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 o not, and irmpecWe o its size or' r f
Y'

legal f m , when such an examination is canduded with a vkw to express an opinion thereon. 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

i done with the help of vouchers, documents, information and explanation s

received from the authorities.

a. 2.
4

What are the Advantages and ~isadvantages Audit? o f

(a)

Advantabes: 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.

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)

Tr~edF8kFralit&bAlc:-~~mbe~tthat~audi&edProfit

~ ~ ~ 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

(d)

TaWywh~-~AuditrrdW~b~anbetelien.b~l~withthebookso

~ 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

through the entire books-

-.
(8)

Aspark-m~udltsd~nd~ornk,~tofd~~dR!r"lesan
qulremlsiddownbytew.

~ ~ - ~ w d t h e ~ n i w G i .

( 9

As per AdUng and Asmmm Sandmb (

W E - T b a u d M final accounts follow

theAAS~dcnmrby~~.Theauditedaerx#lnsacr,basedon 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-I

any decision o M n g itlwm. . f

(h)

D e W h and PlcnnnYon d bron ad ~muck-hdited accounts a be assumed m

to be reasorlab& free from errors and frat&. The auditor with his exp& knowl*
would take due care t see that enus and frauds are detected so ttrat accounts o

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 ofCash,

Sock, Assets, etc act as a moral check on employees fwclng them to keep the amounts regular up-to-date and free from any maw 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
. &

Im=-w

ii)
(2)

~ ~ 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 babis.

- 4

kjst~ S E -

~ ~ ~ ~ e v i d e n c e t h a t t h e a m o u n t e. 3 1 1 bw -

pakmsiw~utanc~ndusivr,in~.
i

(3)

:-Dueb~~ti.re~ofafirmdonotshowthe h m m t I in)ama8kn abaut the p m m m r ~ d the partner. MCDWS are tmsm~on ~ l 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. An Auditor may not b Indecmdent- He is appointed by the owners and hence e

not andwive h nabre:- (AAS-5):- Thus, a

o n ( i m by a debtor

~tissaldthattwkhcais
.
5

.
1

'
'
I

(4

cannot be expect&
(5)

6 report to the owners their own wrong doings.

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-

o the f

concern. Audit does not comment on whether the management is efficient or not.

I
-

ct,

(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)

TheincknW9direoondoryau*~bb~~~Lo

.. I

?$Yag

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
(1)
I

IWponsiMlities and which shoutd be oomplied with dwng AudA we as f H ; d m -

D
'a

U
7

-My,

ObjedMty and ndndep8ndema:- The auditor a t q l d be honest, straight

fonvarc! and s

i m In h/g ac -h

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 ~ favour. \

1
(2
ConfidmWi:- The Auditor should m e the confidentiality of inbmatbn acquired pd
in tfie course of his work and s h l d noQ dselose any such inbmation t tfie third o

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 t o

draw.reasonable conclusions thereon. On which t base his opinion on the financing o

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

MMg~-CUigEs .
-A'

6
d

, .

Tv0CO~/AUOIITM
A-

a;&j,.&,

2,-

*:

ooarnemrum-mAuata~~.ms(tenwhlohrshrpabntin
provldblp~~theaudit~~in~withthebssicprtrrdplgs. (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
~Aud~musth#ethefoaowing~:-

Chatwed

~~-

A ccwnpany auditor must be a pracb'dng

S l and Cmpebxx- An kdRa must be an @pert kb having p m f e s s d training, ~

uperlence and c p ~ n ein ihe field o accounting, auditing, mercantile law, mabo f
m m n y law, Ino#ne Tax, costing, etc.

L
I

auditor must know how to judge people. He has to judge and weigh the evidence

Honest- An audi& must be hamst Further he must exercise ~"8880n8ble and care skill before he believes that M . h ecmtifh is t . m

Independent:- An Auditor must be Wependmt. H8 shwld be impartial as well as

feadess in the discharge 04 his . d u b . 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 t outsiders. o

Q. 6. What are the d i i typesof frauds? What are the duties o an a u d i r in respect o f f
fad?
Ans:. Types o Fm&f

(8M) "Fraud* means intentional misrepresentation of financial

infomation by management. employees o third parties. It is a deliberate and r

malafide act to cheat or deceive someone.

Freudsmaybeoffo8~~:(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 : - ' ~ o o d s cm Consignment may be shown as sales. sent

(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)

6AUTAM CQMERcf: CUSSES

~->)bYU~Leding.

@)~~~mbqpmpla$db~ouldcashp~ymenbbynaordhO&nnya
-payments.
.

(c)rnmeybe~m.outdma*hhh~d~hmoad,l#~r ,
V)-m~k*Muf.
,
-3 ;

of)

. . ,--

---

@~reccrindb)Ooodrrylssfmkhedind~)~kW.

1)0o~dr~mrybenWppqwhtedbynotne&dng~~.tpla
recd~anly~~rrclorivedandn~laplmpria&0thebal~. 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

errors~kgudsasperAAs-4isafi~.-

(I) T h e W a h o u # p l a n a u d i t i n s u e h a w a y b e n s w e t h a r t t h e a m a r e w

ffwnm~emusandfra&soasBoshawabueandfairview. (2)

So t n as the audits has taken reasonablecere and M w d the bask Plindples ug b s

olAudlting,the~risna(lo~heMm~foranyenororfraudremainirrg
undiscovered.

(3)

d see that it is mdfied. If a Fraud is detected and is material he should report it b the ownets or shareholden.
If any error is d&ected, audibw M
m ~ . r ~~ u rq r r u j ' g

Q. 7. What are the types d Emm?

Ans.:- The -rims types d

which

(8M) wually m & e d ate discussed W . 9

E m OFB)UISSW:- When the bansadon is Mt mwded in the books o f ~ ~ 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 mFwq-Salsson ~h.
effeetnoraereditm Such omidon baaiedWholeCbn~. theother hand On
~onlyaneaspectdthem~kreeordeditisUtobePartlal~. DuetPSuehemmrtheW~mayn0tt;ally.

~rneynotberec~rdedinh~dae~~u~,~iherekthered&f

For eg:- Goods pumhmd f h X have been d e w t Purchase Nc. But X's Alc o has not been credited.

E f W W OF COMMRSJONr T h m enw arke when any bansaction is wrongly recordsd o posted. It may consist of mistakes committed by clerks while recording r entries, pos6'rrg, -*ngs etc. Ma# d the emn, o cbmmissbn will affect the f agreement of bial Warm.
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.

3 1

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 @Ibalance I counter s 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/-. effect The

d I* is nufliffed by the other error as far as agreement of trial balance is enrrr

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 Loss 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 t be very careful for detecting these emom because these errors o

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.:- above statement is famous remark of Justice Hopes in the Kingston Cotton Mills The
Case in 1896

The facts o the case were as Mo sf l w:

he armfogyis between lhe a;dlta.and thewadoh dog. t he awdifwisthe

mdogthatprdeclsthepropertyofthesharehalders.fhewatchdogwill barkif --P

there i a trespass. The auditor wig s

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

cljticismand~afterthe~andRobMrrscaseinU~~stambard

d~expededdanyaudidwhesundergonea~~e.InU~~h

amld&bcktaking.
E m hr England Otis nowoonsideredessadhl that the audieorshould be
physical~~rttthesW~atleagtbsometimeandmiCthe~

11

NBCOWAUblXTS

verihtion procedwe i p w y followed and he would test check a few items. It will s
not now do if he merely accepts a signed certificate of the various o stock. f

Though essentially the auditor Is not a blood hand, he has t be very alert o

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 i d o . .
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-

%f'lj v- - : V i0w-

*
4

(48M)

4 3

a)

What is W o w Dressing:- In window dressing accounts are made in such a way as

t show a much better condition than the actual condition. The profits and the net o worth are ovemtated in the final accounts.

b)

Why Window Dressing is done:- Window dressing may be done to:-

i) Mislead investors or lenders

directors etc.

ii)Hide Losses

iii) Pay more mrnission to

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
il) iii)

Overstatements dl Assets:- (by manipulating fixed assets, depreciation, stacks, _ _ l

wrong dassificatbn o expenses Iincome into capital Irevenue etc). f

Understatement-__Uabil@es:- (by manipulating liabilities) prwisions or wmng - -- - -of --

classifications into actual contingent liabilities etc.)

