CWA ICWA Final Stage IV : Cost Audit and Management Audit - June 2003

CWA ICWA Final - Stage IV • Cost Audit and Management Audit • June 2003

This Paper has 33 answerable questions with 0 answered.

F—19(CAM) Revised Syllabus
Time Allowed : 3 Hours	Full Marks : 100

Answer Question Nos. 1 and 5, which are compulsory and two each from the remaining questions of Sections I & II.
Section — I(50 marks)
Marks

Answer Question Nos. 1 and 5, which are compulsory and
two each from the remaining questions of Sections I & II.

Section — I(50 marks)

Marks

(a)

State merely whether the following statements are ‘True’ or ‘False’. You need not give any reason/explanation for your answer:

1x10=10

(i)

The detailed provisions relating to the regulations of Cost Audit are contained in Sec.233B read with Sec.227(1) of the companies Act,1956.

(0)

(ii)

The statutory auditor of a company who is also a qualified cost accountant cannot undertake the Cost Audit along with audit of financial accounts.

(0)

(iii)

The shareholders have a right to get a copy of the Cost Audit Report.

(0)

(iv)

Hon’ble Members of Parliament are entitled access to the Cost Audit Report.

(0)

(v)

A company manufacturing a number of products which are subject to Cost Audit, can appoint different cost Auditors for different products.

(0)

(vi)

The central Government has the power to reject the proposal of a company for appointment of Cost Auditor.

(0)

(vii)

The Cost Auditor has no power to scrutinize the loan documents of a company as they are not part of the prescribed cost accounting records.

(0)

(viii)

A person who has qualified as a Charted Accountant as well as a Cost Accountant can hold certificate of practice from both the institutes.

(0)

(x)

A firm of Cost Accountants can be constituted only with the previous approval of the central Council of the ICWAI.

(0)

(b)

How will you treat the following items in the Cost Accounting Records?

2x5=10

(i)

Interest received on security deposit with the Electricity Board.

(0)

(ii)

Commission paid to the Managing Director, as a percentage of profit, included in the financial accounts under the head ‘Salaries and Wages’.

(0)

(iii)

Voluntary Retirement Compensation paid to workers, included under Wages

(0)

(iv)

CENVAT availed as credit on purchased raw materials.

(0)

(v)

Profit on sale of fertilizers to cane–growers by a sugar company.

(0)

The following is the Profit and Loss account of Giant Industries Ltd. a single product company, for the year 2001–2002.

		(Rs, in lakhs)
Income:
Gross sales Other income: Dividend received Interest received Profit on sale of investment Sale of scrap Expenses: Materials consumed Decrease in stocks Stores and Spares Power and Fuel Repairs and Maintenance Labour, processing and Hire charges Salaries, Wages and other employee costs Samples, Sales Promotion and Advertisement Brokerage, Discount and Commission Ware housing and Distribution Expenses Additional Sales Tax/ Turnover Tax (not recoverable) Provision for bad debts Insurance, Rates and Taxes and other admn.expns. Central Excise Duty paid Interest and Finance charges Depreciation Loss on Sale of Assets Total Profit before Taxes Total	2.38 54.11 3.52 17.32	4,540.38 77.33 4,617.71 2648.94 90.78 112.04 73.96 19.33 14.62 56.94 2.39 12.22 96.07 21.39 5.17 90.26 331.50 182.51 281.61 1.82 4041.55 576.16 4617.71

Notes:

(1)	Salaries and Wages includes Rs.12.56 lakh taken to Admin. & Selling Overheads
(2)	Depreciation includes Rs.12.40 lakh taken to Admin. And Selling Overheads.
(3)	Closing stock as on 31.3.2002:

Raw Materials
Stores and Spares
Work–in–process
Finished Goods

245.04
84.43
51.98
115.95

lakh
lakh
lakh
lakh

Work out the following ratios as stipulated in the Annexure to the Cost Audit Report:

(a)	Value addition as percentage of Sales.
(b)	Interest as a percentage of Sales.
(c)	Stock of Work-in-process in terms of number of months cost of production.
Clearly state your assumptions.

(0)

(a)

In the Cost Audit Report under the Para “Cost Auditor’s Observations and Conclusions”, a Cost Auditor has to, inter alia, furnish suggestions for improvement in performance and other observations. As a Cost Auditor of a manufacturing company, furnish your suggestions and observations based on the following information. (You may make the necessity assumptions):

Particulars	2000	2001
Profit (Rs. Lakhs) Capacity Utilisation Consumption of Electricity/ Tonne of out put (KWH) Capital Employed (Rs. Lakhs) Salaries and Wages (Rs. lakhs) Production (MT)	250 90% 4.07 1,200 117 1,80,000	340 95% 3.98 1,100 98 1,90,000

(0)

(b)

The following data have been collected by you, as a Cost Auditor of a company:

Particulars	1999–2000	2000–2001	2001–2002
Installed capacity (lakh tones) Production (lakh tones) Cost/MT of the product (Rs.)	2.5 2.4 1,000	2.5 2.3 1,077	2.5 1.25 1,660

The poor capacity utilization in 2001–02 was due to abnormal power–cut. The escalation in costs were 5% in 2000–02 and 7% over 2000–01 in 2001–02.

(i)	Calculate the abnormal cost due to power–cut

(ii)	How would you treat these abnormal costs?

4+4=8

(0)

Certain requirements of audit based on principles of propriety are stipulated in the Cost Audit Report. Explain the meaning of propriety audit and how this aspect is covered by Cost Audit.

(0)

Section — II (50 marks)

Section — II (50 marks)

5.	(a)	State merely whether the following statements are ‘True’ or ‘False’. You need not give any reasons/explanations for your answer:		1x5=5
		(i)	Broadly speaking, internal Audit Report is a part if Management Audit.		(0)
		(ii)	Management Audit Report is presented to the management.		(0)
		(iii)	Corporate image and Brand Equity are closely related concepts.		(0)
		(iv)	According to guidelines on inventory valuation issued by ICWAI, work–in–progress is not included in inventory.		(0)
		(v)	Social Audit is a part of Statutory Cost Audit.		(0)
	(b)	Fill up the blanks :		1x5=5
		(i)	Fraud is ______.		(0)
		(ii)	Management Audit is a ______.		(0)
		(iii)	Management Audit has to report to the ______.		(0)
		(iv)	Management Auditor requires an ______ approach.		(0)
		(v)	One of the major objectives of Management Audit is to ensure that ______ are fulfilled.		(0)
	(c)	What are the basic differences between ‘Management Audit’ and ‘Operational Audit’? please put your answer in a tabular format.		5	(0)
	(d)	List out five measures that may be accepted to prevent and control ‘Management Frauds’.		6	(0)
6.	Briefly outline the requirements to be complied with by a company in respect of corporate governance under the SEBI guidelines, in terms of the listing agreement.			15	(0)
7.	You are appointed by the chief Commissioner of Customs to carry out a Special Audit of accounts of a company which manufactures goods in Customs Bonded Warehouse. Detail the procedures involved and the points to be covered in your report.			15	(0)
8.	A multidivisional company manufactures a number of products, one of which is subject to cost audit. The company takes the stand that the cost auditor cannot have access to the records of other divisions as they are not subject to Cost Audit. Prepare a note to the company making out a case why the Cost Auditor is entitled to scrutinize the records of the other divisions and the limits, if any, on exercising that right.			15	(0)

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