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KHAIRUDDIN HASYUDEEN & RAZIChartered Accountants

1.0 INTRODUCTION

1.1 COMPANY BACKGROUND

Khairuddin Hasyudeen & Razi is a chartered accountant firm that has been established its

practice in since 1992. Khairuddin Hasyudeen & Razi (KHR) is a medium size audit firm in

Malaysia and provides many services such as assurance, taxation and other services such as

enterprise risk management and internal audit. There is about 20 to 30 staff that holds variety

position that available in this firm. Khairuddin Hasyudeen Razi’s head office is located in Kuala

Lumpur and has other three branches which located at Kota Bharu, Alor Star and Melaka. Those

branches have been managed by certified partners.

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KHAIRUDDIN HASYUDEEN & RAZI

B-5-7 MEGAN AVENUE II

12 JALAN YAP KWAN SENG

50450 KUALA LUMPUR

TELEPHONE: 03-2710-7717

FACSIMILE : 03-2710-7727


1.2 PARTNERSHIPS

Partnerships of Khairuddin Hasyudeen & Razi consist of certified partners which are:

Ahmad Khairuddin Mat Salleh

Managing Partner

[email protected]

Ahmad Khairuddin is accountancy graduate from University Kebangsaan Malaysia. Presently he

is a member of the Malaysian Institute of Accountants (MIA) and CPA Australia.

Ahmad Razi Mohd Noor

Partner

[email protected]

Ahmad Razi, a member of the Malaysia Institute of Accountants (MIA), CPA Australia and he is

responsible for the operation and development of the firm’s practice in Alor Setar.

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Mohd Arif Haji Yusa

Partner

[email protected]

Mohd Arif is responsible in managing our Melaka office operations and has experience in public

practice since 1987. He holds an Advanced Diploma in Accountancy from ITM, is a member of

the Malaysian Institute of Accountants (MIA) and CPA Australia.

Tengku Shahrizanny Tengku Abdullah

Partner

[email protected]

Tengku Shahrizanny is responsible for managing KHR office in Kota Bharu. He holds a

Bachelor in Accountancy degree from UKM. He joined KHR upon graduation in 1994. In 1997

he was entrusted to manage the-then newly established Kota Bharu office.He is also a member of

the Malaysian Institute of Accountants (MIA) and CPA Australia.

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Ahmad Shahrul Hj. Mohamed

Partner

[email protected]

Shahrul is the partner in charge of the firm’s operations. A graduate from Universiti Utara

Malaysia (UUM) with a degree in Accounting, he is a member of the Malaysian Institute of

Certified Public Accountants (MICPA), Malaysian Institute of Accountants (MIA), Certified

Information Systems Auditor (CISA) and Institute of Chartered Accountants in Australia.

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1.3 SERVICES

Khairuddin Hasyudeen & Razi had provided much type of services from basic

financial accounting, taxation, auditing, and other services.

1.3.1 ASSURANCE

KHR is dedicated to provide assurance on financial reporting infrastructure and

operations, helping to improve the standards of reporting and adapt to the regulatory

requirements.

Going beyond providing traditional assurance services, KHR business

professionals adopts strategic and risk-based approach in assisting you to improve your

performance, mitigating risks as well as enhancing your enterprise value.

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KHR facilitate to maximize value through:

FINANCIAL STATEMENTS AUDIT

KHR Financial Statements Audit service provides assurance and attestation to the

information regarding your financial performance in order to address the statutory

requirements of corporate reporting and manage any existing or potential regulatory risks.

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FINANCIAL DUE DILIGENCE

KHR’s Financial Due Diligence Services provides you with an independent and

professional perspective on the potential acquisition encompassing its strategic and

financial aspects.

FINANCIAL INVESTIGATION

Through our Financial Investigation services, KHR are involved in obtaining, collating

and analyzing information to help you make the best decisions on specific transactions or

segments of your business.

KHR assist you in investigating and evaluating financial discrepancies and improper

business conducts to reduce the risk of fraud and disputes as well as providing

independent and professional advice on handling these sensitive matters confidentially.

FINANCIAL PROJECTIONS REVIEW

For this purpose, KHR Financial Projections Review service conducts assessment on

your financial projections, assisting you to plan your financial requirements strategically

in a practical and realistic manner thus enabling you to accomplish your objectives

OTHER SPECIAL PURPOSE ASSURANCE AND INVESTIGATION

ASSIGNMENTS

In ensuring credibility and quality financial information, KHR Special Purpose

Assurance and Investigation services are designed to assess and attest to the specific parts

of the information to ensure its accuracy and in adherence to the requirements.

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1.3.2 TAX

1.3.3 OTHER SERVICES

I. ENTERPRISE RISK MANAGEMENT

The risk management framework focuses on the enterprise wide risk identification,

assessment and control measures that would assist clients to improve the organisations’

risk management approaching enabling their organisation to achive its corporate

objectives. In addition to that, KHR provide recommendations for improving the risk

management processes by encouraging risk awareness among the team members as well

as enhancing the sharing of risk related information.Through the firm’s approach, it aims

to enhance the enterprise and shareholder value through improved business performance

by having better risk management.

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II. INTERNAL AUDIT

There are several approaches that are used by the firm:

o Setting up of the Internal Audit function within clients organization

o Total outsourcing of the Internal Audit function

o Assisting clients’ Internal Audit department through co-sourcing of the specific

functions in the Internal Audit Department.

o Independent assessment and quality review of your existing Internal Audit

Department

1.4 CLIENTS

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1.5 VISION & MISSION OF THE COMPANY

VISION

MISSION

Khairuddin Hasyudeen & Razi (KHR) mission is “Linking strategy to value”. Basically,

it focused on enterprise value. Enterprise value is enhancing through attainment of

achievement of strategic goals. For instance, each strategic objective is accomplished; they

will enhance the enterprise value.

KHR has enhance their enterprise value by emphasizing working together with client to

increase the understanding of the organization and enabling in developing strategic plans and

risk management in order to have proper strategic actions. Besides, by utilizing all resources

like knowledge and experiences, human capital, KHR will try to address any solutions for

their clients and delivers integrated business solution in order to achieve their clients’

corporate goals.