Overstating Profits. -

iv)
d)

Understating expenses.

Objections against window dn : - git means that

Window Dressing should be avoided because

II

- ---

5)
U)

T h e ~ a c a m t e ~ n o -- ~ a ~ 9 n d f r d r ~ . -t DMdew! mayh-rna u t d ~ -h m a ~ m t l k l e i t s i ~ e n d h v d a fheprovisiansofmqipaniesadat'end~ed~.

7

iii)
iv)

9)

1) 8)
hi

A ~ D u t y W e g a r d s n p ~ ~ : - I t i s ~ s d u t y b Prevent o repodwindow dressing r

V * ~ ~ o b l n c r r m e Cwvalrresof-~ua~ ~ ~ o n s l b r
V ~ C k r l ~ S W C

b)

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 dkthetypedfraudthatiscomm~tbedi ng n ~ 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

are custotnm is and the amount subsqtmtiy received li#n &customer b credibd la the account o the fcmm c sm f ut a according to the amount so mbpprqlated.. This pmaws is adapted 'wilh very
colleded (twn
.-

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 We cash from Mr. B at this moment vs 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 m u o ammlttirg t df h a fraud is also known as 'LADDING" OR 'CARRY - OVER - FRAUDS".
such frauds my det& by the adoptkn o ~ f ~ ways:-n g Set up a good htmal contrd system foe mcmAng cash transactions. 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 -- e ~ b o o k . h
-

i) ii)

iii)

The respo~~@We t should do swpdse cash (checking)-mnting, db .

12
- -.

GAUTAM COMMERCE CLASSES

*

,
? ,

--r==.--.

-T Y B C O M / A m m -

-211

iv)

v)

vf)

All mipts and payments shoufd be done by only Nc payee-cheques. Confirmation must be obtained from the customers a regular intervals. t Copy ofthe receipt issued to the debtoas must be checked giving more attention to
the dates.
=%

gf/
a)

~Resa~vs:-

What is a Sew& Resm8:Reserves are hose ~

W B which S

Seaet Reserve means pert o the p -i secretly reserve for- ~ u r use. S m t f r fb b

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
WINDOWDRESS1NG".

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) understatementof assets and (ii) wxbfstatement of liabilities or (iii) -

understating profits 81(hi) overstating expenses. - ----d)

i) ii) iii)

OVM-

OBJECTIONS AGAINST SECRET RESERVES:Final Nc's do not shaw h e and fair view.
Shareholder's Suffer.

There is undue benefit to management. There may be fraud by management

iv)
v)

There is no check on Assets.

13
L

w 3 u M s E s
vi)
vii)
8)

14

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 ~
It is against canad

1)

AUDITORS DUTY EGAROINGSECRET RE$ERVE&TheaWaofeoonl9aryhasBo~~the~~rrtrueandfElirW. tnthecaseofthe~Sheetd~~edthempanylsaWratthedofb

flmdal year and
'

2)

~n~eceseofthepmlitandkssaaoun~o(~he~wkrclfdlts~~~yeer So It is his duty t report any secret mww. o

AUCW TECHNK;IUES:- A M techniques mfim t methods trsed t a W n audit w o a ~ ~ . 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.

(4)

Thern~e~tedinthesamgare~bet0~:OlCAl

a)ObwMan
ConfimrabJon.

b)lnspectloH

c)Computart#on d)ElnalytW Review e)lquiry &

a)

Otrservab10n;the dient.

refen to wltmshg a prooess or proegdum

perfmed by o # m . For eg:- an Auditar may obgene the counting of inventdm by

b)

Inspecbiorr:- lnspectiorr means examine recut&, doeurnen& w bngiMe

as, s&

Inspection of muds may provide evidence

vouching and vdimtion.

o b9-arts. Inspection indudes f

C)

Computatl#l:- It refers to checking the. afi-l

documents and other ammting recards.

accumy of vouchers,

d)

Analytical R & w - it indudes sudyo vatJowr accarntjng rabloes such as gross f

profirs, ratio, curtent ratio, (input -output ratio), cWurs turnover e k It a h Invohre8 r n p a r i s o n s d f l g m a o f m n t yarwtth thatofthe pmbusyear.

14

AUTAM CO 5SSES
)

B -

NBCOWAU6ITIW

Inquiry and CoMnWm- It refers t obtaining appropriate information from o

laKnrvledge persons inside or outside the entity responses bo inquiry provides

evidence to an auditor regarding some transactions.

{q
a)

TRUANDFDFAIRVIEW:-

Report requlr8ments:- The statutory aUhx of a company has to express the opinion

In his report on the true and falr character of

legislation.

the Balance Sheet and the result shown

by the pmRt & lw amount. The term "True and Fair' is k t defined in any

b)

Legal requirements as to true and fair secticm 211 (5) of the companies act provides

that the accounts o a company, shall be deemed as not disclosing a true and fair f
1) ii)

view, if they do not disclow any matters which are required to be disclosed By virtue o provision o schedule VI t the act (or) f f o
By virtue o a nobificson or an order of the central government modifying the f

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 whetherAs.sekI)

ii) iii)

Assets are neither undemlued nor ovyalued according to the applicable -

accounting principles.

No material asset is omitted.

Charge if any on assets is disclosed.

i)

Liabilities:. Liabilities are not undervalued or overvalued and the same are properly classified.
Material Uabilities are not omitted.
Accounting Aspects-

ii)

I)

Appropriate amunting prindple & acceptable accounting pdiues have been

followed consistently and

IS

GAUThM
ii) A U u n

"5
u a w a l

1 6
, ~ ~ ~ , ~ i t e m s m a l s

1)

m@

~by~Wdthe~aetoranyather~ieaManatura.

c i gm B0twem:* wn l
t

TYPE
1) Meaning

AUDW
breport#theymtrue&falr.

MSTEGA~
account$Forspedfic~.

Auditing is examination d amair& lmmttgatlon is examination d

Audit

2) Nature uf 3) type^

is an annual rewrring Investigabion is a specific nonrecurring assignment.

Audit m be statutwy orvduntwy. Investigation may be statutory y It may be wntinmmt interim or under canpanies act, h a m e tax
final.

or voluntary for valuation pwrpose.

tv nmay be appdnted by outsider. Eg:- IT Dept Registrar

4) Appoinbnent

M iis appointed by ownen or

shamhddws.

of Co., Purchaser of Sham etc.

u

as] =V

o Audit covers the entire scope of lnvegtigation may be limited t a particular R in Alc's or may get m accounts
much beyond Nc's depending

6) Re-Audit

Audit does not involve re-audft.

upon Purpos*. Investigation rnay invdve m td.

I ) C o m ~ # ~ b a y Auditi(conpu~~mmpPnieci lmrestigetlonhMCMPI$OIY. 8) Qualification A d t o r d a company must be No qtralificatlkns am ptescfiW by kmr fbr any n i. practising Chattered AeawntornL

16

TYPE
1) Meaning

ACCOUNT1NG
Aocwrtting

AUDITING
report whether they are true &

is written books of alc Auditing is examination of dc's t o

fair.

and preparing final a/c'a

2) CQbdve

'

Object is b prejwe balance sheet Object is to examine & report if

t shuw financial posh as at tfie Balance Sheet shows true & fair o year end and P/L Nc to &ow the financial position and if P&L N c ProffOeoss for the year only. ~~IOWS e & fair a/c of profit I h
Loss.

