AUDITING

GKI'S SCANNER
QUESTION AND ANSWER
FROM 2018 TO 2022 MJE
KAA9
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CU Exam, 2018
Group – A
1. What is Audit Note Book?
Ans. Audit Note book:
Audit note book is a diary or register maintained by audit staff to note errors, doubtful quarries and
difficulties. The purpose is to note down the various points which need to be either clarified with the
client or the chief auditor. The Audit note book is used for recording important points to be included
in the auditor‘s report.
Contents of an Auditor’s Note Book:
a. A list of books of accounts maintained.
b. The names, duties and responsibilities of principal officers.
c. The particulars of missing receipts and vouchers.
d. Mistakes and errors detected.
e. The points which need clarifications and explanations.
f. The points deserving the attention of the auditor.
g. Various totals and balances.
h. The Points to be a part of auditor’s report.
Advantages of Audit Note book:
Some of the advantages of the audit note book are:-
a. It ensures the uniformity and helps in knowing the amount of work performed.
b. Important matters relating to the audit work may be easily recalled.
c. Facilities and preparation of the audit report.
d. In case of the assistant in charge is changed, no difficulty is faced in continuing the incomplete work.

2. Define Audit Memorandum.

Ans. In order to perform his job efficiently the auditor collects the facts regarding characteristics, style of
functioning and policies of the firm under audit and records it in a statement. Such statement is called Audit
Memorandum. Such memorandum is much helpful to the auditor in conducting audit work.
Usually following matters are included in an audit memorandum:-
a) Description of owners and managers of the firm under audit.
b) Location of factory and office.
c) Brief description of assets of the company.
d) Name of chief officers and nature of their responsibility.
e) Description of books of accounts and features of accounting.
f) Main products.
g) Description of production process.
h) Sources of raw materials and trend of their prices.
i) Trend of sales.
j) Description of the markets where the goods are sold.
k) Method of advertisement.
l) The responsibility of the controllers.
m) Purpose of investment and reserves.

3. Can dividend be paid without writing off past losses? (Pg. No. 70)

4. What is Negative Audit Report? Mention a situation when an auditor gives negative audit report.
Negative Audit Report:- The audit report in which an auditor expresses negative audit opinion that
financial statements are not prepared in accordance with applicable financial reporting framework or
financial statements as a whole are not free from material misstatement, such type of audit report is
known as Negative Audit Report.
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Situation when an auditor gives negative audit report:-
If the auditor:-
a) concludes that, based on the audit evidence obtained, the financial statements as a whole are not
free from material misstatement, or
b) is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements
as a whole are free from material misstatement,
the auditor shall modify the opinion in the auditor’s report in accordance with SA 705.

5. What is Cut-off Checking? Give two examples of it.

According to accounting period convention the result of working of it concern is determined for a
certain span of time, generally a year. Profit/loss of a period is determined on the basis of transactions of
that particular period. But there are some transactions which are related to more than one accounting
period. These transactions are separated from accounting period to the other. The procedure by which it
is done is known as ‘cut-off’ method or ‘cut-off’ checking.
This method has given rise to following aspects:-
a) Concept of accruals, outstanding, prepaid, pre-received, etc.
b) Adjustment of those transactions which effect the result of two or more accounting period.
c) Preparation of financial statements after periodic intervals (generally one year).
d) Consideration of those transactions which occurred after preparation of balance sheet but which
are likely to effect the result of the year just ended.
e) Concept of going concern.
Examples of Cut-off Checking Procedure:-
a) Goods sold but not delivered.
b) Goods purchased but not received.
c) Goods sold on sale or return basis but sales is not confirmed by the customers.
d) Goods in transit at the end of the year.
e) Work in progress at the end of the year.

6. Define ‘Test Checking’.

Test checking refers to the process of selection and examination of a few sample transaction out of large
number of similar transaction. It is presumed that selected transaction represent other transaction not
considered for verification. It is selective verification of transaction. An auditor can form his opinion on
financial statement by conducting verification of either cent percent transaction or only a few
representative transactions from each category. However, his opinion is unlikely to differ even if he
verifies only a few transactions provided his selection of transaction is judicious and rational.
As per SA 530 ―Audit Sampling‖, the auditor should select sample item in such a way that the
sample can be expected to be representative of the population. It should be ensured that all items in the
population have an equal opportunity of being selected. Test checking is adopted to avoid unnecessary
exercise of going through each and every transaction. Based on the result of verification of a few
representative transaction only, the auditor forms his opinion about the fairness of financial statements.

7. Define Long Form Audit Report (LFAR).

Besides the audit report as per the statutory requirements discussed above, the terms of appointment of
auditors of public sector banks, private sector banks and foreign banks (as well as their branches),
require the auditors to also furnish a long form audit report (LFAR). The matters which the banks
require their auditors to deal with in the long form audit report have been specified by the Reserve Bank
of India.
The LFAR is to be submitted before 30th June every year. To ensure timely submission of LFAR, proper
planning for completion of the LFAR is required. While the format of LFAR does not require an
executive summary to be given, members may consider providing the same to bring out the key
observations from the whole document.
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8. Briefly state the concept of ‘Non-Performing Assets’ of a bank.
An asset becomes NPA when it ceases to generate income for the Bank.
A non-performing asset (NPA) is a loan or an advance where -:
➢ interest and/ or installment of principal remain overdue for a period of more than 90 days in
respect of a term loan;
➢ the account remains ‘out of order’ in respect of an Overdraft/Cash Credit (OD/CC);
➢ the bill remains overdue for a period of more than 90 days in the case of bills purchased and
discounted.
Out of Order: An account should be treated as ‘out of order’ if:-
➢ the outstanding balance remains continuously in excess of the sanctioned limit/drawing power, or
➢ In cases where the outstanding balance in the principal operating account is less than the
sanctioned limit/drawing power, but there are no credits continuously for 90 days as on the date
of Balance Sheet ; or
➢ credits are there but are not enough to cover the interest debited during the same period, these
accounts should be treated as ‘out of order’.
Overdue: Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the due
date fixed by the bank.

Group – B
9. State any four contents of Audit Report as mentioned in CARO, 2016.
A. Fixed Assets
i. Whether the company maintains proper records showing full particulars including details
of quantity and situation of the fixed assets
ii. Whether physical verification of the fixed assets is conducted by the management at
reasonable intervals
iii. If any material discrepancies were noticed on physical verification, whether it has been
accounted for in the books of accounts
iv. Whether the title deeds of the immovable properties are in the name of the company.
B. Inventory
i. Whether at reasonable intervals the management has conducted physical verification of
inventory.
ii. If any material discrepancies were noticed on physical verification, whether it has been
accounted for in the books of accounts.
C. Cost Records
If Central Government has prescribed maintaining cost records, whether the same have been
properly maintained or not.
D. Repayment of Loans
If the company has defaulted in repayment of loans to banks, government, debenture holders, etc.
then the amount and period of default are to be reported.

10. What do you mean by ‘Unqualified Audit Report’ and ‘Report with Disclaimer’?
Unqualified Audit Report:
An unqualified opinion is considered as a clean report. This is the type of report that auditors give most
often. It is also the type of report that most companies expect to receive.
An unqualified opinion doesn’t have any adverse comments and it doesn’t include any disclaimers about
any clauses or the audit process.
This report indicates that the auditors are satisfied with the company’s financial reporting. The auditor
believes the company’s operations comply with the governance principles and applicable laws. The
company, the auditors, the investors and the public perceive such a report to be free from material
misstatements.
Report with Disclaimer:
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A disclaimer of opinion results in a disclaimer report. When an auditor issues a disclaimer of opinion
report, it means that they are distancing themselves from providing any opinion at all related to the
financial statements.
The general consensus is that a disclaimer of opinion constitutes a very harsh stance. As a result, it
creates an adverse image of the company.
Some of the reasons that auditors may issue a disclaimer of opinion are because they felt like the
company limited their ability to a thorough audit or they couldn’t get satisfactory explanations for their
questions.

