QUESTION 4 A. The audit report is the final step in the entire audit process. The standard unmodified audit report is the common audit opinion. However, under certain circumstances, an unmodified audit report is inappropriate and audit report other than unmodified audit report has to be issued.

Required:

a. Comment why the standard unmodified audit report is sometimes called a clean opinion. (2 marks)

b. Discuss any TWO (2) types of audit reports together with audit opinion other than unmodified audit report. (3 marks)

c. For each of the following independent situations, suggest the type of audit report together with the audit opinion that you would issue and its justification.

i. Last year, the office of Usaha Jaya Sdn Bhd was caught on fire. As a result, all of its printed and softcopy business documentations and records related to transactions prior to the fire, have been destroyed. The auditor was not able to perform any audit testing and gives opinion of the financial statements.

ii. Cantik Molek Sdn Bhd, a cosmetic company, has been sued by its customers whom experienced facial problems after using its product. Though the companys lawyer indicated that the company will be held liable and the amount of liability is expected to be material and significant, the management is reluctant to make the provision in the accounts as suggested by the auditor.

iii. Due to a bad whether, the auditor of Perhentian Resort Sdn Bhd is unable to observe the companys stock take conducted on its year end. However, the auditor was able to satisfy himself about the closing stock balance using other audit procedures.

iv. The auditor of Razman & Co is not allowed by its auditee to confirm a material and significant account receivable balance of its major customer. The auditor is unable to verify the balance by alternative procedures.

v. Tradeworld Sdn Bhd is a brick-and-mortar business, selling plastic containers mostly to local customers. The Covid-19 pandemic has badly affected the companys business where its sales and cash balances shown significant deterioration. The management convinced the auditor that the company is strategizing for e-commerce in order to sustain the business. This is adequately disclosed in the financial statements. (10 marks)

B. Management is responsible for establishing and maintaining the entitys internal control. A system of internal control consists of policies and procedures designed to provide management with reasonable assurance that the company achieves its objectives and goals.

Required: Discuss any TWO (2) management objectives in designing an effective internal control system. (5 marks)