3) scow

Accounting is limited t boob o o f

Accwrnting is not limited to books

accounts only.
4) Done by
. f

o f
aooounts only.

Accounting is done by an employee Audit is done by an independent

7

who need not have any special expert who must be a practising chartered accountant.
Auditors is appointed by owners I shareholders & reports to them.

qualiflm. 5) Responsibility Accountant Isappointed by and is

responsible to management

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)
Work

Nature

of Accountant records, posts and Auditor

analysis,

Past

summarises current transactions transactions. Auditing is thus accounts are checked by an auditor. (analytical) (R-rdtng)

GAUTAM C M U=

CLASSES

Chapter 2
Planning, Procedure and Classif~cation Audit. of
Q.1. Wha~rtepetobteksnbycnauetaWmcmmmamatbeneweudn
~~llC4W Ans.: The auditor has t W e o
a)
~ppd~-Audbrherb~nappdnbnent~ltan~odkartlsperdinothe
h

-3
+-

appohtment and pad-

In case of r n

audit, the natum.andthe type

dtheworkbbe~nJedartbythe~~*Heshould~thathisappoi~iskr

order. ~ w e g : - h ~ e d a t i ~ m ~ y h e s h o u l d &oftheresolution o~eln

afthe qlfdnting authority.

b)

SpdbOt$d:-IncasedmtaUqEaudlthehmbaehievecertainoqjects
which should be s p d f i d Bo avoid m un i -g s 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
Important o f k m : -A lst of mpomibfe ofRcers bogether with the nature & type of
their responsibility shouW be obtained specimen signature of mpondble officers are

d)

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 p v b u s aidkc- If the audbr is appointed by in the place

dpreviousaudi~,hekbWnmNo~Letter"frPmtheprevious~ as a matter o prof85sW code o conduct of the Institub of C M w e d Accountants f f

of India.

18
;

6AUTAM COMMERCE CLASSES

*fj

1 9

TYBCOM/AUbITTW

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

kanchand WoQAw,any so that he can try t ewer the audit ofthe entire if o

ogra.
g)
hrporBent 'hcmmts- Certified copy of the h n r n n t documents should be

obtained t 6nd out from there important points M n g dbd on acccmb. For eg:-in o

cam of limited oompany, copy o n f rm

and atides o association, f

~~, mnbact with (he vendors, pmnotem, undamilers et6. and in the csse o audit m r s h i p fhm, ~ f ~deed should be obtained. i p
h)
Nature o B u s b s e He shadd also ascertain the nature and type of business f carried on by the dient so that he can mny out audit in sysbmatic manner.
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. Ifh e system of internal control & Interns! check is not adequate he has t o
include detailed checking in audit programming.

i)

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.

k)

Accounting System:-

He should further examine the accounting system followed by

the dient and see that the accounting system I adequate and praper according b s
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 h dient, so as to enable him to i s

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.
AudSt R m d m - The main part of the audit plPgmmme a m b h det8iied
instrucbionsregardi~howtheaudltisdobe~sdrigktfm~~rststepof
duation of internal amtds, rwtirret

c)

ctreckin& vouching,

vdfWhm, ledger

scrutiny, erralflcal nnrlew, p e m m to the lsld step of s u ~ O o the audn rs W f n

Time Table- The audit po r r mgive ths schedule o audit wok. It r r gan f

nfhe ~

UmetaMefor~job.lt~fh8tSme~bbeW8nandtheacbraltkne

taken Tw carrying out each audit prrxsedwes

above.

gr.AOfnM COM&BlC CLASSFS

2
AUditWarldng~-

21

TYBCOUVA~~

(4) AAS 3 published by the Institute of Chartered Accountants o India (ICAI) contains f

detailed discussion on wMdng papers.

a) Meenh~:-'Audit working papers mean a record o f
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)
1)

Requisite~ts:The exact form and contents of the working papers depend upon the facts of each -

cas0.
2)

A c t 4

Working papers should be properly designed and organised,

3)
4)

5)

Standard foams like specimen letters, query sheets etc are more useful. WarWng papers should be complete and detailed. -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)

7)

Statements obtained from the dient such as schedules and grouping should be
properly verified before filling them in the audit file.

In the case of recurring audits working papers should be divided betw#n a

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)
1)

Advantages: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.
Working papers help the a u d h b supwise and review the audit work.

3)
-

2I

{SSS
4)

22
Workkrg(rapers~evideneetnoourEsdLaw~~audit~~in~oF

aauitfornegligembfieldagaiMtheaudiDor.

gy

T & W : -

(W

-:-AM - 5 h u e d bythe I ~ o f ~ ~ o f l n(ICAI) l a d ~ 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 ~:~seleclbnrnaybetmedonth;,kdtrnpsclau~~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 wduminous. tt is not posstble ,fw an rsudWoc. t go through eaeh and gvery o tmmctiuns. Heme test checks is mummy, The underlying Inof 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 ~ 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

1)

DmWbaCk~ 4 4 Arblbay W m : - The i t a m b be d#dred and the exled a(

n i rd*rr+
I

selected on an aMwy basis. The seldkm depends upon the pers#rat j m t w n

af the audh.
2)

lgmms

sta(istical

T&usmkpmTest 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

~,dossndindicatehow~e25W~aobbeeeleded.Sudrhrbudion dealedthhowmenymsn,tok,cukdsd.ndnothowthegarebbe-4)

smph&,R h k - $ampliq risk mmm thr palsdbiflty that mndusio~ls- -on based
sampb(stcheclQng)maybe~tmn~an1009(~. - -

22

GAUTA# COMMERCE GLASSES

?,a

23

WBCOWAVbITIM
(4M)

Aud#in

64

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 do so in to terms of prescribed procadure.While auditing in depth, the aud&eviews all accounting aspeds of the transaction from the origin t the end. It enables him to o have an o m view and M u a t e the procedures through selected b a n d o m . v I 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?

A : AAS - 3 published by the Institute of Chartered Accountant of India (ICAI) contains m detailed discussion on the Audit Notebook.

(*MI

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) b)
c)

Letter of Appointment for the current year and its acceptance.

Letter of confirmatian from parties, banks and lenders etc.
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 . has fobwing dmhgas:it
a) b)

~ f = Y

thorough Audit- The auditor hes mwe time as Ms disposal b bo a tt#uough

~dalltransaelkns,thisreducethe~otnJssing~~~.
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 and Investom f6r Wng deckiom regadng loans rand-I .
mlckpreprstbnd(HA(c'8:-8RcemmuWn,audltir,dmedmythe

c)

final ale's can be pmpad knmdabely after yeerr end.

d)

F~wiihda~-~Ihrlvldta8p8r?dsmoretRortthed~
placehe~familEetwllh~afdi~tnl8~.

...

.%

GAUTAM COMMERCE CLASSES

a)

25

TYBCOWAUDIlTW

RarenEs emws and buck- Constant chWng by the auditars help b detect and even prevent errors and frauds.

f)
g)

Chedr an mpby88~:Since the auditors visit regularly throughout the year; it acts a check on the employees bo keep alc's ready & tpbdab. The shareholder wod&be happy as they recekce dMdends soon after the end o finandal year. f

Early dkldendr, b

a)
b)

kpmsive:- Since the auditnr spends more time on the audii work, the 'gudit fees are

much mom.

MIin 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 a d & during h i earlier hits, it would be df c l t dated ih ut o
such errors & frauds subsequently.

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 precautionswould be taken by auditor w h b test checking?