11. Mention any six important aspects which are usually included in Audit Engagement Letter.
In case of first audit following matters are mentioned in the audit engagement letter [SA 210]:
a) Objects and scope of audit.
b) Provisions of applicable Acts.
c) Responsibility of the management regarding financial statement of the company.
d) Auditor’s right to check all documents and right to know all relevant matters.
e) Way to communicate with previous auditor.
f) To know the job of internal auditor, other auditor, high officials.
g) The basis of calculation of fees of the auditor.
h) Request for acknowledgement and acceptance of auditor’s engagement letter.

12. Write any four technique of Analytical Procedure.

As per SA – 320 Analytical Procedure refers to Analysis of important ratios and Trend of a business
concern (relating to financial conditions of the business). It also include analysis of deviations,
fluctuations of actual results from expected results.
The nature or techniques of analytical procedure are as follows:
a) Trend Analysis: Comparison of current year’s financial data with last year financial data.
b) Analysis of predictive estimates: Finding relations and comparing actual data of the estimates
made by the auditor.
c) Analysis of financial ratio: Analysis of important ratios and finding relation among important
financial data.
d) Inter-firm analysis: Analysis of important ratios of a firm with that of other firms of same size
in the same industry or with the overall industry average.
e) Non-financial ratio: Finding relation among important non-financial ratio.

13. Discuss in brief various sample risk involved in audit sampling.

When the number of transactions in a firm is large then sometimes, it is impossible for the auditor to
check all the transactions. Instead of checking all transactions the auditor selects some transaction and
based on this he estimates the level of Correctness of book of accounts of the firm and gives report
accordingly. This is known as sampling or test checking method.
Though this method has advantages as well as disadvantages too. The auditor exposes himself to risk of
undetected error or fraud in the transactions not checked by him. The auditor can not escape from
liability on the plan that he has resorted to sampling therefore the auditor should do sampling carefully.
More the number of transactions included in sampling less will be the risk and vice versa.
Precautionary measures before the application of test checking or sampling:
a) Covering every book of prime entry: Representative transactions should be so selected as far
as possible, as to cover the whole of the period under audit. It should cover every book of prime
entry and ledger.
b) Clerks of organisation checked: The selection of transactions should be distributed in such a
way that the work of almost all the clerks of the organization is checked.
c) Reviewing the internal control system etc.: The auditor must review the system of internal
check, internal control and internal audit thoroughly. If he views that the prevalent internal
control system is either defective or ineffective, he should not apply it.
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d) Items be representative: The selection of the items should be made at random and should be as
far as possible be representative in character.
e) No element of biasness: There should be no element of biasness or arbitrariness in the selection
of sample.
f) Number of transactions pre-determined: The number of transactions to be selected for each
test check should be pre-determined.

14. Draft a brief outline of investigation in respect of defalcation of cash by an employee.

The following steps of investigation can be taken in respect of defalcation of cash by an employee:
a) Ensure that no payments have been made against fictitious vouchers.
b) Ensure that no payments have been made against the inflated amounts of voucher.
c) Ensure that there is no manipulation made in wage payment and no payment made to dummy
workers.
d) Ensure that no casting of larger totals for petty cash expenditure and no adjustments of excess in
totals of the detailed columns have been made so that cross totals show agreement.
e) Ensure that there is no teeming and lading.
f) Ensure that no adjustments of unauthorised or fictitious rebates, allowances, discounts, etc. to
customer’s accounts and misappropriating amount paid by them have been made.
g) There should no writing off as debts in respect of such balances against which cash has already
been received but has been misappropriated.
h) Ensure that all cash sales have been fully accounted.
i) Ensure that all miscellaneous receipts i.e. sale of scrap, quarters allotted to the employees, etc.
have been considered in books of accounts.
j) Ensure that proper valuation of entire assets have been made.
k) There should no wrong totalling in the cash book.

15. Define investigation. State clearly different purposes of an investigation.

Investigation: Investigation is undertaken for some specific purpose, say, to ascertain:
a) Financial position of the firm
b) Earning capacity of the firm
c) Extent of fraud committed, etc.
Purposes of Investigation:- Following are the main purposes for which investigation are usually
undertaken on behalf of:
a) An individual or a firm proposing to purchase a business or shares of a company.
b) A person who wishes to enter into a new partnership.
c) A person who intends to invest in a private business, a firm or a company.
d) A bank or a prospective lender for granting credit or advancing money.
e) The proprietors of a business where fraud is suspected or known to have taken place.
f) The promoters of a proposed company to the preparation of a report on profit for inclusion in the
prospectus.
g) The Taxation Authorities in the profits of a company.
h) The proprietor of a business when there are abnormal fluctuation in profits.

16. Prepare an audit programme in respect of an Educational Institution.

A educational institution provides boarding and lodging facilities to the students of institute. It is run by
the institute authority on no profit no loss or subsidized basis. Generally a cash book is maintained to
record daily receipts and disbursement of cash. At the end of the year a Receipts and Payments statement
is prepared and in case of a big educational institution an Income and Expenditure Account is also
prepared to know the results of operation. The programme of auditing the accounts of big educational
institution will cover following special points..
a) Study the rules and regulations of institute.
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b) Check the number of seats in the institute and verify whether only eligible students are
accommodated in the institute.
c) Vouch the receipt of institute fees with the register of students.
d) See whether arrear institute fees have been properly recorded and reflected in Income and
Expenditure Account.
e) See that advance institute fees have been properly recorded and reflected in accounts.
f) Check that suitable action is taken against students who are regular defaulter in payment of
institute fees.
g) Check the system of internal control for procurement of foodstuff. If it is procured through
contractor, see that selection procedure is appropriate.
h) Vouch the payment against contractor's invoices. See that bill is duly certified by the storekeeper
and institute superintendent.
i) Check the stock register of various main items of foodstuff like rice, wheat, mustard oil etc. See
that all entries of issue are supported by stores requisition duly signed by head cook and
authorized by institute superintendent.
j) Vouch the petty expenses and see all vouchers are duly sanctioned by institute superintendent.
k) Check the asset register and see whether there is any discrepancy in physical verification.
l) See that adequate depreciation is being provided on all items of assets in the Income and
expenditure Account.

Group – C
17. Discuss the provisions of the Companies Act, 2013, regarding ‘appointment of auditor by rotation’
and ‘payment of remuneration to auditor’.
Appointment of auditor by rotation:
The manner of rotation of auditors on expiry of their term which is given below-
a) The Audit Committee shall recommend to the Board, the name of an individual auditor or of an
audit firm who may replace the incumbent auditor on expiry of the term of such incumbent.
b) Where a company is required to constitute an Audit Committee, the Board shall consider the
recommendation of such committee, and in other cases, the Board shall itself consider the matter
of rotation of auditors and make its recommendation for appointment of the next auditor by the
members in annual general meeting.
c) For the purpose of the rotation of auditors-
i. in case of an auditor (whether an individual or audit firm), the period for which the
individual or the firm has held office as auditor prior to the commencement of the Act
shall be taken into account for calculating the period of five consecutive years or ten
consecutive years, as the case may be;
ii. the incoming auditor or audit firm shall not be eligible if such auditor or audit firm is
associated with the outgoing auditor or audit firm under the same network of audit firms.
Explanation I - For the purposes of these rules the term “same network” includes the
firms operating or functioning, hitherto or in future, under the same brand name, trade
name or common control.
Explanation II - For the purpose of rotation of auditors,
a. a break in the term for a continuous period of five years shall be considered as
fulfilling the requirement of rotation;
b. if a partner, who is in charge of an audit firm and also certifies the financial
statements of the company, retires from the said firm and joins another firm of
chartered accountants, such other firm shall also be ineligible to be appointed for
a period of five years.
Payment of remuneration to auditor:
The company fixes the remuneration of the auditor in the general meeting. However, where the Board of
Directors appoint the first auditors of the company they can fix his remuneration. The remuneration is in
addition to the fees payable to him. It includes any expenses incurred by the auditor in relation to the
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audit and any facility given to him. However, this remuneration does not include any amount paid to him
for the rendering of any services other than audit.

