P 4202 AUDITING IE-WA BANK

Background

IE-WA BANK (IEW) has the headquarters are in Damansara, Selangor and it has banking operations in 35 communities in Negeri Sembilan. It loan portfolio consist primary of agricultural loans, commercial loan, real estate loans to individual. Credit granting authority is headquarters an curtained loan officer have decision authority for small loans in their local area.

Because of IEWs strong control over bank loans, the team place high reliance on controls for example the control risk is assessed as low. Additional detail testing will only be perform if analytical procedure suggest interest income is materially misstated. The 2008 report interest income is RM 35,337,204 and the net income is RM 12,484,000. Misstatement if RM 525,000 is considered material.

To comparing the current year interest income and previous year interest income:-

Average loan volume x Weighted average interest rate

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P 4202 AUDITING

Part A
[1] As part of the year - end audit and using the analytical procedure approach similar to last years audit (average loan volume multiplied by weighted average interest rate ), determine if IEW Banks interest income from loans reported at December 31, 2008 appears fairly stated. Do the result of the analytical procedure indicate that you accept 2008 interest income as reported?

IEWs Loan Interest Analytical Procedure Updated for 2008 Agregate Loan Volume (or balance) as of Dec.31, 2007 Agregate Loan Volume as a December 31, 2008 Average Loan Volume (or volume) for 2008 Multiplied by Weighted Average Annual Interest Rate (2008) Computed 2008 Loan Interest Income 2008 Loan Interest Income per IEW Difference RM388,110,000 RM383,860,000 RM385,985,000 x 9.115% RM35,183,000 RM53,337,000 RM 154,000

Yes, because the difference value is not less then RM 525,000. So, that is not material.

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P 4202 AUDITING [2] Based on the result of the analytical procedure, how likely is it that 2008 interest income is materially misstated?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Definitely not Misstated

Definitely Misstated

154,000 525,000

X 100 = 29.33%

[3] Please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence by the interest income analytical procedure:

1 2 Extremely Weak/ Useless Evidence

6 7 Extremely Strong/ Removes all doubt

(525,000 - 154,000) X 7 = 4.95 525,000

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P 4202 AUDITING

Part B
[1] Given the additional information provided in Part B ( i.e. quarterly information by loan type) , please determine if IEW Banks interest income from loans reported at December 31, 2008 appears fairly stated. Can you accept 2008 interest income as reported? For the Year 2008 First Quarter Average Loan Volume X Weight Average Interest Rate Expected Interest Income, First Quarter Second Quarter Average Loan Volume X Weight Average Interest Rate Expected Interest Income, Second Quarter Third Quarter Average Loan Volume X Weight Average Interest Rate Expected Interest Income, Third Quarter Fourth Quarter Average Loan Volume X Weight Average Interest Rate Expected Interest Income, Fourth Quarter Commercial and Agricultural Loans RM 267, 003,000 2.15% 5,741,000 Real Estate Loans RM 99,998,000 2.40% 2,400,000

RM 263,868,000 2.08% 5,488,000

RM101,200 2.35% 2,378,000

RM 264, 400,000 2.13% 5,632,000

RM 95, 608 2.35% 2,247,000

RM 266, 510,000 2.17% 5,783,000

RM 96,200 2.43% 2,338,000

Annual Expected Interest income by Loan Type Based on Quarterly Data RM 22,644,000 RM9,363,000 RM2,515,000 RM34,522,000

Computed Total Interest Income per Audit (RM22,644,000 + RM9,363,000 + RM2,515,000)

2008 Loan Interest Income per IEW Difference

RM 35,337,000 RM815,000

No, because the difference value more then RM525,000. So, that is material.

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P 4202 AUDITING [2]Based on the result of the analytical procedure preformed in Part B, how likely do you think it is that 2008 interest income is materially misstated?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Definitely not Misstated

Definitely Misstated

815,000 X 100 = 525,000

155%

[3] Please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by the interest income analytical procedure:

1 2 Extremely Weak/ Useless Evidence

6 7 Extremely Strong/ Removes all Doubt

(525,000 + 815,000) 525,000

-3.87

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P 4202 AUDITING

[4]Now reevaluate the first analytical procedure you performed (i.e. based only on average aggregate loan and interest averages). Using hindsight, please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by that high level interest income analytical procedure:

6.46

Extremely Weak/ Useless Evidence

Extremely Strong/ Removes all Doubt

154,000 + 810,000 2 525,000 X 7 = 6.46

Conclusion : IEWs Loan Interest Analytical Procedure Updated for 2008, in Part A is not material because the difference value is less then RM525, 000. And Part B is material because the difference value is more then RM525,000.

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