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To be the preferred business advisor in enterprise value enhancement

Linking strategy to value


1.6 ORGANIZATION CHART

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Nor SyalizaSenior 3

Nur FitrahAssociate

Nurul HasnaAssociate

Wan M. Al AminSenior 3

Syahril EzehamSenior 3

Rosidah AhmadCleaner Clerk

Afiq IsmailSenior 3

BasriSenior 3

Lina FarhanaAssistant

Puan Siti SalwaHead

Norazlina Mohd Nor

AbidahAssociate

Fairuz YasminSenior 2

Mohd FaizSenior 2

Wandi SelamatDespatch Clerk

OsmalinaCredit Control

Nor SobahSenior 1

ZulfikriSenior 1

Khairul AnuarManager

Juhara Md AliAccount

Internal Business

Audit & Assurance

Tax Department

Ahmad Khairuddin Mat

Salleh

Ahmad Shahrul MohamedPartner

TashaAssociate

Afif NabihahAssociate

AtikahAssociate

NawawiAssociate

NorzarifahAssociate

Wan Suziana Fazlica

Sakina

Assistant

Azira

Tax Consultant 1

Nor Atikah

Tax Consultant 2


1.7 DAILY ACTIVITIES

I am very pleasure can have a practical training at Khairuddin Hasydeen & Razi. I

was placed at audit department. It is a good chance for me learns more about audit in the

real working life. During the practical training, I learn so much of valuable knowledge in

the audit field. All my daily tasks are relating about audit matters. I will do the audit work

such as vouching documents, statutory audit, filing documents, preparation for

confirmations letters, casting and call over audit report.

Besides that, it is a great experience for me when Company sent me to outside

audit. It is because I can perform audit duties in different culture of company. I very

thanks to my audit manager to give me chance for handle audit case. This experience can

let me learn the whole audit framework from beginning until sent out of draft account to

clients. I will more understand about the audit procedures. From this, I also have a chance

to communicate with clients for asking some questions. It can improve my

communication skills. This practical training brings me a lot of benefit experience and

good for my future career.

So, in this report, I choose to do a topic or title that related to audit procedure. I

will explain about accounting process and procedure in order to prepare the account for

clients which involve many steps in accounting processes.

1.8 BACKGROUND OF STUDY

In this report, I prefer to choose the topic of audit process because it is can

provide detailed audit steps to be performed during the audit fieldwork that will achieve

the specific audit objectives. In conjunction with the risk assessment, audit procedures

will be developed by the auditor and approved by audit management prior to performance

of the audit procedures.

Besides that, as we known audits are an essential management tool to be used for

verifying objective evidence of processes, to assess how successfully processes have been

implemented, for judging the effectiveness of achieving any defined target levels, to

provide evidence concerning reduction and elimination of problem areas.

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2.0 OBJECTIVE

2.1 OBJECTIVE OF THE STUDY

1. To know deeply about audit assurance and its purpose.

2. To expose in working field environment.

3. To understand the theory of audit planning

4. To get details of audit steps and the procedures (process of audit).

5. Understand the problems while preparing audit.

6. To give recommendations from the problems.

2.2 SCOPE OF THE STUDY

Objective of this study is wanted to go thoroughly regarding the process of audit

procedures. First of all, we need to known what are the purposes of audit, the steps and

procedures to do the audit, then identify and understand the problems while preparing the

audit. Also, give some recommendation or suggestion for the problems’ solution.

3.0 METHODOLOGY

There is some method that used several methodologies in completing this report. Those

methods are:

3.1 Primary data

3.1.1 Observing

I made an observation on the audit’s works that has been done for different kind of

client. During the practical training at Khairuddin Hasyudeen & Razi (KHR) I had a

great experience and opportunity to know more about audit work and audit

procedures. I will ask the opinion and solution from audit seniors when I faced

problem for preparation of practical report. They give me advices or some

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information relating my topic chosen. Besides that, they explained me about audit

procedures and some of problem that will meet during the audit process.

3.2 Secondary Data

3.2.1 Interview

This information gets through interview session with the senior auditors to better

understanding regarding the audit process for each types of business. They had a great

experience in auditing and had much of information about auditing from their seminar

training before. So that they really help me much in this study of topic I had chosen.

3.2.2 Internet

Find the related information with the topic. All information can assist me in further

understanding about the topic. I had browsed through internet to get additional

information about topic I had chosen. For built up the strong base for my practical

report. It is to help me for further detail about my topic.

3.2.3 Textbook

I’m using this method to get preliminary understanding regarding the all topic that

related to audit process.

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4.0 DISCUSSION

4.1 DEFINITION OF AUDIT

First of all, according to encyclopedia, the general definition of an audit is an evaluation

of a person, organization, system, process. The term most commonly refers to audit in

accounting; Audits are performed to ascertain the validity and reliability of information, also

to provide an assessment of a system’s internal control. The goal of an audit is to express an

opinion on the person, organization, system and others

Due to practical constraints, an audit seeks to provide only reasonable assurance that the

statements are free from material error. Hence, statistical sampling is often adopted in audits.

In the case of financial audits, a set of financial statements are said to be true and fair when

they are free of material misstatements

Auditing is a vital part of accounting. Traditionally, audits were mainly associated with

gaining information about financial systems and the financial records of a company or a

business .However, recent auditing has begun to include non-financial subject areas, such as

safety, security, information systems performance, and environmental concerns.

Besides that, according to companies Act, audit is primarily an opinion as to whether the

profit and loss account and balance sheet show a true and fair view and comply with statute.

In my opinion Audit is a quality improvement process that examination and verification

of a company's financial and accounting records other relevant documents, and physical

inspection of inventory by qualified accountants (called auditors). Or audit can be the

accumulation and evaluation of evidence about information to determine and report on the

degree of correspondence between the information and establish criteria. Auditing should be

done by competent and independent person.

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http://en.wikipedia.org/wiki/Accounting

http://en.wikipedia.org/wiki/Financial_audit


4.1.1 TYPES OF AUDIT

In general, there have 3 types of audit, which are:

Operational audit

An operational audit evaluates the efficiency and effectiveness of any part of an

organization’s operating procedures and methods. At the completion of an operational

audit, management normally expects recommendations for improving operations. For

example, auditors might evaluate the efficiency and accuracy of processing payroll

transaction in a newly computer system.

Compliance audit

A compliance audit is conducted to determine whether the auditee is following specific

procedures, rules or regulation set by some higher authority. Results of compliance audits

are typically reported to someone within the organizational unit being audited rather than

to a broad spectrum of users. For example, determine whether bank requirements for loan

continuation have been met.

Financial Statement audit

A financial statement audit is conducted to determine whether the overall financial

statements are stated in accordance with specified criteria. Normally, the criteria are FRS;

although it is also common to conduct audits of financial statement prepared using cash

basis or some other basis of accounting appropriate for the organization. In determining

whether financial statements are fairly stated in accordance with FRS, the auditor

performs appropriate tests to determine whether the statement contains material errors or

other misstatement.

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4.2 ADVANTAGES OF WORKING AUDIT FIELD

The benefits of an audit are numerous. Audits can improve a company’s

efficiency and profitability by helping the management better understand their own

working and financial systems. The management, as well as shareholders, suppliers and

financers, is also assured that the risks in their organization are well-studied, and

effective systems are in place to handle them.

Fieldwork is the process of gathering evidence and analyzing and evaluating that

evidence. The purpose of fieldwork is to accumulate sufficient, competent, relevant, and

useful evidence to reach a conclusion concerning our performance expectations, and to

support our audit comments and recommendations. Audit evidence is sufficient when it is

factual and would convince an informed person to reach the same conclusion. Evidence is

competent if it consistently produces the same outcomes. It is relevant when it is directly

related to the audit comments, recommendations, and conclusions.