18. Define Branch Audit. Discuss the rights of a branch auditor.

Branch Audit:- As per provision of the Companies Act, every company having a branch is required to
carry out the audit of all accounts of the branch by a qualified auditor. Facing which the concerned
officials will be liable for punishment.
Rights of a Branch Auditor:-
a) Right of access to the books and accounts and vouchers of the branch at all times whether kept at
the head office of the company or elsewhere and obtain necessary information for the
performance of his duties as auditor from the office of the company.
b) Right to receive notice of and attend all general meeting of the company.
c) An auditor as an officer of the branch have the right to indemnified when he is relieved by the
Court out of the assets of the company for any liability.

19. As an auditor, how would you vouch the following:

a. Preliminary Expenditure:- Expenses incurred in connection with the promotion of a new company are
known as preliminary expenses. This expenditure includes stamp duties, registration fees, legal cost,
accountant‘s fees, cost of printing, etc. while vouching these expenses, the auditor should require
following information:
i. Whether the expenses shown as preliminary expenses are actually connected with the formation
of the company.
ii. Whether the expenses incurred have got due sanction from the competent authority.
iii. Whether the amount of expenses is justified from propriety angle. In other words, the auditor
should enquire into the rightness of the amount of expenses.
iv. Whether the amount of expenses is within the sanctioned limit. If it exceeds the limit, the auditor
should enquire into whether approval from shareholders has been obtained in this regard.
v. Whether preliminary expenses have been written off in the year in which they are incurred as
required under AS 26, Accounting for Intangible Assets.
b. Travelling Expenses of Foreign Tour:- For vouching of traveling expenses of foreign tour, the auditor
should have following information:
i. business travel rules as formulated by management,
ii. Whether every tour has got approval of competent authority.
iii. Whether the tour expenses are within the prescribed limit.
iv. Whether personal A/cs of the employees taking business travel advance have been correctly
debited.
v. Whether debit balances of personal A/cs of employees have been duly regularized through
submission of travelling vouchers.
vi. Whether foreign travel has got Reserve Bank of India’s permission, if necessary for withdrawing
foreign exchange. The auditor should also check whether the amount of foreign exchange spent
has been separately disclosed in the accounts as per requirement of Part I of Schedule VI to
Companies Act.
c. Payment of Dividend:- The following points must be considered while vouching the payment of
dividend in case of a public company and private company which is a subsidiary of a public company –
i. Examine special provisions, if any, in the Memorandum and Articles of Association regarding
payment of dividends.
ii. See that in declaring dividends, provisions of the Companies (Transfer of Profits to Reserves)
Rules, 1975 have been complied with.
iii. Examine the Board‘s minutes regarding rate of dividends.
iv. Examine the company‘s procedure for payment of dividends including unclaimed dividends and
ensure that they are not paid without adequate safeguards as to identification of the payee,
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checking of the payee‘s claims etc. In this connection, internal control of the company should be
examined.
v. Verify the shareholders‘ register and ensure that the names of all shareholders who are entitled to
receive dividends have been included.
vi. Check the computation of dividends with reference to rate of dividends and number of shares
held.
vii. See counter foils of cheques for amounts paid to shareholders.
viii. Examine, whether all the conditions for payment and source of dividend as specified on section
205, 205A and 205B, have been complied with. It may be noted that the Institute has issued a
Guidance Note on Audit of Payment of Dividends.

20. As an auditor how would you verify the following:

a. Investment:- Investment may be a share certificate, government bond certificate, government loan
certificate, debenture certificate, etc. For verification of such securities, the following procedure is
adopted.
a) Obtain a schedule of investments in hand at the beginning of the audit period. Obtain the details
of description of investments together with distinctive number of face value, date of purchase,
book value, market value, rate of interest, date of payment of interest or, date around which
dividend is declared, etc., with also the details of interest or dividend received along with tax
deducted at source.
b) Add to the above list, purchase made during the year and delete the investments sold during the
year with all the above details.
c) Balance this schedule and compare the balance with general ledger and Balance sheet.
d) Check the market value of investments with reference to stock exchange quotations or other
suitable method, on Balance Sheet date and see that the values are disclosed in the Balance sheet.
e) Inspect the certificates or securities physically on the Balance Sheet date.
f) Compare the income received with amount due and adjust the accrued income.
g) Confirm the uncalled liability on partly paid shares held as investment shown as contingent
liability by way of a note to the Balance Sheet.
h) See that adequate provision is made for any shortfall in the book value of investment shown in
the Balance Sheet.
i) See that, regarding the investment in subsidiaries, disclosure requirement of the Companies Act,
2013 are complied with.
j) For investment in the capital of partnership, the partnership deed and copy of accounts of
partnership firms, is to be verified. Also adjust the share of profit and loss for the partnership
period.
k) Investments which stand in the name of persons other than that of the company are to be
confirmed with appropriate sanction.
l) For investment lodged with others as security or lying with banks or share brokers, obtain a
certificate from the parties concerned.
m) In case of application money paid for shares which are still to be allotted, that fact is to be
specially disclosed in the Balance Sheet.

b. Patent & Copy Right:-

PATENT:-
a) The ownership of patent rights is verified by inspection of certificate issued for grant of patent,
by the prescribed authority.
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b) If it has been purchased, the agreement surrendering it in favour of the client should be
examined.
c) If there are a number of patents held by the client, obtain a schedule giving the full details
thereof or verify with reference to the register maintained by the client.
d) It must be verified that patent rights are alive and legally enforceable and renewal fees have been
paid on due dates and charged to Revenue Account. The last renewal receipt should be examined
to ascertain that the patent has not lapsed.
e) See that the patents are properly registered in the name of the client only.
f) See that the cost of patent is being written off over its useful period of life.
g) In case the patent is acquired, cost paid for the same and all relevant expenses are to be
capitalized.
h) If the patent is created by the client by the research experiments and laboratory work, only the
actual expenses incurred for it in the process are to be capitalised.

COPY RIGHT:-
a) The auditor has to examine the written agreement of assignment along with the royalty paid to
the authors etc., for such copyrights.
b) He has to see that such assignments are properly registered.
c) If the client is the owner of many copyrights, the auditor should ask the client to prepare a
schedule of copyrights and get the detailed information to confirm that the same is shown in the
Balance Sheet.
d) Regarding the value of copyrights, it should be remembered that this asset has no value in the
long run. Hence, value is determined on revaluation basis and period of copyrights.
e) If any copyrights does not command the sale of any books, then the same should be written off in
such year. The auditor has to verify the same in detail.

c. Share Capital:-
a) The auditor has to examine whether the share capital exists as at the end of the accounting year.
b) He has to check whether the equity balances that were supposed to be recorded have been
recognised in the financial statements.
c) Whether share capital are reported in the appropriate period.
d) Whether equity balances have been valued appropriately i.e. the amounts at which they are
recorded are appropriate.
e) Whether share capital is recognised under the head equity and liabilities in the financial
statements.

