Dibrugarh University TDC
6th SEM (CBCS) C 613
[Auditing Solved Question Paper]
2022 (June/July)
COMMERCE (Core)
Paper: C-613 (Auditing)
Full Marks: 80
Pass Marks: 32
Time: 3 hours.
The figures in the margin indicate full marks for the questions
1. (a) Fill in the blanks: 1x4=4
(1) The auditor is accountable to the Shareholders.
(2) Routine checking is a total process of accounting verification.
(3) A company can function within the limits prescribed by the documents on the basis of which it has been incorporated.
(4) A report is nothing but a systematic presentation of facts.
(b) Write True or False: 1 x 4=4
(1) The auditor helps in preparation and filing of tax returns of the firm.
Ans: True
(2) The verification of most of the assets is based on personal opinion guided by sound judgment and well-established practices.
Ans: False
(3) A company auditor is not an agent of the shareholders.
Ans: True
(4) A qualified report means an audit report which is clear.
Ans: False.
Dibrugarh University Auditing Solved Question Paper 2022 BCom 6th Sem. Hons CBCS
2. Write short notes on any four of the following: 4x4=16
(a) Internal control, (b) Vouching of cashbook. ,(c) Qualification of a company auditor. ,(d) Removal of an auditor. , (e) Standard report.
(a) Internal Control: Internal control refers to the policies, procedures, and systems implemented within an organization to safeguard its assets, ensure the accuracy and reliability of financial information, and promote operational efficiency. It includes activities such as segregation of duties, authorization and approval processes, physical controls, and monitoring mechanisms. Internal control helps mitigate risks, prevent fraud, and ensure compliance with laws and regulations. It provides reasonable assurance that the organization's objectives are achieved effectively and that financial reporting is reliable.
(b) Vouching of Cashbook: Vouching of cashbook is a process in auditing where the auditor examines and verifies the accuracy and authenticity of transactions recorded in the cashbook. It involves comparing the entries in the cashbook with supporting documents such as receipts, invoices, bank statements, and other relevant records. The purpose of vouching cashbook transactions is to ensure that the recorded transactions are legitimate, properly authorized, and accurately reflected in the financial statements. It helps in detecting errors, omissions, and fraudulent activities related to cash transactions.
(c) Qualification of a Company Auditor: The qualification of a company auditor refers to the specific requirements and qualifications that an individual or firm must possess to be eligible to serve as an auditor for a company. Qualifications may vary depending on the jurisdiction, but common requirements include professional certification (e.g., Certified Public Accountant), membership in a recognized auditing body, and relevant experience in auditing and accounting. Qualifications are necessary to ensure that auditors possess the necessary knowledge, skills, and independence to perform their duties effectively and provide reliable audit opinions.
(d) Removal of an Auditor: The removal of an auditor refers to the process of terminating the appointment of an auditor before the completion of their term. The removal can be initiated by various parties, such as the shareholders, the board of directors, or regulatory authorities. Reasons for removal may include dissatisfaction with the auditor's performance, concerns over independence or conflicts of interest, or failure to comply with auditing standards. The removal process typically involves following the procedures outlined in the applicable laws, regulations, or the company's articles of association.
(e) Standard Report:A standard report is the formal report issued by the auditor at the conclusion of an audit engagement. It contains the auditor's opinion on the fairness and reliability of the financial statements and provides an overall assessment of the organization's financial position. The standard report typically includes sections such as the auditor's opinion, management's responsibilities, auditor's responsibilities, and key audit findings. The report may also highlight any significant issues or limitations encountered during the audit process. The standard report provides stakeholders with valuable information regarding the reliability of the financial statements and supports informed decision-making.
3. (a) Define ‘auditing’. Discuss its advantages and limitations. 2+6+6=14
Ans: Auditing refers to the systematic and independent examination of financial records, statements, transactions, and operations of an organization to determine their accuracy, fairness, and compliance with applicable laws, regulations, and accounting standards. The purpose of auditing is to provide an independent opinion on the reliability of financial information and the effectiveness of internal controls.
