Saturday, July 20, 2019

B.COM DISTANCE 3RD YEAR SOLVED PAPERS: AUDITING' 2017


2017 (August)
COMMERCE (General)
Course: 302
(Auditing)
Full Marks: 90
Time: 3 hours
The figures in the margin indicate full marks for the questions
1. (a) What is continuous Audit? Discuss its advantages and disadvantages. How does it differ from periodical Audit?   4+10=14

Ans: Continuous audit: Continuous audit is a system of audit where the auditor and his staff  Examines all the transactions and books of accounts in details continuously throughout the year at regular intervals i.e. weekly or fortnightly or monthly etc.
Advantages of continuous audit: Following are the advantage of continuous audit in an organization. These are discussed below:
(i) Extensive checking: As the auditor regularly visits the client’s office, he should get time for extensive checking of small transactions and the audit work can ne smoothly conducted.
(ii) Early detection of errors and frauds: As continuous audit is conducted throughout the whole year, errors and frauds can be quickly detected. The accounting staff should not get sufficient time to manipulate accounts.
(iii) Early Preparation of Final accounts: AS this audit is conducted throughout the whole year, it is possible to prepare final accounts i.e. Profit and Loss account and Balance Sheet just at the end of the financial year. The management and the owners can know the financial results without delay.
(iv) Deceleration of interim dividend: Those companies who want to declare interim dividend at the middle of the year is to prepare interim accounts. Continuous audit helps to get interim account in time.
(v) More reliability on audited accounts: If continuous audit is done throughout the year, all the interested parties can rely much on the audited accounts.
(vi) Moral check: As a result of continuous audit employees should feel a moral pressure and the chances of errors and frauds are minimized.
(vii) Early declaration of dividend: With the help of continuous audit final accounts are prepared just at the end of the financial year and the shareholder get dividend without delay.
(viii) Early submission of report: As continuous audit is conducted throughout the year the auditor can complete final accounts audited just at the end of the financial year and can submit his audit report to the shareholders as early as possible.
(ix) Increase in efficiency: As audit is conducted on continuous basis, all the transactions are correctly recorded in the books of accounts and overall efficiency in according work can be made.
Disadvantage of continuous audit: The following are the disadvantages of continuous audit:
(i) High Cost: As continuous audit is conducted throughout the year the organization has to give huge remuneration to the auditor. Therefore, a small concern cannot afford the high cost of conducting such audit.
(ii) Difficulties in accounting work. As a result of frequent visits of the auditor often it is seen that the books of accounts are checked by the audit staff and for this audit work is hampered.
(iii) Change of figures: It may so happen that the portion of accounts which have already examined by the auditor may alter the figures by the dishonest employees to achieve some personal interest.
(iv) Loss of continuity of work: As continuous audit is conducted at regular intervals, the auditor may left unchecked same audit work which was pending during his last audit work.
(v) Adverse effect on employees morale:
(vi) monotony in Work
(vii) Chances of collusion between organization’s staff and auditor’s staff
How disadvantage many overcome:
(i) No work unfelt:
(ii) Prepare fixed audit programme
(iii) Rotation of Work
(iv) Frequent visit:
(v) Use of special mark:
(vi) Use of ink for writing of castings
(vii) Keep important notes:
(viii) Preparation of effective audit programme
(ix) Pending of checking impersonal and general ledger:
(x) A revise of the past work
Difference Between Continuous Audit and Periodical Audit
Basis
Continuous Audit
Periodical Audit
         i.      Timing of audit
Continuous audit is conducted throughout the year.
Periodical audit is conducted after the preparation of final account.
       ii.      Organisation
It is suitable for Large organization.
It is suitable for small organization
      iii.      Preparation of final accounts
As this audit is conducted throughout the whole year, it is possible to prepare final accounts i.e. Profit and Loss account and Balance Sheet just at the end of the financial year.
Since audit is conducted after the preparation of final account, it is not possible to prepare final accounts just at the end of the financial year.
     iv.      Costs
It is costly.
It is less costly as compared to continuous audit.
       v.      Detection of frauds and errors
It helps in early detection of frauds and errors. Staff do have sufficient time to manipulate accounts.
It is very hard to detect frauds and errors because audit is done only after the preparation of final accounts.
     vi.      Reliability
If continuous audit is done throughout the year, all the interested parties can rely much on the audited accounts.
