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INDEX
Introduction to Auditing
Q.1. D d r U 3 d m A u d ' I t : (4M)
Ans.: M n e : As pw AAS-1 by lCAl "Auditing is the independent examination of financial
hfwmation of any entity, whether profit oriented or not, and irmpecWe of its size or'
legal f m , when such an examination is canduded with a vkw to express an Y' opinion thereon. r,
r '.
Analysis of the above definition brings out clearly the following features of
It is the systematic and scientific examination of the account of a business whether
such business is profit oriented or not.
It is the intelligent critical checking of the accounts of business.
It is done by Independent persons or body of persons qualified for the job. (Eg: - Chartered Accountant)
It is done with the help of vouchers, documents, information and explanation
received from the authorities.
1 a. 2. What are the Advantages and ~isadvantages of Audit?
I 4 Advantabes:
(a) True and Fair Accounts:- Audit provides an assurance to the various users of flnal
PVc's such as owners, management, creditors, lenders, investors, government etc
that the Nc's are true and fair. Audit ensures that the final Nc's are reliable and
authentic.
1 True and Fair Balance Sheet:- The user of Accounts can be sure that the Assets
and Liabilities shown in the audited balance sheet show the true financial position of
the concern as it is i.e. neither more or less. Thus, there is neither any window
dressing nor any secret resews in an audited Balance Sheet
. .. . 6 A C I ~ M M E R C E C E ~ S . ..
. . 2 -
(c) T r ~ e d F 8 k F r a l i t & b A l c : - ~ ~ m b e ~ t t h a t ~ a u d i & e d P r o f i t
~ ~ ~ s h o w s ~ b u e ~ d M a n d ~ m i t i s ~ m o r e n o r l e 9 s ~
(d) T a W y w h ~ - ~ A u d i t r r d W ~ b ~ a n b e t e l i e n . b ~ l ~ w i t h t h e b o o k s o f
~ e ~ a n d ~ t h a t a x a h l e ~ . A n ~ e u g a r n e e d n o t g o
through the entire books- -.
(8) A s p a r k - m ~ u d l t s d ~ n d ~ o r n k , ~ t o f d ~ ~ d R ! r " l e s a n Q
qulremlsiddownbytew. ~ ~ - ~ w d t h e ~ n i w G i .
(9 As per AdUng and Asmmm Sandmb ( W E - T b audM final accounts follow
t h e A A S ~ d c n m r b y ~ ~ . T h e a u d i t e d a e r x # l n € s a c r , b a s e d o n objective s ~ & and nd on pabmd wMms and fandm a4 a pftieutar audiir
waccomms.
(g) Digckse all ma8erfal facts-
user can &yon the w d k i t#mtbirsgdid--
any decision of M n g itlwm. . I
I
(h) D e W h and PlcnnnYon d bron ad ~muck-hdited accounts am be assumed
to be reasorlab& free from errors and frat&. The auditor with his exp& knowl*
would take due care to see that enus and frauds are detected so ttrat accounts show a true and bir view.
(i) Mod check on E q h y m x - AucM techniques such as wxlching v m o n of Cash,
Sock, Assets, etc act as a moral check on employees fwclng them to keep the
amounts regular up-to-date and free from any ma w feaud.
) Advke on System, Taxatbn, Fhmca- The audb can a h advice the accounting
system* internal cantml, intempl check, hteml a m f h m a , W o n , etc.
' 8
* 7 '. 2
.&
I
Im=-w
ii) ~ ~ h e d ~ - ~ e ~ t o ~ t m t y t t w ~ ~ ~ , t r m c r e ( k n s m a r a n p k
i
'
-
babis.
I - 4
(2) kjst E-~S not andwive h nabre:- (AAS-5):- Thus, a o n ( i m by a debtor
~ ~ ~ ~ e v i d e n c e t h a t t h e a m o u n t w 3 1 1 be-. ~tissaldthattwkhcais p a k m s i w ~ u t a n c ~ n d u s i v r , i n ~ . . 5 .
1
(3) hmmt - I
: - D u e b ~ ~ t i . r e ~ o f a f i r m d o n o t s h o w t h e
in)ama8kn abaut the p m m ~ m r ~ l d the partner. MCDWS are tmsm~ on
hbbdcd ash and do not show the current value of Asseb and UabilMm. The
m t s do not reveal fads which cannot be measured In terms of money. I
' ( 4 An Auditor may not be Indecmdent- He is appointed by the owners and hence I cannot be expect& 6 report to the owners their own wrong doings.
-
(5) - Frauds:- Frauds usually involve ads designed b control them suctr as forgay,
deliberate failure to record transactions, false explamtions and so on and hence am dicutt to detect.
(6) Auditor has to rely upon Exoerts (AAS-9):- Auditor may have to rely upon experts in
related fields such as lawyers, engineers, valuers, etc for estimating contingent
tiabitities, valuation of fixed assets, etc.
(7) Cannot assure W e P@M&jj&- Just because the accounts are audited doeo mb
mean that the user can take for granted the future profitability or pm- of the
concern. Audit does not comment on whether the management is efficient or not.
I
ct, 3
(a) ~ - ~ m l h n D b l ~ ~ a i w s n d . l l i r v l r w r d m f l n r w i d - ~ ( t ~ * r r , ~ h # ~ r d ~ w * - ~ & ~ L ~ l c )
s E ~ o & I E m - ~ & F F c w e r r S k r r o C F ~ a n d ~ .
(a) T h e i n c k n W 9 d i r e o o n d o r y a u * ~ b b ~ ~ ~ L o
I - .. ?$Yag I r..
(d) T h e ~ ~ ~ t h a t e f f e d d m e r r w o r ~ o n t h e ~ ~ .
I IWponsiMlities and which shoutd be oomplied with dwng AudA we as fdHm;-
( / ~ S E E ~ T A I Y D U P ~ ~ ~ ~ S E E )
' a 7
(1) -My, ObjedMty and ndndep8ndema:- The auditor a tq ld be honest, straight
I fonvarc! and s i m In h/g a-ch to his professional wwk. He must be fair and
m u s t n d a l l o w b l a s ~ a r e r r i d e ~ o b j ~ . ~ ~ e ~ d o * ~ f ~ w I favour. \
\
1 ( 2 ConfidmWi:- The Auditor should mped the confidentiality of inbmatbn acquired
in tfie course of his work and s h l d noQ dselose any such inbmation to tfie third
party without qmdfk authority.
(3) SMlis and Competenee:- The Audit should be performed and the report should be
prepared with the cam by persons who have adequate training,
expeflenca -. and cornpeten- in auditing.
i (4) Work performed by others:- When Auditor delegates worlc to assistants or other
auditor. he will continue to be responsible for M n g and expressing hk, opinion on the financial statements. The Auditor should carefully direct supervise and review
work delegated to assistants.
(5) Audit Evidence:- h e auditor should obtain sufficient appmpfhte audit evidence
through the perfomce of compliance and substantive procedures to enable him to
draw.reasonable conclusions thereon. On which to base his opinion on the financing
infomation.
(6) Planning:- Planning enables the audiia to m d u d an eflecthre audit in an eRident
and timely manner. Primarily planning should be based on the knowledge of the
dients business. Plans should be furttrer developed and revised as tt8cessary during
the course of the audi .
6A TA &3it -A' u M 6 MMg~-CUigEs . I .
- Tv0CO~/AUOIITM 1 a;&j,.&, 2,- . d , . A- *: !!"
o o a r n e m r u m - m A u a t a ~ ~ . m s ( t e n w h l o h r s h r p a b n t i n p r o v l d b l p ~ ~ t h e a u d i t ~ ~ i n ~ w i t h t h e b s s i c p r t r r d p l g s .
(8) Audit snd -.- T b Au&W should d~ at ttb WI the ~ d n t h e b s s l s d a u d # e v l d e n e e ~ ~ ~ ~ T h e
mi ~ A u d ~ m u s t h # e t h e f o a o w i n g ~ : -
Chatwed ~~- A ccwnpany auditor must be a pracb'dng
B Sklb and Cmpebxx- An kdRa must be an @pert having p m f e s s d ~ training, #
m m n y law, Ino#ne Tax, costing, etc.
auditor must know how to judge people. He has to judge and weigh the evidence I
P Honest- An audi& must be hamst Further he must exercise ~"8880n8ble care and
skill before he believes that M . h e cmtifh is tm.
uperlence and cmpa~bnoe in ihe field of accounting, auditing, mercantile law, L
Independent:- An Auditor must be Wependmt. H8 shwld be impartial as well as
feadess in the discharge 04 his .dub. Ha should not have any vested interest that
wwlld affed hb independence as an auditw.
I
(7) Watch dog but not Bbad hound:- It is said that an auditor should act like a watch
dog but not like blood hound. He st.lwld be alert but not swpldous. He has to --
safeguard the interest of the owners. 1
(8) Confidential:- He should kdep the information obtained during the murse of audit
confidential and not divulge it to outsiders.
Q. 6. What are the d i i types of frauds? What are the duties of an audir in respect of fad? (8M)
Ans:. Types of Fm&- "Fraud* means intentional misrepresentation of financial
infomation by management. employees or third parties. It is a deliberate and
malafide act to cheat or deceive someone.
F r e u d s m a y b e o f f o 8 ~ ~ : -
( i ) Transaction may not be recorded at all:.
Eg:- Goads may be sdd but not recorded in the books.
fli) Dummy transactions may be recorded.
~9 : - ' ~oods sent cm Consignment may be shown as sales.
(iii) Accounting pdicies may be applied wrongly:- k~ C,
Eg:- Rent received may be shown as deposit
wcL
( i ) Cash may be misappropriated or stolen out ot-
(a) Cash received (b) Cash paid (c) Cash balance.
(a) Cash received may be misappropriated:-
(*) by not recording cash received at all or recording only pact amount as received and pocketing h e balance (or)
L .
6AUTAM CQMERcf: CUSSES 8
~ - > ) b Y U ~ L e d i n g .
@ ) ~ ~ ~ m b q p m p l a $ d b ~ o u l d c a s h p ~ y m e n b b y n a o r d h O & n n y a
-payments.
. (c)rnmeybe~m.outdma*hhh~d~hmoad,l#~r ,
-; -3 . 4
of) V)-m~k*Muf. ,, .. ,--
--- @ ~ r e c c r i n d b ) O o o d r r y l s s f m k h e d i n d ~ ) ~ k W .
1 ) 0 o ~ d r ~ m r y b e n W p p q w h t e d b y n o t n e & d n g ~ ~ . t p l a
r e c d ~ a n l y ~ ~ r r c l o r i v e d a n d n ~ l a p l m p r i a & 0 t h e b a l ~ .
2 ) m m a y h m k p p m p & W o u t d d ~ b y ~ i n g d u m & a ~ mlm. 3)Goodsmaybeaduslly$tdenOLROfthemin h a n d ~ i n t h e w a ~ .
(B) AUOfTOR'S MITY REGARDING FRAUDS:- The r-ibllity & for -
e r r o r s ~ k g u d s a s p e r A A s - 4 i s a f i ~ . -
(I) TheWahou#planaudit insuehawaybenswetharttheamarew
ffwnm~emusandfra&soasBoshawabueandfairview. - (2) So tung as the audits has taken reasonable cere and Mbwsd the bask Plindples
o lAudl t ing, the~r isna( lo~heMm~foranyenororf raudremaini r rg
undiscovered.