Advantages of Auditing:
1. Enhances Credibility and Reliability: Auditing adds credibility and reliability to the financial statements by providing an independent and objective assessment of their accuracy. It assures stakeholders, such as investors, lenders, and shareholders, that the financial information is trustworthy and can be relied upon for decision-making.
2. Detects Errors and Fraud: Through the audit process, errors, omissions, and fraudulent activities can be identified. Auditors assess the internal control system, review transactions, and perform analytical procedures to detect material misstatements or irregularities. This helps in preventing and detecting fraud, errors, and irregularities, protecting the organization's assets, and maintaining integrity.
3. Provides Assurance to Stakeholders: Auditing provides assurance to stakeholders, including management, board of directors, shareholders, and regulatory bodies, that the financial statements are prepared in accordance with the applicable accounting standards and represent a true and fair view of the company's financial position. It enhances transparency and accountability within the organization.
4. Improves Internal Controls: Auditing helps in evaluating the effectiveness of internal control systems within the organization. By identifying weaknesses or gaps in controls, auditors can make recommendations for improvements to enhance the organization's control environment, operational efficiency, and risk management practices.
Limitations of Auditing:
1. Inherent Limitations: Auditing has inherent limitations due to factors such as the use of sampling techniques, time constraints, the possibility of collusion or management override, and the reliance on representations and documents provided by the organization. These limitations may prevent auditors from detecting all material misstatements or irregularities.
2. Costly and Time-Consuming: Auditing can be a costly and time-consuming process, especially for large organizations. The need to gather sufficient and appropriate audit evidence, perform detailed testing, and comply with auditing standards and regulations can result in significant expenses and lengthy audit engagements.
3. Reliance on Judgment: Auditing requires professional judgment and estimation by auditors. The interpretation of accounting standards, materiality thresholds, and the assessment of risks involve subjective judgment calls. This reliance on judgment introduces a level of subjectivity that can impact the consistency of audit opinions.
4. Limited Scope: Auditing focuses on financial statements and related controls. It does not provide absolute assurance, as it is based on a sample of transactions and relies on the information provided by the organization. Auditors may not examine every transaction or operational aspect of the organization, which may limit the extent of their findings.
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(b) What is ‘internal check’? What are its objectives? Distinguish between internal check and internal audit. 2+5+7=14
Ans: Internal check refers to the system of internal controls and checks put in place within an organization to ensure that operations and transactions are conducted efficiently, accurately, and in compliance with established policies and procedures. It involves the segregation of duties, proper authorization, documentation, and independent verification of transactions.
The primary objectives of internal check are as follows:
1. Prevention and Detection of Errors and Fraud: The main objective of internal check is to identify and prevent errors and fraud in the organization's operations. By segregating duties and implementing checks and balances, it becomes more difficult for individuals to manipulate or misappropriate assets or manipulate financial records.
2. Accuracy and Reliability of Financial Information: Internal check aims to ensure the accuracy and reliability of financial information. By implementing controls over recording, processing, and reporting transactions, it reduces the risk of errors or misstatements in the financial statements. This helps in providing reliable information for decision-making by management, shareholders, and other stakeholders.
3. Safeguarding of Assets: Internal check helps safeguard the organization's assets by implementing controls that prevent unauthorized access, use, or disposal of assets. It ensures that assets are properly accounted for, protected against theft or loss, and used for legitimate business purposes.
4. Compliance with Laws and Regulations: Internal check helps the organization comply with applicable laws, regulations, and internal policies. It ensures that transactions and operations adhere to legal and regulatory requirements, minimizing the risk of penalties, fines, or reputational damage.
5. Efficient and Effective Operations: Internal check promotes efficient and effective operations by streamlining processes, identifying bottlenecks, and ensuring that resources are utilized optimally. It helps in identifying areas of inefficiency, improving productivity, and reducing costs.
6. Accountability and Responsibility: Internal check enhances accountability and responsibility within the organization. By assigning specific duties and responsibilities to individuals and implementing appropriate controls, it ensures that individuals are accountable for their actions and that there is a clear chain of authority and accountability.