Besides that, an audit can uncover inaccuracies and discrepancies within an

organization’s records, which may be indications of weak financial organization or even

internal fraud, although fraud detection is not the main purpose of an audit.

The benefits of an audit:

Analyze and understand company’s financial records.

Identify key areas for improvement in the company.

Assess risks, economy, efficiency and quality.

Uncover fraudulent or other illegal activities within the company.

Reinforce and strengthen internal control.

Auditors have a unique broad perspective of a company which they apply to deliver

effective analyses and relevant information. Management can use this information to

evaluate the company and implement measures necessary to meet their objective.

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4.3 PLANNING OF AUDIT

Before want to start doing the audit, First of all must know the planning in audit.

I. The auditor decides whether to accept a new client or continue serving and existing one.

Decision must be making before incurring any significant cost that cannot recover.

II. A thorough understanding of client’s business and industry and the knowledge about the

company’s operation are essential for doing an adequate audit.

III. Auditor uses knowledge gained from the strategic systems understanding of the client’s

business and industry to achieve its objectives.

IV. Performance of analytical procedures during planning helps the auditor identify

significant matters.

V. Materiality is a concept or convention within auditing and accounting relating to the

importance/significance of an amount, transaction, or discrepancy.

VI. Perform the audit.

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Accept client and perform initial audit planning

Understand the client’s business and Industry

Access client business risk

Perform preliminary analytical procedures

Set materiality

Develop overall audit plan

http://en.wikipedia.org/wiki/Accounting

http://en.wikipedia.org/wiki/Auditing


4.4 FINDINGS

4.4.1 WORKFLOW IN KHR

There is a lot audit procedures, it depend on the company. In KHR, the audit

procedures based on section, which is starting from A section until N section. Proper

planning of audits and reviews is essential to the effective conduct and completion of the

work. This is an overview that KHR apply in the organization.

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This is some description about the model above:

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4.4.2 Received full set of accounts.

4.4.3 Compare the accounts with the opening balance. Opening balance is taken from

previous audit file.

4.4.4 Provide estimated audit fee by referring to client income statement and balance

sheet for the related year. The estimated fees are set up by using the fee

computation from Malaysian Institute of Accountants (MIA).

4.4.5 Casting checks the calculation in client’s management account to make sure the

truth of the figure and records.

4.4.6 Prepare the audit working paper for income statement and balance sheet.

For the audit working paper, there are some indexes in order to do the audit

working paper, the index was mentioned below:

1. Job Administration

AA – audit checklist – completion

AB – audit checklist – final

AC – audit checklist – draft

AD – audit checklist – current audit file (CAF)

AE – draft bills, estimated fees and time and claim record

AF – management letter

AG – notes for next year

AH – partner review

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AI – outstanding matters

AJ – manager review

AK – working paper review

AL – financial statement review

AM – confirmation and others

2. Audit Planning

BA – audit planning memorandum

BB – audit planning program

BC – audit planning checklist

BD – analytical review

BE – audit risk

BF – related parties

BG – going concern and letter of support

BH – others

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3. Financial Reporting

CA – Opening Balance

CB – Audited Financial Statements

CC – Adjustment journal entry (AJE), reclassification journal entry (RJE) and

client journal entry (CJE)

CD – Extended Balance Sheet and Income Statement

CE – Management Accounts

CF – Audited Financial Statement (Previous)

CG – Working Paper for Consolidation

4. Statutory Audit

N – Information about the directors, members, shareholders, manager,

secretary, transfer of share, authorized capital and issued share capital

– fulfil the form

5. Balance Sheet items

C – Intangible Assets and Property, Plant and Equipment

D – Amount due from / to director or affiliated company

E- Inventories and Work In Progress

F – Trade Receivables

G – Other Receivables, Deposit and Prepayments

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H– Cash and bank balances

J – Trade Payables

K – Other Payables and Accruals

L- Loans and Borrowings

6. Taxation

M – Tax computation done with manual, computation capital allowance done

with schedules.

7. Income Statement

B – Revenue / Turnover

B – Cost of Sales

B – Gross Profit Margin

B – Other Operating Income

B – Distribution and Selling Expenses

B – Administrative Expenses

B – Other Operating Expenses

B – Finance Cost

B – Others

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4.4.7 Performing statutory audit at company secretary office (registered office).

Statutory audit is a process of gathering the latest information about the directors,

members, shareholders, manager, secretary, transfer of share, authorized capital

and issued share capital.

4.4.8 Once the process of audit is finish, prepare the draft audit report and send it for

typing. The draft audit that has been type will be reviewed by audit manager

assigned for each assignment.

4.4.9 The draft audit report can be released after being reviewed by audit manager if

there is no amendment.

4.4.10 Draft audit report is sent to client together with the signing pages for directors.

The draft will be sent for review purposes and the signing pages should be

returned back once being signed by the directors.

4.4.11 when the client agreed with the draft audit report and there is no amendment need

to be done, the audit manager will continue to release the final audited report.

4.4.12 Administration department will prepare the auditor’s report that need to be signed

by the partner of the audit firm.

4.4.13 After all the procedures are completed, final audit report can be released.

Administration department will print out 7 copies of final audited report and

compile it together with the signing pages and the auditor’s report. 2 copies are

sent to clients, 2 copies for company secretary, 1 copy for tax department, 1 copy

for Permanent Audit File (PAF) and Current Audit File (CAF).

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4.5 AUDIT PROCESS IN KHR

In Khairuddin Hasyudeen & Razi (KHR), the first step in performing audit is

audit engagement. An engagement letter defines the legal relationship between a

professional firm and its clients. This letter stated the terms and conditions of the

engagement, principally addressing the scope of the engagement. This audit

engagement is appointment with client before the fieldwork is started. Basically, audit

manager and partner will involve in the engagement to evaluate the client acceptance

of first appointment and continuance. It same goes with theory that I have learnt in

university. Besides that, in this engagement, auditor also can know the nature of

business for the first appointment of client. Yet, evaluation of issues that have arise in

previous year can be discusses for continuous client appointment. In engagement as

well, they will talk about the audit fees, audit team involved and timing of audit

engagement

When the fieldwork is started, first of all need to do Audit Planning Memorandum

or called APM. The objective of APM is to obtain understanding of the company as

well as guidance for auditor to do audit process. APM can help auditor to obtain

understanding in clients’ environment as well as their internal control. Other than that,

for recurring audit, we would try to understand the result of previous audit and would

stress on the issues previous year. Thus, in APM, it divides in two parts which is

comparison of the financial statement for the previous year with the financial

statements for the year to be audited. It is called preliminary analytical procedures.

Then, each variance or difference will come out with our audit procedure which is

related to nature, extent and timing. Next is to evaluate the business risk and doing

planning materiality. In this part, it is as a guidance to assess risk of material

misstatement in the financial statement. Basically, in theory APM was covered three

processes in audit process which is obtaining understanding of entity and establish

material and risk and set overall audit strategies and audit plan. The example of APM

can be referring in appendix 1.

