Briefly explain TWO factors that cause the auditor's opinion on the audited financial statements to be considered as a reasonable level of assurance. (2 marks) 

b) While the auditor is responsible for forming and expressing an opinion on financial statements, the responsibility for preparing & presenting the financial statements is that of the management of the entity. The audit of the Financial Statement does not relieve management of its responsibilities. ISA 240 Fraud and Error states the following: 

The responsibility for the prevention and detection of fraud and error rests with management through the implementation and continued operation of adequate accounting and internal control systems. Such systems reduce but do not eliminate the possibility of fraud and error." 

The auditor is not and cannot be held responsible for the prevention of fraud and error. The fact that an annual audit is carried out may, however, act as a deterrent." 

Required: 

Based on the statements, discuss the differences in the responsibilities of the auditor and management in relation to the issue of fraud or error. 

c) Wakeel is a partner of an accounting firm, Tetuan Wakeel Wikalah & Co. Then, Dato' Nisfu, a managing director of TampalKoyok Sdn Bhd, requested Tetuan Wakeel Wikalah & Co to reduce the current year's audit fee by 50% because he has appointed Tetuan Wakeel Wikalah & Co for more than five years. Dato' Nisfu stressed that if Tetuan Wakeel Wikalah & Co refuse to reduce the audit fee, he will terminate the firm's services next year. Dato' Nisfu also informed that he had also contacted JaeMon & Partner to be appointed as auditors next year if Tetuan Wakeel Wikalah refuses to agree with his request. 

Required: 

(a) Explain the issue, and the appropriate actions should be taken by Tetuan Wakeel Wikalah & Co concerning Dato' Nisfu's request? 

(b) If JaeMon & Partner receive an offer from Dato's Nisfu to become the auditor for the following year, explain the procedures to be performed by JaeMon & Partner before accepting the appointment? 

d) The revelation of the Enron Corporation accounting scandal has damaged the accounting profession's credibility and eroded the reputation of Arthur Andersen & Co as one of the largest accounting firms in the world. The statistic shows that Arthur Andersen & Co's audit fee revenue from the Enron Group's audit work and non -audit services are RM25 million and RM27 million per annum respectively. The market participants seriously concern about the auditor's ability to withstand independence while providing audit and non-audit services. 

Required: 

Based on the statement and the provisions in the Malaysian Institute of Accountant (MIA) by-law: 

a) Explain the importance of auditors to maintain their independence throughout the audit service. 

b) Explain the difference between "independence in mind/fact" and "independence in appearance.

c) Discuss how audit fees and non-audit fees can be a threat to auditors' independence. 

Answer rating: 100% (QA)

b Differences in responsibilities between the auditor and management in relation to fraud or error The responsibility for the prevention and detection of fraud and error rests with management This mea... View the full answer