It is less reliable as compared to continuous audit.
Or
(b) What is internal control? Explain the elements of a good system of internal control. 4+10=14
Ans: Internal Control: Internal Control is a Systematic measures such as reviews, checks and balances, methods and procedures instituted by an organization to conduct its business in an orderly and efficient manner, safeguard its assets and resources, determine and detect errors, fraud, and theft, ensure accuracy and completeness of its accounting data, produce reliable and timely financial and management information, and ensure adherence to its policies and plans.
According to W.W.BIGG: “Internal Control is best regarded as indicating the whole system of controls, financial and otherwise, established by the management in the conduct of a business, including internal check, internal audit and other forms of control.”
Elements, features characteristics principles of a good Internal Control System: An effective internal control system should have the following factors:
1.       Competent and trust worthy staff: people in charge of internal control system must be reliable and highly competent about the work. Lack of knowledge and dishonesty will spoil the efficiency of the system.
2.       Records of financial and other organizational plans: A good internal control system must have good documentation system. Filing, recording, classifying, etc will help in this regard.
3.       Segregation of duties: normally, there should be a separate department for internal control this reduces frauds, bias etc. normally, a clerk in charge of accounting function should not be in charge of assets also.
4.       Supervision: proper reviewing of the operations of the company regularly makes the control system effective.
5.       Authorization: all transactions must be properly authorized. In other words, the authority of each person should be well defined.
6.       Sound practices: the company should have well established procedures, policies, delegations organizational manuals etc.
7.       Internal Audit: it’s a part of internal control and it should be independent of internal check.
8.       Accounting Controls: proper accounting information systems should be established so that the information relating to accounts is properly collected, recorded and accounts prepared.
2. (a) Describe the objectives of vouching. How would an auditor proceed  to vouch credit purchases? 4+10=14
Ans: Objectives of Vouching
Vouching is a substantive audit procedure which aims at verifying the genuineness and validity of a transaction contained in the accounting records.  It involves examination of documentary evidence to support the genuineness of transaction. Main object of vouching the payments is not only to find out that money has been duly paid but also to vouch payments for the following purposes. Some of the objectives of vouching are mentioned below:
(a)    To verify that all transactions have been duly authorized.
(b)   To check that there is no omission of any entry and all transactions relate to the period under audit.
(c)    To check that all transaction and related to the nature of business and expenditures are proper business charge.
(d)   To verify cash in hand and a Bank.
(e)   To detect if there is any misappropriation of cash or goods.
(f)     To see that the payments have been duly received by the correct payees.
(g)    The vouching in support of the entries are legally valid with regard to its date, authority, related to business concern etc.
It is through vouching that the auditor comes to know the genuineness of transactions recorded in the client’s books of account wherefrom the financial statements are drawn up. Apart from genuineness, vouching also helps the auditor to know the regularity and validity of the transaction in the context of the client’s business, nature of the organisation and organisational rules.
A)     VOUCHING OF PURCHASE BOOK (Credit Transactions): While vouching the purchase book auditor should pay special attention to the following points:                              2015
1. Internal Control Examination: The auditor should check the internal control system and decide that upto how much extent he can rely upon it.
2. Checking Of Invoices: The auditor should check the entries in the purchases day book with the invoice. He should pay his attention to the following points :
a. The date of invoice.
b. The name of the supplier.
c. The entry in the goods received register.
d. The account involved.
e. Initials of the checking authority.
3. Comparison With Order Book: Various entries of purchase book should be compared with the order book and good inwards book. In this way if there is any fictitious entry it will be traced out.
4. Checking Of Authority: The auditor should check that all the entries made in the book must be authorized by the responsible officer.
5. Vouchers Cancellation: As the voucher is passed it should be cancelled. The auditor should check it and vouch the purchase book with the credit memos, bill and invoices.
6. Over All Checking: The auditor should check the costs cross costs and carry forward of the purchase book.

Or
(b) What do you mean by verification of Assets? How does it differ from valuation? 4+10=14
Ans: Verification of Assets and Liabilities                                           
Verification is a process carried out to confirm the ownership valuation and existence of items at the balance sheet date. Spicer and Pegler have defined verification as “it implies an inquiry into the value, ownership and title, existence and possession and the presence of any charge on the assets”. Verification is a process by which an auditor satisfies himself about the accuracy of the assets and liabilities appearing in the Balance Sheet by inspection of the documentary evidence available.
