| 1. | (a) | Discuss with reasons, whether the following statements are 'true' or 'false': (Answers without reasons will not be eligible for any mark): | 2x7 | |
| | | (i) | Remuneration paid or payable to the auditor may be stated in total in the profit and loss account of the company. | | (0) |
| | | (ii) | Shareholders of a company have right of access to books of account of the company for inspection. | | (0) |
| | | (iii) | Companies, on grounds of confidentiality, may declines to provide information required by the auditor. | | (0) |
| | | (iv) | Propriety audit is applicable to all limited companies in all respects. | | (0) |
| | | (v) | Adverse key financial ratios mean that going concern concept is lost. | | (0) |
| | | (vi) | Accounting Standard–I requires all significant accounting policies to be disclosed normally in one place and as a part of the financial statements. | | (0) |
| | | (vii) | The internal auditor is one who has already proved his capabilities as a "Staff Specialist Function". | | (0) |
| | (b) | Discuss whether "Secret reserves can remain no longer secret". | 6 | (0) |
| 2. | How will you, as an auditor of a limited company, treat the following items? | 4x4 | |
| | (a) | Receipt of a substantial amount by way of damagees from suppliers in respect of inferior quality of raw materials received and consumed during the year under audit. | | (0) |
| | (b) | Finished goods were valued at cost of production including administration overheads. | | (0) |
| | (c) | Financial expenses and advances paid to contractors during periods of construction. | | (0) |
| | (d) | Know how relating to manufacturing process paid Rs. 50 lakhs and know how relating to drawings of plant and machinery amounting to Rs. 100 lakhs. | | (0) |
| 3. | (a) | "An auditor must select his sample carefully because the results of a representative and unbiased sample can be mathematically interpreted" —Explain this statement. | 5 | (0) |
| | (b) | Internal control can be classified into two broad categories. Briefly elucidate the areas of control. | 5 | (0) |
| | (c) | Enumerate six important points that can be included in the internal control questionaire regarding purchase of raw materials. | 6 | (0) |
| 4. | (a) | State some of the features of the Companies Act, 1956 which aims to preserve and project the independence of statutory auditor. | 7 | (0) |
| | (b) | List three examples of situations in which the techniques of observation can be employed by external auditor. | 3 | (0) |
| | (c) | State the sources of payment of dividends in the case of company limited by shares | 3 | (0) |
| | (d) | Briefly state the basis and types of liability of auditors. | 3 | (0) |
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| 5. | Write short notes on any four of the following: | | |
| | (a) | Generally Accepted Auditing Standards (GAAS); | 4x4 | (0) |
| | (b) | Flow Chart; | | (0) |
| | (c) | Intrafirm and Inter Firm Comparisons; | | (0) |
| | (d) | Audit Committee; | | (0) |
| | (e) | Options in Establishing Computer Audit; | | (0) |
| | (f) | Qualified Opinion. | | (0) |
| 6. | (a) | Explain the concept of auditors lien on: | | |
| | | (i) | Working Papers, | 4 | (0) |
| | | (ii) | Correspondence with taxation authorities and with third parties. | 4 | (0) |
| | (b) | Bring out of the fundamental differences between statutory audit and internal audit in terms of: | 3+3+2 | (0) |
| 7. | As an auditor of a company your advice is sought on the following issues: | | |
| | (a) | Directors want to declare dividends out of accumulated profit without transferring any amount to reserve. | 4 | (0) |
| | (b) | Trial production expenses of rupees 50 lakhs are proposed to be included as part of production overheads. | 3 | (0) |
| | (c) | Book entries are made for purchase of land without the sale deed being executed by the vendor. | 3 | (0) |
| | (d) | Year–end stock ready for exports are proposed to be valued at realisable value. | 2 | (0) |
| | (e) | No provision for income tax is proposed to be made in respect of the profits of the year as the company expected refund of taxes paid in the earlier year. | 4 | (0) |
| 8. | (a) | What is secretarial audit? What are the objectives and benefits of secretarial audit? | 6 | (0) |
| | (b) | Outline the general disadvantages of joint audit | 5 | (0) |
| | (c) | The cost auditor of a company can be its internal auditor, and is to be appointed by the shareholders of the company. Comment on the validity. | 5 | (0) |
