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Question Bank Auditing B Com 6th Sem
Question Bank Auditing B Com 6th Sem
Unit 1
Two Marks Questions
1. Define Auditing?
Ans. Mautz: defines auditing as being “Concerned with the verification of
accounting data with determining the accuracy and reliability of accounting
statements and reports.”
2. Define Auditor?
Ans: Auditor is a trained professional who is responsible to review and verify the
accounting data of any business undertaking pertaining to its business activities.
5 Benefit Accountant gets salary for his Auditor gets fees for his
work work known as audit fees.
Q3. Distinguish between internal audit and independent audit. (dec 2000)
This audit work is carried out This audit is work happens once at the
continuously throughout the year end of the year
It is done to verify the reliability and This audit is conducted in order to fulfill
authenticity of the financial accounting the legal requirement of the business.
and other records presented to the
management.
1. Interim audit is good where the publication of the interim figure is necessary.
2. Then final audit can be completed very soon, if there has been an interim audit.
3. Errors and frauds can be detected more quickly during the final audit.
4. There is moral check on the staff of the client as the accounts are checked, say
after three or six months in the interim audit.
1. Figures may be altered in the accounts which have already been audited.
2. It will mean that the audit staff will have to prepare notes when they finish
the interim audit.
3. Interim audit is an additional work because final audit must be conducted after
conducting this audit too.
1 Fee The fee of interim audit is low. The fee of continuous audit is
high.
3 Objectives Interim audit checks and Continuous audit shows the true
determines the profit or loss for and fair view of the financial
the particular period. statement.
7 Period Of Interim audit period is upto the Continuous audit period is for
Audit particular date. one whole year
1. Appointment :-
Internal auditor : Internal auditor is appointed by the management of the company.
External auditor : External auditor is appointed by the shareholders of the company.
2. Legal Position :-
Internal auditor : Legally internal audit is not compulsory.
External auditor : External audit is compulsory by law.
3. Status Of Auditor :-
Internal auditor : Internal auditor is employee of the company.
External auditor : External auditor is an independent person.
4. Qualification :-
Internal auditor : For internal auditor any specific qualification is not compulsory.
External auditor : For external auditor specific qualification is compulsory.
5. Submission Of Report :-
Internal auditor : Internal auditor has not to submit any report.
External auditor : External auditor submits report to the shareholders.
6. Fixation Of Remuneration :-
Internal auditor : Internal auditor remuneration is fixed by the management of the company.
External auditor : External auditor remuneration is fixed by the shareholders of the company.
7. Name Of Remuneration :-
Internal auditor : Internal auditor receives salary.
External auditor : External auditor receives audit fee.
8. Nature Of Checking :-
Internal auditor : Internal auditor checks all the transactions.
External auditor : External auditor may apply test check.
11. Guidance :-
Internal auditor : Internal auditor gives suggestions to the management for the betterment of
the business.
External auditor : External auditor has no need to give suggestions unless he is asked.
12. Duties :-
Internal auditor : Internal auditor primary duty is to find the frauds and errors.
External auditor : External auditor has to report about final accounts whether these are true or
false.
13. Removal :-
Internal auditor : Internal auditor can removed by the management.
External auditor : External auditor can be removed by the share holders.
Ans: Audit working papers are those papers which contain essential facts about
accounts, which are being audited. Its defined as the file of analysis, summaries,
comments and correspondence build up by the auditor during the course of audit.
The auditor maintains papers as supporting evidence to the audit work. The institute
of chartered accountants of India states that “an auditor is expected to maintain
evidence of work done by him and his staff”. Usually, audit working papers contains
a copy of the trial balances, schedule of debtors and creditors, reconciliation
statements important correspondence etc.
1. Audit programme
2. Audit notebook
Q.10. explain audit working papers and audit files as vital tools of an audit work?
Ans: Audit working papers are those papers which contain essential facts about
accounts, which are being audited. Its defined as the file of analysis, summaries,
comments and correspondence build up by the auditor during the course of audit.
The auditor maintains papers as supporting evidence to the audit work. The institute
of chartered accountants of India states that “an auditor is expected to maintain
evidence of work done by him and his staff”. Usually, audit working papers contains
a copy of the trial balances, schedule of debtors and creditors, reconciliation
statements important correspondence etc.