(3) If any error is d&ected, audibw M d see that it is mdfied. If a Fraud is detected
and is material he should report it b the ownets or shareholden. m ~ . r ~ r ~ u q r r u j ' g
Q. 7. What are the types d Emm? (8M) Ans.:- The -rims types d which wually m & e d ate discussed W.9
/ E m OFB)UISSW:- When the bansadon is Mt mwded in the books of
~ ~ w h d l y o r p a r b ' d l y t 5 8 l a K I w n a s E m r r o f O m ~ h . Fwq-Salsson
~ r n e y n o t b e r e c ~ r d e d i n h ~ d a e ~ ~ u ~ , ~ i h e r e k t h e r e d & f i
effeetnoraereditm Such omidon baaiedWholeCbn~. On theother hand
~ o n l y a n e a s p e c t d t h e m ~ k r e e o r d e d i t i s U t o b e P a r t l a l ~ .
DuetPSuehemmrtheW~mayn0tt ;a l ly .
8
-
For eg:- Goods pumhmd f h X have been d e w to Purchase Nc. But X's Alc
has not been credited.
I 4 E f W W OF COMMRSJONr T h m enw arke when any bansaction is wrongly
recordsd or posted. It may consist of mistakes committed by clerks while recording
entries, pos6'rrg, -*ngs etc. Ma# d the emn, of cbmmissbn will affect the
agreement of bial Warm.
31 ERRORS OF WPUCATl0N:- These emrs arise when any transadion is entered twice in the bodks of otiginal entry. This will not cause disagreement of trial balance.
41 Cornpasating E m - Compensating enors means two or more errars are
committed in such a way that the effect of both the errors on @I balance Is counter
balanced (set off) by each other. For eg:- If Total Purchase Nc is cast shod by Rs.
1,000/- but at the same time total of Wages Alc is overcast by Rs. 1,0W/-. The effect
d I* enrrr is nufliffed by the other error as far as agreement of trial balance is
concerned.
51 E m of Pdndple'.- Such type d err& are committed when principles of
Accountancy are not observed. Such emws affect the Profit 8 L o s s Nc and the Balance Sheet Fw eg:- Repairs to building may be debited b Building Nc instead of
Repairs Alc or Rent paid to X may be debited to his Alc instead of Rent Alc.
The Auditor has to be very careful for detecting these emom because these errors
are not disclosed by the trial balance and such emrs affect the financial statements.
Q. 8. Critically Discuss the !htment: m4N AUDITOR IS A WATCH DOG BUT NUT A BLOOD HOUND.' (8M)
h.:- The above statement is famous remark of Justice Hopes in the Kingston Cotton Mills
Case in 1896
The facts of the case were as Mlows:-
he armfogyis between lhe a;dlta.and thewadoh dog. t he awdifwisthe
mdogthatprdeclsthepropertyofthesharehalders.fhewatchdogwill --- barkif P
there is a trespass. The auditor wig see that proper accounts are maintained protit
andlossaccowrtandMancestreet.~a"tnreanddairvlWoftheCmof
the mpany. To that purpose he would use mamabk skills and care In auditing
the company's aoumnts. He will report if he finds anything a miss.
The Kingdm GAbn MUb Judgement k m v e r has come under severe
c l j t i c i s m a n d ~ a f t e r t h e ~ a n d R o b M r r s c a s e i n U ~ ~ s t a m b a r d
d ~ e x p e d e d d a n y a u d i d w h e s u n d e r g o n e a ~ ~ e . I n U ~ ~ h
amld&bcktaking.
E m hr England Otis nowoonsideredessadhl that the audieorshould be
p h y s i c a l ~ ~ r t t t h e s W ~ a t l e a g t b s o m e t i m e a n d m i C t h e ~
-
-. ,
11 NBCOWAUblXTS
verihtion procedwe is p w y followed and he would test check a few items. It will
not now do if he merely accepts a signed certificate of the various of stock.
Though essentially the auditor Is not a blood hand, he has to be very alert
watchdog nand not be me that will bark only if a thief trips on it If raasonaMe care
would detect a fraud and the auditor has not deb&d. If he will be held l ido. .
In the Irish Wodlen Co. Ltd vs T y m Case the auditor w a held liable for
damage sustained by the company by reason of falsification which might have been
discovered by the e x d s e of reasonable care and skill in the performance of audit.
Q. 9. Write Short Notes- (48M) 4 4 3 %f'lj Vvi-0-w:- *
a) What is W o w Dressing:- In window dressing accounts are made in such a way as
to show a much better condition than the actual condition. The profits and the net
worth are ovemtated in the final accounts.
b) Why Window Dressing is done:- Window dressing may be done to:-
i) Mislead investors or lenders ii) Hide Losses iii) Pay more mrnission to
directors etc.
c) How Window Dresdng is done:- Basically window dressing is done by overstating
the net worth of a concern since net worth of a concern is equal to Assets less
Liabilities, window dressing can be done by:- L
iy - Overstatements - _ _ l dl Assets:- (by manipulating fixed assets, depreciation, stacks,
wrong dassificatbn of expenses I income into capital I revenue etc).
il) Understatement - -- - -- - -__ of Uabil@es:- - - (by manipulating liabilities) prwisions or wmng
classifications into actual contingent liabilities etc.)
iii) Overstating - Profits.
iv) Understating expenses.
d) Objections against window d-ng:- Window Dressing should be avoided because
it means that
I
I I
t - - - -
5) T h e ~ a c a m t e ~ n o t ~ a ~ 9 n d f r d r ~ . ---
U) DMdew! -- mayh-rn a u t d ~ iii) h m a ~ m t l k l e i t s i ~ e n d h v d a 7
iv) fheprovisiansofmqipaniesadat 'end~ed~.
?
9) A ~ D u t y W e g a r d s n p ~ ~ : - I t i s ~ s d u t y b
1) Prevent or repod window dressing
8) V * ~ ~ o b l n c r r m e
hi C w v a l r r e s o f - ~ u a ~ b) ~ ~ o n s l b r ~ 6 ~ 1 ~
+ V ~ C k r l ~ S W C
vi) . S t u d y e ~ o f ~ i n m e t h o d d ~ n g a n d
vii) Prevent omIsslon of any liability.
w' T e m h ~ m d ~ : - ~ e e m l n g c v d L o d n g kthetypedfraudthatiscomm~tbed in ~ 0 n ~ t h e ~ d e a s h . S u e h ~ ~ k e o m m M w h e r e t h e ~ n t
colleded (twn are custotnm .-- is and the amount subsqtmtiy - received li#n & customer b credibd la the account of the fcmm custma according to the amount so mbpprqlated.. This pmaws is adapted 'wilh very
subsequent every dIedon so that no custom~1. acrxwnt is outstanding for a longer period. For 99:- Suppose the cashier has received cash from Mr. A. At that time the cashier does not pass any entry for the receipt He has thus mSsappqxhted the
money. After some days the cashier Wves cash from Mr. B at this moment
cashiergivesereditto Mr. A A andtoMr. Band hecattlesun this process, sothat
he can use money for himself. When cashier Okralty gets Ma own money* he puts its
in the cash box dthe ccmpeny gMng credit b the last penun fmrn.what he had
received the cash but has not cred$d Ms accovnt earlier. TMs mthud of ammlttirg a fraud is also known as 'LADDING" OR 'CARRY - OVER - FRAUDS".
such frauds my det& by the adoptkn of ~ ~ n g ways:-
i) Set up a good htmal contrd system foe mcmAng cash transactions. ii) T h e e a s h i e r ~ ~ n o t h a v e a n y a e c e s s ~ f h e ~ b o o k . - -- __ -- -
iii) The respo~~@We d b t should do swpdse cash (checking) . - mnting,
12 - -.- -
GAUTAM COMMERCE CLASSES , * ,? --r==.--- \ TYBCOM/Amm - - -
. - 2 1 1 -
iv) All mipts and payments shoufd be done by only Nc payee cheques. --
v) Confirmation must be obtained from the customers at regular intervals.
vf) Copy of the receipt issued to the debtoas must be checked giving more attention to the dates.
=%
gf/ ~ R e s a ~ v € s : -
a) What is a Sew& Resm8:- a
Seaet Reserve means pert of the pr-fib secretly reserve for - - ~ u r b use. S m t
Reserves are hose ~ W B S which are not shown on the face of balance sheet.
Such a condition exists where the assets are omitted or undervalued or whxe
liabilities are overstattat&. When secret reserves are created, financial position of the
company seems to be worse than what it actually is. It is exactly opposite to the tern
WINDOWDRESS1 NG".
b) WHY SECRET RESERVES ARE CREATE^- Seaet Reserves are created to mislead oompeeors, hide - abnomtal profits --- or m m i t - fraud - etc. However a secret reserves is legatly allowed to be created by banks.
Banks are allowed not to disclose their provision for bad and doubtful debts in order -
to maintain public confidence.
C) HOW SECRET RESERVES ARE CREATED:-
Basically, secret resenres are created by understanding the net worth of a mwrn
since net worth of a concern is equal to Assets less Liabilities, Secret Reserves can
be created by 0) understatement of assets - and (ii) wxbfstatement of liabilities or (iii) O V M -
understating - profits -- 81 (hi) overstating - - - - expenses. - -
d) OBJECTIONS AGAINST SECRET RESERVES:-
i) Final Nc's do not shaw h e and fair view.
ii) Shareholder's Suffer.
iii) There is undue benefit to management.
iv) There may be fraud by management
v) There is no check on Assets.
13 L
w 3 u M s E s 14
vi) N o l n s u r a n c e c l a i m ~ t w ~ ~ ~ O f ~ ~ a n d m o a t ~ n & - vii) It is against can- ad
8) AUDITORS DUTY EGAROING SECRET RE$ERVE&- T h e a W a o f e o o n l 9 a r y h a s B o ~ ~ t h e ~ ~ r r t r u e a n d f E l i r W .
1) t n t h e c a s e o f t h e ~ S h e e t d ~ ~ e d t h e m p a n y l s a W r a t t h e d o f b
flmdal year and ' I
2) ~ n ~ e c e s e o f t h e p m l i t a n d k s s a a o u n ~ o ( ~ h e ~ w k r c l f d l t s ~ ~ ~ y e e r . So It is his duty to report any secret mww.
(4) AUCW TECHNK;IUES:- AwM techniques mfim to methods trsed ta a W n audit
~ ~ . T h e ~ o f ~ k r i n g a ~ a t e s t a t d i n A A S - 3 b e d b y t h e
ICAI.
T h e r n ~ e ~ t e d i n t h e s a m g a r e ~ b e t 0 ~ : - OlCAl e
a)ObwMan b)lnspectloH c)Computart#on d)ElnalytW Review e)lquiry &
ConfimrabJon.
a) Otrservab10n;- refen to wltmshg a prooess or proegdum
perfmed by o#m. For eg:- an Auditar may obgene the counting of inventdm by
the dient.
b) Inspecbiorr:- lnspectiorr means examine recut&, doeurnen& w bngiMe ass&,
Inspection of muds may provide evidence of b9-arts. Inspection indudes
vouching and vdimtion.
C) Computatl#l:- It refers to checking the. afi-l accumy of vouchers,
documents and other ammting recards.
d) Analytical R&w- it indudes s€udy of vatJowr accarntjng rabloes such as gross
profirs, ratio, curtent ratio, (input -output ratio), cW€urs turnover e k It a h Invohre8
rnparisonsdflgmaofmnt yarwtth thatofthe pmbusyear.
14
AUTAM CO 5SSES B - NBCOWAU6ITIW
) Inquiry and CoMnWm- It refers to obtaining appropriate information from
laKnrvledge persons inside or outside the entity responses bo inquiry provides
evidence to an auditor regarding some transactions.
