| 1. | (a) | State with reasons whether the following statements are true or false (mere conclusion will not deserve any credit): | 2x7=14 | |
| | | (i) | Materiality of the item does affect the depth of reliability of the evidence which an Auditor requires for arriving at a conclusion. | | (0) |
| | | (ii) | There is no need to design better internal control in an EDP or computerised system. | | (0) |
| | | (iii) | A body corporate can be appointed as statutory auditor of a limited company after obtaining special permission from the Central Government. | | (0) |
| | | (iv) | Special notice is required for passing a resolution at an Annual General Meeting for appointing as auditor a person other than the retiring auditor, and not where it is interested to expressly provide that the retiring auditor shall not be reappointed. | | (0) |
| | | (v) | The principal auditor of a limited company is entitled to rely on the work of another auditor of its component part. | | (0) |
| | | (vi) | Assets given on lease should be disclosed as part of fixed assets in the financial statements of the lesser. | | (0) |
| | | (vii) | Auditor of a company has to approach his work with suspicion. | | (0) |
| | (b) | Should all fictitious assets be written off before declaration of dividend? | 6 | (0) |
| 2. | A statutory auditor of the company how will you deal with the following? | 4x4=16 | |
| | (a) | In the current year, LMN Ltd. has not provided for depreciation on fixed assets, as it has incurred losses the company argues that it would provide for the arrears of depreciation in future when it makes profit, and that the same is in accordance with the provisions of the Companies Act, 1956. | | (0) |
| | (b) | Current liabilities of LMN Ltd. include Rs. 1.8 lacs payable in respect of a notice of demand received on 14.08.2008 from the Income Tax Department. Upon a reminder from the company’s tax auditor that this tax liability is one which is payable, the company has paid the same on 02.05.2009 prior to the finalisation of Accounts. | | (0) |
| | (c) | A sum of Rs. 35,000 per month has been paid as remuneration to a director, who is not in the wholetime employment of the company. | | (0) |
| | (d) | LMN Ltd. with its registered office at Kolkata, has a branch at Chennai. All books of account of the branch are maintained at the branch and quaternary financial statements are furnished to the head office. Your partner apprehends violation of section 209 of the Companies Act, 1956 which requires the head office to maintain books and records. | | (0) |
| 3. | How will you vouch/veriy the following? | 4x4=16 | |
| | (a) | Company’s liability towards gratuity; | | (0) |
| | (b) | Balance lying with the Central Excise Department; | | (0) |
| | (c) | Receipt of special subsidy for setting up industry in notified backward area; | | (0) |
| | (d) | Expenditure incurred for promotion of an existing product. | | (0) |
| 4. | As an auditor of a Limited company, how will you react to the followings situations? | 4x4=16 | |
| | (a) | Company produced photocopies of fixed deposit receipts, as original receipts were kept in the personal locker of a Nationalized Bank, in the name of Directors of Finance who is away on long foreign tour on company work. | | (0) |
| | (b) | Management makes a request to you not to comment on the reliability of certain debts as they have been covered in director’s report. | | (0) |
| | (c) | Fixed Assets have been revalued and the resulting surplus has been adjusted against brought forward losses. | | (0) |
| | (d) | Structural alterations costing Rs. 50 lakhs have been charged to building repairs account. | | (0) |
|
| 5. | (a) | Do you agree with the view that there are inherent limitations of audit? | 5 | (0) |
| | (b) | The type of audit evidence affects the reliability of the audit evidence. Do you agree? Discuss. | 5 | (0) |
| | (c) | Before framing an opinion about the financial statements, explain how an auditor should obtain sufficient and appropriate audit avidence. What are the procedures adopted for collection of evidence? | 6 | (0) |
| 6. | Write short notes on any four of the following: | 4x4=16 | |
| | (a) | Audit of incomplete records; | | (0) |
| | (b) | Operational audit as an extension of internal audit; | | (0) |
| | (c) | Secret reserves; | | (0) |
| | (d) | Audit of sanctions; | | (0) |
| | (e) | Audit Trail; | | (0) |
| | (f) | Interface between internal auditor and statutory auditor. | | (0) |
| 7. | (a) | What are the main sources of GAPP in India? | 2 | (0) |
| | (b) | What is audit engagement letter? Is it necessary to issue audit engagement letter, each and every time for repetitive audit? | 3 | (0) |
| | (c) | Briefly enumerate the general principles of verification of assets. | 5 | (0) |
| | (d) | Briefly sketch the importance of communication in the context of internal audit work and preparation of report. | 6 | (0) |
| 8. | (a) | What are the advantages of a standard audit project? | 5 | (0) |
| | (b) | What is EDP Audit? What is its prime objective? Has it changed the method of collecting evidence of audit approach? | 6 | (0) |
| | (c) | Discuss about the scope and functions of audit committee of a large enterprise. | 5 | (0) |