3. They also reveal the efficiency with which the audit work was done.
4. They can be used as evidence in the court to defend himself against negligence
in his duty.
6. They help the auditor to understand the efficiency of the accounting system,
internal check system etc.
a) To establish the accuracy of the costing data. This is done by verifying the
arithmetical accuracy of cost accounting entries in the books of accounts.
c) To find out whether the costing principles by management are followed in the
preparation of cost accounts or not.
d) To confirm whether the cost statements are drawn from costing records and
exhibit true and fair view of cost of production.
f) To print out the inefficiencies in the area of material labour, and machines and
to assist the management to evaluate suitable measures for controlling them.
An auditor prepares a plan after the selection of senior and junior staffs allocating
the jobs to them, mentioning when to start, how to do the work etc. This plan is
known as audit program.
An auditor should include all the procedures in written form, objectives of each
sector and all the directions which are to be given to the staffs which helps to control
their works and helps to implement such programs into action. Following are the
facts regarding meaning of audit program:
* Audit program is a detailed work plan which includes the time of doing work and
how to do the works.
* Senior staffs prepare audit program to junior staffs on the basis of nature of
business
Ans: the main differences between management audit and cost audit are as under:
2 It is generally a programme of one year It may cover more than one year
4 Cost audit is made compulsory for It is not compulsory for any company
companies engaged in production,
processing, manufacturing or mining
activities
5 There is a time limit fixed by the any Statue for the submission of management
statue for the submission of cost audit audit report.
report
Section – C (16 marks questions and answers)
Statutory audit refers to the audit of accounts of a business enterprises carried out
compulsorily under the provisions of a statute or law. It is is the audit carried out
compulsorily under any statute any law.
3.Private audit or Voluntary audit : - Where an audit is not compulsory under any
statute, but is undertaken by the owners voluntarily to get the benefit of audit, the
audit is called private audit. In other words , private audit refers to the audit of
accounts of private enterprises such as a sole trading concerns, partnership firms and
other individuals and institutions.
2. Final Audit or Annual or periodical audit It is an audit carried out after the
preparation of financial statement. It is an audit where the auditor takes up his
work of checking the books of accounts only at the end of the accounting year.
In this case, the audit work is commenced and completed in a single
uninterrupted session.
4. Balance sheet audit : - Balance sheet audit is a type audit which concentrates
mainly on the verification of the items in the balance sheet such as capital,
reserves, profit and loss account balance, liabilities and provisions and all the
assets of the business.
6. Complete Audit : - Complete audit is a kind of audit under which all the
records and books of accounts are audited by an auditor.
2. Special Audit:- It is a kind of audit with some special object in view. It is a fact
finding enquiry.
6. Tax Audit: - It means audit for tax purpose. Audit required to be carried out of
income tax act of 1961. It is conducted by certified Chartered Accountant.
Q2. What is continuous audit and final audit? Or explain continuous audit is a
double edged weapon. What are their merits and demerits?
Errors and frauds can be discovered easily and quickly as the auditor checks the
accounts atregular intervals and in detail. As a auditor visits the client after a
month or two or so on, the number of transactions will be small and hence, the
errors will be detected easily and quickly.
Since the auditor remains more in touch with the business, s/he is in a position to
know its technical details and hence can be of great help to her/his clients by
making valuable suggestions.
As the auditor visits the clients at regular intervals, the clerks are very regular in
keeping the accounts up-to-date. They will see that there is no in accuracy or
frauds as it would be detected by the auditor at the next visit.
If the auditor pays surprise visit, it will have a considerable moral check on the
clerks preparing the accounts as they do not know when the auditor may pay a
visit to check. Moral check will be more valuable to make staff alert and careful.
Disadvantages Of Continuous Audit
1. Alteration of figures
Figures in the books of account which have already been checked by the auditor
at previous visit, may be altered by a dishonest clerk and the frauds may be
committed.
The frequent visits by the auditor may disturb the work if the client and cause
inconvenience to the latter.
3. Expensive
The audit clerk may lose the thread of work and the queries which s/he wanted
to make may remain outstanding as there might be a long interval between two
visits.
Extensive note taking may be necessary in order to avoid any alteration in the
figures after the audit.
