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Gauhati University B.Com 6th Sem Hons
Auditing and Corporate Governance Solved Question Paper (Year: 2023)
2023
COMMERCE (HONOURS CORE)
Paper: COM-HC-6016
(Auditing and Corporate Governance)
Full Marks: 80
Time: Three hours
The figures in the margin indicate full marks for the questions.
WRITE THE ANSWERS IN TWO INSEPARATE SHEETS
GROUP-A (AUDITING)
Marks: 40
1. Answer as directed: 1x4=4
(i) Internal check forms a valuable part of internal control.
(State whether the statement is True or False)
ANSWER: True. Internal check is a part of internal control that involves the segregation of duties, supervision, and verification of transactions or activities to prevent or detect errors, frauds, and irregularities.
(ii) The word 'audit' is derived from the Latin word Audire
(Fill in the blank)
(iii) Errors and frauds have the same meaning for an auditors (Comment on the Statement)
ANSWER: False, errors and frauds do not have the same meaning for an auditor. Errors are unintentional misstatements or omissions in the financial statements, while frauds are intentional acts to deceive or manipulate the financial statements. The auditor’s responsibility is to obtain reasonable assurance that the financial statements are free from material misstatements, whether caused by error or fraud.
(iv) Vouching is done with reference to a voucher (Fill in the blank)
2.Answer the following: (any three). 2×3=6
(i) What is the meaning of audit ?
ANSWER: (i) Audit is an independent examination of the financial information of any organization, whether profit-oriented or not, to express an opinion on its accuracy.
(ii) Who is a company auditor ?
ANSWER: A company auditor is a person who is appointed to prepare an independent audit report for the company. They can be appointed by the company’s board of directors, shareholders, the central government or the comptroller and auditor general of India (C&AG) accordingly.
(iii) Mention the objectives of internal audit.
ANSWER: The main objectives of internal audit are:
- To ensure that the company’s resources have been used in an efficient and effective manner
- To help management improve the control and process in the business operation
- To minimize the risk of error and fraud that prevent the company from achieving its objective
(iv) Mention two distinctions between cost audit and management audit.
ANSWER: Two distinctions between cost audit and management audit are:
- Cost audit primarily concentrates on the accuracy and authenticity of cost records and accounting systems. In contrast, management audit extends beyond financial records to evaluate managerial aspects like organizational goals, policies, and operational efficiency.
- Cost audit is mandatory for certain classes of companies, whereas management audit is not compulsory for any company.
(v) What is compensating error ?
ANSWER:- Compensating error is when one error has been compensated by an offsetting entry that’s also in error. For example, the wrong amount is recorded in inventory and is balanced out by the same wrong amount being recorded in accounts payable to pay for that inventory.
3. Write on the following: (any two) : 5x2=10
(i) Primary objective of audit.
ANSWER: The Following are the primary objective of audit :
1. Fairness Of statements: The purpose of auditing is to determine the fairness of statements. The financial statements can show true and fair view after auditing. Due to limitations of financial statements it is not possible to provide cent percent accuracy. So an attempt is made to show fair view of financial statements.
2. Prescribed Laws: The purpose of audit is to check that prescribe laws have been followed in preparation of financial statements. There are various laws that govern the working of many businesses. The auditor can indicate whether the prescribe laws were followed in the preparation of final accounts or not.
3. Accounting policies: The purpose of auditing is to examine the accounting policies. There is need to follow the accounting policies for preparing accounting record. The effective accounting system can provide better results. The auditor can express an opinion on the accounting policies in the best interest of business.
4. Independent Opinion: The purpose of audit is to express an independent opinion. The auditor must be honest in his work. Management and other persons must not influence him. There must be high ethical standard for independent reporting.
(ii) Qualifications of a company auditor.
ANSWER: A company auditor is a person who is appointed to examine and verify the financial statements of a company. A company auditor must have the following qualifications:
- He or she must be a chartered accountant, which means having a certificate of practice from the Indian Institute of Chartered Accountants (ICAI).