21. (a) “An auditor is not an insurer” – Explain the statement pointing out relevant case law.
“An auditor is not an insurer” , since the auditor give opinion on the financial statements that whether
financial statements are free from material misstatement in accordance with the audit evidence which the
auditor obtains during his course of audit. So auditor’s opinion on the financial statements regarding its
free from material misstatement is not any type of guarantee because due to some inherent limitations of
audit, an auditor will only get reasonable assurance about the financial statements.

(b) Mention different problems associated with the audit under EDP system of accounting.
The following are the problems associated with the audit under EDP system of accounting:-
i. Absence of Audit Trail:- If books of accounts are maintained by computers then there will be
absence of audit trail, because the documents can be lost due to virus, etc.
ii. Lack of visible output:- There will be only soft copies of documents and hard copies will not be
available.
iii. Understanding of Information:- Since the documents are stored in computers it becomes
difficult for the auditors to access the data from computers each time and carry on their jobs.
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iv. Vulnerability of information and data:- Since the data are stored in floppy and discs, they are
vulnerable to loss, theft, unauthorised access, etc.
v. Use of code:- When books of accounts are kept by using computers, in many cases codes are
used, the auditor faces difficulty in accessing the data as he is unaware of the codes.
vi. Lack of Narration:- When books of accounts are maintained by computers, in most of the
occasions narrations are not written sometimes a few steps are skipped. These lead to trouble for
the auditor.
vii. Frauds and Virus:- Accounts maintained by computers are exposed to frauds and virus.
viii. Lack of Internal Control System:- When books of accounts are maintained by computers then
the work is done centrally as opposed to manual system where job of one employee is
automatically checked by others. So there is lack of internal control system in this method.
ix. Large scale fraud:- In computerized accounting system, large scale fraud is possible. Therefore
the auditor has to take proper care and attention in this regard while auditing accounts of a firm.

22. Prepare an Internal Control Questionnaire (ICQ) in respect of payment of wages in a large
manufacturing concern.
Internal Control Questionnaire are the set of questions made by the auditor to ensure the accuracy of the
internal control system. The following questions should be included in questionnaire in respect of
payment of wages in a large manufacturing concern:-
a) Does the organisation have procedure notes for the payroll function, which are separate to
financial regulations?
b) Does the payroll function of organization cover the whole operations?
c) How often are these payroll function are reviewed and updated?
d) Are clock-cards or timesheets used for recording of attendance?
e) Are payroll and personnel systems reconciled?
f) Are changes to data reported by the system time to time?
g) Are payments made accurate?
h) Do the payments made agree to hours worked?
i) Is there a processing timetable of payment of wages?
j) Are staff in the organization aware of this timetable?
k) Who authorises the payroll?
l) Are exception reports produced?
m) Are these reports investigated?

23. Define Internal Audit. Distinguish it with Internal Control. Is internal audit mandatory as per the
provision of the Companies Act, 2013? Discuss.
Internal Audit:- Internal Audit refers to an independent service to evaluate an organisation’s internal
control system, its corporate practices, processes and methods. An internal audit helps in securing
compliance with the various laws applicable to an organisation.

Distinction between Internal Audit and Internal Control:- (Pg. No. 40)
Whether Internal Audit is compulsory for companies:-
As contained in Rule 13 of the Companies (Accounts) Rules, 2014:
The following class of companies shall be required to appoint an internal auditor or a firm of internal
auditors, such as:-
a) every listed company.
b) every unlisted public company having:-
i. paid up share capital of fifty crore rupees or more during the preceding financial year, or
ii. turnover of two hundred crore rupees or more during the preceding financial year, or
iii. outstanding loans or borrowings from banks or public financial institutions exceeding one
hundred crore or more at any point of time during the preceding financial year, or
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iv. outstanding deposits of twenty five crore or more at any point of time during the
preceding financial year
c) every private company having:-
i. turnover of two hundred crore or more during the preceding financial year, or
ii. outstanding loans or borrowings from banks or public financial institutions exceeding one
hundred crore or more at any point of time during the preceding financial year.

24. Write Short Notes:-

a) Standards on Auditing:- (Pg. No. 16)
b) Tax Audit:- (Pg. No. 96)
c) System Audit:- System Audit means examination of various systems of the firms. This includes
internal check system, internal control system, internal audit system, accounting system, whether
books of accounts are maintained manually or by computers, system of cash receipts and cash
payments, system of maintaining vouchers, etc.
System Audit is very important in judging the effectiveness of various control system in the
organization.

CU Exam, 2019
Group – A
1. Distinguish between Error and Fraud. (Pg. No. 4)
2. What are the basic principles governing an audit? (Pg. No. 1)
3. State the importance of Auditor’s Independence.
Following are the importance of Auditor’s Independence:-
a) The auditor should be an independent person.
b) He should be an outsider. He should not have any interest in the result of trading of the company.
c) He should not take any loan from the company or he should not give guarantee for loan taken by
any third party of substantial amount.
d) He should not be an employee of the company.
e) The company act has taken every precaution. So that the management cannot pressurise the
auditor to suppress their fraud or dictate the course of audit.
f) All the users of accounting information rely on the auditor for his certificate that the books of
accounts of the company present a true and fair picture of the business.

4. (a) What is Balance Sheet Audit?

Balance Sheet is a specific type of financial statement. It is a statement prepared with a view to present
the exact financial position of a business on a certain date. The assets and liabilities of any firm change
from day to day as a result of business operations. The firm, therefore is interested to know the exact
financial positions at any stage of the business specifically at the end of its trading period. The balance
sheet should present a true and fair picture of the financial position of the business. Therefore it is
necessary to check whether the assets and liabilities shown in the balance sheet exist in reality or not.
So, balance sheet audit is the procedure of examining the correctness of the items of assets and liabilities
shown in the balance sheet of the firm.
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(b) How is it conducted?
There are two aspects of balance sheet audit verification, which means to check whether the items of
assets and liabilities shown in the balance sheet exists in reality and valuation which means to check
whether the amount of assets and liabilities shown in the balance sheet reflect their true figure.
There are two sides in a balance sheet, assets side and liabilities side.
The auditor has to keep in mind the following points while verifying the assets.
i. To ensure that assets are in existence at the date of the Balance Sheet and the same belong to the
client.
ii. Assets have been acquired for the business and that should be clearly started in the Balance
Sheet.
iii. To satisfy himself that the assets are properly valued.
iv. To verify that assets are free from any charge of lien or encumbrances.
v. They are in the possession of the client or persons authorised by him.
Proper verification of liabilities will mean that the auditor should see that:-
i. All liabilities have been clearly started in the Balance Sheet.
ii. They relate to the business itself.
iii. They represent all correct and authorised transactions, and
iv. They are shown in the Balance Sheet at their correct figures.

5. What is analytical procedure in audit?

As per SA – 320, Analytical Procedure refers to Analysis of important ratios and Trend of a business
concern (relating to financial conditions of the business). It also include analysis of deviations,
fluctuations of actual results from expected results.
For remaining part of answer please check (Pg. No. 30)

Group – B
6. (a) What do you mean by audit evidence? (Pg. No. 24)
(b) Discuss its importance.
The following are the importance of audit evidence:-
i. Audit evidence is important because it is the information that an auditor gathers to form his audit
opinion about an organization’s financial statements and/or internal control environment.
ii. Audit evidence has assumed much importance in auditing all over the world because not only the
shareholders even others place reliance on the audited Financial Statements. Further, Banks,
other financial institutions, Government Bodies and the client’s management recognize auditor’s
opinion as true and fair.
iii. Auditors use a number of audit procedures to obtain audit evidence and they frequently use a
combination of audit procedures. These include observation, inspection, confirmation,
recalculation, re-performance, and analytical procedures, along with asking questions.
iv. Auditor’s opinion is based on the audit evidence obtained during the course of audit. Therefore,
auditor should verify the transactions and gather audit evidence.