Q3. What are the steps to be undertaken by the auditor before starting the new audit?
Ans: An auditor must prepare well before he actually commences a new audit. He
has to take certain steps or bear in mind certain considerations before commencing
a new audit. These steps are known as preliminary steps or general steps.
III. Ascertaining the nature of the business undertaken by the client enterprise.
XII. Enquiry about the reason for the change of the auditor.
c) Schedules should be kept for ready reference such as schedules of debtors and
creditors, list of bad and doubtful debts, schedule of investment, schedule of
depreciation etc..
Q4 give the meaning of audit note book. What are the contents and merits ?
General Information
1. The nature of the business carried on and the important documents relating to the
constitution of the business, i.e. Memorandum Of Association, Articles Of
Association ( in the case of limited companies) and Partnership Deed ( in the case of
partnership firm) and other legal documents.
5. Particulars of the accounting and financial system followed and the internal check
in operation in the business.
1. Routine queries not cleared, i.e., missing receipts and vouchers etc.
3. The points raised during the course of audit, to which the attention of
the auditor must be drawn, i.e. failure of the company to comply with the provisions
of the Companies Act or of the Memorandum of Association and other legal
requirements.
4. Extracts from minutes books and contracts and other correspondence with various
government agencies, financial institutions, debtors, creditors etc.
6. The points which needs further explanation and clarification e.g., a change in the
basis of valuation of finished stocks or in the computation of depreciation, etc.
The major points which are detected or found during the course of audit can be noted
in audit note book. So, an auditor can get the following benefits by maintaining
audit note book properly:
All the facts related to audit are noted down in the audit note book. While auditing
the books of accounts of same organization auditor does not need to do the same
work. So, s/he can save time and cost.
If any person files the cases against the auditor charging misfeasance and
negligence, an auditor can present audit note book in the court or concerned
authority and can get clearance against such cases.
Auditor can refer such noted point in the future which helps to continue the work of
audit in future to the auditor.
Ans: Auditing has become a compulsory task in the business organization. All the
organizations like business, social, industries and trading organizations make audit
of books of accounts. Now-a-days, owner of business and its management are
separate. So, to detect and prevent frauds, auditing has become essential. Its
advantages are as follows:
An auditor's main duty is to detect errors and frauds, preventing such errors and
frauds and taking care to avoid such frauds. Thus, even though all organizations do
not have compulsion to audit, they make audit of all the books of accounts.
An auditor raises questions if accounts are not maintained properly. So, audit gives
moral pressure on maintaining accounts regularly.
Valuation of assets is made by the auditor. On the basis of valuation of assets and
liabilities, businessman can sell his business. It helps to determine the price of
business.
Tax authorities assess taxes on the basis of profit calculated by the auditor. In the
same way sales tax authority calculates sales tax on the basis of sales shown in the
audited statement.
Valuation of all the assets and liabilities of the business is made by the auditor while
auditing books of account. Such valuation helps to clear the amount of deceased
partner.
If any case is filed against the auditor regarding negligence, auditor can present
audited report as a proof to settle such case. So, it helps to present proof to settle
such cases.
A businessman wants to know profit or loss of his business after a certain period of
time. So, the owner of the business can get information about profit or loss after
auditing the books of accounts.
All the audited statements remain true and correct. Such true and correct account
helps to prepare for the future plans.
Limitations of Auditing
1. All transactions cannot be checked – It is not possible for an auditor to
check each and every transaction; he has to check them on sample basis.
5. Rely on experts – The auditor has to rely on experts like lawyers, engineers,
valuers etc. for estimation of contingent liability and valuation of fixed assets.
Audit working papers are those papers which contain essential facts about accounts,
which are being audited. Its defined as the file of analysis, summaries, comments
and correspondence build up by the auditor during the course of audit.
The auditor maintains papers as supporting evidence to the audit work. The institute
of chartered accountants of India states that “an auditor is expected to maintain
evidence of work done by him and his staff”.
Usually, audit working papers contains a copy of the trial balances, schedule of
debtors and creditors, reconciliation statements important correspondence etc.
1. They show the extent to which accounting principles and auditing standards
have adhered to.
3. They also reveal the efficiency with which the audit work was done.
4. They can be used as evidence in the court to defend himself against negligence
in his duty.
