cut-off or timing	Did the company record the sale in the correct financial year?	Examine deliveries immediately before and after 31 December. If the contract transfers control on delivery and the customer received the tables on 3 January, the sale belongs in January.
Classification	Did the company record the transaction in the correct account?	Check that sales of furniture appear as trading revenue and that proceeds from selling an old delivery van are recorded separately.
Presentation	Does the financial statement presentation clearly explain the transaction and any required disclosure?	Review how the company describes its revenue and check that the description is consistent with its sales arrangements.

Posting and summarisation is another objective commonly used in textbook exercises. For the RM10,000 credit sale, the auditor can check that the amount was posted to the correct customer’s account and that the sales journal total agrees with the general ledger.

Obtain client's information background

An auditor studies the client’s business to answer three questions: How does the company make money? What could go wrong in its financial statements? What evidence would help the auditor find out? Understanding the business helps the auditor identify risks and choose procedures that address them. mia.org.my

The examples below use Jengka Furniture Sdn. Bhd., a fictional Malaysian company that buys timber, manufactures furniture and sells it on credit to retailers. The page numbers follow your textbook outline.

1. Obtaining background information about the client

Planning activity	What the auditor does	Example and why it matters
1. Understand the client	Identify the owners, directors, main products, customers, locations and sources of finance. Read prior financial statements, board minutes and major agreements, and discuss changes with management.	Jengka Furniture earns half its revenue from one retailer. If that retailer is struggling financially, the auditor considers whether the company can collect the amount owed.
2. Tour the client’s facilities	Visit the factory, warehouse and dispatch area. Observe how goods move and ask staff how they record each movement.	The auditor sees damaged tables stored alongside finished goods ready for sale. This raises a valuation question: has management reduced the carrying amount of the damaged tables where necessary?
3. Understand the industry and business	Learn about external conditions affecting the industry and how the company purchases, produces, sells and collects payment.	Timber prices have risen, but the company’s selling prices are fixed under contract. The auditor considers the effect on margins and investigates any unexpected increase in reported gross profit.
4. Identify related parties	Ask management about related parties and transactions with them. Inspect ownership records, board minutes and significant contracts for relationships management may have overlooked.	A director controls a transport company that delivers the furniture. The auditor examines the delivery charges, year-end balance and whether the financial statements disclose the relationship and transactions as required. AUASB Local
5. Determine whether an expert is needed	Decide whether the audit requires knowledge outside accounting or auditing. Assess the expert’s competence, capabilities and objectivity, agree on the work and evaluate the results.	Management revalues the factory building. The auditor may engage a property valuer to assess the valuation assumptions. The auditor remains responsible for the audit opinion. AUASB Local

Reasons for changing auditors

Changes in professional appointment means a company replaces its existing auditor with a new auditor.

Dalam Bahasa Melayu: Pertukaran pelantikan profesional, iaitu pertukaran daripada juruaudit sedia ada kepada juruaudit baharu.

The new auditor is called the proposed or incoming auditor, while the previous auditor is called the existing or outgoing auditor.

Reasons for changing auditors

Reason	Example
Audit fee disagreement	The client considers the existing auditor’s proposed fee too high.
Need for different expertise or resources	The company expands overseas and requires an audit firm with an international network.
Service concerns	The client is dissatisfied with delays in completing the audit.
Disagreement over accounting treatment	Management refuses to write down obsolete inventory as requested by the auditor.
Auditor’s resignation	The existing auditor decides to discontinue the engagement because of concerns about management’s integrity.

Responsibilities of the proposed auditor before accepting

The proposed auditor should investigate the circumstances of the change, including communicating with the existing auditor about relevant professional matters. This helps the proposed auditor make an informed acceptance decision. www.at-mia.my

Step	Explanation	Example
1. Ask the client why the change is proposed	Understand the reason and identify possible concerns.	Management says the previous auditor was “too strict”. The proposed auditor investigates what this means.
2. Obtain the client’s permission to communicate	Seek authorisation for the existing auditor to discuss relevant matters.	The client provides written permission for professional communication.
3. Communicate with the existing auditor	Ask whether there are professional or other reasons relevant to accepting the appointment.	Enquire about accounting disagreements, access restrictions or concerns about management’s honesty.
4. Evaluate the information received	Consider its effect on client acceptance, independence and the ability to perform a proper audit.	The existing auditor explains that management withheld important records.
5. Decide whether to accept	Accept only after the relevant concerns have been satisfactorily considered.	Decline if serious concerns about management’s integrity remain unresolved.