Distinguish between internal check and internal audit:
Dibrugarh University Auditing Solved Question Paper 2022 BCom 6th Sem. Hons CBCS
4. (a) What is ‘routine checking’? Discuss its advantages and limitations. 3+6+5=14
Ans: Routine checking, also known as vouching or substantive testing, refers to the process of examining individual transactions or items in the accounting records to ensure their accuracy, completeness, and compliance with relevant policies, procedures, and regulations. It involves tracing back or verifying the source documents, such as invoices, receipts, and contracts, to the recorded entries in the books of accounts. Routine checking serves as an important component of the audit process and helps auditors gather evidence to support their opinions on the financial statements.
Advantages of Routine Checking:
1. Identification of Errors and Irregularities: By examining individual transactions, routine checking helps in detecting errors, omissions, and irregularities in the accounting records. It allows auditors to identify discrepancies, such as incorrect postings, unauthorized transactions, or fraudulent activities.
2. Increased Reliability of Financial Statements: Routine checking provides a higher level of assurance regarding the accuracy and completeness of financial statements. It helps verify that the recorded transactions are supported by appropriate documentation and are in line with accounting principles and regulations.
3. Validation of Internal Controls: Through routine checking, auditors can evaluate the effectiveness of internal controls within an organization. By examining individual transactions, they can identify control weaknesses or gaps in the system, allowing for recommendations for improvements to prevent future errors or fraud.
Limitations of Routine Checking:
1. Sampling Limitations: Auditors typically use sampling techniques to select transactions for routine checking due to time and resource constraints. However, the use of sampling introduces the risk of not capturing all errors or irregularities, as some may remain undetected in the untested population.
2. Reliance on Documentation: Routine checking heavily relies on the availability and reliability of supporting documentation. If documentation is incomplete, missing, or altered, auditors may face challenges in obtaining sufficient evidence or may need to rely on alternative audit procedures.
3. Limited Detection of Collusion or Management Override: Routine checking focuses on transaction-level testing, which may not be effective in identifying collusion among employees or management override of controls. These types of fraud or irregularities may require additional audit procedures, such as data analytics or targeted inquiries.
4. Inherent Limitations of Audit: It's important to note that routine checking is just one aspect of the overall audit process. Auditors rely on a combination of procedures, including risk assessment, analytical review, and other substantive tests, to gather sufficient evidence. While routine checking provides valuable insights, it does not guarantee the detection of all material misstatements or irregularities.
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(b) What do you understand by ‘verification’? How would you verify the following assets? 2+(4x3)=14
(1) Freehold property.
(2) Investment.
(3) Cash at Bank.
Ans: Verification refers to the process of substantiating the existence, ownership, and valuation of assets and liabilities. It involves obtaining sufficient and appropriate audit evidence to support the information presented in the financial statements. The auditor verifies assets by performing procedures such as inspection, inquiry, confirmation, and analytical review.
1. Freehold Property Verification:
To verify freehold property, the auditor typically performs the following procedures:
- Inspection: Physically inspect the property to confirm its existence, location, and condition.
- Title Deeds and Ownership: Review the title deeds, ownership documents, and relevant legal agreements to ensure that the property is properly owned by the company.
- Valuation: Obtain a valuation report from an independent expert to assess the fair value of the property.
2. Investment Verification:
Verifying investments involves the following procedures:
- Inspection: Inspect the investment certificates, securities, or other relevant documentation to confirm their existence and ownership.
- Confirmation: Send confirmation requests to the custodians or financial institutions holding the investments to verify the balances and terms.
- Valuation: Evaluate the fair value of investments by reviewing market prices, applicable accounting standards, and independent valuations.
3. Cash at Bank Verification:
Verification of cash at bank typically involves the following steps:
- Confirmation: Send bank confirmation requests directly to the company's banks to verify the cash balances and any related arrangements, such as pledged assets or restrictions on withdrawals.
- Bank Reconciliation: Review the bank reconciliation statements prepared by the company, ensuring that any reconciling items are adequately explained and resolved.
- Cut-off Procedures: Perform cut-off tests to determine the completeness and accuracy of cash transactions by examining bank statements and reconciliations before and after the year-end.
These verification procedures help the auditor obtain sufficient and appropriate evidence to support the existence, ownership, and valuation of freehold property, investments, and cash at bank. It is important to tailor the audit procedures based on the specific circumstances and risks associated with each asset category. The auditor's objective is to obtain reasonable assurance that the financial statements are free from material misstatements and fairly present the company's financial position.