(ADD IN CST) A .- Test checking is an accepted audit procedure which should be adopted for audit m:
work after taking the following precautions:)

Avoid Unsuitable Areas:- Auditors should identify the areas where test check may not be suitable.
all checked.
i

Eg.:- If there are only 10 export sales in a year, it warM be preferable to have them

d)

f n b m e l ~ - ~ h e ~ d ~ h e ~ ~ d l ~ c ~ m ~ t n t ) b r v

and finance should &egeudied for its Midency and reliability*

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 beginntng b the end must be studid h W r 8equmca. tt immhm fadom o f autbmtion, dmmmEtnd mcudngand eviderrdng thesame.

6AUTAM COMMERCE CLASSES

Q. 8. Dbtingukh Between:-

27

lYBCOM/AUDIlTNG

( S PQRS) OM
Statutory Audii (SA)

TW 1) Objedives

Internal Audit (IA) system of the concern.

IA aims to review the internal control SA

aims

to

report

to

shareholders whether the Nc's

are true and fair.

2) Status
3) Voluntary

Internal auditor is an employee of S. Auditor is an independent

the concern

outside expert.
SA is compulsory under law. Eg:-

IA is voluntary.

Compulsory
4) Appointment

Under Companies Act. IA auditors is appointed by the S. Auditor is appointed by the management itself shareholder of account.
S. Auditor is responsible & report

5) Responsible & I.Auditor is responsible & reports to

Reports to
6) Period

management. IA is continuous

to shareholders. SA is normally periodical or annual.

7) Qualification

No Qualification are prescribed by Qualification are prescribed by

law for an Internal Auditor.
law for a S.

Auditor.
8) Removal

I. Auditor can be removed by the S. Auditors can be removed by management on its own. shareholders only if approval by central government.

9)

Scope

& Management decide scope of duties Duties of S. Auditor are laid down
of I. Auditors. It includes Non- by law [Eg:- Co's Act]. Its scope

Duties

Accounting Matters.

is h i t e d to accounting matters.

27

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
organlsation and all the methods and procedure adopted by the rnartqpmnt af a

~fnarmectionwim~ndtitdeli~~~~con~.r,ihe~landth
~oncem~errsuretheoFdetlycrndefticient~ofbbudn~,

8 1
)

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#shingand operatSng the Mwnd mr systm. td

AudiWsDutpTfieauditblsdutybbWdytbsystwn~~thesy~~

was adualfy in operation during the year and evaluab the system t asmhin haw o
muchhecandyuporrit.

3)
i)
ii) 4)

Need for Evaluatkm- An 8udW needs b evdwte an Internal conbd system in

order&establish whether internal conbrol

are reliable.

bdeddewhat, when,howandhuwmuchbche&
S b p k Evaluatim- In order to evaluate the system d Internal c n the adtor oW

should have a owing steps:U-them:-InmIhtmanlluditarhouldundmthe-d

Intemal m W . He can undmbd the systm with the help of m , discwshwiththemanaggmentarthe~lquedflowchart. Mcranahtmcea through the system t understandthe eMltrd m m . o few

b)

-* Test A p @ b h : - He should .cheekHlhether the aonbrols were actually applied in

L , W

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 sale order t the receipt from tke the o

ddrlws. At each stage he M chedc whemer the p m d b e d 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,1988) 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 t jobs. o

Q. 2. What are the Objectives of Internal Control?

are as follows:-

(4/8M)

Ans.:- The Objective of Internal Control i.0. Accounting Controls and Operational Controls
a)
Aecwnting Con-:-

Accounting Controls aim to ensure that:-

i)
ii) iii)

All transactions are duly authorised.

All transactions are properly mcded.

All transactions are recorded prampt#yas soon as they occur.

The accuunting policies adopted by the management in respect of stock valuation, depreciation etc are implemented.

hr)
v)
) vii)

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.

The books of accounts are complete and accurate. The final a/cts are reliable and ready in time.

viii)

b)

Operetbnal ur AdmAbnidstdve Contrd:- Operational oontrds aims to ensure that the management polides in respect d the and administration of the caxrm

~~

6AUTM ~ M E R C E CL~SSES.

I C 1

L .

- 8

..

.. ,
.
* .
,

-,

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

a n d .
Eg:- aurrySr Conbd,
Quarrti$lbiveu*.

MbWd I
~ t h o s

Mdt,

Q.3. w h a b i ~ ~ W h r t p o L t b ~ b e ~ r r # k ~ q

im8m8ldredC7
Ans.:-

--

~nd~invrclelkdttima a f k b the alc's d 9 m m .

(a)
feaWm&s~m

#-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 oneemployeeb~aonsrdaveranjr~*

Itltemd && l * t v b

~ ~ - m e ~ ~ ~ b e ~ - h t r o d u d ~~dkr(ansl~mvarlour(nnwdiarsinwo~mlar..
i)

Mvbbnd~-WolfcdthsmIm~Jlouldbe&ridedlntDdMmnt
emwyees. Different penars should deal with dlhrmt asp& of a transactions

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 ~

a)

~ a n d ~ ~ m ~ a n d d o a n m b ( ~ 0 h P l k
vcuchen, w l s e l e t o b e p s p r v e d c l h o u # b e w d a v n ~ .

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

te hk)

~hDukk-l'he~orYw~mua~chfigedRwn~totLne.

~h*ka~haredn~hndhgosh,cltocloto~calrunrd
muds*

6 A U f M COllAMEKE CtAS5ES v)

31

TYBCOArWAUbTTTtJG

Annual k v a - The employee h u l d be asked t go on leave at bast wtoe every o year b enable detediorrs of e m , frauds & misuse. ASS& to Property
All employees should not have excess t books o Nc's. o f
1

vi)
VQ

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.
d) B

P m p t 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?Mrecords should afways be up-todate.

br) Amounting P d k k - The bxirmdlons should be recorded
expenses, depredation etc.

on the basis of

accounting system adopted by the management. Eg:- treatment of revenue or capital

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 Interm1Audit3
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) b} c)
d)

Internal auditing is normally done by employees of the concern.

It is the part the systems o internal contrds. f
It is a uitical review of other internal controls i.8. o i) Aocounting cuntro(s and ii) f

Operational controls.

The review is done by m

l auditing techniques such as vouching, verification etc.

31
L

b)

~ ~ - ~ C o n b d s a i m b e n s t r r e ~ -

i)
ii)
ill)

dl-mduly-, a l l ~

a proQerfyreoorded. m

alltrcnsac(knsarenoadedpanpQa$wonsstlwyaxu.
theaoowntlng~~by~nranaQsmenthrespedd--,

iv) v)
vi)
vii) viii)

clqmdation etc are im@emmM.

m~~oftheeonoemare~the~afendmorssldwithout

properamofmmandare~ragulrrly.

e m n r & f m d s a m ~ a n d ~ .
f t r e ~ O f ~ b s ~ ~ r r n d a a c u r a Q e .

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

management palides in respect of the o p e d m and admidstdon o the 00navn f

are~W.ThisintmenswM~buskressL~inmorderly

artd Mdent manner. Eg:- awHty Con(rd,Budpa(ery Conbd, In(anel Check, lntemsl Audit, QuanWive Con- etc* I ttre Financial Audit the audhx .studies UI& those o p i ' a b d contrlols which n gffeeEs the a / c ' s u f ~ ~ .

