| 1. | As an Auditor, comment on the following: | | |
| | (a) | Gear Ltd. is engaged in manufacturing and supply of gear boxes to Indian Automobile Ltd. As per terms of supply, full price of the goods are not released by Indian Automobile Ltd. but 10% thereof is retained and paid after one year, if there is satisfactory performance of the parts supplied. Gear Ltd. accounts for only 9% of the invoice value as sale at the time of supply and balance 10% is accounted as sale in the year of receipt of payment. | 5 | (0) |
| | (b) | Board of Directors of Natraj Ltd. wants to transfer an amount of Rs.31.50 lacs lying in unpaid dividend account to their Profit and Loss account on the plea that it is 3 years old and no shareholder is expected to turnup and claim the same. | 4 | (0) |
| | (c) | Lehar Ltd. installed a new water treatment plant at its factory on 1.10.2007. The company estimated that the new plant will become obsolete after 4 years only and hence charged depreciation at a rate higher than that envisaged in Schedule XIV to the Companies Act. During the year 2007–08, the company therefore, written off ¼th of the cost. | 5 | (0) |
| | (d) | Fire Ltd. purchased equipment for its power plant from Urja Ltd. during the year 2006–07 at a cost of Rs.100 lacs. Out of this they paid only 90% and balance 10% was tobe paid after one year on satisfacftory performance of the equipment. During the Financial year 2007–08, Urja Ltd. waived off the balance 10% amount which was credited to Profit and Loss account by Fire Ltd. as discount received. | 4 | (0) |
| 2. | Give your comments on the following: | | |
| | (a) | Hum & Tum Associates, Chartered Accountants, have been appointed as auditors of SP Ltd. Mr. Tum, a junior partner, holds 10 shares of HP Ltd., which is holding company of SP Ltd. | 4 | (0) |
| | (b) | Mr. Budha, Statutory Auditors of Secret Ltd. was not permitted by the Board of Directors to attend general meeting of the company on the ground that his right to attend general meetings is restricted only to those meetings at which the accounts audited by him are to be presented and discussed. | 4 | (0) |
| | (c) | M/s Young & Co., a Chartered Accountant firm, and Statutory Auditors of Old Ltd., is dissolved on 1.2.2008 due to differences of opinion among the partners. The Board of Directors of Old Ltd. in its meeting on 6.2.2008 appointed another firm M/s Sharp & Co. as their new auditors for one year. | 4 | (0) |
| | (d) | Mr. Fat, auditor of Thin Ltd., has his office and residence in the building owned by Thin Ltd. Mr. Fat has been given 10% concession in rent by the company as compared to other tenants. | 4 | (0) |
| 3. | (a) | In the course of audit of a trade, you noticed that although there is no change in either selling and purchase price of the goods, there is considerable increase in Gross profit ratio in comparison to previous year. What matters would you examine to assess the reason for such increase? | 10 | (0) |
| | (b) | What precautions should be taken by an auditor while applying test check techniques? | 6 | (0) |
| 4. | How will you vouch/verify the following? | 4x4=16 | |
| | (a) | Sale of Investments. | | (0) |
| | (b) | Payment of Revenue Expenses. | | (0) |
| | (c) | Assets acquired under Hire–purchase. | | (0) |
| | (d) | Amount due to Subsidiary companies. | | (0) |
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| 5. | (a) | What are the assertions with which an auditor is concerned with while obtainingaudit evidence from substantive procedures? | 7 | (0) |
| | (b) | Should branch auditor of a company comply with the request of the principal auditor of the company to give photocopy of the working papers pertaining to the branch audit? Explain. | 4 | (0) |
| | (c) | What is the relationship between materiality and audit risk and how audit risk can be reduced to an acceptable level? | 5 | (0) |
| 6. | (a) | What are the inherent limitations of Internal Control system? | 8 | (0) |
| | (b) | State the matters to be specified in the Auditor’s report in terms of provisions of Section 227(3) of the Companies Act, 1956. | 8 | (0) |
| 7. | (a) | Mention any ten special points to be examined by you in the audit of Income and Expenditure of a Charitable institution running a hospital. | 10 | (0) |
| | (b) | In carrying out audit of Govenrment expenditure, what are the basic standards that you will examine and consider? | 6 | (0) |
| 8. | Write short notes on the following (any four): | 4x4=16 | |
| | (a) | Responsibilities of Joint auditors. | | (0) |
| | (b) | Cut–off arrangements. | | (0) |
| | (c) | Advantages of Statistical sampling in Auditing. | | (0) |
| | (d) | Inherent limitations of Audit. | | (0) |
| | (e) | Process of Judgement formation by Auditor. | | (0) |
| | (f) | Surprise checks. | | (0) |