{q TRU€ANDFDFAIRVIEW:- : 5
a) Report requlr8ments:- The statutory aUhx of a company has to express the opinion . In his report on the true and falr character of the Balance Sheet and the result shown
by the pmRt & lw amount. The term "True and Fair' is k t defined in any
legislation.
b) Legal requirements as to true and fair secticm 21 1 (5) of the companies act provides
that the accounts of a company, shall be deemed as not disclosing a true and fair
view, if they do not disclow any matters which are required to be disclosed - 1) By virtue of provision of schedule VI to the act (or)
ii) By virtue of a nobificson or an order of the central government modifying the
disclosure requirements.
Therefore, the Auditor will have to see that the final accounts are drawn up in
confirmly with the provision of schedule VI and that they contain all the matter lo be
disdosed therein.
General Requiments:- ---- To ensure a true and fair view, an auditor has to see in
respect of the following whether-
As.sek-
I) Assets are neither undemlued - nor ovyalued according to the applicable
accounting principles.
ii) No material asset is omitted.
iii) Charge if any on assets is disclosed.
Liabilities:- .--
i) Liabilities are not undervalued or overvalued and the same are properly classified.
ii) Material Uabilities are not omitted.
Accounting Aspects-
I) Appropriate amunting prindple & acceptable accounting pdiues have been
followed consistently and
IS
GAUThM " 5 16
ii) A U u n u a w a l , ~ ~ ~ , ~ i t e m s m a l s o ~ ~ ~ ~
m@- 1) ~ ~ a i t ~ ~ ~
~ b y ~ W d t h e ~ a e t o r a n y a t h e r ~ i e a M a n a t u r a .
cwinglm B0twem:* M S T E G A ~
lmmttgatlon is examination d
account$Forspedfic~.
Investigabion is a specific non-
t
TYPE
1) Meaning
2) Nature uf
A U D W
Auditing is examination d amair&
breport#theymtrue&falr.
Audit is an annual rewrring recurring assignment.
3) type^
4) Appoinbnent
as] =V
6) Re-Audit
I ) C o m ~ # ~ b a y
8) Qualification
16
Audit my be statutwy orvduntwy.
It may be wntinmmt interim or
final.
M i is appointed by ownen or
shamhddws.
Audit covers the entire scope of
accounts
Audit does not involve re-audft.
Audit i (conpu~~mmpPnieci
Adtor d a company must be
practising Chattered AeawntornL
Investigation may be statutory
under canpanies act, hame tax
or voluntary for valuation pwrpose.
tnv- may be appdnted by
outsider. Eg:- IT Dept Registrar
of Co., Purchaser of Sham etc. u
lnvegtigation may be limited to a
particular Rm in Alc's or may get
much beyond Nc's depending
upon Purpos*. Investigation rnay invdve mdt. - lmrestigetlonhMCMPI$OIY.
No qtralificatlkns am ptescfiW
by kmr fbr any in-.
*
TYPE ACCOUNT1NG AUDITING
1) Meaning Aocwrtting is written books of alc Auditing is examination of dc's to -
and preparing final a/c'a report whether they are true &
fair.
2) CQbdve ' Object is b prejwe balance sheet Object is to examine & report if
to shuw financial posh as at tfie Balance Sheet shows true & fair
year end and P/L Nc to &ow the financial position and if P&L N c
ProffOeoss for the year only. ~~IOWS h e & fair a/c of profit I Loss.
3) scow Accounting is limited to boob of Accwrnting is not limited to books
accounts only. of
aooounts only.
4) Done by Accounting is done by an employee Audit is done by an independent . f - 7
who need not have any special expert who must be a practising
qual i f lm. chartered accountant.
5) Responsibility Accountant Isappointed by and is Auditors is appointed by owners I
responsible to management shareholders & reports to them.
6) Beginnhg and Accounting begins with vouchers Auditing begins where aaxlunbing
End and bods of original entry and ends ends i.e. with final a/c's, Audit is
with preparation of final ale's. complete when auditor submits
his audit report.
7) Nature of Accountant records, posts and Auditor analysis, Past
Work summarises current transactions transactions. Auditing is thus
accounts are checked by an auditor. (analytical)
(R-rdtng)
;
GAUTAM CUM= CLASSES I
Chapter 2
Planning, Procedure and Classif~cation of Audit. h
-3 - + Q.1. Wha~rtepetobteksnbycnauetaWmcmmmamatbeneweudn
~ ~ l l C 4 W
Ans.: The auditor has to W e
a) ~ p p d ~ - A u d b r h e r b ~ n a p p d n b n e n t ~ l t a n ~ o d k a r t l s p e r d i n o t h e
appohtment and pad- In case of rn- audit, the natum.and the type
d t h e w o r k b b e ~ n J e d a r t b y t h e ~ ~ * H e s h o u l d ~ t h a t h i s a p p o i ~ i s k r
order. ~ w e g : - h ~ e d a t i ~ m ~ y h e s h o u l d o ~ e l n &oftheresolution
afthe qlfdnting authority.
b) SpdbOt$d:-IncasedmtaUqEaudlthehmbaehievecertainoqjects
which should be spdf id Bo avoid misu-ng at a later date. This MI help
hkrrbcarryaut~audithpropermanner.
c) Listdmd--HeMobEalnaktdbodrsof-,-
etc maintained at the head office and at any other place so that all of them can be bm@t under audit
d) Important ofkm:- A lst of mpomibfe ofRcers bogether with the nature & type of
their responsibility shouW be obtained specimen signature of mpondble officers are
obtained so as to be useful in the cuum of audit to Rnd out whather w not a particular transaction has been properly authorised by a competent a W t y .
e) Cmunlcablon with the pvbus aidkc- If the audbr is appointed by in the place
d p r e v i o u s a u d i ~ , h e k b W n m N o ~ L e t t e r " f r P m t h e p r e v i o u s ~
as a matter of prof85sW code of conduct of the Institub of CMwed Accountants
of India.
-
18 /
-
6AUTAM COMMERCE CLASSES 19 TYBCOM/AUbITTW
*fj H e a d ~ a n d ~ b r a n e h e s i f a n y . - H e ~ a l s o ~ h ~ ~ u f ~
kanchand WoQAw, if any so that he can try to ewer the audit ofthe entire
orga-.
g) hrporBent 'hcmmts- Certified copy of the hnrnnt documents should be
obtained to 6nd out from there important points M n g dbd on acccmb. For eg:- in
cam of limited oompany, copy of rn-m and atides of association,
~~, mnbact with (he vendors, pmnotem, undamilers et6. and in the csse of audit m r s h i p fhm, ~ ~ i p deed should be obtained.
h) Nature of B u s b s e He shadd also ascertain the nature and type of business carried on by the dient so that he can mny out audit in sysbmatic manner.
i ) Audit Pmgmnme:- A proper audit programme before cammencement of the actual
audit should be prepared keeping in mind the system of internal control and internal
check. If h e system of internal control & Interns! check is not adequate he has to
include detailed checking in audit programming.
j) Sycrtem of Internal Contrd and Cheek:- A statement a, the system of internal control
and internal check regarding difbrent transactions of purchase and sale, income &
expenditure, assets & liabilities is obtained to see that system is adequate and
proper so as to avoid pcsslbllity of fraud remaining undetected. If the auditor is not satisfied with the system he has to include detailed checking in audit programme.
I k) Accounting System:- He should further examine the accounting system followed by
the dient and see that the accounting system Is adequate and praper according b
generally accepted accounting prlndples. For eg:- in case of a limited company the
accounts are to be kept on mercantile system with effect fKHn 15-6-98. If he is not satisfied with the system he has to nxxnnmend to his dient, so as to enable him to
make necessary amendments in order to make the system free fmm the defects.
19 1
b) Client & acoouttSng Yeac- Ttm heading d the wdlt pmgramme ccm&ins the name of theclient and the AcmunUng year in respedufwhkh theaudit is to be conducted.
c) AudSt R m d m - The main part of the audit plPgmmme a m b h det8iied
i n s t r u c b i o n s r e g a r d i ~ h o w t h e a u d l t i s d o b e ~ s d r i g k t f m ~ ~ r s t s t e p o f
duation of internal amtds, rwtirret ctreckin& vouching, vdfWhm, ledger
scrutiny, erralflcal nnrlew, presmWm to the lsld step of s u ~ O n of the audn
w Time - Table- The audit prograrnm give ths schedule of audit wok. It r n ~ fhe U m e t a M e f o r ~ j o b . l t ~ f h 8 t S m e ~ b b e W 8 n a n d t h e a c b r a l t k n e
taken Tw carrying out each audit prrxsedwes above. -
gr.AOfnM COM&BlC€ CLASSFS 21 T Y B C O U V A ~ ~
2 A U d i t W a r l d n g ~ - (4) AAS - 3 published by the Institute of Chartered Accountants of India (ICAI) contains
detailed discussion on wMdng papers.
- a) Meenh~:-'Audit working papers mean a record of
the audit plan
4) the audit pracedurss performed and
@) the ecrndusions drawn from - the evidence - - - obtained. This tms den&- the file o
snalyds, s u m f i e s , mmmen$ and c6mspwdence built up by the auditors during
course of audit. W o r m papers is the link between the clients records and the
aud!tors repoR
b) Requ is i te~ ts : - - 1) The exact form and contents of the working papers depend - upon the facts of each
cas0. A c t 4
2) Working papers should be properly designed and organised,
3) Standard foams like specimen letters, query sheets etc are more useful.
4) WarWng papers should be complete and detailed. --
5) Working papers should contains all important matters especially qualitative mattep - -
like evaluation of internal control overall checks etc. They should record all impwtant
decisions taken by the auditor.
6) Statements obtained from the dient such as schedules and grouping should be
properly verified before filling them in the audit file.
7) In the case of recurring audits working papers should be divided A betw#n a
permanent file useful in successive audits and the +vent -- - file (audit note book)
pertaining to the audit for the audit for the current year.
c) Advantages:-
1) W d n g papera provide evidence that the audit was conducted in amordance with
the basic principles of auditing,
2) Working papers help the auditor to plan and carry out the audit.
3) Working papers help the audh b supwise and review the audit work.
-
2 I
{SSS 22
4) W o r k k r g ( r a p e r s ~ e v i d e n e e t n o o u r E s d L a w ~ ~ a u d i t ~ ~ i n ~ o F aauitfornegligembfieldagaiMtheaudiDor.
gy T & W : - (W - : -AM - 5 hued bythe I ~ o f ~ ~ o f l n d l a (ICAI)
~ t h a t l ~ n g a o p l n k n a n ~ m y ~ n a u e t ~ m a ~ ' ~ : ~ s e l e c l b n r n a y b e t m e d o n t h ; , k d t r n p s c l a u ~ ~ a ~
mfling techdque.
I n b d s y s ~ m s s ~ ~ ( h r ~ d b u d n e c l s ~ a r e
wduminous. tt is not posstble ,fw an rsudWoc. to go through eaeh and gvery
tmmctiuns. Heme test checks is mummy, The underlying In- of test
~~~~~~~~~~~~~andformmodnion - - - ontiwyhdi;
w=-=- 1) F u l ~ n g ~ W h e n h 8 n m b a d t r a ~ i s ~ t h e a u d i ~
earrnotdredta#thetrsnsaceknsi.e. 100%.E8:*BenkAudit.
2) F t l ~ ~ - I n n r o d o o s e r , ~ O O W ~ k ~ ~ ~ ~
a n d ~ I . f e s t c h e d d n g a l l a w s e n d a u d # o r t n ~ ~ n i ~ t ~
d m
DmWbaCk- n i ~ 4 4 r d * r r +
1) Arblbay W m : - The i t am b be d#dred and the exled a( I _ m
selected on an aMwy basis. The seldkm depends upon the pers#rat jwmnt af the audh.