If the client refuses permission to communicate, the proposed auditor should carefully consider that refusal when deciding whether to accept. It is a warning sign requiring investigation, rather than automatic proof of wrongdoing. www.icaew.com

Practical example

ABC Sdn. Bhd. wants to replace Ali & Co. with Bakar & Co.

Ali & Co. had discovered obsolete inventory requiring a RM80,000 write-down. Management refused because the adjustment would reduce profit.

Before accepting, Bakar & Co. should communicate with Ali & Co., with appropriate authorisation, and assess the disagreement. The concern is that management may be seeking an auditor who will accept an inappropriate inventory value.

Key examination point: Communication with the outgoing auditor helps the incoming auditor identify matters affecting acceptance. The incoming auditor makes its own acceptance decision; it is not simply asking the outgoing auditor for permission to act.

Management assertions

Meaning: Management assertions are the explicit or implicit claims management makes through the financial statements.

In Malay: Asersi pengurusan ialah dakwaan atau pernyataan pengurusan tentang maklumat dalam penyata kewangan.

Auditors use assertions to identify what could be wrong and select appropriate procedures to test it. mia.org.my

A. Assertions about transactions and events during the year

The following categories also cover related disclosures. mia.org.my

Assertion	Simple meaning	Illustrative example	Possible audit procedure
Occurrence	Recorded transactions actually happened and relate to the company.	A recorded RM10,000 sale represents a genuine sale to a customer.	Examine the invoice, customer order and delivery evidence.
Completeness	All transactions that should be recorded are included.	All goods delivered to customers have been recorded as sales.	Trace delivery documents to the sales records.
Accuracy	Transaction amounts and details are correctly recorded.	Ten units sold at RM100 each are recorded as RM1,000.	Recalculate the invoice and check the agreed price.
Cut-off	Transactions are recorded in the correct accounting period.	A sale meeting recognition requirements in January is not recorded in December.	Examine transactions and delivery terms around year-end.
Classification	Transactions are recorded in the appropriate accounts.	A delivery van purchase is recorded as an asset rather than a repair expense.	Examine invoices and the account used.
Presentation	Transactions and related disclosures are clearly and appropriately presented.	Revenue categories and related explanations are understandable.	Review the financial statements and relevant disclosures.

B. Assertions about account balances at year-end

These categories also cover related disclosures. standards.xrb.govt.nz

Assertion	Simple meaning	Illustrative example	Possible audit procedure
Existence	Recorded assets, liabilities and equity interests actually exist.	Inventory shown in the records is physically present.	Select items from the inventory listing and inspect them.
Rights and obligations	The company has rights to its assets and responsibility for its liabilities.	Goods held on behalf of a supplier are excluded from the company’s own inventory.	Examine purchase documents and consignment agreements.
Completeness	All balances that should be included have been recorded.	All amounts owed to suppliers at year-end are included.	Examine subsequent payments for unrecorded liabilities.
Accuracy, valuation and allocation	Balances are recorded at appropriate amounts, with necessary adjustments.	Obsolete inventory is written down where required.	Compare cost with net realisable value and inspect ageing reports.
Classification	Balances appear in the appropriate accounts or categories.	The portion of a loan due within the next year is classified appropriately.	Review the loan agreement and repayment schedule.
Presentation	Balances and related disclosures are clearly and appropriately presented.	Information about assets pledged as security is properly disclosed.	Examine agreements and compare them with the financial statement notes.

One simple inventory example

Management reports inventory of RM100,000. The auditor considers several different questions:

• Existence: Are the goods actually there?
• Rights: Do they belong to the company?
• Completeness: Has any inventory been left out?
• Valuation: Is RM100,000 the appropriate carrying amount?