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In audit business process, in KHR, it will divide into two parts which is Profit and

Loss part and Balance Sheet Part. Basically, after doing Audit Planning Memorandum

(APM), next step is to check opening balances of balance sheet items. This can be done

by check whether the amount reflected in previous audit report same as the opening

amount in client’s account. If there is any difference, note of that amount and make

adjustment of the amount.

The next step is to check journals whether have been posted to correct nominal

ledger account or not. Scrutinize nominal ledger journals made during the period for

evidence of any unusual journal entries. For such items, obtain satisfactory explanations

from the client. Then obtain a closing trial balance for the current period. Check that the

trial balance is mathematically accurate and trace numbers to the draft financial

statements and lead schedules. For agreed post trial balance audit adjustments, check that

the client has processed agreed journals into the nominal ledger and financial statements

properly

After all audit process is complete (including balance sheets and income statement’s

items) next is auditor need to do the Summary Review Memorandum (SRM). (Appendix

9) SRM is the summary of audit evidence that auditor get from the audit process.

Basically, auditor will make analytical procedures the audited financial statement for

current year that need to be audited and audited financial statement for previous year.

Thus, auditor will summarized why the variance is arise regarding to audit evidence.

Besides that, SRM is a tool to know which kind of audited report need to be issued

whether unqualified, qualified, adverse, and disclaimer report. After fieldwork is done,

then client need to fill the form related to their independence.

Basically, in this stage, auditor must evaluate the results of audit procedures which

are concerned on sufficiency of the audit evidence and overall effect of detected

misstatements on the financial statements. In this stage, auditor consider on the effects of

unadjusted material misstatements on assets, liabilities, equity, revenues, and expenses.

In other words, concentrate on the effects on the financial statements. After all is done,

then the work will be reviewed by senior in charged or leader of the team. After senior is

satisfied, it will be reviewed by manager. The manager will always follow up the any

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unresolved issues or give some point need to be cleared. After satisfied, then it will be

reviewed by engagement partner as a final check to ensure that sufficient appropriate

audit evidence has been obtained to support the conclusions and the audit opinion. In this

stage auditors and managers in charged and engagement partner need to fill the checklist

related to independence and professional code of ethic. After all, the report will be issued

and send to client.

4.6 WORKING PAPERS

4.6.1 Section B- Income Statement items Section/ Profit And Loss Account.

B section, which is include Income Statement, Analytical review for Income

Statement, Details of Balance Sheets, Ninth Schedule, test of control (TOC) for sales and

purchase cycle, treasury and payroll. But actually it is depending on the company, if the

company is big and has a lot of transaction, it needs TOC cycle, but if the company is

dormant (company with small transaction) company only, hence no need to do TOC

cycle. Same goes to Completeness and cut-off, if TOC done, hence the completeness and

cut-off must be done together. The purpose of this, just to make sure all the transaction is

correctly and accurately recorded.

First of all, for this section, there are few items that compulsory to perform an

audit. This is due to the tax computation. By doing this, detailed information on taxable

items easily can be obtained from this schedule. This schedule actually represents an

operating costs which incurred by the business. Generally, for all expenses, obtain an

analysis of operating costs showing accounts included in the cost headings disclosed in

the financial statements.

Test the mathematical accuracy and agree balances to the nominal ledger. Obtain

an analysis of employee costs analyzed by payroll cost, tax and pension contributions.

Test the mathematical accuracy and agree balances to the nominal ledger. Obtain or

prepare a monthly schedule of cost of sales and gross profit percentage analyzed by

department, location, segment or product.

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Compare with prior periods. Explain significant or unexpected changes and

trends. Be vigilant in particular for evidence of unrecorded purchases or overstated stock

or sales. The example of B section can be refer in Appendix 2

4.6.2 Sales

Firstly, obtain an analysis of sales by location and product. Check the casts and

ensure it agrees to the nominal ledger. Besides, obtain a schedule of monthly, quarterly or

annual sales, value and quantities if available, analyzed by geographical area, market and

major product or major contracts and compare with prior periods. Review the schedule

taking into account business and consumer trends, product mix, technology, new

products, discontinued products, expansion etc.

Besides that, compare miscellaneous and cash sales by product and location with

prior periods and at the same time, investigate any significant differences. Calculate the

percentage credit notes by value and quantity with sales and compare with prior periods.

Scan sales accounts in nominal ledger for evidence of unusual entries. Examine

supporting documentation in respect of unusual items detected. For a selected month,

check that the total number of sales invoices and dispatch notes issued and properly

reconciled.

Test that a sample of dispatch notes have been properly invoiced by checking to

invoice details such as customer, quantity and price and customer order. To check the

validity of credit notes issued in the period can be by vouching credit notes recorded in

sales to the credit note or examining valid supporting documentation or inspecting

evidence of authorization.

4.6.3 Cost of Sales

For cost of sales, compare analyses of distribution costs and administrative

expenses with prior periods. Prepare a predictive estimate or proof in total of payroll

costs of gross pay by obtaining prior period payroll costs, the numbers of employees in

the period year including starters and leavers from Personnel Department and considering

the effect o pay rises and changes in the staff mix in the period.

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For sample of employees include on the payroll master, check that the gross pay

agrees to a contract of employment or subsequent authorized amendments to pay rates.

Compare with recorded payroll costs. Ensure description of employee as either full time

or part time is accurate. Compare purchases by month with prior period.

Explanation needed from the client the reason for significant or unexpected

changes and trends. For discounts allowed, calculate as a percentage of sales and

compare with prior periods, company policy and credit control trends. For all operation

categories, scan the nominal ledger accounts, journals or transaction files and list major

transactions which normally those in excess of adjusted materiality limit and unusual

transactions which those that indicate an accounting or disclosure matter. Examine

documentary evidence underlying identified major and unusual transactions to ascertain

that underlying evidence supports the recorded amount and description of the transaction.

Ensure that revenue transactions are recorded in the proper period properly

classified and recorded in accordance with accepted accounting principles and the client's

revenue recognition policy and cost of sales transactions are recorded in the proper period

and properly classified as well.

Besides, ensure other transactions are recorded in the proper period and in a

manner that properly matches revenue and expenses. Test a sample of purchases recorded

in the nominal ledger in the period and inspect authorized invoice by checking the

accounts classification and ensure that agree to other evidence of work done.

4.6.4 Section C – Property, Plant and Equipment

There are few procedures to be followed during the audit work for this section.

Firstly, obtain a summary schedule of each significant class of property, plant and

equipment to satisfy disclosure requirements, showing opening balances, additions,

disposals, revaluations and closing balances.

Ensure that the property, plant and equipment exist and are genuine assets of the

business and are beneficially owned by the business and any restrictions, pledges or liens

on the property, plant and equipment are identified and adequately disclosed in the

financial statements.