33

'TYBCOhrVACIDm

Chapter: 4
1

Vouching & Verification. 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 t ascertain that w assets is omitted from the books of the o
mrtwm.
b)

Audn Rqmk- Under CARO ,2003the auditor has b report on whether management has c~nductmi physilcaj veritication of the fixed assets and sany t
differmas between such physical inventwy and book record.

and the major

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 o lien:- Auditor should ascertain whether the assets o the f f

concern are subject to any charge, lien or encumbrances i.e. given as a security
against ban.

e)

Existence:- M ishould 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
purposely by the officers o the concern. f

or misused o used for personal r

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

6AUTAM C O M E R E CLASSES Q. 2. Dwgwl betwPren:TYPE

VOUCHING
'

TYBCOWAUD~

(IM)
VEFT/FEAT~

1)Mesnlng

~oud~n(lrefemb~(he~by'~rlllcetipn~aoan~lnt the auditor d cbmmky ltrevalue,awnershipWtitle,W

~'evSdemwsuppdtngatrangximslndposseaslonandthe

2) Time

PregentafanycRaFgeafVwchingbdoneforawtrolem Wrfficatbnisdorreattheendd

transadlorr.
3) Basis
4) ValWbn

~myemmt/lebehnc~sheet isprepared. bwd

VoucM~g b

only

on

Verjfioadtorrisbasedanm

-examkration.

aswellasdocum~evidence.
valuation in Its scope.

VOUChin~h,mtpmcrllyancsm VertRmdasoetinduderlhe

..

with valuabion.

-v
ofthe && pcsseswbythefirm.

verffJes

rn exist-

liabilitiesat the end

of h e bafance sheet.
Mmsdfor hisd-t.

6) Personnel's

VoucMng is done by Junbrs Hke VeMcation is done by auditor

audit.

Q.3.

Prarcbiealmfr#voudrSngany-
Depositedin Bank

mmw

a)
b)
c)

Internal Contrd System.

Consider Relevant Period.

Confhnationtram Third Party.

d)
0)

Albtf0nof-m. Disclosure & P r e s a n m as p r AS.

Supportive Evidence [ D o c u m ] .

#) g) h)

ProperValu8uon.

i)
j)

Properly Recorded in the Books o Nc. f Auttrorlsabion by Board ProQer Resdution Passed.

k)

Recmdgablon.

WUTAM COMMERCE CLASSES

35

WBCOWAUbW

Q. 4. -1
I) 2) 3)
4)

Steps for Verffying any Assets.

valuation*

P * We.

w Possession.

5)

0)

And the Relevant Points of MucNngwhich depends upon Types of~ssets.

Chapter- 5

Q.1)

regard? h.:Capital -re:-

Capital and Revenue.

a m &mdbrre and revenue e x p n d i i and what are Auditor Duty in
A capital expenditure is om that results in an addifion to an

Whgl is c

asset accountant. This expenditure will include any expenditure incurred:. a) b) c) d)

For the acquisition of an assets (purchase of machinery, furniture and land)

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.)

For acquiring a benefit of the enduring nature (cost of makhg additions to building or machinery) For reducing the cost of production or acLnnistmtlon or distribution (use of mechanical devices in place of hbnan being o repairing for increasing the efficiency r
of a machine.)

e)
f)

xpenditure, direct w incidental, for putting the asset to use. (Erection charges of machinery etc.) 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

wages, salary, rent,

admCnjgbafjYe expenses,

b)
C)

F a maintaining fixed ammb d the business in pmper worldng order pairs, renewals, w h i i w&bg of the building and -f o

mhm mpair parts. For the produdion d mfdyd the brrsims 1.e. ifmmce premium.

d)

Forpurchasinggoodsmeansbsale~orre~periodi.e.eostdraw

mirterials and stows.

AudW~DutyRe~ardingCapilal&Rm--

a)
b)

TheauditorM~~hhnselfwithttre~rerrrcd~04the~
~mhecancheck~therd~onof~treeitedasrev8n~8and~.

HeshouldalsoknrrwthedrwmstancesinwMchanltemdexpendWmbe
clasdfi8dasRev~~18or~.
He should see that principles 04 accounth~ have been fully observed in making heir

c)

decision.

d)
I

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 ~ ~ ~ ~ .

Chapter: 6

Company Audit
Q. 1. w

n the p i w b h s o the companies ad, 1QS, cdWm detailed ptwjsjw f

regarding the -ntment o auditnR f @MI Am.:- Appointma- Section, 224 o the companies act, 1956 contains detailed provisions f

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 qualifiedfor re-appointment.

He has given to company a notice in writing of his unwillingness to be re-appointed.
A resolution has been passed at the meeting appointing somebody else instead of

ii) lii)
iv)

him or providing expressing that he shall not be re-appointed.

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)
1)

Appointment by Canbal Government: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.

CAUTAM COMMERCE CLASSES

I)

adi$rgmddln~dmyappdntornsirpdntthe~da~aremment
Iftheappd~danaudlQriabobemadebya~resolutkn,andffW

.-

TYBCOWAUbIITNG

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

Wh t pawr such a qadal r a mthe mfmlJgovarnmerdm y appoint o ed , t h e a ~ o B t h a t ~ .

d)
I)
11)
iii)

~ k r ~ h a C a r u r 3 ~ . Whersam~kosl#dbythr,lPJgnetkndm~thevaoancyBhelbe f i ~ b y t t r e m p a n y i n a ~ ~ . 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 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 l u a w b m - (Sec228)
a)

AChrvteFedAaamknt-ApmshwldbefjmcWng~BceOunfant~n
(he meaning d chartered aomurtPnt

act 1849.

b)

AfirmdChartsred--AffmrwheredaHtheparbnetsam-

ammbnt9tacef8Ingh India may be apphtdasan adtor by bfim name. In

suchacase~~so~ngmayaeth~mmeofthefinn.

c)

A arMed a u d k - 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.

a)

22e) 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

m-@=-=* (*

strarecapital. HeisnotpemdlyCiableforthe~ofthempany.

38

GAUTA~ COMMERCE CLASSES

,

39

WBCQM/AWDW

F b) h Empbyee or dimckm o a company cannot be appointed as sbbtay auditor of f Ihe company. If an Employee is appointed 601 &I sudltor of the same ampany then

there will be mh bethen his duty as auditor and s l inWest in the company. l t ef
o) A person kho is a parher of or in the employment of an.Empbyee or an officer or dmck o the company. He is also not quatifled fos the a@poinbnentas statutory f
adibr o the company. Otherwise he may not be in a position to W with t t l f oa

independence because of hls independence wouW be influenced 6y fear of favwr of

fhe Employee w the officerf the director of the company, o

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 W i n g 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 i excess of a n
prescribed limit

h)

Due to any o the reasons given above if a person i disqualified from living f s

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 S a u o y Rights of the Auditor? tttr

(4f8M)

An$.:- To enable the auditor to discharge his duties o r p Ki on the accounts effdv* f e c tw the companies act gives him following rights:- .
I

39
d

Alc's and -.dth

ebewete.
I

Co, w b h r k e p t 4 t h hesd dice d the Co. or

3

b)

~toObblnlnlDnnsPon&~.-~(~~1ofthe.compeniclsad~tltlee
(heaudibrdaewtpany'0mqukefronrtho~dthecompsnyswh
lnbnnetbn&~mthseudhmay~~fo;'mpec(ormance

of Ma duties as auditor.
c)

' .

Right to Visit B m c b s m Aecass t Branch A m m k - Where the branch d o

accounts are audited by another person, the oo-ordktion cian (I) visit the branch
office if he deems i t ~ b d o s oii).havea rSghtofacass&a# times bthe

books & vouchers o the Co.m a i n W d at the branch office. f

d)

of d A t t d General 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
w
1

Ri@ to R

auditor. e)
i) ii) M ) i iv)

v)

Other R i g k - auditor has the rightb mceive intimation of his appointment (Sec 224) to make written representationwhen threatened \Iv3th rarnwal (Sec 225) to seek opinion of an exp& if required.[ROC v s P.M. HEGDW E t rciemnritneremumtion o eer ue v ve a o to have lien on audit nrorldng papers &. The right of the company a u d h cannot be m J e in any way. Any Resohdb b dd limiting the powers of the auditor wid be void.

GAUTAM CO MERE t U S S 5 %

Q. 4. What are the duties o Company Auditor? f

i)
Make Audit Reportb M m k - Sea 227(2)

1 (

The Basic duty of the auditor is to make a report to hemembers of the company.

