| 1. | As on Auditor, comment on the following: | | |
| | (a) | Sri Limited is a manufacturing company engaged in manufacture of cement. It had three plants already commissioned in its site at Chennai. The company expanded its plant capacity by contracting with a supplier for the purchase and installation of one additional plant. The project was commenced on 1.7.2007 and the new plant commenced commercial operations on 1.1.2008. The new plant was capitalized and shown as Fixed asset as on 31.3.2008 at cost which included, besides other things, the following: | (a) | Contract price of plant and equipment and installation costs | | (b) | Interest due for the period till 31.3.2008 for the term loan taken from scheduled bank for financing the project which is repayable over five years commencing from 1.7.2008. | | (c) | Salaries, welfare expenses of the plant engineers of the company for the period from 1.7.2007 to 31.12.2007 who supervised the contract work. |
| 5 | (0) |
| | (b) | The Investments of ABC Limited includes 5,000 equity shares of Rs. 100 each in Amudhan Bank Limited. Amudhan Bank Ltd. declared 20% dividend for the year ended 31.3.2007 at its General Meeting held on 30.6.2007. ABC Limited finalised its accounts for the year ended 31.3.2007 on 30.8.2007 and it includes Rs. 1,00,000 being the amount of dividend received by it from Amudhan Bank Ltd. in its other income subsequent to its Balance Sheet date before approval by the Board of Directors. | 5 | (0) |
| | (c) | The management of Ankita Limited suggested for quick completion of the statutory audit that it would give its representation about the receivables in terms of their recoverability. The management also acknowledged to the auditors that the management would give their representation after scrutinizing all accounts diligently and they own responsibility for any errors in these respects. It wanted auditors to complete the audit checking all other important areas except receivables. The auditor certified the account clearly indicating in his report the fact of reliance he placed on representation of the management. | 4 | (0) |
| | (d) | AS Limited purchased on 1.4.2007 a machinery from a foreign country at a price of $ 1, 50,000 upon terms of credit that the price should be settled within six months from the date of purchase. The company capitalised the Asset and created Liability for the capital goods converting the foreign currency liability to Indian Rupees at a rate of exchange prevailing as on 1.4.2007. When the company settled the liability on 18.7.2007, it had to incur an additional amount of Rs. 6, 75,000 due to change in foreign exchange rate on the date of settlement. It added this additional amount of exchange variation in the capital cost of the asset and charged depreciation upon the enhanced amount of asset value from 18.7.2007. | 4 | (0) |
| 2. | Comment on the following: | | |
| | (a) | AAS Company Limited with its registered office at Chennai has two branch offices located at Mumbai and Kolkata. The accounting transactions of the branches are recorded and the accounting records are maintained in the branches themselves. Only quarterly summarized Trial balance, Profit and Loss account and Balance Sheet are sent to Chennai office by the branch Accountants. One of the assistants of your audit team raises an issue that the company is required to maintain its books and records at the registered office; the company, keeping its accounting records at the branches, hence is as default of not maintaining proper books at registered office as per the Company law provisions. | 5 | (0) |
| | (b) | During the year 2007–08, it was decided for the first time that the accounts of the branch office of AAS Company Limited be audited by qualified Chartered Accountants other than the company auditor. Accordingly, the Board had appointed branch auditors for the ensuing year. One of the shareholders complained to the Central Government that the appointments was not valid as the Board of Directors do not have power to appoint auditors, be they Company Auditor or Branch Auditors? | 4 | (0) |
| | (c) | The Chief Accountant of AAS Company Limited says that the company, being in loss, would not provide depreciation for the Fixed Assets during this year, it would provide for the arrears of depreciation when it has profits in the future years; there is nothing wrong in this treatment, as according to the Companies Act, 1956, the company is bound to provide for depreciation only when it intends to declare dividend; in the present case, the company does not declare dividend. | 4 | (0) |
| | (d) | Other liabilities in Balance Sheet of AAS Limited include Rs. 7.8 lakhs being the amount of excise duty payable since 1.5.2007 remaining unpaid till 31.3.08. However, the same had been paid by the company on 15.4.2008 upon getting clarification from its advocates that the liability is actually payable by it. | 5 | (0) |
| 3. | (a) | | (i) | What is an Audit Engagement letter? |
| (ii) | Discuss the situations where it is necessary to issue audit engagement letter each year for repetitive audits. |
| 2+6 | (0) |
| | (b) | In a system based audit, test checking approach provides a good base for the auditor to form his opinion on the Financial statement. Give your comments. | 8 | (0) |
| 4. | How will you vouch/verify the following? | 4x4=16 | |
| | (a) | Liability towards gratuity | | (0) |
| | (b) | Expenditure incurred for promotion of a product | | (0) |
| | (c) | Balances with excise authority | | (0) |
| | (d) | Receipt of special backward area subsidy from Government. | | (0) |
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| 5. | (a) | State, how the reliability of audit evidence gets affected by the types of Audit evidences. | 8 | (0) |
| | (b) | Explain the compliance procedure and also substantial procedures as Audit methods of collecting evidences for forming an audit opinion. | 8 | (0) |
| 6. | (a) | Enunciate the General principles of verification of Assets. | 8 | (0) |
| | (b) | State the matters which the statutory Auditor should look into before framing opinion on accounts on finalisation of audit of accounts? Discuss over all audit approach. | 8 | (0) |
| 7. | (a) | The Vidhwat College, an institution managed by Dayal Trust, has received a grant of Rs 1.35 crore from Government nodal agencies for funding a project of research on rural health systems in India. Draft an audit programme for auditing this fund in the accounts of the college. | 12 | (0) |
| | (b) | What are the main points involved in ‘Performance Audit’ under Government Accounting system? | 4 | (0) |
| 8. | Write short notes on the following: (any Four) | 4x4=16 | |
| | (a) | Fundamental Accounting assumptions | | (0) |
| | (b) | Disclaimer of opinion by an auditor. | | (0) |
| | (c) | Audit Report versus Audit Certificate. | | (0) |
| | (d) | Statutory Auditor versus Internal Auditor. | | (0) |
| | (e) | Audit of Incomplete records. | | (0) |
| | (f) | Audit versus Investigation. | | (0) |
