You have been the partner in charge of the audit of Concord Engineering Berhad.for manyyears. You have never given a qualified report because the internal control system of thecompany was satisfactory, the business in which the company engaged was quite stable andthe results of compliance and substantive tests indicated that the account balances were fairlystated.In the current year’s audit, you assigned a recently recruited member of staff as senior in chargeof the job and reporting to you. You informed the senior in charge that the time budget shouldremain the same as in previous years and he agreed that he would try his best to maintain thesame audit time frame.An interim audit was conducted and the following issues were reported. The company recentlycomputerised its stock and general ledger systems; the chief accountant had resigned and theposition was vacant for two months; and a number of errors were detected in the compliancetests of the system. The original time budget was not revised despite the above findings.Because of the tight time budget, the computerised systems were not tested by the IT auditors.The year end audit was completed just within the time budget. You were very pleased as thisimplied effectiveness and efficiency of the audit team.A fow months after the your end, Concord Engineering Borhad was in financial difficulties. Thenowly appointed chief accountant fled and took with him RM2 million cash. Subsequentinvestigation revealed that stocks had been overstated because wrong prices had been used inthe computer system and obsolete stock was not adequately provided for. Sales and debtorswere overstated as the chief accountant had falsified some sales invoices in order to maintainthe sales volume at a similar level to previous years. It was also revealed that the audit assistantresponsible for auditing stock, who was a fresh graduate, had only tested a few items. Errors instock pricing revealed from this sample were deemed as immaterial and no detailed workrelating to subsequent sales of year end stock was carried out. Further, debtors confirmationwas not carried out because of time constraints.
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