Differences between Verification and Valuation
Basis
Verification.
Valuation.
Objective
Verification is done to prove the existence, ownership and title to assets.
It certifies the correct value of the asset at the date of the BS.
Applicability
Verification is done or both assets and liabilities.
Usually only values of assets are certified.
Auditor’s involvement
Verification is done by the auditor.
It’s done by the experts and responsible officials. 
Evidence
Verification is made on the basis of evidence.
Valuation is made based upon the certificate issued by the officials.
Scope
It is a complete process of examination and checking. It includes verification of existence of assets, ownership, title etc.
Valuation is a part of the process of examination. It is not concerned with existence, ownership and title.
Auditor’s liability
An auditor is held liable for improper verification of assets and liabilities.
An auditor cannot be held liable for any improper valuation of assets as valuation of assets is done by valuers or owners.

3. (a) Discuss the provision which are contained  in sec 139 of the companies Act 2013 regarding appointment of the company Auditor. 14
Ans: Appointment of a Company Auditor:                                          
According to Section 224 of the Companies Act, every company whether private or public must appoint an Auditor or auditors to audit the final accounts. The provisions relating to the appointment of auditor are as follows:
1.       Appointment of First Auditors:
(a) In case of a Non-Government Company[Sec. 139(6)]: The first auditor of the company is to be appointed by BOD within 30 days from the date of incorporation of company. Note here that this is not from the date of commencement of business. First auditor shall hold office upto the conclusion of first AGM. If BOD fails to appoint the first auditor, it shall inform the members of the company. The members of the shall within 90 days at an extraordinary general meeting appoint the auditor.
(b) In case of a Government Company [Sec. 139(7)]: In case of any government company or any other company which is owned or controlled by central or state government either directly or indirectly, the first auditor shall be appointed by the Comptroller and Auditor General (CAG) of India within 60 days from the date of registration of the company. In case the CAG does not appoint such auditor within the above period, the Board of directors of the company shall appoint such auditor within next 30 days.
2.       Appointment of Subsequent auditors:
(a) In case of Non-Government Company [Sec. 139(1)]: Every company shall, at the first AGM appoint an individual or firm as an auditor who shall hold office form the conclusion of that meeting till the conclusion of its 6th AGM and thereafter till the conclusion of every 6th meeting. The following points need to be noted in this regard:
a. The company shall place the matter relating to such appointment by member at every annual general meeting.
b. Before such appointment is made, the written consent of the Auditor to such appointment and a certificate should be obtained. The certificate shall also indicate whether the auditor satisfies the criteria provided in sec. 141.
c. The company shall inform the auditor concerned of his or its appointment.
d. The company shall also file a notice of such appointment with the registrar within 15 days of such appointment.
(b) In Case of Government Companies [Sec. 139(5)]: In case of any government company or any other company which is owned or controlled by central or state government either directly or indirectly, the Comptroller and Auditor General (CAG) shall in respect of a financial year, appoint an auditor duly qualified to be appointed as an auditor of companies under this act, within a period of 180 days from the commencement of the financial year, who shall hold office till the conclusion of the AGM.
3.       Filling of Casual Vacancies [Section 139(8)]:
In the case of a company other than a company whose accounts are subject to audit by an auditor appointed by the CAG of India:
(a) Any Casual Vacancy due to reasons other than resignation: Any casual vacancy in the office of an auditor shall be filled by the board of directors within 30 days.
(b) Any Casual vacancy due to resignation: Such appointment shall also be approved by the company at a general meeting convened within 3 months of the recommendation of the board and he shall hold the office till the conclusion of the next annual general meeting.
In the case of a company whose accounts are subject to audit by an auditor appointed by the CAG of India:
(a) Any casual vacancy in the office of an auditor shall be filled by the CAG of India within 30 days.
(b) In case the CAG of India does not fill the vacancy within the said period the board of directors shall fill the vacancy within next 30 days.
(b) What is the procedure of transfer shares in a company? Point out the auditor’s duties in this connection. Distinguish between transfer and transmission of shares. 2+6+6=14
4. (a) Discuss the various points to be considered by the auditor in the audit of an educational Institution. 14
Ans: The auditor of a Educational Institution has a right to examine the books and vouchers of the business to enable his to satisfy himself whether or not the balance sheet is drawn up, so as to exhibit a true or fair view of the state of affairs of the business, according to the best of his information and explanation given to him. To enable him to perform his duty, the auditor should take the following steps :
1.       Examine the Trust Deed, or Regulations in the case of school or college and note all the provisions affecting accounts.  In the case of a university, refer to the Act of Legislature and the Regulations framed thereunder.