Working papers should be clear complete, and contain the necessary information so
that they may be of maximum utility. They should be properly organized,
documented and signed. In this regard its said hat “an auditor is often judged by the
quality of the working paper prepared by him under his guidance”.
working papers are confidential documents hence he should not disclose the facts to
others. Doing so results in professional misconduct. Working papers should be
preserved properly because they are important documents.
Q7. What is audit programme? what are its merits and demerits?
An auditor prepares a plan after the selection of senior and junior staffs allocating
the jobs to them, mentioning when to start, how to do the work etc. This plan is
known as audit program.
An auditor should include all the procedures in written form, objectives of each
sector and all the directions which are to be given to the staffs which helps to control
their works and helps to implement such programs into action.
* Audit program is a detailed work plan which includes the time of doing work and
how to do the works.
* Senior staffs prepare audit program to junior staffs on the basis of nature of
business
All the directions which are to be given to assistant are clearly stated in the audit
program which helps to complete the task in time. Audit program also helps to
conduct the audit of the business in coming years which saves time and labor.
All the responsibilities of auditor are divided among the number of staffs considering
their skill and intelligence which helps to complete the work of audit properly.
Similarly, the works are divided among the assistant staffs on the basis of their
caliber which helps to increase efficiency.
An auditor can compare the work performed by the assistants on the basis of audit
program which helps to control their work if there are any deficiencies.
Works are divided among the assistant staffs; so there is no any chance of leaving
non audited statements. If the work of audit is performed on the basis of audit
program every year, uniformity can be maintained in the work of audit which helps
to compare the report of various years.
Work of assistant is clearly defined in the audit program and assistant puts signature
in the completed work. So, if any work is left out, assistant can be made liable for
such work.
Audit program clearly shows the completed task and procedures of doing work. So,
if any staff leaves the job or remains absent, new staff can easily continue the job of
audit.
All the staffs should perform task within the limitation given in audit program. So,
staffs can not use their knowledge and caliber which harasses to them.
Nature and size of business differs. So, the program which is prepared at the
beginning of the year remains unsuitable. Different organizations may have their
own problems. So, similar type of program may not be applicable to all.
Staffs of the client get information about the audit program in advance which
increases the chance of committing frauds. Similarly, it harasses the audit staffs so
they perform the work of audit carelessly which also increases the chance of
committing frauds.
Small concern has less transactions and work of audit can be completed in short
period of time. So,audit program is not essential to audit such concern.
New techniques and technologies are used in the work of accounting. Such
technology creates the problem in the work of audit but such problems and remedial
measures are not included in the audit program.
2. Scope of management audit is vague. So, it does not help to achieve specific goal.
Unit 2
INTERNAL CONTROL
Ans. Internal check means a system under which the work connecting with carrying
out and recoding of transactions is allocated among the various members of the staff
so that errors and frauds are either prevented altogether or if committed are rendered
capable of early detection by automatic operation of the system, unless all the clerks
join hands in defrauding their employees.
(iii) To prepare final accounts with ease and efficiency as an efficient system
can make accounts more reliable.
(i) Assets Protection: the assets are the backbone of any business. These are
in the custody of some specific officers of the business. The internal
control system checks the valuation and protects the assets of the business.
(iii) Accurate record: the main object of internal control is to maintain all
records and transactions of business according to the generally accepted
accounting principle.
Q5. Define internal check?
(i) The management can determine the total amount of work. The whole
work is divided among departments. The heads of such department are
responsible for the completion of work according to time table.
(ii) It is quite easy to detect and prevent locating of errors and frauds.
(ii) The auditor’s work may become very difficult, if the system is defective
and unorganized.
Q11. Write any two differences between internal check and internal auditing?
Ans. The two differences between internal check and internal auditing are:
Ans. Wage payment is a payment to a person for service rendered..the amount paid
periodically, especially by the day or week or month, for the time during which
workman is at job.
Ans. Control is wider term and will include all types of management controls. It is a
means of assisting modern business management in discharging its function.
Internal control is a means by which an organisation’s resources are directed,
monitored, and measured. It plays an important role in detecting and preventing
fraud and protecting the organisation’s resources, both physical and intangible.