Remember: Seeing the goods provides evidence of their existence, but does not by itself prove ownership or correct valuation. Different assertions require different supporting evidence.

Objectives of a financial statement audit

The auditor’s overall objectives are to:

1. Obtain reasonable assurance that the financial statements as a whole are free from material misstatement, whether caused by fraud or error.
2. Express an opinion on whether the financial statements are prepared, in all material respects, according to the applicable financial reporting framework.
3. Report and communicate as required by the auditing standards. mia.org.my

Key term	Simple explanation	Example
Reasonable assurance	A high level of assurance, but not a complete guarantee.	The auditor obtains persuasive evidence but cannot promise that every mistake has been identified.
Material misstatement	An error or omission significant enough to influence users’ decisions, considering its size or nature.	Omitting a major loan could mislead a bank assessing the company’s financial position.
Audit opinion	The auditor’s conclusion on the financial statements based on the evidence obtained.	The auditor concludes whether the statements give a true and fair view under the applicable framework.

Example: A company reports a profit of RM200,000 but omits expenses of RM300,000. Correcting the omission would change the reported profit into a loss of RM100,000. This could substantially affect investors’ or lenders’ decisions.

An audit opinion does not guarantee the company’s future survival or the effectiveness of management’s business decisions.

Fraud and error

Fraud and error are a separate topic, although either may become relevant when investigating a change of auditor.

Aspect	Fraud	Error
Meaning	An intentional act involving deception.	An unintentional mistake.
Key distinction	Deliberate.	Accidental.
Example	Creating fictitious sales invoices to inflate revenue.	Accidentally recording an RM5,400 invoice as RM4,500.
Another example	Stealing cash and altering records to conceal the theft.	Overlooking a depreciation calculation.

Management, with oversight from those charged with governance, has primary responsibility for preventing and detecting fraud. The auditor seeks reasonable assurance that the financial statements contain no material misstatements caused by fraud or error. Fraud can be harder to detect because it may involve concealment, collusion or management overriding controls. mia.org.my

Student takeaway: Fraud is intentional; error is unintentional. Both can cause material misstatements.

Changes in professional appointments

Meaning: This occurs when a company replaces its existing auditor with another auditor.

The proposed auditor should investigate the reasons for the change and communicate with the existing auditor through the appropriate professional process before deciding whether to accept. MIA highlights this communication as an important part of client acceptance. Malaysian Institute of Accountants (MIA)

Action	Explanation	Example
Ask why the auditor is being changed	Establish whether the reason is routine or raises concerns.	The company needs a firm with more branches, or it disagrees with an accounting adjustment.
Seek permission for communication	Arrange appropriate authorisation to discuss relevant client matters with the existing auditor.	The client authorises the previous auditor to respond to professional enquiries.
Communicate with the existing auditor	Enquire about matters relevant to accepting the appointment.	Ask about disagreements, restricted access to records or concerns about management’s integrity.
Evaluate the information	Consider whether identified matters affect independence, integrity or the ability to perform the audit.	Management previously refused to correct a significant overstatement of inventory.
Decide whether to accept	Make and document an informed acceptance decision.	The firm declines because serious integrity concerns remain unresolved.

If the client refuses permission for communication, the proposed auditor should carefully consider that refusal when deciding whether to accept. icaew.com

Example: ABC Sdn. Bhd. changes auditors because the previous auditor insisted on recognising an impairment loss. The proposed auditor should investigate whether management is seeking an auditor who will accept inappropriate accounting.

Important distinction: A change of auditor does not automatically mean fraud has occurred. There may be legitimate commercial or operational reasons.

Engagement letter

Meaning: An engagement letter records the agreed terms of the audit between the auditor and the client.