5. (a) Discuss about the different rights, duties and liabilities of a company auditor. 5+5+4=14
Ans: The rights, duties, and liabilities of a company auditor are as follows:
Rights of a Company Auditor:
1. Right of Access: The auditor has the right to access all books, records, documents, and vouchers of the company necessary for the performance of their duties. This includes the right to request information and explanations from the company's officers and employees.
2. Right to Obtain Information: The auditor has the right to obtain any information and explanations necessary for the audit directly from the company's officers, employees, and agents. They can request supporting evidence and documentation to verify the accuracy and completeness of financial statements.
3. Right to Attend General Meetings: The auditor has the right to attend and be heard at the company's general meetings, including annual general meetings. They can ask questions, seek clarifications, and express their opinion on matters relating to the audit.
Duties of a Company Auditor:
1. Examination of Financial Statements: The primary duty of an auditor is to examine the company's financial statements to determine their accuracy, fairness, and compliance with applicable accounting standards and regulations. They are responsible for expressing an independent opinion on the financial statements.
2. Reporting: The auditor has a duty to prepare and submit an audit report to the company's shareholders, management, and regulatory authorities. This report includes their opinion on the financial statements, highlighting any material misstatements, non-compliance, or significant issues identified during the audit.
3. Compliance Audit: The auditor is responsible for assessing the company's compliance with legal and regulatory requirements. They must examine whether the company has followed applicable laws, regulations, and internal policies in its operations and financial reporting.
Liabilities of a Company Auditor:
1. Professional Liability: Auditors can be held liable for professional negligence if they fail to exercise reasonable care, skill, and diligence in performing their duties. They may be held responsible for any losses suffered by the company or third parties due to their failure to detect material misstatements or fraud.
2. Legal Liability: Auditors can face legal consequences if they are found to have acted fraudulently or with willful misconduct. They may be subject to civil or criminal proceedings, fines, or penalties imposed by regulatory authorities or courts.
3. Regulatory Liability: Auditors are subject to the regulations and standards governing their profession. If they fail to comply with professional codes of conduct, ethical guidelines, or auditing standards, they may face disciplinary actions from their professional bodies, including suspension or revocation of their auditing license.
It is important for auditors to exercise professional skepticism, maintain independence, and perform their duties with integrity and objectivity to fulfill their responsibilities and minimize their liabilities. They should stay updated with changes in auditing standards and regulations to ensure compliance and deliver high-quality audit services.
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(b) How would you, as a company auditor, undertake audit of share capital transactions? Discuss. 14
Ans: As a company auditor, the audit of share capital transactions involves examining the records and procedures related to the issuance, transfer, and redemption of shares. The following steps outline how I would undertake this audit:
1. Understand the Company's Share Capital Structure: Review the company's articles of association and relevant legal documents to gain a clear understanding of the authorized share capital, different classes of shares, rights and restrictions attached to each class, and any special provisions regarding share capital transactions.
2. Review Share Issuance Procedures: Examine the procedures followed by the company for issuing new shares. This involves assessing compliance with applicable laws, regulations, and internal policies. Verify that proper authorization was obtained for each share issuance, and examine supporting documentation such as board resolutions, prospectuses, share certificates, and relevant contracts.
3. Examine Share Transfer Procedures: Review the processes for transferring shares between shareholders. Ensure that transfers are supported by valid instruments, such as share transfer forms, stock transfer ledgers, and relevant board resolutions. Verify compliance with legal and contractual requirements, including any preemption rights or restrictions on share transfers.
4. Verify Share Capital Payments: Confirm that share capital payments have been appropriately recorded and accounted for. This includes examining bank statements, payment receipts, and other evidence to ensure that the company has received the required consideration for the issued shares. Check for proper allocation of share premium, if applicable.
5. Assess Share Buyback and Redemption Transactions: If the company has bought back or redeemed its own shares, evaluate the compliance with legal requirements and shareholders' approval. Review relevant agreements, board minutes, and payment records to confirm the accuracy and validity of these transactions.
