Question

Nasir is working in Mazars Audit company since many years. Based on his professional attitude
and commitment, he has been promoted twice in the last two years. Nasir has a good experience
of auditing corporate industries. According to the company’s schedule before Ramadhan, Mazars
audit decided to visit Cement industry for their annual audit in Sur in the first week of April 2020.
Cement industry is a very high profile industry and one of the largest in A’Sharqiyah Region.
The management of Mazar audit had a meeting to decide the audit team to be sent to Sur. The
audit team consists of 10 members and all the members will be reporting Nasir during the audit.
Next day, Nasir called the meeting with his team members and decided the plan for the audit. All
the members have been given different tasks and responsibilities. As per schedule, Nasir and team
have started the audit.
Initially the audit was according to the plan, all the members were busy performing their job.
Certain things got exposed during the audit, which needs to be examined thoroughly. This was
brought to Nasir’s notice and he contacted his head office in Muscat. It was decided to extend the
audit for another three days.
a. In your opinion, what suggestions would Nasir give to his team members in this limited time
period? State different challenges faced by Nasir and his team in order to complete the audit
successfully.  
b. What would be the impact of audit on the Cement industry and its stakeholders? How can they
improve their financial position with effective audit?
Your answer should be around 400 words for each question.

Answer 1

a}

In the limited time Nasir would suggest the following audit procedures in respect of significant findings noticed during the initial satge of audit

Audit Procedures Responsive to the Assessed Risks of Material Misstatement at the Assertion Level

1.The auditor shall design and perform further audit procedures whose nature, timing and extent are based on and are responsive to the assessed risks of material misstatement at the assertion level.

2. In designing the further audit procedures to be performed, the auditor shall:

(a) Consider the reasons for the assessment given to the risk of material misstatement at the assertion level for each class of transactions, account balance, and disclosure, including:(i) The likelihood of material misstatement due to the particular characteristics of the relevant class of transactions, account balance, or disclosure (i.e., the inherent risk); and (ii)Whether the risk assessment takes into account the relevant controls (i.e., the control risk), thereby requiring the auditor to obtain audit evidence to determine whether the controls are operating effectively (i.e., the auditor intends to rely on the operating effectiveness of controls in determining the nature, timing and extent of substantive procedures); and

(b) Obtain more persuasive audit evidence the higher the auditor’s assessment of risk.

Tests of Controls

The auditor shall design and perform tests of controls to obtain sufficient appropriate audit evidence as to the operating effectiveness of relevant controls when:

(a)The auditor’s assessment of risks of material misstatement at the assertion level includes an expectation that the controls are operating effectively (i.e., the auditor intends to rely on the operating effectiveness of controls in determining the nature, timing and extent of substantive procedures); or

(b)Substantive procedures alone cannot provide sufficient appropriate audit evidence at the assertion level.

IN designing and performing tests of controls, the auditor shall obtain more persuasive audit evidence the greater the reliance the auditor places on the effectiveness of a control.

Nature and Extent of Tests of Controls10.In designing and performing tests of controls, the auditor shall:

(a)Perform other audit procedures in combination with inquiry to obtain audit evidence about the operating effectiveness of the controls, including:

(i) How the controls were applied at relevant times during the period under audit. (ii)The consistency with which they were applied.

(iii)By whom or by what means they were applied.

(b)Determine whether the controls to be tested depend upon other controls (indirect controls), and if so, whether it is necessary to obtain audit evidence supporting the effective operation of those indirect controls.

Timing of Tests of Controls

.The auditor shall test controls for the particular time, or throughout the period, for which the auditor intends to rely on those controls, in order to provide an appropriate basis for the auditor’s intended reliance. (Ref: Para. A32)Using audit evidence obtained during an interim period

.When the auditor obtains audit evidence about the operating effectiveness of controls during an interim period, the auditor shall:

(a)Obtain audit evidence about significant changes to those controls subsequent to the interim period; and (b)Determine the additional audit evidence to be obtained for the remaining period. Using audit evidence obtained in previous audits

.In determining whether it is appropriate to use audit evidence about the operating effectiveness of controls obtained in previous audits, and, if so, the length of the time period that may elapse before retesting a control, the auditor shall consider the following:

(a)The effectiveness of other elements of internal control, including the control environment, the entity’s monitoring of controls, and the entity’s risk assessment process;

(b)The risks arising from the characteristics of the control, including whether it is manual or automated

; (c) The effectiveness of general IT-controls;

(d)The effectiveness of the control and its application by the entity, including the nature and extent of deviations in the application of the control noted in previous audits, and whether there have been personnel changes that significantly affect the application of the control;

Substantive Procedures

Irrespective of the assessed risks of material misstatement, the auditor shall design and perform substantive procedures for each material class of transactions, account balance, and disclosure.

The auditor shall consider whether external confirmation procedures are to be performed as substantive audit procedures.

When the auditor has determined that an assessed risk of material misstatement at the assertion level is a significant risk, the auditor shall perform substantive procedures that are specifically responsive to that risk. When the approach to a significant risk consists only of substantive procedures, those procedures shall include tests of details

B)

IF the significant finding noticed by the audit team were found to misstament or if it relates to fraud there could be impact on the cement industry and the price of the share decreases as and when the information is disclosed

IF there has been a proper audit at regular intervals their could be a chance early detection of such exposure and quantity of loss could have reduced . Due to proper audit mechanism there could be suprise check as well to check the items likeinventory, investents made by the company etc and there could aslo had a check on the intenal control system