2.       Read through the minutes of the meetings of the Managing Committee or Governing Body, noting resolutions affecting accounts to see that these have been duly complied with, specially the decisions as regards the operation of bank accounts and sanctioning of expenditure.
3.       Check names entered in the Students’ Fee Register for each month or term, with the respective class registers, showing names of students on rolls and test amount of fees charged; and verify that there operates a system of internal check which ensures that demands against the students are properly raised.
4.       Check fees received by comparing counterfoils of receipts granted with entries in the cash book and tracing the collections in the Fee Register to confirm that the revenue from this source has been duly accounted for.
5.       Total up the various columns of the Fees Register for each month or term to ascertain that fees paid in advance have been carried forward and the arrears that are irrecoverable have been written off under the sanction of an appropriate authority.
6.       Check admission fees with admission slips signed by the head of the institution and confirm that the amount had been credited to a Capital Fund, unless the Managing Committee has taken a decision to the contrary.
7.       See that free studentship and concessions have been granted by a person authorised to do so, having regard to the prescribed Rules.
8.       Confirm that fines for late payment or absence, etc., have either been collected or remitted under proper authority.
9.       Confirm that hostel dues were recovered before students’ accounts were closed and their deposits of caution money refunded.
10.   Verify rental income from landed property with the rent rolls, etc.
11.   Vouch income from endowments and legacies, as well as interest and dividends from investment; also inspect the securities in respect of investments held.
12.   Verify any Government or local authority grant with the relevant papers of grant.  If any expense has been disallowed for purposes of grant, ascertain the reasons and compliance thereof.
13.   Report any old heavy arrears on account of fees, dormitory rents, etc, to the Managing Committee.
14.   Confirm that caution money and other deposits paid by students on admission have been shown as liability in the balance sheet and not transferred to revenue.
15.   See that the investments representing endowment funds for prizes are kept separate and any income in excess of the prizes has been accumulated and invested along with the corpus.
16.   Verify that the Provident Fund money of the staff has been invested in appropriate securities.
17.   Vouch donations, if any, with the list published with the annual report.  If some donations were meant for any specific purpose, see that the money was utilised for the purpose.
18.   Vouch all capital expenditure in the usual way and verify the same with the sanction for the Committee as contained in the minute book.
19.   Vouch in the usual manner all establishment expenses and enquire into any unduly heavy expenditure under any head.
20.   See that increase in the salaries of the staff have been sanctioned and minuted by the Committee.
21.   Ascertain that the system ordering inspection on receipt and issue of provisions, foodstuffs, clothing and other equipment is efficient and all bills are duly authorised and passed before payment.
22.   Verify the inventories of furniture, stationery, clothing, provision and all equipment, etc.  These should be checked by reference to Stock Register and values applied to various items should be test checked.
23.   Confirm that the refund of taxes deducted from the income from investment (interest on securities, etc.) has been claimed and recovered since the institutions are generally exempted from the payment of income-tax.
24.   Verify the annual statements of accounts and while doing so see that separate statements of account have been prepared as regards Poor Boys Fund, Games Fund, Hostel and Provident Fund of Staff, etc.
Or
(b) Distinguish between Audit and Investigation. Explain in detail the procedure for an investigation. 4+10=14
INVESTIGATION:
When for a special purpose an inquiry is made into the accounts of the business it is called investigation.
In other words, we may say that audit which is conducted for a particular object is called investigation.
Investigation involves inquiry into facts behind the books and accounts, into the technical, financial and the economic position of the business or organisation. Investigation is an examination of books and records preliminary of financing or for any specified purpose, sometimes differing in scope from the ordinary audit. Investigation implies an examination of and record for some special purpose.
Classes of Investigation
There are many types of Investigation, but certain main classes can be identified. Following are some of the areas where the investigation is mostly called for:
1.       Investigation on behalf of a person or company who wants to purchase a running business.
2.       Investigation on behalf of a person who is interested to join as a partner in a partnership firm.
3.       Investigation on behalf of a person who wants to lend money to a business or interested to know its financial position.