- He or she must not have any disqualifications, such as being an employee or officer of the company, holding securities of the company, or being related to any director or key managerial personnel of the company.
These qualifications and disqualifications are prescribed by the Companies Act, 2013, which also regulates the appointment, removal, rights, and duties of company auditors.
(iii) Importance of Standards on Auditing (SA)
Ans: Standards on Auditing (SA) play an Important role in ensuring the consistency, reliability, and quality of audit processes. They provide a framework for auditors to follow, promoting uniformity in audit procedures and reporting. Compliance with SA enhances the credibility of financial statements, fostering investor confidence and trust in the financial information presented. Additionally, adherence to these standards helps auditors maintain professional skepticism, independence, and ethical conduct throughout the auditing process. Overall, the importance of SA lies in their role in upholding transparency, accountability, and the integrity of financial reporting.
(iv)Common features of valid voucher.
ANSWER: The following are the common feature of valid voucher:-
1. Authenticity: Vouchers should be genuine and not forged to ensure the legitimacy of the transaction.
2. Completeness: All necessary details, such as date, amount, description, and authorization, should be fully filled out.
3. Accuracy: Information on the voucher should be accurate and reflect the true nature of the transaction.
4. Authorization: Vouchers should bear the appropriate signatures or approvals to verify that the transaction is authorized.
5. Sequential Numbering: Vouchers are typically assigned sequential numbers for tracking and reference purposes.
Q.Answer the following questions: (any two) 10×2=20
(i) What is the meaning of computer aided auditing technique? Explain its advantages and disadvantages. 3+(4+3)=10
ANSWER: Computer-Aided Auditing Techniques (CAATs) refer to the use of computer technology to facilitate the auditing process. These tools are designed to automate various audit tasks, enhance efficiency, and improve the accuracy of financial and non-financial data analysis. CAATs encompass a range of software applications and techniques that auditors use to examine, manipulate, and analyze data.
Advantages of CAATs:
1. Efficiency: CAATs automate repetitive audit procedures, saving time and allowing auditors to focus on more complex analyses. This enhances the overall efficiency of the audit process.
2. Accuracy: Automated tools reduce the risk of human errors in data analysis, contributing to increased accuracy and reliability of audit findings.
3. Data Analysis: CAATs can handle large volumes of data quickly, enabling auditors to analyze complete datasets rather than just samples. This enhances the ability to detect anomalies and patterns.
4. Audit Trail: Many CAATs provide an audit trail, documenting the steps taken in the analysis process. This not only ensures transparency but also aids in reviewing and validating the audit work.
Disadvantages of CAATs:
1. Cost and Complexity: Implementing CAATs may require significant initial investment in software and training. The complexity of some tools may also pose challenges for auditors.
2. Dependence on IT Infrastructure: CAATs rely on robust IT infrastructure. Technical issues, such as system failures or compatibility problems, can disrupt the audit process.
3. Skill Requirements: Effective utilization of CAATs demands specialized skills. Auditors need to be trained in the use of these tools, and there might be a learning curve involved.
4. Limited Scope for Judgment: While CAATs excel at data analysis, they may lack the ability to exercise judgment or intuition that human auditors bring to certain situations.
In conclusion, CAATs offer significant benefits in terms of efficiency and accuracy but come with challenges related to cost, complexity, and the need for specialized skills. The key is to strike a balance between leveraging technology and preserving the essential human judgment in the audit process.
(ii) Discuss the basic principles of audit. 10
ANSWER: The following are the basic principles of audit :-
1. Independence: Auditors must remain impartial and unbiased, avoiding any conflicts of interest.
2. Integrity: Auditors should be honest and straightforward in their approach, maintaining ethical standards.
3. Objectivity: Auditors should base their conclusions on evidence and facts rather than personal opinions.
4. Confidentiality: Auditors must keep all client information confidential, ensuring privacy and security.
5. Professional Competence and Due Care: Auditors should possess the necessary skills and knowledge, applying diligence in their work.