2) lgmms sta(istical T&usmkpm Test d*o#g ignaer st;atwd miQw of sampling, random seIection, risk ssaessrnent *
3) fgnores Quality- An audlt i- mgmhg, say 25% cheoldng of pvohacle
~ ,dossnd ind ica tehow~e25W~aobbeee leded .Sudrhrbud ion
dealedthhowmenymsn,tok,cukdsd.ndnothowthegarebbe--
4) smph&, R h k - $ampliq risk mmm thr palsdbiflty that mndusio~ls based - - on s a m p b ( s t c h e c l Q n g ) m a y b e ~ t m n ~ a n 1 0 0 9 ( ~ . - - -
22
GAUTA# COMMERCE GLASSES 23 WBCOWAVbITIM ?,a
64 4 Aud#in (4M)
k m h g - Examination in depth means emrnir@g of a few selected tmnsacjim from the beginning to the end.lihrough the entire flow of transadigs. It involves
s w n g the entire trarsadms at the various stages through which they have
passed.
Aspads aCverfficatlon:- .
At each stage relevant r- - and at!h!lies are examined; [t is jdged whether the
person who has exerdsed the authority in relatlon b the transactions !s1fit to do so in
terms of prescribed procadure.While auditing in depth, the aud&eviews all
accounting aspeds of the transaction from the origin to the end. It enables him to
have an ovmI view and Muate the procedures through selected b a n d o m . Eg:- The various stages In purchase of goods are:- i) Purchase requisition - pre
printed, pre numbered and euthorised.
li) Invitations of Quotations and analysis of same.
Q. 5. What is Audit Not&& and what am its oontmts? (*MI Am: AAS - 3 published by the Institute of Chartered Accountant of India (ICAI) contains
detailed discussion on the Audit Notebook.
In case of recuning audiEs, audit working papers are divided between a permanent
tile useful in successive audits and the current file pertaining to the audit for the
wrrent year. A wrrent file is known as "Audit Notebook". Audit Notebook means
recwd of;-
(a) The Audit Plan; (b) The Audit Procedures performed; (c) The condusions drawn -- - -- ._
- -- from evidence obtained.
It is the file of analysis, summaries, comments and correspondence built up by the
auditor during the course of audit it is the link bebeen the dients records and the auditors report,
S:- Audit Notebook contains the following details:-
a) Letter of Appointment for the current year and its acceptance.
b) Letter of confirmatian from parties, banks and lenders etc.
c) Copies of Correspondence with the dients containing observations on audit,
23
6AUTAM COMMERCT CLASSES,, - 24 . .
ADVANTAGES:- cmthwus audit meam an U t t at regular intervals during year
W. it has fobwing dmhgas:- ~ f = Y a) thorough Audit- The auditor hes mwe time as Ms disposal b bo a tt#uough
~ d a l l t r a n s a e l k n s , t h i s r e d u c e t h e ~ o t n J s s i n g ~ ~ ~ .
b) U ~ N ~ s ~ B s J D I ~ - ~ u ~ ( i n a l N c ' o ~ e u s e l l l b o B a n l c s
and Investom f6r Wng deckiom regadng loans rand I-.
c) mlckpreprstbnd(HA(c'8:-8RcemmuWn,audltir,dmedmythe
final ale's can be pmpad knmdabely after yeerr end.
d) F ~ w i i h d a ~ - ~ I h r l v l d t a 8 p 8 r ? d s m o r e t R o r t t h e d ~
p l a c e h e ~ f a m i l E e t w l l h ~ a f d i ~ t n l 8 ~ .
... .% .
GAUTAM COMMERCE CLASSES 25 TYBCOWAUDIlTW
a) RarenEs emws and buck- Constant chWng by the auditars help b detect and even prevent errors and frauds.
f) Chedr an mpby88~:- Since the auditors visit regularly throughout the year; it acts a
check on the employees bo keep alc's ready & tpbdab.
g) Early dkldendr, b -- The shareholder wod&be happy as they recekce dMdends soon after the end of finandal year.
a) kpmsive:- Since the auditnr spends more time on the audii work, the 'gudit fees are much mom.
b) MI in I-&- Since the audit work is done at intervals, audit may be
ineffident. The queries during the last visit may remain unsolved.
c) Enam & Frauds in B00168:- If an 8mplOyee changes some figures in the books
already checked by fhe ad& during hi earlier hits, it would be difhcult to dated
such errors & frauds subsequently.
d) D i Accounts Warlc- Frequent visit by account staff disrupts the work of
accwnEs staff. The day to day accounting work may suffer if the accountants have to
attend to audit work every now and then.
e) Undue Reliance on Auditors:- The client and the aamnbnts may became unduly
upon the auditor. Even small routine matters may be referred to the auditors.
Cmtinuous'audit may become a routine affair of a there vouch and post audit.
Q. 7. H a t precautions would be taken by auditor whb test checking?
(ADD IN CST)
Am.:- Test checking is an accepted audit procedure which should be adopted for audit
work after taking the following precautions:-
) Avoid Unsuitable Areas:- Auditors should identify the areas where test check may
not be suitable. i
Eg.:- If there are only 10 export sales in a year, it warM be preferable to have them
all checked.
d) f n b m e l ~ - ~ h e ~ d ~ h e ~ ~ d l ~ c ~ m ~ t n t ) b r v s ~ s d a l ~ ' ~
and finance should &e geudied for its Midency and reliability*
9 m a y m - m m o b head.
g) S y s l m s m d ~ S y s t e r n s n d ~ ( a a ~ ~ f m m ( h e beginntng b the end must be studid h W r 8equmca. tt immhm fadom of
autbmtion, dmmmEtnd mcudngand eviderrdng thesame.
6AUTAM COMMERCE CLASSES 27 lYBCOM/AUDIlTNG
Q. 8. Dbtingukh Between:- (OSM PQRS)
TW
1) Objedives
2) Status
3) Voluntary
Compulsory
4) Appointment
Internal Audit (IA)
IA aims to review the internal control
system of the concern.
Internal auditor is an employee of
the concern
IA is voluntary.
IA auditors is appointed by the
management itself
Statutory Audii (SA)
SA aims to report to
shareholders whether the Nc's
are true and fair. - S. Auditor is an independent
outside expert.
SA is compulsory under law. Eg:-
Under Companies Act.
S. Auditor is appointed by the
shareholder of account.
5) Responsible &
Reports to
6) Period
7) Qualification
8) Removal
9) Scope &
Duties
27
I. Auditor is responsible & reports to
management.
IA is continuous
No Qualification are prescribed by
law for an Internal Auditor.
I. Auditor can be removed by the
management on its own.
Management decide scope of duties
of I. Auditors. It includes Non-
Accounting Matters.
S. Auditor is responsible & report
to shareholders.
SA is normally periodical or
annual.
Qualification are prescribed by
law for a S.
Auditor.
S. Auditors can be removed by
shareholders only if approval by
central government.
Duties of S. Auditor are laid down
by law [Eg:- Co's Act]. Its scope
is h i t ed to accounting matters.
Chapter3
Internal Control.
(2.1. What do you mdemtmi by tntmal Cartmn What are*fhe duties d an auata
regarding internal cxmtd?
&is.:- Mamhg:- AAS-g lssued by the lCAl deals with the study and waluath of internal
~ f n a r m e c t i o n w i m ~ n d t i t d e l i ~ ~ ~ ~ c o n ~ . r , i h e ~ l a n d t h e
organlsation and all the methods and procedure adopted by the rnartqpmnt af a
~oncem~errsuretheoFdetlycrndefticient~ofbbudn~,
81 A ~ S D l l l Y R € G A F U ) 1 N ( 3 i M T E R N A L ~ & ~ ~
AAS - 6 makes the tollwing regarding Hi-
) R = w t - m d - - ~ m f i ~ ~ f w mtarb#shing and operatSng the Mwnd mtrd systm.
A u d i W s D u t p T f i e a u d i t b l s d u t y b b W d y t b s y s t w n ~ ~ t h e s y ~ ~
was adualfy in operation during the year and evaluab the system to asmhin haw
muchhecandyuporrit.
3) Need for Evaluatkm- An 8udW needs b evdwte an Internal conbd system in
order&-
i) establish whether internal conbrol are reliable.
ii) bdeddewhat, when,howandhuwmuchbche&
4) S b p k Evaluatim- In order to evaluate the system d Internal conW the adtor
should have a owing steps:-
U-them:-InmIhtmanlluditarhouldundmthe-d
Intemal mW. He can undmbd the systm with the help of m, discwshwiththemanaggmentarthe~lquedflowchart. Mcranahtmcea few through the system to understand the eMltrd mm.
- * L , W
b) Test A p @ b h : - He should .cheek Hlhether the aonbrols were actually applied in
pradices. He can check same b m d b n s in depth. Thus, he can take up some sale
t m m t k m s and check all doamah right ~IW the sale order to the receipt from tke
ddrlws. At each stage he M chedc whemer the pmdbed oontrds and
~ m u m & were observed or not. He can also. used the techniques of questionnaires b aest the system. -
Evaluate the system:- He should judge on the basis of a h 8 t&is whether he can
rely upon system and if so upto what extent %.
Report on Stores Conbd:- Under the companies act (MA0 CARO, 1 988) the auditor
has to report whether there is an adequate system of internal oantrd comm~urate
Ath the size of the business, on the issue of s b m and allocation of stores and
labour to jobs.
Q. 2. What are the Objectives of Internal Control? (4/8M)
Ans.:- The Objective of Internal Control i.0. Accounting Controls and Operational Controls
are as follows:-
a) Aecwnting Con-:- Accounting Controls aim to ensure that:-
i) All transactions are duly authorised.
ii) All transactions are properly mcded.
iii) All transactions are recorded prampt#y as soon as they occur.
hr) The accuunting policies adopted by the management in respect of stock valuation,
depreciation etc are implemented.
v) The assets of the concern are safeguarded the assets are not used or gold without
proper authdsation and are vehfied regularly,
) E r m & frauds are prevented and detected.
vii) The books of accounts are complete and accurate.
viii) The final a/cts are reliable and ready in time.
b) Operetbnal ur AdmAbnidstdve Contrd:- Operational oontrds aims to ensure that the
management polides in respect d the ~~ and administration of the caxrm
. - . . , , -, . - * I C 1 L. - 8 ..
6AUTM ~ M E R C E CL~SSES. . * . , m.
m ~ . ~ k r t u m e w r s w s e w I h e ~ i s ~ k n ~ o r d e s E y
and--.
Eg:- aurrySr Conbd, MI b W d I- Mdt,
Q u a r r t i $ l b i v e u * .
~nd~invrclelkdttima ~ t h o s e . ~ ~ w ~ c h
afkb the alc's dm9 m.
Q.3. w h a b i ~ ~ W h r t p o L t b ~ b e ~ r r # k ~ q ~ d
im8m8ldredC7 (a) Ans.:- -- Itltemd && l * tvb #-QS:-,wdW
a n d m e l h o d s o b ~ ~ ~ t h a Y v w k Q f a r r ~ ~ ~
-b-Rwl&we&wBn feaWm&s~m o n e e m p l o y e e b ~ a o n s r d a v e r a n j r ~ *
~ ~ - m e ~ ~ ~ b e ~ - h t r o d u d n g a n
~ ~ d k r ( a n s l ~ m v a r l o u r ( n n w d i a r s i n w o ~ m l a r . .
i ) M v b b n d ~ - W o l f c d t h s m I m ~ J l o u l d b e & r i d e d l n t D d M m n t
d e ~ a n d s ~ . T h e ~ i n a ~ t h a l d b e d M d e d a ~ ~
emwyees. Different penars should deal with dlhrmt asp& of a transactions
a) ~ a n d ~ ~ m ~ a n d d o a n m b ( ~ 0 h P l k n vcuchen, wlseletobepsprvedclhou#bewdavn~.