The auditor has t report. o

a)

M e r 'Alc's shows true & fair view

,T +

b)
c)

Whether Alc's gives required information

Whether necessary informationwas obtained by the auditor.
Whether paper books of A/cls were kept.
Whether Final Alc's agree with books of account Whether A.c comply with prescribed Accounting Standards.

d)
8)

f)

ii)
a)
b)

Make Enquiries ul9 227(1A)

Sec 227(1A) o the Co.Act requires the auditor to enquire into the:f

Whether Loans & Advances made by the Co. are properly secured and the terms are prejudicial. Whether the transactions o the oo. which are represented merely by book entries f are prejudicial.
Whether investments have been sold at a price less than purchase price. Whether Loans & Advances made by the Co. have been shown as deposits.
Whether Personal expenses have been charged to revenue Alc.
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

c) d) e) iii)

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

htrokDdbdbtrlbu(siheaude~nron(l-mdmbavold+bya
I

few~nmof-Q. 5. Wrlfe Shorf Notas:p

1)

Remumda-Themm~ondansudtordaoanpanymaybe fixed by ttre authority which eppdnts him i.e.

fkardof~-Thus~boardd$ireo2brs~fix.the~incaseof

a)

the I) mat audltas o s) (he Auditors appdntd .in any d"vrro r caured

olherwise than by regktdkm.

b)

Shadmldm:- SirniMyt if the r t u d b is appointed by the share^^ at its

~1meetingtheremu~Shedlbefb9edbythe~8~at~geneaal
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 o an au&w appointed uls 618 by the cmpbdler and awWx f

general (GAG) o India, the Remumtion shall be fixed by the c q m y in general f

meeting.
e)

FZemuneration induck Expmew RemunmUa it should

be notad indudes

reimbursement o expenses h c w d in the course of audit. f

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 o a p e m is not subdinate f

tothewisheswdi~aQanottrer~who~have~hJmorbhfs

own seff - interest.

GAUTAM COMMERCE CLASSES

c)

43

TYBCOWAVD.TING

bhhmc- Independence is a condition of mind and pers~lal character and shouid not a m b e d 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 A u d i 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 a as whole.

e)

Irnpmtams- The client, the shareholders, intending investors, hankers and

governm~t agencies rely upon the audited amounts. An audit i useful only if the s

users o the mounts have faith in the independenceof the auditor. f

f)

Subjdve- As independence, is the state of mind & character. It i the duty of every s
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

:. -

m m
1) m i n g

Adtcdb@ MRgal tries to ~ t i s * r ~ ~ w h )t is a hdoamcwrt w ~ c h l o

t h e s u d l o ~ h i p o p h i a n~ ~ a i M u n e l i c a l a ~ by oheddng books 4aumnts and ~ t h a ~ .

ecy

2) Nature
3)Sltssesarofls

lt&iinnatuedver#ioatlon.

Ce.

voucbm. It amWns tangible faetsabwtthe~.

It is In tlakrra of vouching.

It gives ! B q p s h l abOuf the It elom not give any-suggesm

irnpmve$netltbrthe~of~h

Imprwemnt in the system o f

4) S C W

-ng* tts scope is nrlder than that of a Ib scope Is c w p m t b e Iimkd.

h on the It can be given for a section of

5)TypeofExtent A report b atways g

entire acccmb ofthe company.

6) Form

accounts

There is a fwnat pmcdbed by There Is no standard fbmM for a o d f h t e . It has to be given the companies ad according t the requirements. o An

?)Responsibility

hdd An audW can be held responsible responsible fat anyMng wrong In if cerwicate given hlm is wrong.
auditor cannot be

theaccolmts.

Q.2. WhatdoyuumeanbyAudStFieportandwhatareLcmhts.

OR

Essentials of Audit Rqmd

(MI

The ICAl's latest sbndad (AAS28) &wedinA@ 2003 on,The Auditors Report on amtents o an Audit Report. f finandal statement' lays dourn the m n g
8

44

6AUTMlr COMlllllfRE UASSFS

a)

45

TYBCOM/AUDIlTW

W-TheWR~WdbeEssuedm~prtneedlettet~ofthea~.It
&Id bear a Wle "Audit Repart:

b)

--The

Audit Report should be addressed t the sharsholder in case of a o 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-8year 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 o the f
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.
Place of SIgnahm- The M r t Report should give the place of signature.
Date o Report- The Audit Report should indicate the date when the audit was f

g)

h)

completed and the report was signed.

i)

SiOlptUrs snd Mmbaship NO.:-The M Repolt should be p v d y signed by the i

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:-Wtrerethe~givega~e~orrttreA/C'8heissaidbglve
a negative Audit R q m t 'Fhue an Audit Repat Is said t be negadva when the o

eud(brk,not;allsffedregerd~lgwnyorramodihev~slmardnpoctsmatin viewdwaRdm~theMsdondghreatrue&W*.
d)
Nom-Wherehe~is~toghreanyoplnioninakmof

necessary informatinn he Is dald b make a "No Opbrkn" Report or 'DWdmer d

Opinfon".ThusanAud~taeponmay~that7hebooksofAlc~VOUdl8~~were

and were nd miWe for examination. In ttte absmx d the C3ooks & Vcmbm we are unable t express any o
destroyed in a fire in the pm&m d tJle cr#rcem
opinion on the Nc's.

P a W Opinion:- When the m&btis 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 t ghre o

an o p l n i o n o n ~ ~ M s d t h e ~ ~ a r &fair, r w e t buthemay able

bghreanopinionthatthekanchMsaretrua&fatranttre~of~branch

audit~.Aud~shouldgive~TwgivinOs~partial~OnhisAudit
Repart.

GAUTAIH COMMERCE CLASSES

Q.4. Short N w 1)

47

-:-I
Meaning:- Invest@Uon' is an axamination o Alc's for spedfic puqmw. f

( ) 4

a) b) c)

d)
e)

Natm o Asdamtent:- I n v d g a b n is a spedfic n c m a a h g assignment. f T w - l ~ ~ i may be:- I) SEsMory urder C o m p b Act, Income Tax Act ii) o n votuntary for valuation of shares, guociwill, etc. Appoinbnerk- Investigabr may be appdnted by outsidw eg:- Income Tax Dept.
ROC, Investors, Lenders, etc. S c q s - Investigation may be limited to a particular item In Alc's ar rrpy go much

beyond Alc's depending upon its purpose.

9
g)

RW*-

~tmay involve ~e-audii

Compum- It is not compulsory.

Qualifications:, No qualifications are prescribed by law for Investigation.

ti)

2)

Auditing in Cunputer Envinwunent. (CEF OR M I EK #?,ME E ) W

AAS 29 issued by [CAI in April 2003, mentions the foliowing aspects o Auditing in f
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)
i)
li)

Fadas in CIS Affecting Audit- The Audltw shouM mnsider the effect of the
following factors on audit in a ClSE Extent of use of ClSE to process accounting information.
Sptern of internal control in use.

in)
d)

Effect of ClSE on the audit trial.