(c) What are the various procedures of obtaining audit evidence? (Pg. No. 24 & 25)
7. What essential steps are involved in conducting the audit of a hospital? (Pg. No. 35 & 36)
8. (a) What is Internal Audit? [CU Exam, 2018 (Q. 23)]
(b) Is it compulsory for every company to have an internal audit system? [CU Exam, 2018 (Q. 23)]
(c) State with reference to the relevant SA to what extent should a statutory auditor rely upon
internal Audit.
The extent to which a statutory auditor should rely upon the internal auditor is guided by professional
standards and considerations related to competence, objectivity, and the specific circumstances of the
audit engagement.
Gobind Kumar Jha 9874411552
i. Assessment of Internal Audit Function:- The statutory auditor should assess the competence
and objectivity of the internal audit function. This involves evaluating factors such as
qualifications, experience, and organizational independence.
ii. Understanding Internal Audit Work:- The statutory auditor should have a clear understanding
of the nature, scope, and objectives of the internal audit function’s work. This understanding
helps in determining the relevance and reliability of internal audit findings.
iii. Coordination and Communication:- Effective communication and coordination between the
statutory auditor and the internal audit function are essential. This ensures that the statutory
auditor is aware of the internal audit’s scope, findings, and any issues identified during the
internal audit process.
iv. Extent of Reliance:- The statutory auditor may choose to rely on the work of the internal
auditor to varying degrees based on the assessed competence and objectivity of the internal audit
function. While reliance is permissible, the statutory auditor should not solely rely on the internal
auditor’s work. Independent procedures and testing should be performed to obtain sufficient and
appropriate audit evidence.
v. Additional Testing and Procedures:- Even when relying on the internal auditor’s work, the
statutory auditor may perform additional testing and procedures. This ensures a comprehensive
and independent audit process and helps address any limitations or risks associated with the
internal audit work.
vi. Nature of Internal Audit Findings:- The statutory auditor should evaluate the nature and
significance of the internal audit findings. If internal audit identifies areas of potential risk or
concern, the statutory auditor may adjust their audit approach accordingly.
vii. Documentation:- Proper documentation of the statutory auditor’s reliance on internal audit work
is essential. This documentation should outline the procedures performed, the extent of reliance,
and any additional testing conducted.
viii. Regulatory and Professional Standards:- The statutory auditor should adhere to relevant
regulatory requirements and professional auditing standards governing the use of internal audit
work.

9. As an auditor, how would you verify the following?

a) Secured Loan:- (Pg. No. 58)
b) Plant and Machinery:- (Pg. No. 55)
c) Debtors:- (Pg. No. 54)

10. How will you vouch the following?

a) Income from Interest:- (Pg. No. 49)
b) Cash Sales:- (Pg. No. 50)
c) Travelling Expenses:- (Pg. No. 48)

11. State the various elements of Audit Report as per SA 700.

The various elements of Audit Report as per SA 700 are as follows:-
I. Title: The auditor’s report should have a title clearly indicating that it is the report of an
independent auditor.
II. Addressee: The report should be properly addressed based on the circumstance of the
engagement.
III. Opening or Introductory paragraph: As per AS 700 Revised, the introductory paragraph
should include the following:
a) Identify the entity whose financial statements have been audited;
b) State that the financial statements have been audited;
c) Identify the title of each statement comprising the financial statements;
d) Refer to the notes, including the summary of significant accounting policies; and
Gobind Kumar Jha 9874411552
e) Specify the date of, or period covered by, each financial statement comprising the financial
statements.
IV. Management’s responsibility for financial statements: This section of the auditor’s report
describes the responsibility of those people who are responsible for the preparation of the
financial statements in accordance with the applicable financial reporting framework.
V. Auditor’s responsibility: The auditor’s repost shall state that the responsibility of the auditor is
to express an opinion on the financial statements based on the audit work conducted by him.
VI. Auditor’s opinion: While expressing an unmodified opinion on the financial statements, the
auditor’s opinion shall state that the financial statement discloses a true and fair view.
VII. Basis for Opinion
VIII. Signature of the auditor: The audit report shall be signed by the auditor.
IX. Date of the auditor’s report: The audit report shall be dated. The date shall not be earlier than
the date on which the auditor has obtained sufficient evidence on which he has formed his
opinion on the financial statements.
X. Place: The audit report shall state the place in which the auditor maintains his office.

12. List the matters to be reported under CARO 2016. [CU Exam, 2018 (Q. 9)]
13. Write short notes on:-
a) Social Audit:- (Pg. No. 104)
b) Cost Audit:- (Pg. No. 93)
c) Performance Audit:-
Performance Audit or Efficiency Audit as it is also so called involves an appraisal of the performance of
a business. For efficient performance, an organisation sets its plans and the interpretation of the plans in
financial and quantitative terms is the budget. Performance Audit checks how efficiently the various
budgets have been fixed and how far the actual performance are in line with the budget, the results
obtained by the same expenditure must also be satisfactory. Performance Audit analyse the variance of
actual expenditure from the budget and of actual performances from the targets set. It also aims at
checking the results against capital investments and tries to ascertain how efficiently the capital has been
utilised. For evaluation of the performances, the auditor may have to resort to inter-firm comparison.
Performances audit does not end in finding out the good and bad points, it must tell the management to
take appropriate remedial measures in future. Performance Audit is thus a check of efficiency. It helps
the management in improving performance. Performance Audit evaluates performance in the following
spheres:- (i) Sales, (ii) Production, (iii) Inventory Management, (iv) Capital Utilisation, (v) Profitability,
and (vi) Liquidity.

Group – C
14. (a) State the circumstances when an auditor of a company may be appointed by:
i. Board of Directors:-
Routine Audits:- The Board of Directors may appoint an auditor for routine annual audits as required
by corporate governance practices. This is a common practice to ensure regular financial scrutiny
and compliance with regulatory requirements.
Interim Audits:- In situations where the Board identifies the need for an interim audit, such as during
a change in management or significant organizational changes, they may appoint an auditor to assess
the financial position before the scheduled annual audit.
ii. Members of the Company (Shareholders):
Annual General Meeting (AGM):- Shareholders, in the Annual General Meeting (AGM), have the
authority to appoint the auditor for the upcoming financial year. This is typically based on the
recommendation of the Board of Directors or the Audit Committee.
Extraordinary General Meeting (EGM):- In certain situations, such as the removal of an existing
auditor before the completion of their term, shareholders may appoint a new auditor through an
Extraordinary General Meeting.
iii. Central Government:
Gobind Kumar Jha 9874411552
Special Circumstances:- The Central Government may appoint or authorize the appointment of an
auditor in special circumstances, particularly when there are concerns about the company's
operations, financial stability, or compliance with legal requirements.
Fraud or Mismanagement Allegations:- If there are allegations of fraud, mismanagement, or non-
compliance with laws, the Central Government may intervene and appoint an auditor to investigate
and report on the company's financial affairs.
Public Interest:- When the public interest is at stake, and there are indications of financial
irregularities, the Central Government may exercise its authority to appoint an auditor to safeguard
the interests of stakeholders and ensure transparency.
These appointments are often governed by company law, regulations, and guidelines that define the
roles and responsibilities of auditors in different circumstances. The choice of appointing authority
depends on the nature of the audit and the reasons for initiating it.