O) ~checlc-Rw,uuorkd#lldbe~inruQ,.waythtdoarn*rbp*psred
b y U W ~ ~ 8 i l ~ ~ b y ~ ~ ~ . - b h e b o d c k r s p a &
the-
k) ~ h D u k k - l ' h e ~ o r Y w ~ m u a ~ c h f i g e d R w n ~ t o t L n e .
~ h * k a ~ h a r e d n ~ h n d h g o s h , c l t o c l o t o ~ c a l r u n r d muds*
.
C
6 A U f M COllAMEKE CtAS5ES 31 TYBCOArWAUbTTTtJG
v) Annual k v a - The employee h u l d be asked to go on leave at bast wtoe every year b enable detediorrs of e m , frauds & misuse.
vi) ASS& to -9 All employees should not have excess to books of Nc's.
1
VQ Property R-:- All transadbm should be p r o p e r l y ~ ~ i.e. the right
mount should be e n M against the right accwnt & on the right date; in the
vouchers, in the Journals and Ledgers.
dB) Pmpt R d n g : - The tramdims should ba r d e d in the books prwnptly.
Mechanical Devices such as a h register, time docks should be used to prevent
emws and frauds. T?M records should afways be up-todate.
br) Amounting P d k k - The bxirmdlons should be recorded on the basis of
accounting system adopted by the management. Eg:- treatment of revenue or capital
expenses, depredation etc.
x) Safeguarding:- The assets like cash, stock etc should be safeguard in kept in safe
custody. These assets should be adequately insured such assets should be verified
regularly.
xi) Canplete and Acwrak- W reads should ahways be complete and accurate.
Q. 4. What is Interm1 Audit3
Am.:- AAS 7 issued by ICAI defines Internal audits as follows:-
'Internal Audit is a separate component of Internal Control established to determine
whether other internal controls are well designed and proparly operated." Thus
a) Internal auditing is normally done by employees of the concern.
b} It is the part the systems of internal contrds.
c) It is a uitical review of other internal controls i.8. of i ) Aocounting cuntro(s and ii)
Operational controls.
d) The review is done by m l auditing techniques such as vouching, verification etc.
3 1 L
b) ~ ~ - ~ C o n b d s a i m b e n s t r r e ~ -
i) dl-mduly-, ii) a l l ~ a m proQerfyreoorded.
ill) alltrcnsac(knsarenoadedpanpQa$wonsstlwyaxu.
iv) t h e a o o w n t l n g ~ ~ b y ~ n r a n a Q s m e n t h r e s p e d d - - ,
clqmdation etc are im@emmM. v) m ~ ~ o f t h e e o n o e m a r e ~ t h e ~ a f e n d m o r s s l d w i t h o u t
properamofmmandare~ragulrr ly .
vi) e m n r & f m d s a m ~ a n d ~ . vii) f t r e ~ O f ~ b s ~ ~ r r n d a a c u r a Q e .
viii) thelnalafc'sammliabbandreadyintkne.
c) ~ o r A d m ~ ~ . - ~ O p a r l s ~ m b o e n s w e t h a t t h e
management palides in respect of the o p e d m and admidstdon of the 00navn
a r e ~ W . T h i s i n t m e n s w M ~ b u s k r e s s L ~ i n m o r d e r l y
artd Mdent manner.
Eg:- awHty Con(rd, Budpa(ery Conbd, In(anel Check, lntemsl Audit, QuanWive
Con- etc*
In ttre Financial Audit the audhx .studies UI& those o p i ' a b d contrlols which
gffeeEs the a / c ' s u f ~ ~ .
33 'TYBCOhrVACIDm
Chapter: 4
Vouching & Verification. 1 WhatiStheobjeetof~erificat)onof~b? ( m w ) Am%:- ,
a) Complete R e - Aud'ttw should ascertain that there rn no unrecorded assets
arnd labillflee. He has to ascertain that w assets is omitted from the books of the
mrtwm.
b) Audn Rqmk- Under CARO ,2003 the auditor has b report on whether management
has c~nductmi any physilcaj veritication of the fixed assets and st- and the major
differmas between such physical inventwy and book record.
c) Emits after Bahnce S M Dater Auditur should ascectain whether any events
after the balance sheet date has affected any item of asset as the year end (i.e. loss by fire).
d) Subject to charge of lien:- Auditor should ascertain whether the assets of the
concern are subject to any charge, lien or encumbrances i.e. given as a security against ban.
e) Existence:- M i should confirm that all the assets of the concern physically exists
on the date of the balance sheet.
f) Pow&on:- Auditor has to verify that all the assets belonging to the concern are in its possession i.e. no assets is mi-ad or misused or used for personal
purposely by the officers of the concern.
) Legal Omemhip:- Auditor should confirm that an asset is legally owned by the
caneem. Thus in case of land etc the tilled deed should be in the name of the
concern.
33
L
6AUTAM C O M E R E CLASSES T Y B C O W A U D ~
Q. 2. D€wgwl betwPren:- (IM)
TYPE
1)Mesnlng '
2) Time
3) Basis
4) ValWbn
.. v- verffJes rn exist-
ofthe && liabilitiesat the end pcsseswbythefirm. of h e bafance sheet.
6) Personnel's VoucMng is done by Junbrs Hke VeMcation is done by auditor
audit. Mmsdfor hisd-t. -
Q.3. Prarcbiealmfr#voudrSngany-• mmw a) Depositedin Bank
b) Internal Contrd System.
c) Consider Relevant Period. d) Confhnation tram Third Party.
0) Albtf0nof-m.
#) Disclosure & Presanm as p r AS.
g) Supportive Evidence [Docum] .
h) ProperValu8uon.
i) Properly Recorded in the Books of Nc.
j) Auttrorlsabion by Board + ProQer Resdution Passed.
k) Recmdgablon.
VOUCHING
~ o u d ~ n ( l r e f e m b ~ ( h e ~ b y ' ~ r l l l c e t i p n ~ a o a n ~ l n t o the auditor d cbmmky
~'evSdemwsuppdtngatran-
Vwchingbdoneforawtrolem
transadlorr.
VoucM~g b bwd only on -examkration.
VOUChin~h,mtpmcrllyancsm
with valuabion.
VEFT/FEAT~
ltrevalue,awnershipWtitle,W
gximslndposseaslonandthe
PregentafanycRaFgeaf- Wrfficatbnisdorreattheendd
~ m y e m m t / l e b e h n c ~ s h e e t
isprepared. -
Verjf ioadtorrisbasedanm
aswellasdocum~evidence.
VertRmdasoetinduderlhe valuation in Its scope.
WUTAM COMMERCE CLASSES 35 WBCOWAUbW
Q. 4. -1 Steps for Verffying any Assets.
I) valuation*
2) -P* 3) We. 4) w- 5) Possession.
0) And the Relevant Points of MucNng which depends upon Types of~ssets.
Chapter- 5
Capital and Revenue.
Q.1) Whgl is c a m &mdbrre and revenue e x p n d i i and what are Auditor Duty in - regard? h.:- Capital -re:- A capital expenditure is om that results in an addifion to an
asset accountant. This expenditure will include any expenditure incurred:.
a) For the acquisition of an assets (purchase of machinery, furniture and land)
b) For the increase in earning capacity of the assets (Enlarging the sitting
accommodation of a cinema hall or adding more rooms and spindles a textile mill.)
c) For acquiring a benefit of the enduring nature (cost of makhg additions to building or
machinery)
d) For reducing the cost of production or acLnnistmtlon or distribution (use of
mechanical devices in place of hbnan being or repairing for increasing the efficiency
of a machine.)
e) €xpenditure, direct w incidental, for putting the asset to use. (Erection charges of
machinery etc.)
f) Expenditure incuned to acquired a right to carry on a business. Eg:- Goodwill,
Patents etc.
For the smooth waridng d the brrskresa i.0. day to day admCnjgbafjYe expenses,
wages, salary, rent,
b) F a maintaining fixed ammb d the business in pmper worldng order pairs,
renewals, w h i i w&bg of the building and -of mhm mpair parts.
C) For the produdion d mfdy d the brrsims 1.e. ifmmce premium.
d) F o r p u r c h a s i n g g o o d s m e a n s b s a l e ~ o r r e ~ p e r i o d i . e . e o s t d r a w
mirterials and stows.
AudW~DutyRe~ardingCapilal&Rm--
a) T h e a u d i t o r M ~ ~ h h n s e l f w i t h t t r e ~ r e r r r c d ~ 0 4 t h e ~
~ m h e c a n c h e c k ~ t h e r d ~ o n o f ~ t r e e i t e d a s r e v 8 n ~ 8 a n d ~ .
b) HeshouldalsoknrrwthedrwmstancesinwMchanltemdexpendWmbe
c l a s d f i 8 d a s R e v ~ ~ 1 8 o r ~ .
c) He should see that principles 04 accounth~ have been fully observed in making heir
decision.
d) If there are some amtmaW, he s W enpulm about them from
& i ~ ~ d h b ~ ~ h g p l u x l $ S E e d d ~ h ~ ~ ~ ~ . I
Chapter: 6
Company Audit
Q. 1. w n the piwbhs of the companies ad, 1QS, cdWm detailed ptwjsjw
regarding the -ntment of auditnR @MI Am.:- Appointma- Section, 224 of the companies act, 1956 contains detailed provisions
regarding the appointment of auditors. 'L
%
a) nM~uditors:- The first auditors of a company are appointed by the directors in the first meeting of
the Board of Directors to be held within 30 days of incorporation of the company.
Such auditors hold their office till the conclusion of the Rrst annual general meeting. If
the directors fals to appoint an auditor the shareholder can appoint 1st auditors in
general meeting.
b) Sum~entAuditors:-
Except in the case of first auditor every company shall at each annual general
meeting appoint an auditor who will hold office from the conclusion of meeting until
the conclusion of the next annual general meeting. Normally, a retiring auditor is
appointed unless:-
i) He is not qualified for re-appointment.
ii) He has given to company a notice in writing of his unwillingness to be re-appointed.
lii) A resolution has been passed at the meeting appointing somebody else instead of
him or providing expressing that he shall not be re-appointed.
iv) Or where the notice has been given of an intended resoiution to appoint some
person in place of a retiring auditor and by reasm of death, incapacity or
disqualification of that perm, the resolution cannot be proceeded with.
c) Appointment by Canbal Government:-
1) Where no auditors are appointed at an annual general meeting within 7 days of such
a meeting the company shalt intimate this information to the centd government
which may appoint a person to fill the vacancy.
t . -
CAUTAM COMMERCE CLASSES TYBCOWAUbIITNG -
I) U ~ ~ 6 1 9 , t h e o e n & 8 1 I ~ m I h e a d v l e g a f t h e c o m p t r o l l e r a n d . . a d i $ r g m d d l n ~ d m y a p p d n t o r n s i r p d n t t h e ~ d a ~ a r e m m e n t - I f t h e a p p d ~ d a n a u d l Q r i a b o b e m a d e b y a ~ r e s o l u t k n , a n d f f W
Wh to pawr such a qadal readm, the mfmlJgovarnmerd m y appoint t h e a ~ o B t h a t ~ .
d) ~ k r ~ h a C a r u r 3 ~ . - I) Whersam~kosl#dbythr , lPJgnetkndm~thevaoancyBhelbe
f i ~ b y t t r e m p a n y i n a ~ ~ .