6. Consider Disclosure and Reporting: Evaluate the adequacy and accuracy of disclosures related to share capital transactions in the company's financial statements, including the notes to the accounts. Assess compliance with applicable accounting standards and regulatory requirements.
7. Test Internal Controls: Assess the effectiveness of internal controls related to share capital transactions. This involves understanding and testing the design and operating effectiveness of controls over share issuance, transfer, and redemption processes. Identify any control weaknesses or potential risks.
8. Document Findings and Provide Recommendations: Document the audit procedures performed, observations made, and any identified issues or discrepancies. Prepare a detailed audit report summarizing the findings and providing recommendations for improvements or corrective actions, if necessary.
It is important to note that the specific audit procedures may vary based on the company's size, industry, and regulatory environment. Additionally, the auditor should exercise professional judgment and consider the inherent risks associated with share capital transactions during the audit process.
Dibrugarh University Auditing Solved Question Paper 2022 BCom 6th Sem. Hons CBCS
6. (a) What is ‘qualified report’? What are the grounds on which an auditor may qualify his report? Give a specimen of a qualified report. 2+6+6=14
Ans: A qualified report is an audit report that includes an auditor's opinion with certain reservations or qualifications. It indicates that the financial statements of an entity are not presented fairly or are materially misstated, although the overall financial statements are acceptable except for the specific issues mentioned in the qualification.
An auditor may qualify their report for various reasons, including:
1. Limitation of scope: If the auditor's ability to gather sufficient and appropriate audit evidence is restricted due to limitations imposed by the client or circumstances beyond their control, they may qualify the report. For example, if the auditor was unable to perform necessary procedures in a specific area of the financial statements.
2. Material misstatements: If the financial statements contain material misstatements that affect the overall presentation, the auditor may qualify the report. Material misstatements could arise from errors or fraud.
3. Departure from accounting standards: If the entity has deviated from generally accepted accounting principles or relevant accounting standards, and this departure materially affects the financial statements, the auditor may qualify the report.
Specimen of Qualified Report
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(b) Describe the general considerations which an auditor has to keep in mind while drafting his report. 14
Ans: When drafting an audit report, an auditor needs to consider several important factors. Here are the general considerations to keep in mind:
1. Objective and unbiased: The report should be objective, unbiased, and based on factual evidence obtained during the audit process.
2. Compliance with auditing standards: The auditor must ensure that the report complies with relevant auditing standards and guidelines.
3. Clarity and transparency: The report should be clear, concise, and easy to understand for the intended users. Technical jargon should be avoided, and complex findings should be explained in a simple manner.
4. Structure and format: The report should have a logical structure and follow a standardized format, including an introduction, scope of the audit, audit methodology, findings, conclusions, and recommendations.
5. Adequate evidence: The report should be supported by sufficient and appropriate evidence gathered during the audit, demonstrating the basis for the conclusions and opinions presented.
6. Materiality: The auditor must consider materiality while drafting the report. Material matters, such as significant deficiencies or financial misstatements, should be clearly identified and reported.
7. Consistency: The report should be consistent with the audit objectives, scope, and methodology outlined in the planning stage. Any deviations or limitations should be disclosed.
8. Objectivity and independence: The auditor must maintain objectivity and independence throughout the audit process and reflect these qualities in the report.
9. Professional judgment: The auditor's professional judgment should be exercised in determining the nature, timing, and extent of audit procedures, as well as in evaluating and presenting the audit findings.
10. Use of language: The report should use language that is appropriate for the intended audience, avoiding technical terms or jargon that may not be readily understood by non-experts.
11. Completeness: The report should cover all significant aspects of the audit, including any material weaknesses or areas of concern identified during the audit.
12. Timeliness: The report should be issued in a timely manner, reflecting the current state of the audited entity and providing relevant information to stakeholders.
13. Confidentiality: The auditor must maintain the confidentiality of the information obtained during the audit and ensure that the report does not disclose sensitive or proprietary data without proper authorization.
14. Legal and regulatory requirements: The report should comply with applicable legal and regulatory requirements, including any specific reporting obligations or disclosures mandated by law or industry standards.
By considering these general considerations, auditors can create comprehensive and reliable audit reports that effectively communicate the findings and conclusions to the stakeholders.
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