ISA 210 requires the agreed terms to be documented in an engagement letter or another suitable written agreement, subject to limited exceptions where legislation sufficiently prescribes those terms. mia.org.my

Main content	Explanation	Example
Objective and scope	Identifies the purpose and coverage of the audit.	Audit of the financial statements for the year ended 31 December 2026.
Auditor’s responsibilities	Explains the auditor’s role in obtaining reasonable assurance and expressing an opinion.	Perform audit procedures and issue an independent auditor’s report.
Management’s responsibilities	Explains management’s responsibility for preparation, internal control and access to information.	Prepare the financial statements and provide complete accounting records.
Applicable reporting framework	Identifies the framework used to prepare the financial statements.	MFRS or MPERS, as applicable.
Expected report	Describes the expected form and content, while acknowledging that circumstances may require a different report.	The opinion may be modified if a material issue remains unresolved.
Other practical arrangements	May cover fees, timing and communication arrangements.	Agreed fee basis and planned completion date.

The first five areas reflect the principal terms required by ISA 210; practical arrangements may also be included. mia.org.my

Example: Management expects the auditor to prepare the accounts and guarantee that every fraud will be detected. The engagement letter clarifies the respective responsibilities and the limitations of an audit, helping prevent this misunderstanding.

Student takeaway: The engagement letter explains what both parties agree to do. It can form the contract governing their relationship, subject to applicable law.

Scope of audit work

Meaning: Audit scope describes the coverage of the audit, including the financial statements, reporting period and work needed to support the audit opinion.

An auditor obtains sufficient appropriate evidence to reduce audit risk to an acceptably low level. The work focuses on matters that could materially affect the financial statements. mia.org.my

For a retail company, illustrative audit work may include:

Area	Example of audit work	Purpose
Sales	Examine invoices and delivery records.	Assess whether recorded sales actually occurred.
Inventory	Attend the physical inventory count and perform test counts.	Obtain evidence about inventory quantities and condition.
Bank balances	Obtain bank confirmations and examine bank reconciliations.	Obtain evidence about recorded bank balances.
Trade payables	Examine subsequent payments and supplier documents.	Identify liabilities that may have been omitted.
Financial statement disclosures	Review the notes accompanying the financial statements.	Assess whether relevant information is adequately presented and disclosed.

Example of a scope limitation: Management refuses access to inventory records. The auditor must consider the effect on obtaining evidence and the audit report. Management cannot simply exclude an important area while expecting an opinion on the complete financial statements.

Pre-planning: Client acceptance

Meaning: Before accepting an audit, the audit firm evaluates whether it should work with the client and whether it can perform the audit properly.

The main considerations include management’s integrity, compliance with ethical requirements, and the firm’s competence, time and resources. Malaysian Institute of Accountants (MIA)

Consideration	Explanation	Practical example
Management’s integrity	Consider whether management is honest and willing to provide reliable information.	A director asks the auditor to ignore unrecorded sales. This raises serious concerns about accepting the client.
Independence	Identify relationships or interests that could compromise the auditor’s objectivity.	The proposed audit partner owns shares in the client. The independence issue must be resolved before proceeding.
Competence	Assess whether the team has the knowledge and skills needed.	An audit of an insurance company requires knowledge of specialised transactions and estimates.
Time and resources	Determine whether sufficient staff and time are available to complete a quality audit.	A large company requests completion within three days, but the firm has only two available staff.
Reasons for changing auditors	Find out whether the change involves disagreements or other professional concerns.	The previous auditor questioned unusually high inventory values, and management immediately sought another auditor.
Audit preconditions	Establish whether the reporting framework is acceptable and management acknowledges its responsibilities, including providing access to information.	Management agrees to prepare the financial statements and provide records, explanations and access to relevant employees.

Management’s acceptance of these responsibilities forms part of the basis for accepting the audit under ISA 210. www.icaew.com

Student takeaway: Client acceptance asks, “Should we accept this client, and can we audit it properly?”