(b) State the qualification of a company auditor. (Pg. No. 60)

15. How will you as a company auditor verify payment of dividend? [CU Exam, 2018 (Q. 19C)]
16. SND Ltd. credited, the entire profit of Rs. 10 lakhs on the sale of land not required for its use on
31.08.2019. The directors wish to propose dividend out of the above profit. – Comment.
(Pg. No. 68)

CU Exam, 2020
Group – A
1. Define auditing. State objectives of independent financial audit.
The Latin word “Audire” which means “to hear” , is the origin of the term “Audit”. Businessmen in the
earlier days used to appoint some specialised persons to detect frauds if they apprehend so, in respect of
their accounts. Such persons used to hear the explanations of the persons so appointed used to give their
opinions.
According to Spicer and Pegler, audit is “such an examination of the books, accounts and vouchers of a
business, as well enable the auditor to satisfy himself that the Balance Sheet is properly drawn up. So, as
to give a true and fair view of the state of affairs of the business and whether the Profit & Loss Account
give a true and fair view of the profit or loss for the financial period, according to the best of his
information and the explanations given to him as shown by the books and if not, in what respects he is
not satisfied”.
The objective of independent financial audit are as follows:-
a) Verification of Accounts and Statements.
b) Detection of Errors and Frauds.
c) Prevention of Errors and Frauds.
d) Submission of a report to his employer mentioning the state of books of accounts and the
business.

2. Distinguish between audit and investigations. (Pg. No. 15)

3. What is audit programme? Discuss the advantages of conducting an audit according to a pre-
determined audit programme. (Pg. No. 20)
4. What are Audit Working Papers? What do you mean by ownership of working papers relating to
audit?
(Pg. No. 21)
5. ‘Vouching’ is the essence of auditing. Do you agree with this statement? Justify your view.
Vouching is very essence of auditing and the whole success of an audit depend upon the intelligence and
thoroughness with which this part of the work is done. Vouching does not mean merely the inspection of
receipts with the Cash Book but includes the examination of the transactions of a business together with
Gobind Kumar Jha 9874411552
documentary and other evidence of sufficient validity to satisfy an auditor that such transactions are in
order, have been properly authorised and are correctly recorded in the books. By this means the auditor
goes behind the books of account and traces the entries to their sources and it is in this way alone that he
can ascertain the full meaning and circumstances of the various transactions. If he confines himself to
the entries as they appear in the books of account, his information will be incomplete and he may pass
matters of the utmost importance which effect the accounts very materially. The entries in the books
show only information as the book keeper chooses to disclose and such information may be purposely or
unintentionally contrary to the true facts, therefore, only by examining external evidence can an auditor
possibly ascertain the real state of affairs. An auditor is blindfold who foes not base his audit through an
efficient vouching. In most cases, clever frauds can only be discovered by vouching, so that it is
essential that this part of an audit should be conducted with great care and intelligence.
In short the object of vouching are as follows:
i. To ascertain that the transactions as recorded in the books of accounts are in order and correct.
ii. To ascertain that all the transactions took place are duly authorised.
iii. To detect errors and frauds.
iv. To ascertain whether Profit and Loss Account and Balance Sheet reflects the true and fair view in
respect of the concern’s financial position or not.

6. How will you verify the following?

a) Goodwill:- (Pg. No. 55)
b) Investment:- (Pg. No. 53)
c) Trade Payables:- (Pg. No. 58)

7. What special steps are involved in conducting the audit of an Education Institution?
[CU Exam, 2018 (Q. 16)]
8. Distinguish between Audit Report and Certificate. (Pg. No. 75)

Group – B
9. Write short notes:-
a) Social Audit:- (Pg. No. 104)
b) Environment Audit:- (Pg. No. 106)
c) Propriety Audit:- A Propriety Audit is an examination of financial transactions to ensure they adhere to
established laws, regulations, and organizational policies. This audit focuses on the appropriateness and
legality of expenditures, verifying that resources are used for their intended purposes. Propriety audits
help organizations maintain compliance, prevent misuse of funds, and ensure responsible financial
management.
d) Tax Audit:- (Pg. No. 96)
e) Materiality Concept:- (Pg. No. 91)

10. Can dividend be paid:-

a) Out of capital profit:- (Pg. No. 68)
b) Out of current profit without making good past losses? (Pg. No. 70)

11. Discuss the significance of the term ‘True and Fair View’ under the Companies Act, 2013. Discuss
how far auditor’s duties have increased as its consequences.
True and Fair View:- (Pg. No. 90)
Due to inclusion of the word ‘True and Fair View’ in the Companies Act, 2013 the duty of a company
auditor has increased.
i. The auditor has to maintain in his report that the financial statements of the company represent a
true and fair view of the business. To achieve this, the auditor has to check the books of accounts
thoroughly and carefully.
Gobind Kumar Jha 9874411552
ii. The auditor will not furnish his duty merely by verifying the mathematical accuracy of the books
of accounts, he has to verify that the transactions are done for the interest of the company and
they are properly authorised.
iii. He has to see that company has observed the accepted general business principles and complied
with the provisions of the Companies Act.
iv. He should not take anything as true on the basis of assumption.
v. He must not certifying a matter to be true which he himself does not believe to be true.
vi. He must not certify a wrong object to be true, as a result of which the investors suffer from losses
and the uses of accounting information are misguided.
vii. He will perform his duties with honesty, care and efficiency.

12. Define Internal Control. State its objectives. Distinguish between Internal Control and Internal
Audit.
Internal Control:- Internal control is the whole system of control instituted in the organization for the
purpose of running the business in an orderly manner, safeguarding its assets, increasing the productivity
and ensuring reliability and fairness of financial records.
Objectives of Internal Control:-
a) It establishes the processes:- Internal Control outline employee protocol and procedures so employees
aren’t left guessing how to perform their job duties or which procedure to follow. Changes to internal
controls are reported to employees so they are promptly informed of change to improve efficiency and
reduce errors. Internal controls are stringently documented to improve employee understanding and
compliance of protocols which can increase productivity and boost morale.
b) It improves process performance:- As processes are implemented, the continuous monitoring of their
effectiveness helps management make decisions about whether the process is working or if it needs
additional attention. When processes are improved, so is the accuracy of financial reporting which
management may rely on to make informed business decisions or judgments.
c) It improves operational efficiency:- Internal controls can improve the efficiency of operations by
removing unnecessary or duplicate steps in a procedure or process. This might include automation of
manual controls or combining functions cost-effectively. Improved operational efficiency allows
management to receive timely information to verify current operations are meeting the company's
objectives.
d) It keeps duties separated:- Internal controls ensure the separation of duties to avoid conflicts of interest
and reduce the chances of financial mismanagement. Separating duties establishes a system of checks
and balances so no one person has access to every piece of information.
e) It mitigates business risk:- One function of internal controls is to limit the company's losses due to
misappropriated or mishandled funds by employees or management. Internal controls reduce loss by
identifying fraud or financial loss through theft or other illegal means. This may include controlling the
reconciliation of bank statements as well as conducting internal audits to safeguard inventory and assets.
Some internal controls may require the approval of vendors or employees before work begins.
Distinguish between Internal Control and Internal Audit:- (Pg. No. 44)

CU Exam, 2021
Group – A
1) (a) Discuss the scope of the financial audit as per the relevant Standard on Auditing (SA).
The scope of financial audit is very wide. It is applicable everywhere where there is financial transaction
and fund of one person id entrusted to other.
Financial audit is applicable to following areas:-
a) Where there is any financial transaction.
b) When the fund of one person is entrusted to other.
Gobind Kumar Jha 9874411552
c) In all sizes of enterprises, either small, medium or large.
d) In all types of enterprises, whether profit seeking or non-profit seeking.
e) In all forms of enterprises, whether it is sole trading or partnership or co-operative or company.
f) It is applicable to government and non-government organisations.
g) It is applicable to the organizations on regular basis or at intervals or at the end of the accounting
year or on specific occasions.
h) It is applicable to all areas of the enterprise or some selected area.