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At the same time, this fixed assets schedule need to be prepared as to attachment

for this section. Test the mathematical accuracy, agree opening balances to prior period

working papers and agree closing balances to the nominal ledger and investment ledger

where maintained. Vouch against invoices, contract notes, and agreements for any

additions or disposals.

Confirmation of documents needed from the client. Ensure that all property, plant

and equipment are included in the balance sheet, income from investments is complete

and gains or losses on realization of property, plant and equipment are correctly stated. In

additions, ensure the property, plant and equipment are properly disclosed and

capitalized.

Ensure that property, plant and equipment are accurately stated at cost or revalued

amounts and provided against where necessary. In KHR, normally do not conduct

physical verification of the assets to ensure its existence. It is only applicable to a very

large amount of assets.

Then, check calculation of the rates of depreciation to ensure that the rates used

are reasonable and consistent with previous years. If the assets are charged, ensure that

the particular charge is contained in the register of charges and relevant forms are filed.

Where possible, obtain a copy of the relevant forms. The example of plant, property and

equipment (PPE) can be referring to Appendix 3.

4.6.5 Section D – Amount due/to affiliated/associated company

Disclosure of inter-company balances and transactions is required in respect of

the Company and related corporations, for an example, between the Company and other

companies within the same group as well as companies or firms in which the directors

have interest. Inter-company balances include those arising in the ordinary course of

business or from loans and advances or payments made on behalf of each other.

For this section, obtain an analysis of amounts due to and due from group, joint

venture and associated undertakings, analyzed by type between amounts due within one

year and those due after one year, including movements in the year where necessary.

Check the casts and agree balances to the nominal ledger. Then compare balances due

31 | P a g e


from group, joint venture and associated undertakings with prior periods and explain

significant change as well as taking group payment policies into account. Lastly, obtain a

confirmation letter from the related party of the balance due and any repayment and

interest terms. The example of confirmation can refer to Appendix 4

4.6.6 Section E – Inventories and Work In Progress

For this section, first of all obtain stock list and vouch as follows:

a) Test additions and extensions.

b) Check pricing with latest purchase invoices and compare with previous year.

c) Check to the company's stock records

The next step is to ensure the valuations of stocks shown are at the lower of cost or

net realizable value or other accepted Accounting Standard. After that, obtain stock

certificates signed by the directors confirming the total stock and the location of the

stock.

Ensure that closing stocks do not include stock owned by third parties held by the

company on their behalf. Besides that, check for stock located or held by third parties

which belongs to the company is taken up properly. If stock take was carried out at year-

end, ensure that stocks shown in the balance sheet reconcile to the inventory records

taken at the stock take.

4.6.7 Section F - Trade Receivables/ Trade debtors

For this section, balances must be traced to schedule of debtors, cast schedule to

agree with control account, balance sheet and debtors’ ledger. Scrutinize schedule of

subsidiary or associates or related companies accounts and non-trade items which should

be shown separately.

1. Test check selected accounts as follows:

a) Check casting.

b) Enquire into large credit balances.

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c) Scrutinize for unusual entries.

Then, review long outstanding accounts with management as to its collectability

and the necessity to provide for bad and doubtful debts. Check subsequent receipts.

Scrutinizes all accounts not supported by subsequent receipts and note or list debts

outstanding for over one year. Seek explanation from the client as to the delay in

payments. Besides that, obtain direct confirmation of balances especially large balances

where possible. Lastly, must sent confirmations to client then the client sent to third

parties. This is because to make sure balance as per book client same with the balance in

third parties’ book. The example of confirmation can refer to Appendix 6.

4.6.8 Section G – Sundry Receivables, deposit and prepayment.

The first procedure for this section is to obtain a listing of other receivables,

deposit and prepayments. First things, is analyzed by category and between amounts due

within one year and those due after one year. Test the mathematical accuracy and agree

or reconcile balances to the nominal ledger. Then, compare an analysis of other

receivables, deposit and prepayments with prior periods. Explanation needed for any

significant or unexpected changes.

In addition, review related income and expense accounts for evidence of omission

of significant prepayments. Obtain confirmation of significant advances, for an example,

staff loans and inquire into the reason for such advances. Other than that, here, can obtain

direct confirmation from all entities, this is applicable only for large amounts, with which

the entity has loans or notes receivable at the balance sheet date.

This can be done by preparing a confirmation requests from the respective parties.

Ensure loan and notes receivable balances reflect a proper cut off of receipts and

disbursements. Obtain an analysis of any loans and notes receivable written off by

determine that significant write-offs have been properly authorized, for an example, in

Board minutes.

Review the propriety of recoveries if there is any. Other than that, check

translation of any foreign currency loans and notes receivable balances and cash

movements and treatment of exchange differences. Besides hat, review document and

33 | P a g e


then test the process used by management to determine any allowance or provision for

irrecoverable loans and notes payable. Review subsequent events or transactions for any

indications of required adjustments to the allowance or provision for irrecoverable loans

and notes payable for the old and unusual outstanding balances with the client. Review

subsequent cash receipts for evidence of significant collection problems and assess

percentage of period end debts collected by the date of audit fieldwork.

For significant other receivables, perform vouching to supporting documentation

and consider recoverability and if there is no movement between a year, the company

needs to provide a provision. Besides that, test the calculation of material prepayments

and vouch to supporting invoices and other documentation. The example for this section

can be referring to Appendix 7.

4.6.9 Section H – Cash and Cash Equivalents.

Procedures that to be followed for this section is, firstly obtain a schedule of all

cash and bank accounts open at the balance sheet date or existing during the period

showing the account number and balance per the nominal ledger. Check the casts and

agree balances to the nominal ledger.

Compare the list of cash and bank balances with prior periods and budgets.

Ensure cash balances as presented in the balance sheet, properly reflect all cash and cash

items on hand, in transit or on deposit with third parties. Compare total petty cash

payments with prior periods and on a monthly basis. In addition, obtain an analysis of

interest received and paid in respect of bank deposits and bank overdrafts.

Obtain direct confirmation of period end balances from all banks with whom the

entity conducted business during the year by the use of bank confirmation letter.

Besides that, ensure cash balances reflect a proper cut-off of receipts and

payments. This can be done by reviewing review receipts and payments in the cash book

for 5 items either side of the balance sheet date and check the validity and timing of

material items and trace transfers between bank accounts, including related parties for a

selected period either side of the balance sheet date and determine that transfers are

properly recorded in the correct period.

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If control over cash is weak: obtain returned cheques in respect of any unusual

payments identified and examine details of payees and amounts recorded in the cash

payments book and check propriety and review or prepare a proof of cash reconciliation

and corroborate the totals of receipts and payments recorded in the selected period.

The next step is to obtain a copy of the bank reconciliation for each account at the

balance sheet date and ensure it agrees the bank balance figure to the bank statement and

bank confirmation letter. Then trace deposits in transit and uncleared cheques to after

date bank statements and reconcile the balance with the nominal ledger.