6. Documentation: Thorough documentation of audit procedures and findings is essential for transparency and accountability.
7. Planning and Supervision: Adequate planning and supervision ensure that the audit process is organized and conducted effectively.
8. Risk Assessment: Identifying and assessing risks help auditors focus on areas that may have a significant impact on financial statements.
9. Materiality: Auditors consider materiality when evaluating misstatements to ensure that financial statements are fairly presented.
10. Audit Evidence: Auditors gather sufficient and appropriate evidence to support their conclusions on financial statement assertions.
(iii) Explain the various rights and duties of a company auditor. 10
ANSWER:
RIGHTS AND POWERS OF COMPANY AUDITORS [SEC. 143]
A company auditor has the following rights:
1. Right of Access Books of Accounts: As per Section 143(1) of the Companies Act every auditor of the company has the right to access at all times to the books of accounts and vouchers of the company, whether kept at the head office of the company or elsewhere. According to Sec. 148, A company auditor has the right to examine the cost records also which are required to be maintained by certain companies relating to production sales, stores etc.
2. Right to Obtain Information and Explanations: An auditor can call for any information or explanation from different officers of the company which he may think necessary for the performance of his duties.
Apart from the auditor’s right to obtain information and explanation it is the duty of every officer of the company to furnish without delay the information to the company auditor. If the directors or officers of the company refuse to supply some information on the ground that in their opinion it is not necessary to furnish it, then the auditor has the right to mention that in his audit report.
3. Right to Receive Notices and Other Communication Relating to General Meetings and to attend them: According to section 146 of the companies act an auditor of a company has the right to receive notices and other communications relating to the general meetings in the same way as that of the members of the company.
Similarly an auditor also has the right to attend any annual general meeting and also to be heard at those meetings which he attends and which concerns him as an auditor.
The auditor also has the right to make a statement or explanation with regard to the accounts he has audited. But he auditor is not expected to answer questions in the general meeting.
4. Right to Visit Branches: According to section 143(8) of the companies act the auditor of the company has the right to visit the branch office or offices of the company. He can also audit such accounts of eh offices of the company provided that there is not qualified auditor to audit the accounts of the branch office or offices of the company, in such cases, the auditor has the right to access at all times to the books of accounts and vouchers that the company maintains at branch office or offices.
5. Right of Lien: Auditor can exercise lien on books and documents placed at his possession by the client for non-payment of fees, for work done on the books and documents. [Sec. 128]
6. Right to Correct Any Wrong Statement: The company auditor is required to make a report to the members of the company on the accounts examined by him of the final accounts and the related documents which are laid down before the company in the general meeting.
7. Right to sign the Audit Report: As per section 145 of the companies act only the person appointed as auditor of the company or where a firm is so appointed, only a partner in the firm practicing in India, may sign the audit report or authenticate any other document of the company required by law to be signed.
8. Right to Being Indemnified: An auditor is considered to be an officer of the company and he has the right to be indemnified out of the assets of the company against any liability incurred by him in defending himself against any civil and criminal proceedings by the company if it is proved that the auditor has acted honestly or the judgment is delivered in his favour.
9. Right to seek Legal and Technical Advice: The company auditor has the full right to seek the opinion of the experts and to take their legal and technical advice so as to discharge his duties efficiently.
10. Right to Receive Remuneration: As per Section 142 of the Companies Act, the company auditor has the right to receive remuneration provided he has completed the work which he has undertaken to do so.
Duties of Company Auditors
According to Sec. 143 of the Companies Act, 2013, the duties of auditors are classified under the following headings:
1. Duty to Enquire:
It is the duty of auditor to inquire into the following matters:
- Whether loans and advances made by the company on the basis of security have been properly secured and whether the terms on which they have been made are prejudicial to the interests of the company or its members.
- Whether transactions of the company which are represented merely by book entries are prejudicial to the interests of the company.
- Whether loans and advances made by the company have been shown as deposits.
- Whether personal expenses have been charged to revenue accounts.