4.       Investigation on behalf of the owner/shareholder of the business who suspects a fraud.
5.       Investigation on behalf of the tax authority for assessing actual tax liability.
Difference between Audit and Investigation
Basis
Audit
Investigation
Legal binding

Audit of annual financial statements is compulsory under the Companies Ordinance, 1984.
Investigation is not compulsory under Companies Ordinance but voluntary depending upon necessity.
Objective
Audit is conducted to ascertain whether the financial statements show a true and fair view.
Investigation is conducted with a particular object in view, viz to know financial position, earning capacity, prove fraud, invest capital, etc.
Period
Audit is conducted on annual basis.
Investigation may be conducted for several years at a time, say three years.
Parties for whom conducted
Audit is conducted on behalf of shareholders (or proprietor, or partners).
Investigation is usually conducted on behalf of outsiders like prospective buyers, investors, lenders, etc.
Documents used
Audit is not carried out of audited financial statements.
Investigation may be conducted even though the accounts have been audited.
Extent of work
Audit is normally conducted on test verification basis.
Investigation is a thorough examination of books of accounts.
Reporting Party
Audit report is addressed to shareholders (or proprietors or partners).
Investigation report is addressed to the party on whose instruction investigation was conducted.
Adjustment in net profit
In case of audit net profit disclosed by audited accounts is final without further adjustments.
In case of investigation in order to determine real earnings certain adjustments are always essential.
Person performing work
Audit is to be conducted by a chartered accountant.
Investigation may be undertaken even by a non-chartered accountant.

5. (a) State the importance of Audit Report. Discuss the various types of Audit Report. 4+10=14
Ans: Importance of Audit Report                             
In case of a company management is separated from the ownership share holders appoint the auditor to check the accounts and submit a report to them. However, the report doesn’t guarantee accuracy of the accounts. The auditor is neither a guarantor nor an insurer. In one of the cases it was held that “the auditor must not be held liable for not tracing fraud, when there is nothing to arouse their suspicion and when those frauds are perpetrated by the trusted servants of the company”.
The auditor is expected to act honestly with reasonable skill and care. Audit report is an extremely significant document as share holders rely upon it. The auditor will be guilty of professional misconduct if he deliberately fails to disclose material facts known to him. Conceals misstatements and fails to obtain necessary information to complete his audit.
TYPES OF AUDIT REPORT:                                            
There are four types of audit report which are given below:
a)      Clean Report: It is also known as Unqualified Report. It is given by the auditor if he is satisfied with the fairness of Balance Sheet and Profit and Loss account with all the contents of the financial statements and he is satisfied with evidences, documents and explanation given by his clients.
b)      Qualified Audit Report: A qualified report means an audit report which is not clean. In case auditor has any reservation in respect of certain methods mentioned in the financial statements he may qualify his report. A qualified opinion shall be expressed as being subject of or except for the effects of the matter to which the qualification matters. If the accounting standards issued by Institute of Chartered Accounts of India is not followed by the company the auditor may qualify his report. The company Act doesn’t lay down any specific requirement regarding the manner in which the auditor should qualify his report. It should not lead any confusion to the reader. Before submitting a qualified report he should discuss the issued with that of the management. He should see that qualified report is free from ambiguity, vague statements etc.
Circumstances for Qualification of Audit Report: In following circumstances the auditor has to qualify his report.                                (a) He cannot conduct audit satisfactorily due to non availability of certain books of accounts or records, information or explanations necessary for conduct of his audit.
(b) He finds that the Balance Sheet and Profit & loss Account have not been prepared in accordance with accepted accounting principles.
(c) He detects that provisions for Bad & Doubtful Debts, Depreciation etc. are not adequate.
(d) He detects that the company has created certain secret reserve.
(e) The stock in trade has been valued at market price which is more than cost price.
(f) He finds that the contingent liability for bills discounted has not been disclosed.
c)       Adverse Opinion: The worst type of financial report that can be issued to a business is an adverse opinion. This indicates that the firm’s financial records do not conform to GAAP. In addition, the financial records provided by the business have been grossly misrepresented.
d)      Disclaimer of Opinion: On some occasions, an auditor is unable to complete an accurate audit report. This may occur for a variety of reasons, such as an absence of appropriate financial records. When this happens, the auditor issues a disclaimer of opinion, stating that an opinion of the firm’s financial status could not be determined.