Examine documents supporting significant uncleared deposits and outstanding

cheque payments which are not cleared at the audit date for cut-off. Scan the cash and

bank nominal ledger accounts for evidence of unusual or reconciling entries.

Explanations needed for such items from the client.

4.6.10 Section J – Trade Payables

For this section, trace balances to schedule of creditors, cast schedule to agree

with control account, balance sheet and creditors’ ledger. Scrutinize schedule of directors'

accounts, subsidiary, associates or related companies accounts and non-trade items which

should be shown separately.

Verify balances with creditors' statements. Where no statements are available,

select material balances for circularization, vouch with purchase invoices and check for

subsequent payments after year-end. Besides, verify large balances, especially on the

nature of such balances and on how they arise.

Conduct a search for unrecorded liabilities after year-end and ensure that such

liabilities pertaining to the year under review are taken up in the accounts as accruals.

Obtain direct confirmation of balances, especially large balances where possible.

Liabilities need to be segregated into short-term and long-term, where amount due within

12 months fall under short-term liability meanwhile amount due after 12 months fall

under long-term liability. The example of confirmation trade payables can refer to

Appendix 8.

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4.6.11 Section K – Sundry Payables and Accruals

Obtain a lead schedule supporting required disclosures for other creditors and

accruals and deferred income. Test the mathematical accuracy, agree comparatives to

prior period working papers and agree or reconcile closing balances to nominal ledger.

Compare an analysis of other creditors, accruals and deferred income with prior periods.

Compare related income and expense accounts with prior periods. Explanation

needed for any significant or unexpected changes and consider any evidence of omitted

accruals or deferred income. Besides, obtain a list of bills of exchange outstanding at the

year end.

Test the mathematical accuracy and agree to the lead schedule. Agree details of

bills to the clients bills register and check that bills were subsequently met on the due

date. Review the summary of other creditors. Test the calculation of significant other

creditors and vouch to relevant supporting documentation.

Besides, review the pension contributions control account in the nominal ledger

and ascertain if payments to the pension scheme were properly made on a timely basis in

respect of employees and employers contributions. Review an analysis of accruals

including interest separately and deferred income. Test the calculation of material

accruals and vouch to relevant supporting documentation.

For test pension costs accruals, enquire into pension scheme position and

ascertain how and when accrual will be eliminated. In addition, review the effect of

changes to benefits in the year. Sometimes we need to discuss with management the

method for establishing the completeness of accruals and estimating the accrual needed.

Develop an independent expectation of accruals and consider reasonableness in

comparison with amount recorded.

For accrued payroll costs, ensure that it agrees the calculation and subsequent

payment of accrued salaries and wages and check the calculations of holiday pay and

ensure that the accrual is adequate. For deferred income, obtain an analysis of all items

included in the period end balance and of movements in the period. Check the validity of

deferred income and vouch to relevant supporting documentation. Besides, check that the

36 | P a g e


amount of deferred income released to the profit and loss account is properly calculated

based on a consistent basis with prior periods and the related asset.

4.6.12 Section L – Loan and borrowings

There are few procedures to be followed in preparing Schedule L. First of all,

obtain an analysis of loans and finance lease obligations due within one year and due

after more than one year including the issue date, maturity date, face value, interest rate

or terms, opening amounts, increases in loans and finance lease obligations, repayments,

unamortized and amortized discounts and closing balances.

Test the mathematical accuracy and agree or reconcile balances to the nominal

ledger. In addition, obtain an analysis of interest payable on finance lease obligations,

bank loans and overdrafts and other loans.

Ensure the balances agree to the nominal ledger. Compare debt balances such as

loans and finance leases with prior periods and budgets. Consider the interest

amortization of debt issued at a discount or redeemable at a premium. Calculate interest

expense as a percentage of average debt for evidence of unrecorded liabilities.

Other than that, ensure that all relevant terms and details of loans are known

including name of lender, original issue date, proceeds received means the net of eligible

issue costs, security, interest rates applying and repayment terms. Update permanent file

with relevant information for material new loans and finance lease agreements which

includes finance costs profile as necessary. Request confirmation of balances payable

from lenders with whom there was a significant loan outstanding at the balance sheet date

or at any time during the period. Include in confirmation request, details of accrued

interest, security and repayment terms. For repayments of loans, vouch that repayments

are in accordance with loan agreements and vouch to approve documentation.

Meanwhile, for loan drawdown in the period, have to check authorization to

minutes or other documentation and vouch to cash received records and bank statements

as well. Ensure it agrees details to loan agreements. Vouch issue costs to invoices and

other supporting documentation.

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For the debt was issued with net proceeds less than the repayable amount, check

that the interest amortization of the discount or premium is on an acceptable basis and has

been accurately calculated and the balance sheet/net asset statement liability

correspondingly increased. Ascertain from management or trustees details of any

covenants included in bank loans or other debt agreements need to test compliance with

debt covenants by agreeing covenant details to loan agreements or permanent file.

Discuss with management what remedial action has been taken to deal with any

non compliance and if necessary ask the client to obtain a waiver from the lender in

respect of any non compliance which could accelerate debt repayment. To perform test

on interest payable on loans by vouching interest payable to supporting documentation

and recalculating interest accrued.

For lease agreements, inspect for new finance leases incepting in the period,

check suitable authorization and confirm finance lease classification. Check that a proper

allocation of interest deferred to future periods has been made that the amount capitalized

is correct. For repayments of finance lease obligations, check that rental payments are in

accordance with the lease agreements and that payments have been properly split

between repayments of capital and interest.

4.6.13 Statutory Audit- N Section

For this section, any important changes need to be noted. If the is any acquisition

of assets during the financial year, resolution regarding that matter need to be

photocopied. For an example change of bank signatories to current bank account, transfer

of securities, director’s remuneration, all the resolution regarding this matter need to be

photocopied.

Besides, form of annual return as well as all the related form such as Form 49 also

has to be photocopied for reference. Three books that need to be referred are minute

book, secretarial book and register book.

Firstly, go through the minute book. While extract the information, browse

through the minute content. Secondly, obtain all the latest dated forms from secretarial

book. Finally, reference made on register book to fill statutory programme.

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4.6.14 Dormant Company

For dormant company, most of the schedules are not applicable. The procedures

for this type of company is confirm that the company has indeed been dormant. Then

ensure that unresolved items brought forward from previous year have been cleared.

Besides, obtain photocopies or extract of minutes of AGM, directors’ meetings and

EGMs if any. Ensure the trial balance agree to general ledger. Ensure the opening

balances of general ledger agree to previous year’s financial statements. In addition, for

share capital and statutory records, ensure that authorized share capital agree to

Memorandum of Association. Vouch movements in issued capital, if any and obtain copy

of returns on allotment. Finally sight statutory records, complete the statutory registers

checklist.