11) T h e B o a r d o f D i r e d o r s ~ R t l ~ ~ ~ ~ i n ~ ~ o g a n ' ~ .
iii) A n y a u d i t o r ~ O n a ~ v g c a n c y ~ h o l d ~ u n B i l ~ c x m d ~ o S
the next annual general meeting.
Q.2 w h a t a r s m S q u a f t f i e a l k r w & ~ ~ a C g m p g l y ~ (8M)
Am.:- c luawbm- (Sec228)
a) A C h r v t e F e d A a a m k n t - A p m s h w l d b e f j m c W n g ~ B c e O u n f a n t ~ n
(he meaning d chartered aomurtPnt act 1849.
b) AfirmdChartsred--AffmrwheredaHtheparbnetsam-
ammbnt9tacef8Ing h India may be apphtdasan adtor by bfim name. In s u c h a c a s e ~ ~ s o ~ n g m a y a e t h ~ m m e o f t h e f i n n .
c) A arMed audk - The hdder of ce-te under the mtkted auelibm cdficates
@art I3 S m Rules) 1056 can be appointed as an a m of companies.
m-@=-=* (* 22e)
a) A body corQorate cannot be apgointed as sbtubry auditor of a ampany bemuse in
the case of a limited company. The UaMtity of a member is Umited to the extmt of his
strarecapital. HeisnotpemdlyCiableforthe~ofthempany.
-
38
7 .
G A U T A ~ COMMERCE CLASSES 39 WBCQM/AWDW F-
, b) h Empbyee or dimckm of a company cannot be appointed as sbbtay auditor of
Ihe company. If an Employee is appointed 601 &I sudltor of the same ampany then
there will be mlht bethen his duty as auditor and self inWest in the company.
o) A person kho is a parher of or in the employment of an.Empbyee or an officer or
dmck of the company. He is also not quatifled fos the a@poinbnent as statutory
adibr of the company. Otherwise he may not be in a position to W with total
independence because of hls independence wouW be influenced 6y fear of favwr of
fhe Employee w the officer of the director of the company,
d) A person who is a debtor of the m p a n y or who has given any guarantee or
provided any security in respect of a debt of 3d part, for an amount exceeding Rs.
1000f- Is also disqualified for appointment of a statutory auditar of the company
because in both the cases i.e. as debtor or guarantor, he is under obligation or
influence of the management of the company which may prevent him from performing his duties as an auditor of the company.
e) A person Wing any security of that mmpany after a period of one year f m the
data of commencement of the companies act (amendment) 2000.
f) A person who is a director or a member of private company.
g) If a person has already secured number of audits specifically described under sec
224(1) he is prevented fmrn becoming an auditor of the company in excess of a
prescribed limit
h) Due to any of the reasons given above if a person is disqualified from living
appointed as an auditor in a Hdding Company. He is automatically disqualified fmm
living an audir in his subsidiary company and vice versa.
Q. 3. What are the Statutory Rights of the Auditor? (4f8M)
An$.:- To enable the auditor to discharge his duties of repcKtiw on the accounts effdv*
the companies act gives him following rights:- .
39 d
I
Alc's and -.dth Co, w b h r k e p t 4 t h hesd dice d the Co. or ebewete.
I 3
b) ~ t o O b b l n l n l D n n s P o n & ~ . - ~ ( ~ ~ 1 o f t h e . c o m p e n i c l s a d ~ t l t l e e ( h e a u d i b r d a e w t p a n y ' 0 m q u k e f r o n r t h o ~ d t h e c o m p s n y s w h
l n b n n e t b n & ~ m t h s e u d h m a y ~ ~ f o ; ' m p e c ( o r m a n c e
of Ma duties as auditor. '.
c) Right to Visit B m c b s md Aecass to Branch A m m k - Where the branch
accounts are audited by another person, the oo-ordktion cian (I) visit the branch
office if he deems i t ~ b d o s o . ii) havea rSghtofacass&a# times bthe
books & vouchers of the Co. mainWd at the branch office.
d) Ri@ to R w of d A t t d General -1 S & h 231 of h e Act
provides that, =all n o w of and other c x r m m m mbthg to any general
meeting of a company shall be h w d e d to a audih of the company and tha
auditor shall be entitled to attend any gamd meeting and to be heard art any
general meeting which he a t h & on any part of the business which concerns the
auditor.
e) Other R i g k - auditor has the right-
i) b mceive intimation of his appointment (Sec 224)
ii) to make written representation when threatened \Iv3th rarnwal (Sec 225)
Mi) to seek opinion of an exp& if required. [ROC vEs P.M. HEGDW
iv) to receiveremunerationve remumtion
v) to have lien on audit nrorldng papers &. The right of the company a u d h cannot be mbJded in any way. Any Resohdb
limiting the powers of the auditor wid be void.
GAUTAM CO MERE t U S S 5 %
Q. 4. What are the duties of Company Auditor? (-1 i) Make Audit Report b M m k - Sea 227(2)
The Basic duty of the auditor is to make a report to €he members of the company. The auditor has to report.
a) M e r 'Alc's shows true & fair view , T+
b) Whether Alc's gives required information
c) Whether necessary information was obtained by the auditor.
d) Whether paper books of A/cls were kept.
8) Whether Final Alc's agree with books of account
f) Whether A.c comply with prescribed Accounting Standards.
ii) Make Enquiries ul9 227(1A)
Sec 227(1A) of the Co. Act requires the auditor to enquire into the:-
a) Whether Loans & Advances made by the Co. are properly secured and the terms are
prejudicial.
b) Whether the transactions of the oo. which are represented merely by book entries
are prejudicial.
c) Whether investments have been sold at a price less than purchase price.
d) Whether Loans & Advances made by the Co. have been shown as deposits.
e) Whether Personal expenses have been charged to revenue Alc.
iii) Submit CAR0 Report:- The auditor is required to submit a report to the shareholders
on such a matters as may be specified by the 'Central Govt. under Sec 227(4A) of
the Companies Act. The matters to be specified in such a report have been
prescribed by the Co. Law Board. It is the duty of the auditor to report on the
specified matters in the case of
1) A Manufaduring Co. 2) Service Co. 3) Trading Co. 4) finance Co.
iv) Sign Audit Repat- It is the duty of the auditor to sign his report or authenticate any
document required by Law to be sign@ by the auditor.
v) Canply with ceiling on No. of Audit- It is the duty of an auditor to comply with the
ceiling on the no. of m p a n y audits that an auditor can hold. This ceiling was
htrokDdbdbtr lbu(siheaude~nron(l -mdmbavold+bya
I f ew~nmof - -
Q. 5. Wrlfe Shorf Notas:p
1) R e m u m d a - T h e m m ~ o n d a n s u d t o r d a o a n p a n y m a y b e fixed by ttre authority which eppdnts him i.e.
a) f k a r d o f ~ - T h u s ~ b o a r d d $ i r e o 2 b r s ~ f i x . t h e ~ i n c a s e o f
the I) mat audltas or s) (he Auditors appdntd .in any d"vrroanoy caured
olherwise than by regktdkm. \
b) Shadmldm:- SirniMyt if the r t u d b is appointed by the share^^ at its
~ 1 m e e t i n g t h e r e m u ~ S h e d l b e f b 9 e d b y t h e ~ 8 ~ a t ~ g e n e a a l
fn08ting.
c) C a W G w m - If the audbr is appointed by the central gwemmgnt the
remunerabIonw b e f f r r e d b y t h a ~ ~ t ,
d) CAG:- In caw of an au&w appointed uls 618 by the cmpbdler and awWx general (GAG) of India, the Remumtion shall be fixed by the c q m y in general
meeting.
e) FZemuneration induck Expmew RemunmUa it should be notad indudes reimbursement of expenses h c w d in the course of audit.
Q. 2. Independence of an Auditor,
a) Basic Principle:- AAS - 1 lays down Integrity, objectivity and Independence as one of the basic principles governing an audi The Audbr should be straight forward,
honest and sincere in Ms appmch to his pdbmhai work. He must be fair and
must not allow prejudice or bias to ovetride his ot$wtiw.
Meaning+ Independence implies that ihe judgement of a p e m is not subdinate
t o t h e w i s h e s w d i ~ a Q a n o t t r e r ~ w h o ~ h a v e ~ h J m o r b h f s
own seff - interest.
GAUTAM COMMERCE CLASSES 43 TYBCOWAVD.TING
c) bhhmc- Independence is a condition of mind and pers~lal character and shouid not ambed with the superficial and visiaMe standads of Independma, which are
imposed by law. For eg:- The Cmparrles Act, 1956 has certain provisions whlch
guarantee the Independence of the Audi i .
d) Vi84bllM- Independence of the auditor should not only exist but should also appear .
to so exist 80 all reasonable persons. The relationship maintained by the Auditor shall
be woh that no reasonable man can doubt his obJedMty (L inkgrity. There is a
callecbhre aspect of independence that is important to the accounting p~fession as a whole.
e) Irnpmtams- The client, the shareholders, intending investors, hankers and
governm~t agencies rely upon the audited amounts. An audit is useful only if the
users of the mounts have faith in the independence of the auditor.
f) Subjdve- As independence, is the state of mind & character. It is the duty of every
auditw to determine for himself whether or not he a n act independently in the given
case. H8 should not place himself in a position which would affect his independence.
43
6AUTAM COMMERCE CLASSES
Chapter 7
Audit Report & Certificate.
Q. 1 .-: mm 1) m i n g
2) Nature
3)Sltssesarofls
4) S C W
5)TypeofExtent
6) Form
?)Responsibility
Q.2. WhatdoyuumeanbyAudStFieportandwhatareLcmhts. OR
Essentials of Audit Rqmd (MI
The ICAl's latest sbndad (AAS 28) &wed in A@ 2003 on, The Auditors Report on finandal statement' lays dourn the m n g amtents of an Audit Report.
8
44
MRgal ~ t i s * r ~ ~ w h l o h
t h e s u d l o ~ h i p o p h i a n ~ t h a ~ .
lt&iinnatuedver#ioatlon.
It gives !Bqpsh l abOuf the
i r n p m v e $ n e t l t b r t h e ~ o f ~ h - tts scope is nrlder than that of a
Ce-.
A report b atways g h on the
entire acccmb ofthe company.
There is a fwnat pmcdbed by
the companies ad
An auditor cannot be hdd
responsible fat anyMng wrong In
theaccolmts.
a
Adtcdb@
)t is a doamcwrt w ~ c h tries to
~ ~ a i M u n e l i c a l a ~ e c y by oheddng books 4aumnts and
voucbm. It amWns tangible
f a e t s a b w t t h e ~ .
It is In tlakrra of vouching.
It elom not give any-suggesm
Imprwemnt in the system of
-ng* Ib scope Is cwpmtbe Iimkd.
It can be given for a section of
accounts
There Is no standard fbmM for a odfhte. It has to be given
according to the requirements.
An audW can be held responsible
if cerwicate given hlm is wrong.
