| 1. | (a) | Discuss with reasons, whether the following statements are 'true' or 'false': (Answers without reasons will not be given any credit): | | |
| | | (i) | A shareholder wishing to nominate another eligible person as auditor of the company in the place of existing auditor, can do so by giving ordinary notice to the company and sending copy to the existing auditor. | 1 | (0) |
| | | (ii) | For an internal audit function to be effective, the same must be independent of the activities to be audited. | 2 | (0) |
| | | (iii) | Non—adjusting events of a material nature, need not be adjusted in accounts and can be disclosed by way of explanatory notes to the accounts. | 2 | (0) |
| | | (iv) | A company can appoints its Cost Auditor at its Annual General Meeting. | 1 | (0) |
| | | (v) | Working papers of the auditor are to be returned to his client after audit since these are the property of the client. | 2 | (0) |
| | | (vi) | Compliance procedures adopted by auditors are in relation to Internal Control System. | 2 | (0) |
| | | (vii) | Efficiency audit examines whether the transactions have been done in conformity with established rules, principles and some established standards. | 1 | (0) |
| | | (viii) | Auditors' primary job is to detect errors and frauds. | 1 | (0) |
| | | (ix) | A and B are joint auditors of XYZ Ltd. During the year under audit A died. The Board of Directors appointed C in place of A. | 1 | (0) |
| | (b) | Explain the necessity and method of presentation of summary report to the top management by the internal auditor of a company. | 7 | (0) |
| 2. | Your client seeks your opinion on how the following matters whould be accounted and/or disclosed. Give your views with reasons for the same: | | |
| | (a) | Sundry Debtors include charges made for returnable packing cases. | 4 | (0) |
| | (b) | Assets bought on hire purchase basis were stated at their full value and the outstanding installments payable were shown under Sundry Creditors. | 4 | (0) |
| | (c) | The Debit Balance in the Profit and Loss Account is shown as a deduction from 'Dividend Equalisation Reserve' on the Liabilities side of the Balance Sheet. | 3 | (0) |
| | (d) | Expenditure incurred on grading and preparing the soil for plantations are charged to Cultivation Expenses. | 5 | (0) |
| 3. | (a) | What is meant by Joint Audit? | 1 | (0) |
| | (b) | What kind of mutual relationship should prevail among Joint Auditors? | 7 | (0) |
| | (c) | What are the reporting responsibilities of the Joint Auditors? | 4 | (0) |
| | (d) | Ram is the principal auditor of an entity as a whole. Rahim is another auditor of one of the divisions of the same entity. | (i) | Do they become Joint Auditors? |
| (ii) | What are their reporting responsibilities? |
| 2+2 | (0) |
| 4. | Write short notes on any four of the following: | 4x4 | |
| | (a) | Pre–Audit; | | (0) |
| | (b) | Analytical Procedures; | | (0) |
| | (c) | Outstanding Assets; | | (0) |
| | (d) | Treatment of Purchased Goodwill versus Inherited Goodwill; | | (0) |
| | (e) | Propriety Audit; | | (0) |
| | (f) | Auditing through the Computer. | | (0) |
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| 5. | (a) | Briefly state the objectives of cost audit from the point of view of Government. | 5 | (0) |
| | (b) | State the circumstances under which a qualified Audit Report is issued (any five circumstances). | 5 | (0) |
| | (c) | How will you vouch/verify the following and what are the related aspects to be looked into? | 3+3 | |
| | | (i) | Research and Development Costs; | | (0) |
| | | (ii) | Sale proceeds of Junk Materials. | | (0) |
| 6. | (a) | Is the disclosure of accounting policies, mandatory for companies? What should the Auditor do in this regard? | 8 | (0) |
| | (b) | What precautions are required to be taken in establishing a system internal control for applications processed at an outside Computer Service Bureau? | 8 | (0) |
| 7. | (a) | How will you deal with the following in the course of audit of the accounts of a limited company? | | |
| | | (i) | The sales are very high at the year end when compared to the earlier months in the ratio of around 2 : 1. | 3 | (0) |
| | | (ii) | Debentures issued at face value but repayable at premium. | 4 | (0) |
| | | (iii) | Payment of Rs. 50,000/- each to the Directors as allowances to cover travelling and entertainment expenses in the course of their normal duties. | 3 | (0) |
| | | (iv) | Under the head 'Reserves and Surplus' of Rupees 5 lakhs includes secret reserve of Rupees 1 lakh. | 4 | (0) |
| | (b) | The Audit Report of V Ltd. is signed by Mr. 'X', a partner of Z & Co., a partnership firm properly appointed as auditors. Mr. 'X' is practicing in Singapore. Is this proper? | 2 | (0) |
| 8. | (a) | What are the categories of companies which are specially exempted from the application of Companies (Auditors Report) Order, 2003? | 4 | (0) |
| | (b) | Distinguish between: | 4 | |
| | | (i) | Negative Opinion and Disclaimer of Opinion; | | (0) |
| | | (ii) | Internal Check and Internal Auditing. | 8 | |