(b) What are the basic principles governing the financial audit? (Pg. No. 1)

2) What are the means of doing fraud? Discuss the auditor’s responsibility towards detection and
prevention of fraud as per the relevant Standard on Auditing (SA).
There are three types of frauds:-
a) Fraud regarding Cash
b) Fraud regarding goods and assets
c) Fraud regarding books of accounts
Depending upon nature of fraud and intention of the dishonest person various means are adopted.
a) Fraud regarding Cash:- This is done as follows:
i. Not recording items of cash receipts at all.
ii. Items of cash receipts by an amount lower than actual amount.
iii. Recording fictitious transactions for payment.
iv. Recording transactions of payments with an amount which is greater than actual amount.
v. Stealing cash from cash box.
Generally the Cashier, Employee of cash department, Accountant, High officials are involved in
fraud regarding cash.

b) Fraud regarding Goods or Services:- This is done as follows:

i. Stealing goods, articles, small equipments from the business.
ii. Depositing smaller quantity of goods in the store than ordered, taking away remaining goods.
iii. Paying less amount for purchase of assets and recording higher amount in books of accounts
misappropriating the difference.
iv. Selling useful asset at a higher price showing it as useless at a lower price in books of accounts
misappropriating the difference amount.
Generally high officials are involved in fraud regarding assets.

c) Fraud regarding Books of Accounts:- The object of such fraud is not taking away some cash or
articles from the firm, the object of such fraud is more serious which apparently seems to be innocent or
negligible. Generally, owners, managers, directors, high officials are involved in such type of frauds.
i. Recording fictitious sales or purchases so that there may be increase or decrease of profit.
ii. Recording fictitious purchases or omission of purchases.
iii. By over or under valuation of closing stock and assets.
iv. Showing fictitious payments or receipts.
v. By over or under charging depreciation.
Auditor’s duties towards detection and prevention of fraud as per relevant SA:- (Pg. No. 9)

3) What is audit evidence? State the procedures to obtain audit evidence. (Pg. No. 24)
4) What do you mean by the analytical procedure in the auditing? Discuss the tools and techniques of
this procedure. (Pg. No. 30)
5) (a) What are the differences between verification and valuation of assets?
Basis of Difference Verification of Assets Valuation of Assets
Meaning Verification is the process in which Valuation is the examination of
the auditor checks whether the the actual value of the assets and
Gobind Kumar Jha 9874411552
assets displayed in the balance liability of the enterprise as
sheet, exist in the name of the depicted in the Balance Sheet.
business. Also, it confirms whether
they exist in reality or not, or
whether there is any charge on
them.
Time It takes place at the end of the It takes place for the whole
financial year. year's transactions.
Objective To check the existence, ownership To find out the real values of
and possession of assets. assets as per GAAP.
Who performs the Auditor Management
work
Advice The auditor does not seek external The auditor may seek advice
support for verification. from valuers for valuation.
Basis Facts and Figures Estimations
Documentary Title Deed, Receipt for payment Certificate offered by owners,
Evidence etc. directors or experts.

(b) ‘Verification forms an important part of the whole system of audit’ – Critically examine the
statement.
Verification means "proving the truth" or "confirmation". Verification is an auditing process in which
auditor satisfy himself with the actual existence of assets and liabilities appearing in the Statement of
Financial position. Verification is usually conducted through examination of existence, ownership, title,
possession, proper valuation and presence of any charge of lien over assets.
Thus, verification includes verifying:
i. The existence of the assets and liabilities.
ii. Legal ownership and possession of the assets
iii. Correct valuation, and
iv. Ascertaining that the asset is free from any charge

Verification in an audit process can be done offsite or onsite. Offsite verification means verification
by checking documents, official records, photos and by questioning staff responsible or otherwise
trusted to be a reliable source for the facility in verification. Onsite verification means the verifying
party is physically visiting the facility, getting introduced into due facts about it on the site where the
facility is located and operated. The process may be regulated by law in certain countries.

6) How will you vouch the following items:-

a. Interest and Dividend Income from Investment:- (Pg. No. 49)
b. Travelling Expenses:- (Pg. No. 48)

c. Research and Development Expenditure:-

The auditor should vouch the Research and Development Expenditure as follows:-
i. He should examine the nature of research and development.
ii. He should check whether the nature of research and development is consistent with the object of
the firm or not.
iii. He should check that whether the research and development project is authorised by the
management or boards of directors or not.
iv. He should verify that the amount of actual expenditure on research is debited to P&L Account.
v. He should verify that the amount of development expenditure is determined by following the
respective Accounting Standard.
Gobind Kumar Jha 9874411552
vi. He should verify that the amount of expenditure is paid as per instruction of the management and
as per contract.
vii. If any asset is acquired as a result of such research and development expenditure then such asset
is to be shown in the balance sheet after debiting depreciation/amortization amount.
viii. He should check the amount of payment for this purposes with the help of related vouchers,
entries in cash book, pass book and ledger accounts.

7) What steps will you take in conducting the audit of a Hospital? (Pg. No. 35)
8) State the contents of Audit Report as per the relevant Standard on Auditing (SA). [CU Exam, 2019
(Q. 11)]

Group – B
9) Write short notes on:
a. Cost Audit:- (Pg. No. 93)
b. Performance Audit:- [CU Exam, 2019 (Q. 13C)]
c. Management Audit:- (Pg. No. 95)
d. True and Fair View:- (Pg. No. 90)
e. Substantive Audit Procedure:-
Substantive audit procedure means the method or audit tests designed by an auditor to evaluate the
financial statements of the company. It requires on part of the auditor to create conclusive evidence for
verifying the following aspects of the financial records of the company.
i. Completeness:- He should check the accuracy of the books of the accounts of the enterprise.
ii. Accuracy:- He should check the accuracy of the books of accounts of the company.
iii. Existence:- He should verify the existence of assets and liabilities, shown in the balance sheet in
reality.
iv. Occurrence:- He should check whether the transactions that are recorded in books of accounts
have really occurred or not.
v. Measurement:- He should check various aspects like depreciation, provision for bad debt,
valuation of closing stock have been measured accurately.
vi. Valuation:- He should value the assets and liabilities of the enterprise as precisely as possible.
Following are the examples or types of substantive audit procedure:-
i. Counting inventory
ii. Monitoring purchases
iii. Distributing inventories
iv. Verifying payments
v. Corroborating customer orders
vi. Collecting debts
vii. Confirming account balance.

