You are the audit manager responsible for the audit of Selangor HoldingsBerhad, which is listed on the Bursa Malaysia stock exchange. The Selangor Holdings group is the world’s largest manufacturer of latex, nitrile and vinyl gloves. The group has experienced a significant increase in demand for its products due to the Covid19 pandemic. You are reviewing the audit working papers for the consolidated financial statements relating to the year ended 31 March 2021. The draft consolidated financial statements recorded revenue of RM21.9 billion (2020 – RM7.2 billion), profit before taxation of RM12.8 billion (2020- RM2.2 billion) and total assets of RM10.3 billion (2020 – RM8.7 billion). Your firm is responsible for the audit of all of the individual company financial statements as well as the group consolidated financial statements. The audit senior has brought the following matters, regarding the group companies, to your attention: (a) Klang Glove Manufacturing Sdn Bhd Selangor Holdings purchased 40% of the share capital and voting rights in Klang Glove Manufacturing on 1 May 2020. Selangor Holdings has also acquired options to purchase the remaining 60% of the issued shares at a 10% discount on the market value of the shares at the time of exercise. The options are exercisable for a period of 18 months from 1 May 2020. Klang Glove Manufacturing’s draft financial statements for the year ended 31 March 2021 recorded revenue of RM910 million and a loss before taxation of RM120 million. Selangor Holdings has equity accounted Klang Glove Manufacturing as an associate in this year’s group accounts and has included a loss before tax of RM48 million in the consolidated statement of profit or loss. (8 marks) (b) Kapar Rubber Industry Sdn Bhd Kapar Rubber Industry is a long-standing subsidiary in which Selangor Holdings has a direct holding of 80% of the equity and voting rights. Audit work on revenue and receivables at Kapar Rubber Industry has identified sales of natural rubber of RM770 million to Klang Glove Manufacturing in March 2021 which have been recorded in the company’s financial statements. Audit procedures have identified, however, that the receipt of natural rubber was not recorded by Klang Glove Manufacturing until 2 April 2021. The group has made no adjustment for this transaction in the draft consolidated financial statements. Kapar Rubber Industry makes a 10% profit margin on all of its sales of natural rubber. (8 marks) Required: Critically discuss the matters to be considered and the audit evidence you should expect to find during your review of the Group audit working papers in respect of each of the issues described above.?elangor Holdings currently has two non-executive directors, who form the Board Audit Committee as a third non-executive director who was also the financial reporting expert had recently resigned. The company is finding it difficult to recruit a suitable replacement and has requested that a senior partner from your audit firm become a member of the Board Audit Committee for the time being. In addition, the Board of Directors of Selangor Holdings has asked your audit firm to work with the Group internal audit team to design internal controls over the part of the accounting system which deals with revenue, and also evaluate the operating effectiveness of the internal controls. Required: Critically discuss any ethical issues relevant to the group audit, and recommend appropriate actions to be taken by your firm. (9 marks)?ohore Fashion Berhad is a leading garment manufacturer, distributor and retailer with sales outlets in all major towns and cities. You are the audit manager in charge of the audit of the company and the final audit for the year ended 31 March 2021 is due to commence shortly. The draft financial statements recorded revenue of RM1.35 billion (2020 – RM1.78 billion), profit before taxation of RM107 million (2020- RM219 million) and total assets of RM1.4 billion (2020 – RM1.0 billion). Sales and profitability had declined as the company had been adversely impacted by the government enforced lockdown due to the Covid19 pandemic. The following matters have been brought to your attention: (a) Trade receivables Johore Fashion’s trade receivables comprised of a large number of customers. During the audit of the 31 March 2020 financial statements, which was in the midst of a government enforced lockdown, the audit team had undertaken a positive trade receivables circularisation to confirm year-end balances. However, the customer response rate was extremely low and so alternative audit procedures had been undertaken. A decision has been made that for the current year audit a circularisation will not be performed. The year-end trade receivables balance is RM58 million (2020: RM47 million) and the allowance for trade receivables is RM3 million (2020: RM4.1 million). Required: Design substantive procedures that the auditor should perform to obtain sufficient and appropriate audit evidence in relation to Johore Fashion’s trade receivables. (6 marks)?b) Bank balances The bank and cash figure included in Johore Fashion’s draft financial statements comprised a number of bank account balances, an overdraft of RM51 million which is the company’s main current account and RM2 million relating to several deposit accounts. The finance director had informed the audit senior that all accounts have been reconciled as at the year end. The overdraft of RM51 million has increased significantly since the prior year (2020: RM12 million). The directors of the company have informed you that the overdraft facility, which the company requires in order to operate on a daily basis, is due for renewal in October 2021 and that they are confident it will be renewed.Required: Design substantive procedures the auditor should perform to obtain sufficient and appropriate audit evidence in relation to Johore Fashion’s bank balances. (6 marks)During the final audit, the finance director informed the audit team that Johore Fashion’s bankers will only make a decision on the renewal of the overdraft facility after the auditor’s report is signed. The directors of the company are satisfied that the use of the going concern basis is appropriate. The directors have agreed to include some brief going concern disclosures in the draft financial statements and the audit team will have to assess the adequacy of these disclosures. Required: (a) Design substantive procedures that the auditor should perform in assessing whether Johore Fashion is a going concern. (6 marks) (b) Critically discuss the impact on the auditor’s report of Johore Fashion of adequate AND inadequate going concern disclosure. (7 marks)?ou have been assigned to the audit of inventory for Perak Grocer Sdn Bhd, a grocery wholesaler that sells to independent grocery stores. Inventory is by far the largest item on their balance sheet. Perak Grocer operates in all the states in peninsula Malaysia with a central distribution centre in Ipoh and a regional distribution center in each of the eleven states in which it operates. Management has implemented a sophisticated perpetual inventory system to assist in managing quantity levels in its central as well as all the regional distribution centers. All accounting is centralized at Ipoh, including purchasing which originates from the Ipoh center using online inventory information for all centers. All inventory deliveries are made to the Ipoh center where it is then sent to the regional centers. Product and quantity information for sales are prepared online by each distribution center for updating the perpetual records, with a hardcopy sent to Ipoh. Each center undertakes a quarterly physical inventory for comparison and adjustment of the perpetual records. The count results are sent to Ipoh where all adjustments are made. Regional centers’ access to the perpetual records are limited to online sales transactions entry. Internal auditors test the perpetual records continuously, sample physical inventory counts and test inventory adjustments. Their tests and results are filed in Ipoh. Required: (a) Critically identify the internal controls over inventory that are present and describe the audit tests that you would use to evaluate their effectiveness (14 marks) (b) Critically discuss how the results of the above audit tests would impact your physical observation test of inventory of the company (4 marks) (c) Describe the auditing procedures that can be used to determine whether slow moving or obsolete stocks have been included in the inventory of the company (7 marks)BusinessAccountingAUDIT acc3044Get a plagiarism-free order today we guarantee confidentiality and a professional paper and we will meet the deadline.
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