Minggu 11- MODUL 10: INSTITUSI SOSIAL DALAM PEMBUDAYAAN INTEGRITI DAN ANTIRASUAH

MODUL 10: INSTITUSI SOSIAL DALAM  PEMBUDAYAAN INTEGRITI DAN ANTIRASUAH 

1. Pembudayaan integriti dan antirasuah 
2. Peranan institusi keluarga
3. Peranan institusi agama
4. Peranan institusi pendidikan
5. Peranan institusi media

Modul 

1. Nota Pelajar
2. Nota Pensyarah

VIDEO BERKAITAN - Klik disini 

AKTIVITI 

1. Soalan Perbincangan - Klik disini
2. Ujian Kefahaman - | Ujian kefahaman 1 | Ujian kefahaman 2 |

Minggu 10 - MODUL 9: PERANGI RASUAH LAPOR, CEGAH DAN INISIATIF KERAJAAN

MODUL 9: PERANGI RASUAH LAPOR, CEGAH DAN INISIATIF KERAJAAN 

1. Prosedur melaporkan tawaran dan permintaan rasuah 

Modul 

1. Nota Pelajar
2. Nota Pensyarah

VIDEO BERKAITAN - Klik disini 

AKTIVITI 

1. Soalan Perbincangan - Klik disini
2. Ujian Kefahaman - | Ujian kefahaman 1 | Ujian kefahaman 2 |

Minggu 9 - MODUL 8 : PUNCA, SIMPTOM DAN KESAN JENAYAH RASUAH

MODUL 8 : PUNCA, SIMPTOM DAN KESAN JENAYAH RASUAH 

1. Jenayah rasuah berdasarkan teori-teori berkaitan
2. Simptom jenayah rasuah
3. Kesan jenayah rasuah terhadap individu, masyarakat dan negara

Modul 

1. Nota Pelajar
2. Nota Pensyarah

VIDEO BERKAITAN - Klik disini

AKTIVITI 

1. Soalan Perbincangan - Klik disini
2. Ujian Kefahaman - | Ujian kefahaman 1 | Ujian kefahaman 2 |

Mind Map Module 4

Click to enlarge

Q1 and Q2

Sem lepas - OUM

Sem lepas - PJJ

Sem lepas

Logo baharu Zauraa Vision Enterprise

Thanks Edward

Bulan dan Kejora

2026 11 07 Kenduri Abg Nazardin

KP3A4 Deg HGD344 20264 - Group Assignment

1. Integriti - Video PA - Kabel atau Kelayakan?

- Elakkan cliche
- Tambah plotwist
- Apporoved

2. Pemacu Amanah- Video PA - Nyawa atau Harta

- Pacing drama penting - Video 3 minit shj
- Storyboad penting
- Jadikannya menarik berdasarkan sinopsis yang telah dibentangkan

- Well prepared with slaids

3. Grade Hunters - Video PA - Topeng Integriti

- Pelajar dan pensyarah - Naik markah

- Ingatan yg sama spt kumpulan 1 dan 2

4. Group Justice Seeker - Video PA - Cermin Retak

- Well written sinopsis

- Ingatan yg sama spt kumpulan 1 dan 2

- Well prepared with doc file

5. Ethics Empire - Video PA - Rasuah Pemimpin Mahasiswa

- Cerita agak kompleks tapi menarik

6. ⁠ORBIDz - Video PA - Keuntungan yang Memakan Diri

- Ingatan yg sama spt kumpulan 1 dan 2

- Well prepared with doc file
- Pengajaran yang baik - Boleh polish lagi

Done

Minggu 8 - MODUL 7: JENAYAH KOLAR PUTIH

MODUL 7: JENAYAH KOLAR PUTIH 

1. Definisi jenayah kolar putih
2. Perbezaan jenayah kolar putih dan jenayah kolar biru
3. Kesan jenayah kolar putih
4. Contoh kes sebenar jenayah di dalam dan luar negara
5. Jenayah kolar putih terkini 
6. Mengenali profil fraudster

Modul 

1. Nota Pelajar
2. Nota Pensyarah

VIDEO BERKAITAN - Klik disini

PODCAST

Podcast - Modul 7 

AKTIVITI 

1. Soalan Perbincangan - Klik disini
2. Ujian Kefahaman - | Ujian kefahaman 1 | Ujian kefahaman 2 |

Kelas HGD344 - KP3A13

Bengkel Tatatertib

 

Mesyuarat dalam talian bersama Ketua Juri i3EC26