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)

~~~-~stK#wurrderstand~~drislceot~ClSEi.e.tadraf
Audlttrid. a - p m h g m d ~ ~ f ~ ~ ~KI, ) e r r o r s & u a w
OQ'*
mwlermQor

. ~

d C I S E : - ~ 8 h Q U ( d h a v ~ ~ ~ o f ~ E b

~ s u ~ , ~ & ~ # e ~ p e r f o r m e d ,

'.

g)

kdtPlsming:-InFWwdngW~d&,audtwNchio~byCp,eudta should understand the hadware hemfhm 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~mmunieatiotlof fimmhl h b m a t h as wdl as accaunb'ngarrdin~eonb91~dtheOoient.

i)

the

AudSt~~88:-~~cxursiderthe~hdes~ingaud#prpreedwes

toredmauditrislestoalawlevel.~canmeOthermsnual.Aard#Prdum
~ a ~ b i n a b ' O t l o f b o j h t 0 ~ ~ ~ & ~ .

j)

EmdlntemalConErdinCe-mshorddeduabeWWhClSE bystudyingwhetherthes~:-I)8ns~88connect&eompl~in~,proceasing
andoutput, ii)ProvldeaforUmelyd~o11oferors&frauds,Ui)Pddm&ta

securstyagainstpourer~metc.

IWmmWm- AudW should document the Audit plan, the nature, timing and
e~tofauditpmoedwggparformedand~~dmfmtheevidence

obtained.

FAUf

CO MER CUSS

Jaa 1 Jan. I7
lam. 20
Mar. 25

Ta&Inaceb/d

'

T Pllrchases (C.N.f sxctso o i x

To Bank
W)

BY ~urbast NC By Bdmcc cld

4,000 20,ooo

T Discount o

Q.5

WritesbortMtescmany~r:
C)- c d t-r p

Qi)lnvestigatioa.

@i) T s ckdcbg. et cv) Rights of a ampany auditor. (v) Qwlitiof Kmpany auditor,
(vi) Auditing in cm@z cnvimnment.

I
(i i)

OCTOBER 2003
Q 1[a) What do you understand by the twm v o d h g ? E h p k bessence of v d & in auditing. . (b) How wouM you verify tbe fU o(i) Plant dad r+hcbeq.

Q3 Eqlain the tams ' b e d Catmi', ' h i e d A&' (a)

an 'IntedCbsdr'. Alc? Wbee cwcl~ions you draw? will (b)IEnvwillyoar,asanaudit~,muhscrutinyoftbefol~ og Intbeba ktofKT&Co.
Date

I
Tosales To Sales

Pdcuh

I Rs.
I

R8ri

2003

Feb. 1 F. &3 Feb.4

Fcb. 16 Fcb.25

To Balance Wf To SaIes To Salts

Feb. 4 Feb. I2
Feb. 12 Feb. 18 Feb. 26

By SaCtsRctran

450

Feb.28

B Ilimuc y By Bills Reccirnble By BjUs Wivsble By B&wc d d

B y w

9,500 500 5,000 4,000

'GAUTAM COMMERE CLASSES

Q,SWribcrbprt~mmy& (a) (b)IWksoEaoamplnyBdiQr
( e ) ~ r a d & q d h d u a d 8 ~ @ &

rYBcOWAUbIITN6

(4

(av -

(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 ~ ( 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 ~ m ~ ~

Q.3(a)How~yarrabdmm~,~Saal4s~A/~b~bOObdRlla~&Co.? : h' A/G is 0 - h Date Rs. Plrclcultra FarikUh k I D.es

Jan I May25 Sept 6

To Bslanco W d
Tosales To Biils RaaiMbk To inhest To Sales

6m , 5 . m

2002 Jaa 1

ByBilleMvrWs

4.600

rn
SBO
7.000

B w Y m
JllneS

1,m

k 1 2
Dec.15

ToBUsWvrMs To lnaatst Tosales

%m

* ByEknk
By D k m t
ByBibllecehW

BY

9SO 50

2350

S , m

400

Septa
DeLIS b,31

BY^ By Bilk Recdvwe

ByBmdc

rn
8 . m 11,100

150

v' "
%m

By Bahmcld
? ~ ~ ~ ~ ~ ~

~ . 4 ( a ) ~ L b n t b e ~ o f t h e ~ ~A 5 6th,r ~ o f u r # d i t o r o f o o m p e n y . 9c (b)Wbatimb~ofa~raditorCl

Q*SWritcshat~onauyfoor: (a) hpe&as d&mmts (c) Me&g of e 6 d t m (e) bentw ofgood audit rcpat

@)A & ~ W

(d) M

muOCTOBER 2804

w a d &jeas of v a l w h

Q. 1 ( 1 ) ~ e t i n e d i t i q . ~ u ~ ~ p b i p ~ o f ~

1 0

(b)Exphinthe coacepr ofTm and Fair Vh.

~ . 2 ( a )W r i t e t h e m e a n i q g o f ~ ~ a a d ~ ~ ~ .

8
8

Q. 3 (a) Commed ofthe hllowing -he

an IPdaar.

Dr.

me

P~

IIltbsBoms01ai. CaehAk ~jr.

l~ame

lhrtkUh

1 RB. 1

0.

6AUTAM COMMERCE CLASSES

2002

'

51
2002 4 , m

NBCOWAUDITINq
Jan. 1 Jan. 2 Jaa.4 la5 Jan.6 Jan. 7

Jan. 1 J 2 m
J 5 m Jaa 6 Sa7 Jan 8 J~IL 10

To Balahoe bM ToSaleP
ToSsles T o m Tot3xmmmm T O W To Bills Rmhblc

28,350 . 3%

ZOaO

By Salaries By Tck#m=
ByCItisge

200
21,400

ByByRita

1 , m 6,000 450 8 m'

Ism

J. m9
3m.10

By Wages
ByBanL. Byhhcedd

3,000 13,600
42,490

m!B
Q.3@)HewdywvaifytheTured~.
Q.4(8)WbatiSurditrepornWbet~the~0faudilIreport?

1300

~)Wbrt~~~thtQdinoftmsuditorofalW~?
QSWrZtc3haat~onaayfonr: (a) c l b j d v q ofVal& of Assets. (c) of- d=kh (e)QbjbOtiYeS O f ~ d l E F L B i n g

(b) IntanalAudit (dl T m of h K i s (f) Alditing

Cr.

8 8
16

APRIL 200s
Q 1(a) What are tba a d m h g a nnd limitations of Atding? .
@)WhatislataimAuditlWhatareits~ddhhmaga?
Q. 2 (a)Warttherigbofrm AuditarlndertheCompPniesAct, 19561 (b) How d yan vouch tllc foIlowing? (i) IncomeTnxReW (ii) Cllstan Duty P i ad
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 ~ ? (b) Explain the term "Iatemal Control". What me its objaetivcs? Q. 4 (a) Dishpish between Audit of Accaunts of a pattnership finn d a Limited Cornpaay. (b) Sautinisc aod give your cmmmts as en Auditor mthe folfowingLedger Account.

8 8

Dr.
Date

M .VyasAc!counL s
Partidm T O W To Aacltase Returns To Bilts Payable ToBaakAlc
Ils.
10,000 20,000 4,950 SO

Date
2002

Particulars
]Byba.lm~ceb(f ByPurche By Purchase By Bills Payable

U. s
l0,OOa
28,000 1, O 4O O 20,000 100

2004

Jm.14
Jan. 22 Jan. 22

Jaa I
Jan21

3,000

b.23
Jan. 23

Fcb. M Fcb. M F. 26 &

Mar.30 Mar, 31

To DisQwnt Afc To W A l c
To D s o n Alc icut To Bills Payable
ToVaishyaAlc

Feb. 1 Feb. 25 Feb. 25

Mar. 1 Mar. 3 1

By Iatercst
By B a h dfd
By Plachase

1, 3W
140 20,100 21,000

21,000
23,000

To Bank

J18,loo

af a!
(d) Easwtiais of a g d Audit Report. w (e) TIWand fbir view. (9 Note Bodc Audit

3.400
f6

Q 5 Write short notes on any fouc . (a) Auditing in Depth

tTmbw

(b) ABpointment of firsl Auditor of a limited ampany.

5I