6AUTMlr COMlllllfRE UASSFS 45 TYBCOM/AUDIlTW
a) W - T h e W R ~ W d b e E s s u e d m ~ p r t n e e d l e t t e t ~ o f t h e a ~ . I t
&Id bear a Wle "Audit Repart:
b) --The Audit Report should be addressed to the sharsholder in case of a
mlpany.' In other cases, its shwld be addressed to the pmpdebrs, parb.lers etc i.e
t a a p e f s ~ w t r o b a ~ t h e a ~ ~ .
c) ldentily Flnandal SMemmk- The Audit Report should d d y identily the Rnandal
statements. Eg:- The WS and P a A k of XYZ CO. LM. for th-8 year en& 31-3-08.
d) Responsibility- The Report should state that the financial statements are basically . the responsibility of the management. It should state that the responsibility of the
audibr is to express an opinion on the financial statements based on his audit.
e) Scope- fhe Report should describe the scope of the audit. It should state that the
audit was planned and perfumed to obtained reasonable assurance whether the
financial statements are free of material misstatement.
f) Oplnion on Accwnk- The Audit Report should dearly give the audin opinion
whether the financial statements give a tnre & fair view of the affairs of the concern
as at the end of the year and of the Pat for the year. The report should state
whether the financial statements comply with applicable laws & Rules and the AS,
prindples etc.
g) Place of SIgnahm- The M r t Report should give the place of signature.
h) Date of Report- The Audit Report should indicate the date when the audit was
completed and the report was signed.
i) SiOlptUrs snd Mmbaship NO.:-The Mi Repolt should be p v d y signed by the
auditor or the partner of the Auditor's firm. It should mention the auditors
membership no. assigned by the ICN.
45
6AUTAM COMMERCE CLASSES - 46 TYBCOM/AUDIRW
c) ~ 8 : - W t r e r e t h e ~ g i v e g a ~ e ~ o r r t t r e A / C ' 8 h e i s s a i d b g l v e
a negative Audit R q m t 'Fhue an Audit Repat Is said to be negadva when the
eud(brk,not;allsffedregerd~lgwnyorramodihev~slmardnpoctsmatin v iewdwaRdm~theMsdondghrea t rue&W* .
d) N o m - W h e r e h e ~ i s ~ t o g h r e a n y o p l n i o n i n a k m o f
necessary informatinn he Is dald b make a "No Opbrkn" Report or 'DWdmer d Opinfon".ThusanAud~taeponmay~that7hebooksofAlc~VOUdl8~~were
destroyed in a fire in the pm&m d tJle cr#rcem and were nd miWe for
examination. In ttte absmx d the C3ooks & Vcmbm we are unable to express any
opinion on the Nc's.
P a W Opinion:- When the m&bt is able b give an opinion on some matters, but
not all the matters. he g h m a perbial opinion. Thus, an audW may be unable to ghre
an o p l n i o n o n ~ ~ M s d t h e ~ ~ a r e t r w &fair, buthemay able bghreanopinionthatthekanchMsaretrua&fatranttre~of~branch
a u d i t ~ . A u d ~ s h o u l d g i v e ~ T w g i v i n O s ~ p a r t i a l ~ O n h i s A u d i t
Repart.
GAUTAIH COMMERCE CLASSES 47
Q.4. Short N w -
1) I-:- (4)
a) Meaning:- Invest@Uon' is an axamination of Alc's for spedfic puqmw.
b) Natm of Asdamtent:- I nvdgabn is a spedfic n c m a a h g assignment.
c) T w - l ~ ~ i o n may be:- I) SEsMory urder C o m p b Act, Income Tax Act ii)
votuntary for valuation of shares, guociwill, etc.
d) Appoinbnerk- Investigabr may be appdnted by outsidw eg:- Income Tax Dept.
ROC, Investors, Lenders, etc.
e) Scqs- Investigation may be limited to a particular item In Alc's ar rrpy go much
beyond Alc's depending upon its purpose.
9 RW*- ~t may involve ~e-audii
g) Compum- It is not compulsory.
ti) Qualifications:, No qualifications are prescribed by law for Investigation.
2) Auditing in Cunputer Envinwunent. (CEF OR M I EK #?,ME W E )
AAS - 29 issued by [CAI in April 2003, mentions the foliowing aspects of Auditing in
Computer Information Systems Environment.
a) Canputer lnfomration System EmSronment (CISE):- ClSE exists when a computer is
involved in the processing or financial infmtion relevant to audit.
b) Expat Help- Auditor should consider whether help fmm any exprt have special
CIS skills is needed in the conduct of the audit
c) Fadas in CIS€ Affecting Audit- The Audltw shouM mnsider the effect of the
following factors on audit in a ClSE
i) Extent of use of ClSE to process accounting information.
li) Sptern of internal control in use.
in) Effect of ClSE on the audit trial.
d) Objeolive and Smpe of Audit- The werall objective and scope of an audit does not
change in a CISE.
. GAUTAM C O M I H M CLASSES ~ O W A t l D ~
9) ~ ~ ~ - ~ s t K # w u r r d e r s t a n d ~ ~ d r i s l c e o t ~ C l S E i . e . t a d r a f
Audlttrid. a -pmhgmd~~f~~~, IK)- OQ- m w l e r m Q o r
e r r o r s & u a w '*
9 . ~ d C I S E : - ~ 8 h Q U ( d h a v ~ ~ ~ o f ~ E b ~ n ,
~ s u ~ , ~ & ~ # e ~ p e r f o r m e d , '. -
g) kdtPlsming:- InFWwdngW~d&,audtwNchio~byCp€,eudta
should understand the hadware €he mfhm and %re human ware hr-.
h) E f i e e t o f C l S E o n ~ - ~ f h e w o t ~ c h a n g e s t h e ~ i n g ,
&age, retrieval and c~mmunieatiotl of fimmhl hbmath as wdl as the
accaunb'ngarrdin~eonb91~dtheOoient.
i ) A u d S t ~ ~ 8 8 : - ~ ~ c x u r s i d e r t h e ~ h d e s ~ i n g a u d # p r p r e e d w e s
toredmauditrislestoalawlevel.~canmeOthermsnual.Aard#Prdum
~ a ~ b i n a b ' O t l o f b o j h t 0 ~ ~ ~ & ~ .
j) E m d l n t e m a l C o n E r d i n C e - m s h o r d d e d u a b e W W h C l S E bystudyingwhetherthes~:-I)8ns~88connect&eompl~in~,proceasing
andoutput, ii)ProvldeaforUmelyd~o11oferors&frauds, Ui)Pddm&ta
securstyagainstpourer~metc.
0 IWmmWm- AudW should document the Audit plan, the nature, timing and
e ~ t o f a u d i t p m o e d w g g p a r f o r m e d a n d ~ ~ d m f m t h e e v i d e n c e
obtained.
-
FAUf 9 CO MER CUSS
J a a 1 Jan. I7
lam. 20 Mar. 25
Ta&Inaceb/d '
To Pllrchases (C.N. fix sxctso W) To Bank To Discount
Q.5 WritesbortMtescmany~r: Ct)--rcpd Qi)lnvestigatioa. @i) Test ckdcbg. cv) Rights of a ampany auditor. (v) Qwliti- of Kmpany auditor, (vi) Auditing in cm@z cnvimnment.
BY ~urbast NC r 4,000 By Bdmcc cld 20,ooo
I OCTOBER 2003
Q. 1 [a) What do you understand by the twm v o d h g ? E h p k b essence of v d & in auditing. (b) How wouM you verify tbe foU-
(i) Plant dad r+hcbeq. (ii)
Q3 (a) Eqlain the tams ' b e d Catmi', ' h i e d A&' an (b)IEnvwillyoar,asanaudit~,muhscrutinyoftbefol~
Intbeba R8ri
Date I P d c u h I Rs. 2003 I Feb. 1 To Balance Wf F&.3 Tosales Feb.4 To Sales Fcb. 16 To SaIes Fcb.25 To Salts
'IntedCbsdr'. og Alc? Wbee cwcl~ions will you draw? ktofKT&Co.
Feb. 4 Feb. I2 Feb. 12 Feb. 18 Feb. 26 Feb. 28
By SaCtsRctran 450 Byw 9,500 By Ilimuc 500 By Bills Reccirnble 5,000 By BjUs Wivsble 4,000 By B&wc dd
'GAUTAM COMMERE CLASSES rYBcOWAUbIITN6
Q,SWribcrbprt~mmy& (a) (b)IWksoEaoamplnyBdiQr ( e ) ~ r a d & q d h d u a d 8 ~ @ & (4 (a v- (t)rllli;ann~=W-ravirrmasat.
-w Q.l(a)DtfjlltA&b& How A u d i D i t r g i s ~ b ~ ~ A m m & @
@ ) ~ I d n t k ~ f r a u d ~ ~ I b s ~ ~ d f ~ ?
~ ~ ( a ) ~ i ~ ~ ~ ~ ~ l l ~ m ~ ~ t ~ r ~ & ~ ~ t o * ~ ( t r ) ~ a r t ~ ~ ~ W h i c b ~ s b o u l d l r s a p i n m i n d d u r i n g t b e ~ ~ f ~
Q .3(a)How~yarrabdmm~,~Saal4s~A/~b~bOObdRlla~&Co.? h: hi' s A/G 0 -
Date m Jan I May25 Sept 6
k 1 2
Dec.15
Q . 3 ( b ) W b s t i s ~ ~ l ? ~ ~ ~ ~ ~ ~ d h ~ .
~ . 4 ( a ) ~ L b n t b e ~ o f t h e ~ A c t , ~ 9 5 6 h r ~ o f u r # d i t o r o f o o m p e n y . ( b ) W b a t i m b ~ o f a ~ r a d i t o r C l
Q*SWritcshat~onauyfoor: (a) hpe&as d&mmts (c) Me&g of e 6 d t m
@) A & ~ W (d) M w a d &jeas of v a l w h
(e) bentw ofgood audit rcpat m u -
OCTOBER 2804
Q. 1 ( 1 ) ~ e t i n e d i t i q . ~ u ~ ~ p b i p ~ o f ~ 10 (b) Exphinthe coacepr ofTm and Fair Vh. 8
~ . 2 ( a ) W r i t e t h e m e a n i q g o f ~ ~ a a d ~ ~ ~ . 8
( b ) ~ W ~ o y = a n ~ ~ ~ ~ ~ 8
Q. 3 (a) Commed ofthe hllowing -he an IPdaar. 8 IIltbsBoms01ai.
Dr. CaehAk 0. me I P~ I ~jr. I l~ame 1 lhrtkUh 1 RB. 1
-
Plrclcultra
ByBilleMvrWs BYwm BY- *- ByEknk By D k m t ByBibllecehW BY^ By Bilk Recdvwe ByBmdc By Bahmcld
Rs.
4.600 1 ,m
9SO 50
2350 150 rn v"' 8.m 11,100 %m
FarikUh
To Bslanco Wd Tosales To Biils RaaiMbk To inhest To Sales ToBUsWvrMs To lnaatst Tosales
k I D.es
6,m 5.m rn SBO
7.000 %m 400
S,m
2002 Jaa 1
JllneS .
Septa
DeLIS b , 3 1
(b) Intanal Audit (dl T m of h K i s (f) Alditing -
6AUTAM COMMERCE CLASSES ' 51 NBCOWAUDITINq
1,m 6,000
450 8 m '
3,000 13,600 42,490 1300 w
2002 Jan. 1 Jm 2 Jm 5 Jaa 6 S a 7 Jan 8 J ~ I L 10
To Balahoe bM ToSaleP ToSsles T o m Tot3xmmmm T O W To Bills Rmhblc
Q . 3 @ ) H e w d y w v a i f y t h e T u r e d ~ . 8
Q.4(8)WbatiSurditrepornWbet~the~0faudilIreport? 8
~ ) W b r t ~ ~ ~ t h t Q d i n o f t m s u d i t o r o f a l W ~ ? 8
QSWrZtc3haat~onaayfonr: 16 (a) c lb jdvq of Val& of Assets. (c) of- d=kh (e)QbjbOtiYeS O f ~ d l E F L B i n g
APRIL 200s
Q. 1 (a) What are tba a d m h g a nnd limitations of Atding? @ ) W h a t i s l a t a i m A u d i t l W h a t a r e i t s ~ d d h h m a g a ?