10) a) Can dividend be paid out of current profit without writing off fictitious assets?
Fictitious assets are not assets in true sense neither these are saleable nor do they contribute towards
earning of the company. They accrue no benefit to the company.
Examples are:- Debit balance of P&L Account, Discount on issue of shares and debentures, Preliminary
expenses, Advertisement expenses, Goodwill of a loss making concern, Useless patents, etc. These
expenses are made in the past for generating income of the firm over a period of few years, therefore
balance of such accounts should be written off to profit and loss account over a period of few years as
per convenience of the firm. So if there is profit in current year and there are some fictitious assets in the
firm, then the firm must write off a reasonable amount of fictitious assets before distributing dividend.
The auditor should ensure this. If the directors do not write off a part of the fictitious assets to Profit and
Loss Account before paying dividend, then the auditor should mention this fact in his report.
Gobind Kumar Jha 9874411552
b) What are the provisions of the Companies Act, 2013 regarding depreciation to be provided in
the accounts?
The provisions of the Companies Act regarding depreciation are as follows:-
i. The rates of depreciation on various assets are given in the fourteenth schedule of the Act. The
company should calculate depreciation at those rates.
ii. The company can provide depreciation following straight line or diminishing balance method as
per choice of the company.
iii. When an asset is purchased then depreciation on such asset is to be calculated from the date of
purchase to end of the years.
iv. When an asset is sold then depreciation on such asset is to be calculated from beginning of the
year to date of sale.
v. If an asset is used for extra shift i.e., double shift or triple shift then adequate amount of
depreciation is to be charged on that asset.
vi. The company must provide depreciation on all types of assets.
vii. If there is any arrear depreciation for past year(s), then such depreciation also be provided along
with current year’s depreciation.
viii. A company cannot pay dividend without charging depreciation.
ix. A company can charge depreciation by following method other than straight line or diminishing
balance method, if the central government permits to do so.
x. The rate of depreciation prescribed in the schedule is the minimum. The company may charge
depreciation at a higher rate if it is required.
xi. If the company does not provide for depreciation or provides depreciation at lesser amount than
required then this fact is to be mentioned by foot note below the balance sheet.

11) State the provision of the Companies Act, 2013 regarding appointment and removal of a company
auditor. (Pg. No. 61 & 62)
12) (a) What is Internal Audit? Can a statutory auditor rely on the internal audit report? Discuss.
Internal Audit:- [CU Exam, 2018 (Q. 23)]
Statutory Auditor rely on Internal Audit Report:- (CU Exam, 2019 (Q. 8C)]
(b) What do you mean by audit risk? Discuss the different types of audit risk as per the relevant
Standard on Auditing (SA). (Pg. No. 40)

CU Exam, 2022
Group – A
1. Discuss the objectives of independent financial audit. [CU Exam, 2020 (Q. 1)]
Or, (a) What do you mean by auditor’s independence?
Auditor independence refers to the independence of the external auditor. It is characterized by integrity
and requires the auditor to carry out his or her work freely and in an objective manner.
(b) Discuss the significance of auditor’s independence in the statutory audit. [CU Exam, 2019 (Q. 3)]
2. Distinguish between audit and investigation. (Pg. No. 15)
3. What is Audit Note Book? State its importance. (Pg. No. 23)
Or, Documentation of audit plan serves as an important record of audit. Why is it so important?
(Pg. No. 20)

Group – B
4. What is test checking? What precautions will you take as an auditor before undertaking test
checking? (Pg. No. 27)
Or, Discuss the essential steps involved in conducting the audit of a Hotel. (Pg. No. 37)
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5. What do you mean by internal control? Distinguish between internal control and internal audit.
[CU Exam, 2020 (Q. 20)]
6. “In vouching payments, the auditor does not merely seek proof that money has been paid away”. –
Critically examine the statement. (Pg. No. 49)
Or, How will you verify the following items of the balance sheet (any two)?
(a) Investments (Pg. No. 53)
(b) Secured Loan (Pg. No. 58)
(c) Goodwill (Pg. No. 55)
7. (a) State the reporting responsibility of the statutory auditor in respect of the following clause under
paragraph 3 of Companies (Auditor’s Report) Order, 2020 (CARO, 2020):
Clause (i) Property, Plant and Equipment
In clause (i) of CARO, 2020, the auditor should have to ensure that:-
a. Whether the proper record of all property, plant and equipment, quantity wise and situation wise along
with full particulars of intangible assets have been maintained or not.
b. Whether the physical verification of the assets have been made at a reasonable interval and if any
material discrepancy had been noticed then it is properly dealt in Books of Accounts or not.
c. Whether the title deed of immovable property is in co’s own name (except lease agreement) or not. If
title deed is not on the co’s name, then details of that property have been provided or not.
d. Whether the valuation of assets have been made by registered valuer and specify amount of change if
change atleast 10% upward or downward.
e. Whether any Benami Property held by company have been disclosed or not.

Clause (vii) Deposit of Statutory Dues

Statutory Dues includes PF, ESIC, Income Tax, Sales Tax, Service Tax, VAT, etc. In Clause (vii) of
CARO, 2020, the auditor should check:-
a. In case of undisputed dues, whether the company is regular in payment of dues or not. If not, then report
if taxes are unpaid for more than 6 months as on balance sheet date from the due date.
b. In case of disputed dues, report the name of Forum where dispute is pending and amount of dispute.

(b) Discuss the significance of the term ‘True and Fair View’ as per the Companies Act, 2013.
(Pg. No. 90)
Or, Explain the concept of materiality and the guiding factors to determine the materiality of an item.
(Pg. No. 91)
8. Write short notes on (any two):
a. Tax Audit (Pg. No. 96)
b. Social Audit (Pg. No. 104)
c. Propriety Audit [CU Exam, 2020 (Q. 9C)]

Group – C
9. (a) What is Joint Audit? Discuss the principles to be followed in joint audit in respect of division of
work among the joint auditors as per the relevant Standard on Auditing. (Pg. No. 73 & 74)
(b) Can a company pay dividend out of capital profit? Explain with reference to the relevant legal
decision. (Pg. No. 68)
Or, (a) What do you mean by unclaimed dividend? How is it treated in accounts? (Pg. No. 67)
(b) Discuss the provisions of the Companies Act, 2013 regarding unclaimed dividend.
Following are the provisions regarding unclaimed dividend as per Sec. 124 of the Companies Act, 2013:
a. Where a dividend has been declared by a company but has not been paid or claimed within thirty
days from the date of the declaration to any shareholder entitled to the payment of the dividend,
the company shall, within seven days from the date of expiry of the said period of thirty days,
transfer the total amount of dividend which remains unpaid or unclaimed to a special account to
be opened by the company in that behalf in any scheduled bank to be called the Unpaid Dividend
Account.
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b. The company shall, within a period of ninety days of making any transfer of an amount under
sub-section (1) to the Unpaid Dividend Account, prepare a statement containing the names, their
last known addresses and the unpaid dividend to be paid to each person and place it on the
website of the company, if any, and also on any other website approved by the Central
Government for this purpose, in such form, manner and other particulars as may be prescribed.
c. If any default is made in transferring the total amount referred to in sub-section (1) or any part
thereof to the Unpaid Dividend Account of the company, it shall pay, from the date of such
default, interest on so much of the amount as has not been transferred to the said account, at the
rate of twelve per cent. per annum and the interest accruing on such amount shall ensure to the
benefit of the members of the company in proportion to the amount remaining unpaid to them.
d. Any person claiming to be entitled to any money transferred under sub-section (1) to the Unpaid
Dividend Account of the company may apply to the company for payment of the money claimed.
e. Any money transferred to the Unpaid Dividend Account of a company in pursuance of this
section which remains unpaid or unclaimed for a period of seven years from the date of such
transfer shall be transferred by the company along with interest accrued, if any, thereon to the
Fund established under sub-section (1) of section 125 and the company shall send a statement in
the prescribed form of the details of such transfer to the authority which administers the said
Fund and that authority shall issue a receipt to the company as evidence of such transfer.
f. All shares in respect of which1[dividend has not been paid or claimed for seven consecutive
years or more shall be] transferred by the company in the name of Investor Education and
Protection Fund along with a statement containing such details as may be prescribed:
Provided that any claimant of shares transferred above shall be entitled to claim the transfer of
shares from Investor Education and Protection Fund in accordance with such procedure and on
submission of such documents as may be prescribed.
g. If a company fails to comply with any of the requirements of this section, the company shall be
punishable with fine which shall not be less than five lakh rupees but which may extend to
twenty-five lakh rupees and every officer of the company who is in default shall be punishable
with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.