Or
(b) What do you mean by Management Audit? Discuss the advantages and disadvantages of management audit. 4+10=14
Ans: Management Audit                             
Management audit is a method of independent and systematic evaluation of the management activities at .all levels of management to ascertain the functions, efficiency and achievement of' the management (i.e. policies) as compared to standards set by the company.
According to L. R. Howard, "Management audit is an investigation of business from the highest level downward in order to ascertain whether sound management prevails throughout, thus facilitating the most effective relationship with outside world and smooth running of internal organization."
ADVANTAGES OR IMPORTANCE OF MANAGEMENT AUDIT:        
There are several advantages of conducting management audit of an organization. When an organization grows in its volume and activities, there is a need for management audit for evaluating efficiency and effectiveness of the management at all levels of the organization. The advantages and importance of management audit are discussed below:
(i) Evaluates efficiency of the management: Management audit is a method of independent and 'systematic evaluation of the management activities at all levels of management to ascertain the functions, efficiency and achievement of the management (i.e. policies) as compared to standards set by the company.
(ii) Scrutiny of the plans, policies and procedure: Management audit helps to determine how the management has implemented their plans, policies and procedure to reach the organizations goal.
(iii) Helps for correction of plans, policies and procedure: Through management audit, it is possible to change or revise the plans, policies and procedure as per needs of the company.
(iv) Aids for decision making: Management audit asses the ability of the managers to take important decisions and helps them to rectify the defects.
(v) Helps to get loan: Financial institutions who gives huge loan to the organizations are interested to know the efficiency of the management and the profitability. Management audit certainly gives a guide to them.
(vi) Helps to get subsidy: Before granting subsidy by the government, to any entity they are interested to know the efficiency and functioning of the management. Management audit helps in this matter.
(vii) Helps to increase profitability: Management audit helps the management to increase profitability by giving remedies to maximize the organization's resources in an efficient way.
LIMITATIONS OF MANAGEMENT AUDIT:
(i)      The management audit is audit of the management, by the management, and for the management. The management auditors are selected by the management itself. Such auditors may or may not be able to handle the job assigned to them.
(ii)    The management auditors are generally familiar with the organization and the staff and employees. The personal aspects cannot be overlooked in such audits. Some may use this audit to level the score with someone while other may utilize it to favour someone.
(iii)   They are more likely to take the facts for granted and may not probe into depth to investigate the matter any further.
(iv)  Time and cost constraints may limit the scope, operation and extent of such audits.
(v)    The management audit team as selected by the management may not look, act and work as a team. Conflicting interests, attitude and inclination may jeopardize the entire objective of the audit.
6. Write short notes on the following: (any four)     5x4=20
a) Fraud and Error: Errors are mistakes committed unintentionally because of ignorance, carelessness. Errors are of many types:
a.       Errors of Omission: These are the errors which arise on account of transaction into being recorded in the books of accounts either wholly partially.
b.      Errors of Commission: When incorrect entries are made in the books of accounts either wholly, partially such errors are known as errors of commission.
c.       Compensating Errors: when two/more mistakes are committed which counter balances each other.
d.      Errors of Principles: These are the errors committed by not properly following the accounting principles.
e.      Clerical Errors; A clerical error is one which arises on account of ignorance, carelessness, negligence etc.
                                 i.Location of Errors: It is not the duty of the auditor to identify the errors but in the process of verifying accounts, he may discover the errors in the accounts.
A fraud is an Error committed intentionally to deceive/ to mislead/ to conceal the truth/ the material fact. Frauds may be of 3 types.
a.       Misappropriation of Cash: This is one of the majored frauds in any organisation it normally occurs in the cash department. This kind of fraud is either by showing more payments/ less receipt. The cashier may show more expenses than what is actually incurred and misuse the extra cash.
b.      Misappropriation of Goods: Here records may be made for the goods not purchase not issued to production department, goods may be used for personal purpose. Such a fraud can be deducted by checking stock records and physical verification of goods.
c.       Manipulation of Accounts: this is finalizing accounts with the intention of misleading others. This is also known as “WINDOWS DRESSING”. It is very difficult to locate because it is usually committed by higher level management such as directors. The objective of WD may be to evade tax, to borrow money from bank, to increase the share price etc.
b) Routine Checking
Ans: Routine checking is a checking of books of original entry and ledgers as a matter of routine work to determine the arithmetical accuracy and to detect errors and frauds and ensures the reliability of final accounts. It includes checking of casting of ledger accounts, posting to ledger accounts, preparation of trial balance and final accounts. 
