Intermediate Examination Autumn 2012 Module D Q.1 5 September 2012 100 marks - 3 hours Additional reading time – 15 minutes
Shahrukh and Company, Chartered Accountants, have conducted the statutory audit of the financial statements of Karim Limited, a listed company, for the year ended 30 June 2012 under the Companies Ordinance, 1984. The job incharge has drafted the following audit report: Auditors’ Report to the Members We have audited the annexed balance sheet of Karim Limited (the Company) as at 30 June 2012, and the related Income and Expenditure Account, Statement of Comprehensive Income, Cash Flow Statement and Statement of Changes in Equity together with the notes forming part thereof, for the year then ended and we state that we have obtained all the information and explanations which were necessary for the purposes of our audit. It is the responsibility of the company’s management to establish and maintain a system of internal control and prepare and present the above said statements in conformity with the approved auditing standards and the requirements of the fourth schedule to the Companies Ordinance, 1984. Our responsibility is to audit these statements. We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards require that we plan and perform the audit to obtain reasonable and limited assurance about whether the above statements are free of any misstatement. An audit includes examining evidence supporting the amounts and disclosures in the above said statements. An audit also includes assessing the accounting policies and significant estimates made by management, as well as, evaluating the overall presentation of the above said statements. We believe that our audit provides a reasonable basis for our opinion and, after due verification, we report that: (a) in our opinion, proper books of accounts have been kept by the company. (b) in our opinion: (i) the balance sheet and profit and loss account together with the notes thereon have been drawn up in conformity with the Companies Ordinance 1984, and are in agreement with the books of account and are further in accordance with accounting policies consistently applied; (ii) the expenditure incurred during the year was in accordance with the objects of the Company; and (iii) the business conducted, investments made and the expenditure incurred during the year were for the purpose of the Company’s business; (c) in our opinion and to the best of our information and according to the explanations given to us, the balance sheet, profit and loss account, statement of comprehensive income, cash flow statement and statement of changes in equity together with the notes forming part thereof, conform with the approved accounting standards as applicable in Pakistan and give the information required by the Companies Ordinance, 1984, in the manner so required and respectively give a true and fair view of the state of the Company’s affairs as at 30 June 2012; and (d) in our opinion, no zakat was deductible at source under the Zakat and Ushr Ordinance, 1980. Chartered Accountants Date: 01 September 2012 Required: Identify the errors in the above report vis-à-vis a standard statutory audit report. (Note: You are not required to redraft the report.) (12 marks)
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As the engagement partner, you have reviewed the audit working papers of Samarkand Limited (SL). The audit team has highlighted the following matters in the working papers. (a) Twenty percent of the company’s recorded turnover (revenue) comprises of cash sales. Proper records of cash sales have not been maintained. Consequently, the audit team was unable to design audit procedures to verify the cash sales. During the current year, the company changed the method of charging depreciation on its fixed assets from the straight line to the diminishing balance method. However,...