4.6.15 Audit Report

The final stage in the auditing process is preparing the audit report, which is the

communication of the auditor’s findings to users. Audit journal entries have to be

prepared if the is any adjustments in accounts. After all this documents have been

prepared, the audit file will be given to the manager for review. The review notes given

by the manager after he reviewed have to be cleared. After cleared all his review notes,

the documentation can be prepared. The documentation that needed to be prepared is:

Note of fees

Draft audited accounts

Two copies of audit journal entries

Twelve copies of the Director’s Report, Directors’ Statement and Statutory

Declaration

Register – Form 7

Letter of representative

Stock certificate

Cash in hand certificate

Certificate of directors’ remuneration and shareholdings

Bank confirmation

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Confirmation of balance

Cover sheets, Tax cover letter, Form C and Form R

It is important to note that auditor's reports on financial statements are neither

evaluations nor any other similar determination used to evaluate entities in order to make

a decision. The report is only an opinion on whether the information presented is correct

and free from material misstatements, whereas all other determinations are left for the

user to decide.

There are four common types of auditor’s reports, each one presenting a different

situation encountered during the auditor’s work. The four reports are as follows:

Unqualified Opinion

An opinion is said to be unqualified when the Auditor concludes that the

Financial Statements give a true and fair view in accordance with the financial

reporting framework used for the preparation and presentation of the Financial

Statements. An Auditor gives a clean opinion of Unqualified Opinion when he does

not have any significant reservation in respect of matters contained in the Financial

Statements

An Unqualified Opinion indicates the following:

(1) The Financial Statements have been prepared using the Generally Accepted

Accounting Principles which have been consistently applied;

(2) The Financial Statements comply with relevant statutory requirements and

regulations;

(3) There is adequate disclosure of all material matters relevant to the proper

presentation of the financial information subject to statutory requirements, where

applicable;

(4) Any changes in the accounting principles or in the method of their application and

the effects thereof have been properly determined and disclosed in the Financial

Statements.

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Qualified Report

A Qualified Opinion report is issued when the auditor encountered one of

two types of situations which do not comply with generally accepted accounting

principles, however the rest of the financial statements are fairly presented. This

type of opinion is very similar to an unqualified or “clean opinion”, but the report

states that the financial statements are fairly presented with a certain exception

which is otherwise misstated. The two types of situations which would cause an

auditor to issue this opinion over the unqualified opinion are:

I. Single deviation from GAAP – this type of qualification occurs when one

or more areas of the financial statements do not conform with GAAP (e.g.

are misstated), but do not affect the rest of the financial statements from

being fairly presented when taken as a whole. Examples of this include a

company dedicated to a retail business that did not correctly calculate the

depreciation expense of its building. Even if this expense is considered

material, since the rest of the financial statements do conform with GAAP,

then the auditor qualifies the opinion by describing the depreciation

misstatement in the report and continues to issue a clean opinion on the

rest of the financial statements.

II. Limitation of scope - this type of qualification occurs when the auditor

could not audit one or more areas of the financial statements, and although

they could not be verified, the rest of the financial statements were audited

and they conform GAAP. Examples of this include an auditor not being

able to observe and test a company’s inventory of goods. If the auditor

audited the rest of the financial statements and is reasonably sure that they

conform with GAAP, then the auditor simply states that the financial

statements are fairly presented, with the exception of the inventory which

could not be audited.

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Adverse Opinion report

An Adverse Opinion is issued when the auditor determines that the

financial statements of an auditee are materially misstated and, when considered

as a whole, do not conform with GAAP. It is considered the opposite of an

unqualified or clean opinion, essentially stating that the information contained is

materially incorrect, unreliable, and inaccurate in order to assess the auditee’s

financial position and results of operations

Disclaimer Opinion

A Disclaimer of Opinion, commonly referred to simply as a Disclaimer,

is issued when the auditor could not form, and consequently refuses to present, an

opinion on the financial statements. This type of report is issued when the auditor tried to

audit an entity but could not complete the work due to various reasons and does not issue

an opinion.

These are situations which Statements on Auditing Standards (SAS)

would cause an auditor to issue a disclaimer of opinion:

A lack of independence, or material conflict(s) of interest, exist between the

auditor and the auditee (SAS No. 26)

There are significant scope limitations, whether intentional or not, which

hinder the auditor’s work in obtaining evidence and performing procedures

(SAS No. 58);

There is a substantial doubt about the auditee’s ability to continue as a going

concern or, in other words, continue operating (SAS No. 59)

There are significant uncertainties within the auditee (SAS No. 79).

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http://en.wikipedia.org/wiki/Going_concern

http://en.wikipedia.org/wiki/Going_concern

http://en.wikipedia.org/wiki/Statements_on_Auditing_Standards


4.7 PROBLEMS WHILE PREPARING AUDIT

Firstly, the problem when doing audit in KHR is client does not give the details in

the certain significant account. So, it is hard for me to state the details in the audit

working papers and to gather the evidence of documentation.

Secondly, the documentation such as, payment vouchers and invoices, purchase

order not separated, supposedly should be separated by month and correctly rearrange the

document. This is because to ensure that all of the records are fairly stated and all

supporting document needed are arrange in order.

Thirdly is about, sometimes they figured cannot found out for example the

amount of plant, property and equipment is RM 2,000, 000 but after recalculated the

Fixed Asset registered is not tally. So, the common reason is because they is a new

person in charge, the person in charged was resign and the others reason is this amount

just brought forward from previous year.

After discussion with the audit senior, I decided to issue the qualified report for

the audit because of scope limitation. This report issue because the auditors cannot obtain

sufficient evidence. The client company must take seriously and properly documentations

on accounting records. If records are too bad, the auditors will issue the qualified reports.

Besides that, the awareness towards the documentation and proper accounting records

should be stressed because it will affect the company performance.

Actually, in the other side, there are a lot of problems when preparing the audit; it

is not only at KHR, but almost all the company had been faced the same problems. For

example:

Lack of facility

KHR is a medium audit firm which uses the manual system to construct the working

paper. They use old operating system, application system and hardware. At the same

time, the printer provided in KHR only can be access by the network, hence sometimes if

the networks problem, all the work done also be problem because all the staff needs to

43 | P a g e


wait until the system okay, then the print can be done. From that, I can see, there is a lot

of wasting time to wait until the machine will be okay.

Lack Of Staffs Skill

From the observation that I do, it can says that lack of staffs skill because the lack of

senior staffs compared to fresh graduate. As we know, fresh graduate not have any

experience in doing the audit. Its take time for them to familiar with the flow of audit in

order to make sure they really understand and able to handle the audit progress. Hence,

supposedly must be lead by the senior audit. But in KHR, sometimes, it doesn’t care if

you are trainee or what, you must complete the task within the period given.