Objective of routine checking: The objectives of routine checking are discussed below:
(i) Checking of primary books
(ii) Examining arithmetical accuracy
(iii) Examination of pointing
(iv) Helps to detect errors and frauds
(v) Prevent to alter errors and frauds
(vi) Accuracy of Trail Balance
(vii) Reliability of Final Accounts
c) Cost Audit
Ans: It is an audit process for verifying the cost of manufacture or production of any article, on the basis of accounts as regards utilisation of material or labour or other items of costs, maintained by the company. In simple words the term cost audit means a systematic and accurate verification of the cost accounts and records and checking of adherence to the objectives of the cost accounting.
As per ICWA London’ “cost audit is the verification of the correctness of cost accounts and of the adherence to the cost accounting plan.”
The ICWAI defines cost audit as " system of audit introduced by the government of India for the review, examination and appraisal of the cost accounting records and attendant information required to be maintained by specified industries"
From above definition of cost audit, it is clear that cost audit is a sytematic examination of cost accounts to verify correctness of cost accounting records.
d) Proprietary Audit
Ans: Propriety audit is a method of audit which verifies the reasonableness of expenditure incurred by an organization and is not detrimental to public interest. This audit is generally applicable to the government organizations.
According to E. L. Kohler, " Propriety means that which meets the test of public interest, commonly accepted customs and standards of conduct. Propriety audit is an audit in which various actions and decisions are examined to find out whether they agree in public interest and whether they meet the standards of conduct."
Propriety audit not only determines the accuracy of books of accounts but also justify the expenditure in term of propriety and reasonableness. Therefore, this audit tests the public interest and evaluates its financial propriety in relation to standards or commonly accepted customs. Propriety audit is generally applicable to the government organizations as it involves a huge public money. So, public accountability is the main criteria of propriety audit.
e) Statutory report
Ans: A General meeting of the members should be held by every company limited by shares and every company limited by guarantee and having a share capital within a period of neither less than one month nor more than six months from the date at which the company is entitled to commence business. Such a meeting is called statutory meeting and the board of directors shall, at least 21 days before the day on which the statutory meeting is scheduled to be held, forward a report called statutory report to the every member of the company.
Content of statutory report:
a)      It sets out the total number of shares allotted and the mode of allotment.
b)      The total amount of the cash received by the company in respect of the shares allotted.
c)       An abstract of receipt and payment of the company. This report has to be duly certified by at least two directors. Out of which one shall be a managing director along with auditor of the company.
d)      Agenda of the meeting regarding the formation and prospects of the company.
e)      Particulars of directors, auditors, etc.
f)       Particulars of contract.
g)      Under writing contract.
h)      Arrears of call.
i)        Commission or brokerage.
f) Audit of Banking companies
Ans: The auditor of a Banking Company has a right to examine the books and vouchers of the business to enable his to satisfy himself whether or not the balance sheet is drawn up, so as to exhibit a true or fair view of the state of affairs of the business, according to the best of his information and explanation given to him. To enable him to perform his duty, the auditor should take the following steps :
1. Confirmation of Appointment: He should, first of all, confirm that his appointment is in order.
2. Annual Accounts: He should see that Annual Accounts of the banking company have been prepared in proper form.
3. Internal Check: Auditor has to rely on the internal check system of the bank. He should take the written statement about the well organized system of internal check.
4. Internal Audit Checking: Internal audit staff of the bank completes the audit of bank record thoroughly. Independent auditor should examine the audit work performed by the internal audit staff.
5. Balance with Other Banks: Auditor should obtain the certificate from the state bank for the balances with other banks.
6. Verify Cash in Hand: Auditor should check the cash in hand on the date of the balance sheet.
7. Verify Balance with RBI: If the money has been kept with the Reserve Bank of India or any other bank, he should obtain a certificate confirming the deposit.
8. Verification of unrecorded cheques and drafts: He should specially check the receipt of drafts, cheques, etc., on the last working day which has not been entered in the books.
9. Verify the Loans and Advances: Auditor should verify the list of loans and advance with the ledgers. He should compare the total of each schedule with general ledger.

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