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 (b)Whatb~dmmAodlilWhv~h-?
Q ~ Q w Y ~ ~ ~ ~ ~ ~ s o
10

~ I
8

fi~~batra-afgadofa-

'

~a

8 8 8

~ . 4 ( a ) ~ l p t l w ~ I ; r d ~ ~ o ~ a ~ ~ u d l l p l l (b)*radCormaontaatho~~Aaarrmt.

D. r
Date 2004 -1
Oct.10
Od.16

htl#~dspCCbPIkd B f b l b c e W b ~
Paeicatrs

Rs.
S9,oOO 1 7 68,000

D&e

ParticlJn

Cr. Rs.

lEOaZ
To-Brsd ToKedsr T o w TaPtadey TolMw
-4

mn

ByBYW
ByDhtu4

21m

-27

ism
200

Nov.M Dcc.15

41300

rn
"

*I12 k If k t 6 hc.31

ByMdm

1 -

BpBlt ByNii ByBalrruwW

am
6, O 1M

2,

w
N

Dmc From.

Mahan

Q.SWrite~mtcsar~forr: (a) ObjeEtivrs d V d i a i a i of hwtg I IMd&iw

Audit

(d) I m p t a mof luknd of a C a m p y Auditor by $ociat Wutio11. (e)

(c)

(0 Tea

--

u1m

Dm lktk
1 1m u1

CenparYirrdw-kW 8* 2lpoo

2711Wi

BaQ

Q.1(a)WhtdoyoumtsnbyVoucbiqg? HowwoaSd&tk~ (i) Caab Salts Iii) TnrvcllingExpemS. ( b ) D i d q & h ~ ~ a n d T n ~

Q.2(a)Whlltistost~Disaugi&advaaolgslld~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 ~ ~ .

@)WhatsretherightPofaCorqpr~y~
Q.4(a)DisarPstbe!~~RemoMtofaCanpmyr~ (lJ)tknlhkd~trnfhCfOnOWtqp*~

imILeBadrrsfAPOw

52

Q. I ( )Explain Basic Principles ol.~uditing, 1

OCTOBER 2006
10

(b)

Would you vouch fie following? (i) Inkfist Received on ~ ~ (ii) Call Purcl~asesofstalionq.

Q. Z(8) Whal alp llle v:lrious techniques of ~

Q JLl ~ .

~ d i ~ i ~ ~ ? ill ~ i ~ 1the ipr~visions the i r m p m . . A C ~ . 19%. egading appointment ~ I of

8 8 8

s ~ ~ * i~ : b u . f e r e q u u m n uO~-SFIAREC A P ~ T A L .prsdledule " offie co,npulin Act, s ~ s .~ 1

(b) Wllat are the Cufltenls of Good Audit Report?

Q. 4 (a) Define and explain the term "Auditing".

(b) Scmtinisu and give your commenls as an Auditor on the following Ledger Accomt. In the Books ofM/s. GEC Inkrnational. Dr. CEG international Account Rs. Date Partic~~lari Particulars \ ~ 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 To Balance blfd 'ro Sales T~ ~ ~ b~~t~ (Rate Diffeference) i l To Sales To Bills Receivables To fnlcrest 'To Noiing Charges To Salcs 10.000 10,000 2,000 15,000 11.000 220 30 20,000 68,250
3 1-7-04 1-8-04 1-8-04

8
8
Cr.

Rs.

4-9-04 20-9-04 30-9-04 30-9-04

By Bank By Bills Reccivtlhles By Credit Note (Spoiled Goods) By Bills Receivables By Bank By Discount By Bank By Bad Debts

10,000 1 1.000 1,000 1 1,250 14,250

750

17,500 2.500 68,250

16

),

write shod notes on any four of the followi1'g: (a) Internal Check @) Secwt Reserves in conlputer Environment valuation ofclosing Stock lrnpo*ance of internal Audit. , (
,d)

tc) coni\\\gt~\\ LiabiIit~

.< &

i .

53

y,

Distm%uishben verification and V d l n g you vouch the following: (b) How (i) Advertisement EW"ses (ii) Cash Sales (a) D ~ s c fow CUW ~ I ~ ~ in I an Audita m C ~ p ) Explain the disclos~S u i ~ e m e nof Sched w s 8 t ~ ~

.. .
{ Bib, d a t i~ g y ~ ~ n contingent liabnI1t1~. ~ ~ $ ~

8
~ ~ ~

Q. 2

8
8

Q. 3 (a)

p)~i~~~~ the p d u for~~ m o v aof a camp l

Explain different techniques of

any Auditor,

any Auditor?

8
Cr.

Q,

4 (a) whata the qualilatiom and disq"'fiaiw Of a (h) ~ ~ comment of the following the ~ o~o k olBhumik. ?meuters Ltd. and i ~ i LedgerAcCOunts. ~ (D ln r Snlanees A!c Piuliculars Dr. 1 us. I Date Particulars Date 2006 By Profit & Loss AJc 2006 A ,0 To Bank (March) 10,000 Sept., 30 l0,ooo May, 8 To Bank (April) 10,000 June, 10 To Bank (May) 10,000 To Bank(1une) July, 10 10.000 Aug., I0 To Bank (July) I0,OW Sept.. 8 To Bank (Aug.) 60,000
(ii) In the Book af MIS. Paresh & Sons. lntcrest an Investment A!c.
Cr.

Rs.

60,000

60.000

Date 2006 - 07 ~ p r i lI , March, 31

Palticulm To Interest Accrued on Investment To P and I. hlc

Rs.
1.200 6.600 7,800

Date 2006 - 07 June, 30 Sepl., 30 [ k c , 31 h4arch. 31

Paniculan By Bank By Bank By Bank By Interest Accrued on Investment

Rs.
2,4W
1,600 2,400 1,400 7,800

Q. 5 Write short notes on any four of the following:

(a) Secret Reserves

(c) Teeming and Lading (e) Internal Check.

(b) Casual Vacancy in Ule oflice ofthe Auditor.

(d) Impact of EDP on Auditing.

I Q. I

OCTOBER 2007 Wllat is Internal Conlrol? What are objeclive? (b) What are the advantages and limitaiions oftest check in auditing?
(8)

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~lentsrelating to "Current Companies Acc 1956. (b) m a 1 the duties of a company Auditor?

L~~~ of ~

per Schedule VI 01 lllu

Q. (a) What are the different types of Audit Repon? ~ ~hem brief l in ~ ~ i ~ an Auditwho$vwill you make a scrutiny ofthe following ~~d~~~ ~ ~ ~ L ? A

Dr.

Cr.

I n the B a o k o f Ms. Ramcsh, ~ a k c i h R . ~ and Ram's CapitrJ .4Jc.

GAUT
uatc

OM
\

AS

S
Rs.

Particulsrs
ToRglvab~Alc@a

m e
200s-06 Mad31

P=tblh

Rn
1&,00ml

m0 -6
-3

1,60,000

-1

April2

-3
-24 W 3 0 hGrcb31 -31
A

T o ~ ~ i A l c ( F a r 2,40,000

M 3 1
M 3 1

w m

ToBdAlc ToBanlcAl~ ToGqodsAJc

Tomon-

Qoodwill)

ByBadlrNc BySaMaAlc ByMaaCapiEalA/c ByPdL-Alc

u4 fa 3 -

6m

l r n ~

1mm , ,
4, am 1 11,46,00

t m

To&Isoccdd

T d

~ ~ s m

21,%000

QSWrbSht~arraayfwrofthe~
16
Auditor of a compeny. e n t af a (b)Auditorsdghtof&cc~toboolcoofaecorad (c) v U h( of p d m k y aplm. O C iZ t l (d) Objdyes of wisdow W g n. (a) Adting incompdseavirnoment.
(a) s

- u - - a - o - I - I - - a u

WISH YOU ALL

a?'
62
C
r~ W

VERY BESTIII---I--I-C.-I-r-rrrI-

' % 0 50 7

Q !
'J.

32-

-c o w

mt
YE55