Other issue that should be highlighted is:

I. Application of FRS 139 – Financial Instrument: Recognition & measurement.

The Financial Reporting Foundation (FRF) and Malaysia Accounting Standards

Board (MASB) announced that the effective date of applying FRS 139 was on 1 January

2010. It is in line with the plans of both FRF and MASB to bring full convergence with

International Reporting Standards (IFRS) by 1 January 2012. As currently in Malaysia,

companies can choose whether to practice Private Entity Reporting Standards (PERS) or

FRS. Normally small-medium companies choose to practice PERS while big or listed

companies would practice FRS.

Issue highlight

FRS 139 is not compulsory to be practice and it will only commence until 2013.

However, if a holding company decides to implement FRS 139; therefore all its

subsidiaries must apply the FRS. The problem will be faced by company when the

holding company’s auditor is different with subsidiary company’s auditor in the

responsibility of the auditors to consult their clients regarding the application of FRS 139.

44 | P a g e


Recommendation

As the auditor of the company, we consult our clients on the treatment for

significant accounting changes by FRS 139.

II. Inter-company loans

Prior to the adoption of FRS 139, inter-company loans were recorded at cost.

With the adoption of FRS 139, inter-company loans are now recorded initially at their

fair values, which are estimated by discounting the expected cash flows using the current

market interest rate of a loan with similar risk and tenure. Finance income and costs are

recognised in profit or loss using the effective interest method.

III. Property, Plant & Equipment

Recognition and measurement

Items of property, plant and equipment should be stated at cost less any

accumulated depreciation and any accumulated impairment losses. Cost includes

expenditures that are directly attributable to the acquisition of the asset and any other

costs directly attributable to bringing the asset to working condition for its intended use,

and the costs of dismantling and removing the items and restoring the site on which they

are located.

Issue highlight

We have reviewed one of our client’s additional assets for the year under review

and we noted that among the additional assets are six motor vehicles. We noted that the

costs of these six motor vehicles were recorded after deduction of deposits.

The actual costs recognized in financial statement were incorrect whereby there

are different amount of actual cost and recorded cost in general ledger.

45 | P a g e


Recommendation

We proposed to the client for making necessary adjustment to reflect the accurate

balance of Property, Plant, and Equipment. As auditor, we do not make adjustment on our

client accounts. Our duty is to give opinion whether the financial statement present in

true and fair view.

IV. Control over issuance of cheques

Issue highlight

We noted that at year end, our client issue cheques to trade and other payables

amounting RM2.6 million. This was made in spite of the company’s cash balances

available at the bank account amounting RM1.5 million. However the company does not

have overdraft facility.

Recommendation

We recommend the company to only prepare cheques based on available cash

balances.

V. Control over revenue cycle

Issue highlight

During our test of control (TOC) on revenue cycle, we noted that there are

difference between general ledger and sales report amounting RM200,000. In addition,

after our review on trade receivable balances, we also noted the difference between

statement of account issued to client and trade receivable balance as per GL amounting

RM600,000

We were made to understand that the sales analysis report, billing system, and the

accounting system are not integrated, resulting the above different. The absence of

integration between these systems indicates lack of internal control of the company.

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Recommendation

We recommend the company to continuously monitor the above problems to

avoid any potential errors in the future.

VI. Inaccurate recording of long term creditor

Issue highlight

During our test of control (TOC) on purchase cycle, we find out that included

under long-term creditors is a repayment schedule of outstanding electricity charges

amounting RM15 million. There were no movement during the year under review.

However we noted that the company have paid instalment totalling to RM3 million as per

schedule proposed in the agreement during the year but recorded the said transactions in

trade creditors rather than reducing long-term creditors

As the effect of this treatment, the amount stated in the financial statement does

not represent the real transaction and misleading will occur and that it will be reported to

the user of this information.

Recommendation

We proposed the client to review the situation as soon as possible to ensure the

accurate balance is reflected in the financial statements

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4.8 RECOMMENDATION

I. Khairuddin Hasyudeen Razi (KHR) should improve the staff welfare and always

give continuously motivations to the staffs to increase their spirit doing their job.

In order to remain good staff, KHR can increase activities like super weekend. Super

weekend can make once per month. The activities can be done is like watching movie,

aerobic, dinner and other interesting activities. Besides, the overtime should be given

to the staff continuously as they worked out till night.

II. Audit software usage should be proposed.

Audit software is a tool for auditing. Currently, in KHR they used Microsoft Office

Excel to do working paper. However, since the work is too much, KHR can propose

audit software in future and giving some training for the usage. Audit software can

make auditor easier to audit, and fastened. Thus it will increase productivity of staffs.

In addition, if the audit software is too expensive, KHR should make provision for

audit software and make an analysis which one is the best way whether buy audit

software or just use Microsoft Office Excel.

III. Each staff needs to be updated with changes in accounting policies and issuance of

new audit standards.

KHR must subscribe each months some magazines related to the accounting matters

like Bloomberg, The Edge, and others. Thus, each staff will present the latest

accounting issue for that month in training course that has been organized each month

after presentation session.

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5.0 CONCLUSION

In conclusion, after 6 months of practical training, this program successfully

reaches its objectives which are to expose student to the real situation of accounting,

auditing, taxation, and company secretary. I also got the real picture of accounts and not

just remembering the formulas. Even some of the above are not yet teach in the university

but I got experience to learn it earlier during this practical training. Practical training also

provides me with useful experiences that can be used in the future and also help me in

enhancing the communication skills.

At the same time, I think work in audit firm as an auditor needs patience and

focus. In my opinion, patience is needed because auditor needs to face with clients’

behavior, managers, as well as senior auditor. Focus is the most important element to be

an auditor. Hence, it is crucial when we are dealing with client regarding some issues to

avoid any miscommunication. I think audit is a process of learning. Every day, we will

find any kind of cases and from there, we have learnt to find the solution and during

struggling find the solution, actually it is a process of learning. What I can say that audit

is universal. We can find a lot of interesting issues or cases. Furthermore, to be an

auditor, we need to encourage ourselves to have professional skepticism. Professional

skepticism is very important to identify any risk of material misstatement. Auditor need

to avoid intuitive judgment in detect any material misstatement because intuitive is make

a decision based on feelings not based on the evidence.

Apparently, audit is a platform to those people whom willing to learn deeply in

this industry. I think six months in audit firm, I have learnt a whole idea about auditing

process for various clients. I have experienced in doing audit for trading company,

unprofitable company, government agencies, as well as services. The exposures given to

me really make me gain valuable knowledge.

I have been assigned to do big job with best audit team, as well as individual jobs.

Due to this, my confidence level is increasing slowly and my communication also

improved as well as better attitude and more professionalism.

Audit is an opportunity to expand and to growth. This is because audit can

improve our thinking, and our presentation skills.

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6.0 REFERENCE

BIBLIOGRAPHY Alvin A.Arens, R. J. (2008). Auditing and Assurance Services in Malaysia. kuala Lumpur: Pearson.

http://en.wikipedia.org/wiki/Audit. (n.d.).

http://en.wikipedia.org/wiki/Auditor's_report. (n.d.).

http://www.khr.com.my/. (n.d.).

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