CWA ICWA Final Stage IV : Cost Audit and Management Audit - December 2005

CWA ICWA Final - Stage IV • Cost Audit and Management Audit • December 2005

This Paper has 44 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 whether the following statements are “True” or “False”. No reason or explanation need be given:

1x10=10

(i)

Cost Audit is a type of efficiency audit and not a propriety audit.

(0)

(ii)

The liberalization of the economy has diminished the utility of Cost Audit.

(0)

(iv)

India is the first country in the world in introducing the provisions of compulsory maintenance of the Cost Accounting records.

(0)

(v)

The Cost Auditor cannot be the Internal Auditor of a Company for the period for which he is conducting the Cost Audit.

(0)

(vi)

The Annexure to the Cost Audit Report (paras 1 to 28) is to be prepared by the Cost Auditor.

(0)

(vii)

The Cost Auditor is appointed in the Annual General meeting of the Company.

(0)

(viii)

The proforma (product cost sheet) attached to the Cost Audit Report should be prepared separately for sale to any related party.

(0)

(ix)

Non-moving stock of raw materials and components are those stocks which have not move for more than 2 months.

(0)

(x)

The Cost Auditor is a member of the Audit Committee of the Company.

(0)

(b)

State with reasons whether the following activities amount to professional misconduct:

2x5=10

(i)

A Cost Accountant takes voluntary retirement from his employer and starts practice. He continues his association with his previous employer as an advisor, on a monthly relationship basis.

(0)

(ii)

A Cost Accountant gives a certificate of cost for a product manufactured by a SSI unit, owned by his son.

(0)

(iii)

A Practicing Lawyer specializing in ‘Anti-dumping cases’ comes to an informal understanding with a practicing Cost Accountant to assist him in preparing accounting statements to support his cases and agrees to share his fee on a percentage basis.

(0)

(iv)

A Practicing Cost Accountant accepts an assignment previously held by another Cost Accountant in practice, after due communication with him in writing.

(0)

(v)

Sharing information acquired in course of his professional engagement to any person, other than the client so engaging him.

(0)

As a Cost and Management Auditor, you are asked to look into proposed decision of a company to temporarily suspend operations due to depressed market conditions.

	Capacity Utilization
Budgeted level (per annum)	60%	80%
	Rupees in ‘000’
Direct Material Direct Labour Production overhead Administrative overhead Selling & Distribution overhead Total	180 240 126 62 68 676	240 320 138 66 74 838

The company is likely to operate at 50% capacity only and the turnover is expected to be Rs.4,95,000p.a. Market Research indicated that the depression will bw over in a year and after that they can effect a sale of Rs.9,00,000 p.a. utilizing 75% of capacity.
If operations are suspended for a year, the following cost will be incurred:

– Fixed cost Rs.40,000
– Settlement with labour force will cost Rs.35,000
– Maintenance of plant will continue and cost Rs.10,000
– Cost of re–opening will be Rs.10,000
Draft a report to the Management of the following two options:

(i)	To suspend production for one year and restart thereafter when market improves.
(ii)	To continue production at 50% of capacity level.

(0)

(a)

As a cost auditor, how would you deal with the following?

2x5=10

(i)

For your audit, it however is unable to produce audited financial accounts, as financial audit is not yet complete.

(0)

(ii)

A company has not maintained cost accounting records though having the obligation under section 209 (1) (d) of the companies Act, 1956. the management is of the opinion that necessary steps could be taken by after the cost audit order is received from the Government. Are the directors of the company absolved of the obligation to maintain cost accounting records.

(0)

(iii)

A company, which manufactures cables and conductors, has charged only a portion of the administrative overheads to cost of production and the balance of the cost of sales of its products.

(0)

(iv)

A Sugar mill, which produces sugar from sugarcane, uses bagasse as fuel to produce steam. In its cost statement, such input of bagasse is valued at nil bagasse, which is only a waste product.

(0)

(v)

During plant stoppages, the operational labour is being utilized by the company for cleaning, oiling and such other routine jobs of the same plant. Their wages for that period also are treated as direct wages in cost of production.

(0)

(b)

What is an ’�Unbalanced Plant’? what are the different options that you, as a Cost and Management Auditor, would like to offer as ‘rectification techniques’ to remove ’imbalances’ for ensuring better economic utilization of such a plant?

2+3=5

(0)

(a)

The financial profit and loss account for the year 200405 of a company shows a net profit of Rs.26,28,000. During the course of cost audit, it was noticed that:

(i)	The company was engaged in trading activity by purchasing goods at Rs.4,00,000 and selling it for Rs.5,00,000 after incurring an expenditure of Rs.25,000.
(ii)	Some old assets sold at the end-end fetching a profit of Rs.80,000.
(iii)	A major overhaul of machinery was carried out at a cost of Rs.4,00,000. And the next such overhaul will be done only after four years.
(iv)	Interest was received amounting to Rs.1,50,000 from outside investments.
(v)	Work–in–progress amounting to Rs.1,50,000 from investments, take into account factory overhead. Factory overhead was Rs.1,85,000 in opening WIP and Rs.3,15,000 in closing WIP.
	Work out the profit as per Cost Accountant and briefly explain the adjustment, if any, carried out.

(0)

(b)

What are the preliminary information you,, as a Cost Auditor, will collect from the company which is subject to cost audit for the first time?

(0)

Section — II (50 marks)

Section — II (50 marks)

5.	(a)	State whether the following statements are “True” of “False” No reason or explanation need be given.		1x10=10
		(i)	Audit of human Resources Development is outside the scope of Management Audit.		(0)
		(ii)	The main emphasis of Management Audit is on problem-identification rather than problem solving.		(0)
		(iii)	Management Audit in certain specified companies may be ordered by the Government by a special resolution.		(0)
		(iv)	Management Auditor should be a qualified Accountant.		(0)
		(v)	Management Audit imposes barriers in executive decision making .		(0)
		(vi)	The special audit under section 14A and 14AA of the Central Excise Audit can be conducted by the practicing Cost Accountant only.		(0)
		(viii)	While issuing a certificate containing a number of pages, it would suffice, if only the last page is signed by the practicing Cost Accountant.		(0)
		(ix)	Audit of the records of the Accounts Department is outside the scope of Management Audit.		(0)
		(x)	Corporate image of a company is built up not only by its product quality, but also, by its attitude towards various stake holders.		(0)
	(b)	Explain in one/two sentences the main/basic difference between the following:		2x5=10
		(i)	Financial Audit & Management Audit;		(0)
		(ii)	Job–enrichment & Job Rotation;		(0)
		(iii)	Corroborative Evidence and Circumstantial Evidence;		(0)
		(iv)	Sales & Marketing;		(0)
		(v)	Data & Information.		(0)
6.	(a)	The Managing Director of a company wants your advise as a management auditor on the points to be considered for take over of a manufacturing company. Prepare a checklist for this purpose.		7	(0)
	(b)	Today’s customer is the more demanding than the customer of yesterday. In view of this, how would you evaluate, as a Management Auditor, the performance of “Customer Services Department”.		8	(0)
7.	(a)	What are management frauds? As a management auditor, how will you prevent and control these frauds?		2+5=7	(0)
	(b)	As a management auditor of an engineering company, you are requested to submit a report to the management suggesting suitable control procedures for wastage, scrap, spoilage and obsolescence of materials. Draft a report explaining the areas, which how would like to high light.		8	(0)
8.	Evaluation of the personnel function of an organization by the management auditor is by no means an easy task. In your view what are the areas to be covered and points to be kept in mind while assessing the personnel function of an organization?			15	(0)

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