| 1. | (a) | State with reasons, whether the following statements are true or false (Answers without reasoning will not receive any credit): | 2x6 | |
| | | (i) | The risk of non–detection of error is more than the risk of non–detection of fraud. | | (0) |
| | | (ii) | The agreement between the auditor and client lays down the scope of auditor’s duties in case of audit of sole proprietary or partnership concerns. | | (0) |
| | | (iii) | Where the fixed assets of the company do not have a realizable value equivalent of the book values, the same should be disclosed in the financial statements of the company. | | (0) |
| | | (iv) | The auditor should consider expressing a disclaimer of opinion only in extreme situations involving multiple uncertainties that are significant to the financial statements. | | (0) |
| | | (v) | A company cannot adopt a mixed system of accounting; it can adopt either cash or mercantile system. | | (0) |
| | | (vi) | Notional or imputed interest charges for a contract under construction have been capitalised. | | (0) |
| | (b) | Fill up the blanks: | 1x8 | |
| | | (i) | While as per _______________ GAAP revaluation of assets is not permitted, the same is permissible as per _________ GAAP. | | (0) |
| | | (ii) | An employee of the company _______________ (can/cannot) be appointed as auditor of one of its branches. | | (1) |
| | | (iii) | Auditor of a company holds office till the _____________(due date/conclusion) of the AGM of the company. | | (0) |
| | | (iv) | Interest accrued on investments should be shown in the balance sheet of the company under the head ___________ (Investmenets/Current Assets/Miscellaneous). | | (0) |
| | | (v) | In the AGM of a company in which a public financial institution holds 25% of the subscribed capital, the statutory auditor can be appointed by passing a ___________ resolution. | | (0) |
| | | (vi) | The responsibility of maintaining an accounting system containing internal controls, lies with the __________ (management/auditor) of the company. | | (0) |
| | | (vii) | Where the financial statements of the entity does not reflect a true and fair view, the auditor should express ___________ opinion. | | (0) |
| | | (viii) | Secretarial audit is a ___________(post facto/pre–emptive) audit which seeks to monitor and ensure compliance with the various statutory requirements. | | (0) |
| 2. | (a) | The Management of Janak Synthetics Pvt.Ltd. has asked you, the internal auditor of the company, to look into the reasons for abnormal wastage (3 %) which had arisen in the month of February, 2010. During the earlier six month, the wastage percentage ranged from 1 % to 2 %. List out the aspects you will consider in the assignment. | 5 | (0) |
| | (b) | You were appointed as statutory auditor of Nathan Plastic Ltd. for the year ended 31.3.2010. You were not in a position to physically verify the cash on hand on 31.3.2010 and you take up the audit subsequently. How will you satisfy yourself about the correctness of cash balance as on the date of balance sheet? | 4 | (0) |
| | (c) | Suggest a suitable system of internal check to protect the client against the misappropriation by salesmen of cash representing sale proceeds in a big supermarket dealing chiefly in cash retail sales. | 7 | (0) |
| 3. | As auditor of a company, state your views/explain, how you will deal with the following: | 4x4 | |
| | (a) | As against provident fund collected during the year under audit, amounting to Rs.20 lakh, only Rs.8 lakh has been remitted by the company till the time of your audit. The management explains that it was due to acute paucity of funds and that it will remit the arrears as soon as the fund position improves. | | (0) |
| | (b) | During the course of audit, huge differences are noticed between control accounts and subsidiary records in the books of the company. The company’s accountant states that such discrepancy are common, considering the high volume of transactions of the company. | | (0) |
| | (c) | The management of a Government company requests you to furnish a revised report consequent to the audit of Comptroller and Auditor General of India. | | (0) |
| | (d) | Alleging that the report of auditor has not been sent to them, some members of the company under your audit, prefer a complaint against you. | | (0) |
| 4. | (1) | Furnish your brief views/comments on the following statements/situations: | | |
| | | (a) | How will you decide whether it is necessary to disclose as a separate item in the financial statement of the company, sundry debtors written off and advances written back? | 2 | (0) |
| | | (b) | Board of directors wish to fill up the vacancy caused on account or refusal by the existing auditors who were appointed as auditors. | 4 | (0) |
| | | (c) | Nakul & Co., a firm or chartered accountants has been appointed as statutory auditors of LMN Ltd. One junior partner of the audit firm holds 100 equity shares in OPQ Ltd., a subsidiary of LMN Ltd. | 4 | (0) |
| | (2) | Do you agree with the statement that in vouching payment, the auditor does not merely check that the payment has been effected? | 6 | (0) |
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| 5. | Write short notes on any four of the following: | 4x4 | |
| | (a) | Pre–audit; | | (0) |
| | (b) | Analytical procedures; | | (0) |
| | (c) | Treatment of purchased goodwill versus inherited goodwill. | | (0) |
| | (d) | Non–adjusting events; | | (0) |
| | (e) | Developing the audit programme; | | (0) |
| | (f) | Auditing through computer. | | (0) |
| 6. | (a) | Can the company, which does not reappoint the existing/retiring statutory auditor, ask him to hand over the working papers of the earlier year? | 4 | (0) |
| | (b) | Mr. Praveen, a non–practicing chartered accountant, has been appointed by the Central Government under section 233A of the Companies Act, 1956. The company management feels that the appointment is not valid, since he is not a practicing chartered accountant. Is this view correct? | 4 | (0) |
| | (c) | State the categories of companies which are specifically exempted from the purview of Companies (Auditors Report) Order, 2003. | 5 | (0) |
| | (d) | Give any six situations in which external confirmations can be used by the auditor for ensuring the correctness of the balances as at the year end. | 3 | (0) |
| 7. | How will you vouch/verify the following and what are the related aspects to be looked into? | 4x4 | |
| | (a) | Bills receivable | | (0) |
| | (b) | Investment lodged as earnest money deposits; | | (0) |
| | (c) | Recovery of bad debts written off; | | (0) |
| | (d) | Foreign travel expenses. | | (0) |
| 8. | (a) | State briefly the internal audit function in respect of sales credit control. | 4 | (0) |
| | (b) | Explain briefly the need, objective and benefits of secretarial audit. | 3 | (0) |
| | (c) | As an auditor, how will you ascertain that all the fixed assets are in position as records? | 4 | (0) |
| | (d) | Briefly state the responsibility of the statutory auditors in respect of work entrusted to the branch auditors in a limited company. | 2 | (0) |
| | (e) | The work–in–progress is valued by the company under your audit, consistently at direct material cost only. As an auditor of the company state your views. | 3 | (0) |