Q. 2 (a)Warttherigbofrm AuditarlndertheCompPnies Act, 19561 (b) How d yan vouch tllc foIlowing?
(i) IncomeTnxReW (ii) Cllstan Duty Paid
Q . 3 ( a ) ~ i S A u d i t ~ ? T H h a t e r e i t r ~ r a d W m ~ ? 8 (b) Explain the term "Iatemal Control". What me its objaetivcs? 8
Q. 4 (a) Dishpish between Audit of Accaunts of a pattnership finn d a Limited Cornpaay. 8 (b) Sautinisc aod give your cmmmts as en Auditor m the folfowing Ledger Account. 8
Dr. Ms. VyasAc!counL Cr.
4,m Z O a O 28,350 . 3% 200
21,400 Ism
m ! B
Us.
l0,OOa 28,000 14,OOO 20,000
100 21,000 23,000
3.400
Q. 5 Write short notes on any fouc f6 (a) Auditing in Depth (d) Easwtiais of a gwd Audit Report. (b) ABpointment of firsl Auditor of a limited ampany. (e) TIW and fbir view. tTmbw (9 Audit Note Bodc 1
5 I
Particulars
]Byba.lm~ceb(f ByPurche By Purchase By Bills Payable By Iatercst By Plachase By B a h dfd
2002 Jan. 1 Jan. 2 Jaa.4 l a 5 Jan.6 Jan. 7 Jm.9 3m.10
Date 2004 Jm.14 Jan. 22 Jan. 22 b.23 Jan. 23 Fcb. M Fcb. M F&. 26 Mar.30 Mar, 31
By Salaries By Tck#m= ByCItisge By- ByRita . By Wages ByBanL. B y h h c e d d
Partidm
T O W To Aacltase Returns To Bilts Payable ToBaakAlc To DisQwnt Afc To W A l c To Discount Alc To Bills Payable ToVaishyaAlc To Bank
Ils.
10,000 3,000
20,000 4,950
SO 13,W
1 40 20,100 21,000 aaf!
J18,loo
Date 2002 J a a I Jan21 Feb. 1 Feb. 25 Feb. 25 Mar. 1 Mar. 3 1
6AUTMI.-w - 52 t
OCfOBEBm
Q* 1 ( a ) m m = d S a w e d l y O b j d c g d - 10 (b)Whatb~dmmAodlilWhv~h-? 8
Q ~ Q w Y ~ ~ ~ ~ ~ ~ s o ~ c ~ o ~ I ~ ~ ~ P ~ ~ ~ ~ A ~ ~ ~ M ? I
f i ~ ~ b a t r a - a f g a d o f a - 8
a s c a ) ~ - * - ' ~ ~ ~ - - ~ - o f ~ - ~ ~ ~ ~ a o b ~ ~ m o o ~ ~ ~ l a d ~ ~ 8
~ . 4 ( a ) ~ l p t l w ~ I ; r d ~ ~ o ~ a ~ ~ u d l l p l l 8 ( b ) * r a d C o r m a o n t a a t h o ~ ~ A a a r r m t . 8
h t l # ~ d s p C C b P I k d Dr. B f b l b c e W b ~ - Cr.
Date 2004 -1 Oct.10 Od.16 Nov.M Dcc.15
Dmc From. Dm lktk C e n p a r Y i r r d w - k W
8* w u1m 2lpoo N q 2711Wi Mahan 1u11m BaQ
Q . S W r i t e ~ m t c s a r ~ f o r r : (a) ObjeEtivrs d V d i a i a i of hwtg I IMd&iw
Audit - (c) - - (d) Imp tam of luknd (e) of a C a m p y Auditor by $ociat Wutio11.
(0 Tea - Q.1(a)WhtdoyoumtsnbyVoucbiqg?
H o w w o a S d & t k ~ (i) Caab Salts Iii) TnrvcllingExpemS.
( b ) D i d q & h ~ ~ a n d T n ~
Q . 2 ( a ) W h l l t i s t o s t ~ D i s a u g i & a d v a a o l g s l l d ~ 7
(b) What are the objectivar of d d m ?
Q . 3 ( a ) E l q r ~ f h e ~ u L n b a r t a f ~ , W ~ l a d ~ ~ .
@)Whatsrether ightPofaCorqpr~y~
Q . 4 ( a ) D i s a r P s t b e ! ~ ~ R e m o M t o f a C a n p m y r ~ ( l J ) t k n l h k d ~ t r n f h C f O n O W t q p * ~
imILeBadrrsfAPOw
52
Paeicatrs
To-Brsd ToKedsr T o w TaPtadey TolMw
Rs.
S9,oOO 1 7 ~ 68,000 41300 rn
" 2,-
D&e lEOaZ -4 m n -27 *I12 k I f k t 6 h c . 3 1
ParticlJn %
By- BYW ByDhtu4 ByMdm B p B l t B y N i i ByBalrruwW
Rs.
21m ism
200 1-
am 61,MO
OCTOBER 2006 Q. I (1) Explain Basic Principles ol .~uditing,
(b) Would you vouch fie following? (i) Inkfist Received on ~ ~ ~ ~ ~ l ~ ~ ~ ~ ~ , 10 (ii) Call Purcl~ases ofstalionq. 8
Q. Z(8) Whal alp llle v:lrious techniques of ~ ~ d i ~ i ~ ~ ? ill ~ i ~ 1 ~ i I the pr~visions of the i rmpm. . A C ~ . 19%. egading appointment 8
8 Q. JLl ~ s ~ ~ s ~ ~ * i s : b u . f e r e q u u m n u O~-SFIARE C A P ~ T A L . . ~ prsdledule "1 offie co,npulin Act,
(b) Wllat are the Cufltenls of Good Audit Report? 8 8
Q. 4 (a) Define and explain the term "Auditing". 8
(b) Scmtinisu and give your commenls as an Auditor on the following Ledger Accomt. 8
In the Books ofM/s. GEC Inkrnational. Dr. CEG international Account
\ ~ I C 1-7-04 1.8.04 1-8-04 2-9-01 4-9-04 4-9-04 4-9-04 15-9-04
16 ),
write shod notes on any four of the followi1'g: (a) Internal Check @) Secwt Reserves tc) coni\\\gt~\\ LiabiIit~ ,d)
i n conlputer Environment valuation ofclosing Stock
(,, lrnpo*ance of internal Audit.
.&< i. 5 3
m, .., ..
Particulars To Balance blfd 'ro Sales T~ ~ ~ b i l ~~t~ (Rate Diffeference) To Sales To Bills Receivables To fnlcrest 'To Noiing Charges To Salcs
Rs. 10.000 10,000 2,000
15,000 11.000
220 30
20,000 68,250
Date 3 1-7-04 1-8-04 1-8-04
4-9-04 20-9-04 30-9-04 30-9-04
Cr. Partic~~lari
By Bank By Bills Reccivtlhles By Credit Note (Spoiled Goods) By Bills Receivables By Bank By Discount By Bank By Bad Debts
Rs. - 10,000 1 1.000
1,000 1 1,250 14,250
750 17,500 2.500
68,250
y, , Distm%uish be-n verification and V d l n g -
(b) How you vouch the following:
(i) Advertisement EW"ses (ii) Cash Sales
8 . . .
Q. 2 (a) D ~ s c I ~ ~ fow CUW in ~ I C ~ an Audita m - t ~ ~ { ~ ~ ~ ~ $ ~ ~ ~ ~ ~ ~ ~ ~ Bib, da t ing y contingent liabnI1t1~. p ) Explain the disclos~S w u i ~ e m e n s of Sched 8
8
Q. 3 (a) Explain different techniques of any Auditor,
8
p) ~i~~~~ the p d u ~ for ~ m o v a l of a camp 8
Q, 4 (a) what a the qualilatiom and disq"'fiaiw Of a any Auditor? 8
(h) ~ ~ i ~ i ~ ~ and comment of the following LedgerAcCOunts. (D ln the ~ o o k r olBhumik. ?meuters Ltd. Cr. Snlanees A!c
Piuliculars I Rs. Dr.
Particulars 1 us. I Date Date 2006
2006
A , 0 To Bank (March) 10,000 Sept., 30 By Profit & Loss AJc 60,000
May, 8 To Bank (April) l0,ooo
June, 10 To Bank (May) 10,000
July, 10 To Bank(1une) 10,000
Aug., I0 To Bank (July) 10.000
Sept.. 8 To Bank (Aug.) I0,OW 60,000 60.000
(ii) In the Book af MIS. Paresh & Sons. lntcrest an Investment A!c.
Cr. Date Palticulm Rs. Date Paniculan Rs.
2006 - 07 2006 - 07 ~ p r i l , I To Interest Accrued on 1.200 June, 30 By Bank 2,4W March, 31 Investment 6.600 Sepl., 30 By Bank 1,600
To P and I. hlc [ k c , 31 By Bank 2,400 h4arch. 31 By Interest Accrued on 1,400
7,800 Investment - 7,800
Q. 5 Write short notes on any four of the following: (a) Secret Reserves (b) Casual Vacancy in Ule oflice ofthe Auditor. (c) Teeming and Lading (d) Impact of EDP on Auditing. (e) Internal Check.
I OCTOBER 2007 Q. I ( 8 ) Wllat is Internal Conlrol? What are objeclive?
(b) What are the advantages and limitaiions oftest check in auditing?
Q. 2 (8) What are the responsibilities ofan Auditor for errom and frauds? (b) Whal are the qualilies an Auditor should posses?
Q. 3 (a) Discus the discIosu~ requirer~lents relating to "Current L~~~ of ~ d ~ ~ ~ ~ ~ n ~ Companies Acc 1956. per Schedule VI 0 1 lllu (b) m a 1 the duties of a company Auditor?
Q. (a) What are the different types of Audit Repon? ~ ~ ~ l ~ i ~ hem in brief an Auditwho$v will you make a scrutiny ofthe following ~~d~~~ A ~ ~ ~ L ?
I Dr.
Cr. In the Baokof Ms. Ramcsh, ~ a k c i h and R . ~
Ram's CapitrJ .4Jc.
-
GAUT OM R AS S \
Rn
1&,00ml uf4a
3- 6m
21,%000
Q S W r b S h t ~ a r r a a y f w r o f t h e ~ 16
(a) s e n t af a Auditor of a compeny. (b)Auditorsdghtof&cc~toboolcoofaecorad (c) vOUChitl(Z of p d m k y aplm. (d) Objdyes of wisdow Wng. (a) Adting in compds eavirnoment.
- u - - a - o - I - I - - a u WISH YOU ALL VERY BESTIII---I--I-C.-I-r-rrrI-
a ? ' - C
6 2 ' % 0 5 Q !
07 r~ W 'J. 3 2 -
- c o w
mt YE- 5 5
uatc m-06 -3
-3
w m -24 W 3 0 hGrcb31 -31
A
Rs.
1,60,000
2,40,000
l r n ~ 1,m,m 4a,m 1-
, 11,46,00 ~ ~ s m
Particulsrs
T o R g l v a b ~ A l c @ a -1 T o ~ ~ i A l c ( F a r Qoodwill) ToBdAlc ToBanlcAl~ ToGqodsAJc T o m o n - To&Isoccdd T d
me 200s-06
April2 M a d 3 1 M 3 1 M 3 1
t m
P = t b l h
ByBadlrNc BySaMaAlc ByMaaCapiEalA/c ByPdL-Alc