- Whether or not cash has actually been received from allotment of shares.
- Where the company not being an investment company or a banking company, whether so such of the assets of the company as consist of shares, debentures and other securities have been sold at a price less than at which they were purchased by the company.
2. Duty to make report:
The auditor shall make a report to the members of the company. In his report, the auditor shall report on:
- Whether he has sought and obtained all the information and explanations which to the best of his knowledge and belief necessary for the purpose of his audit and if not, the details thereof and the effect of such information on financial statements.
- Whether in his opinion, proper books of account are required by law have been kept by the company so far as appears from his examination.
- Whether the company’s balance sheet and profit and loss account dealt with in the report are in agreement with the books of accounts and returns.
- Whether in his opinion, the financial statements comply with the accounting standards.
- Whether any director is disqualified from being appointed as a director.
- Whether the company has adequate internal financial control system in place and the operating effectiveness of such control.
3. Such other matters as may be prescribed under rule 11:
The auditor’s report shall also include views and comments on the following matters.
- Whether the company has disclosed the impact, if any, of pending litigations on its financial position in its financial statement.
- Whether the company has made provisions, as required under any law or accounting standards, for material losses, if any on long term contracts including derivative contracts.
- Whether there has been any delay in transferring amounts, required to be transferred, to the investor education and protection fund by the company.
4. Duty to report on frauds u/s 143 and rules 13:
If an auditor of a company, in the course of the performance of his duties as auditor, has reason to believe that an offense involving fraud is being or has been committed against the company by officers or employees of the company, he shall immediately report the matter to the central government within such time and in such manner prescribed in rule 13.
(iv) What is the internal check system ? Distinguish between internal check and internal audit. 2+8=10
ANSWER:The term internal check system implies that the work of various members of the staff is allocated in such a way that the work done by one person is automatically checked by another. It is defined as "such an arrangement of book keeping routine where in errors and frauds are likely to be prevented or discovered by the very occupation of book keeping itself.”
According to L.R. Dicksee "Internal check is an arrangement of accounting routine that errors and frauds are automatically prevented or discovered by the very operation of book-keeping itself.”
DIFFERENCE BETWEEN INTERNAL CHECK AND INTERNAL AUDIT :
Group-B
(Corporate Governance)
Marks : 40
1. Choose the correct option from the following: 1x4=4
(a) The board of directors must ensure that the company's corporate governance policies are incorporated.
(i) corporate strategy.
(ii) risk management.
(iii) ethical business practices.
(iv) All of the above.
ANSWER:
(b) Corporate governance is a form of ___
(i) external regulation
(ii) self-regulation
(iii) government control
(iv) None of the above
ANSWER:
(c) Poor corporate governance can cast doubt on a company's
(i) reliability
(ii) integrity
(iii) financial transparency
(iv) All of the above
ANSWER:
(d)The framework for establishing good corporate governance was originally set up by the..
(i) Nestle Committee
(ii) Rowntree Committee
(iii) Cadbury Committees
ftv) None of the above
ANSWER:
2. Briefly answer the following questions : 2×3=6
(a) What is morality ?
ANSWER:
(b) What is corporate ethics ?
ANSWER:
(c) What is good governance?
ANSWER:
3. Answer any two from the following questions : 5×2=10
(a) Explain the principles of corporate governance.
ANSWER:
(b) Explain the significance of corporate philanthropy.
ANSWER:
(c) Explain the relationship between CSR and business ethics.
ANSWER:
4.Answer any two from the following questions : 10×2=20
(a). Explain the different types of ethical issues in business. How to manage these ethical issues in business? Explain. 5+5=10
ANSWER:
(b) Define codes and standards of corporate governance. Explain the significance of codes and standards on corporate governance. 4+6=10
ANSWER:
(c)Briefly explain the symptoms of corporate failure. Explain the common governance problems noticed in various Corporate failures: 4+6=10
ANSWER:
(d) Discuss the provisions of CSR under the Companies Act, 2013.
ANSWER:
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