Thursday, July 18, 2019


2018 (July)
Paper: 302
Full Marks: 90
Time: 3 hours
The figures in the margin indicate full marks for the questions
1. (a) Explain the qualities of an auditor. Discuss the advantages of auditing from the point of view of different user groups.                                                                 6+8=14
Ans: Essential qualities of an auditor               
   An Auditor must possess the following essential qualities
1. Professionally Competent: It is the basic quality of an auditor. He must have a complete and thorough knowledge of the accountancy. To understand the accounting details he can apply his knowledge and skill. It is only possible if he has a sound background in accountancy and he is professionally competent.
2. Honest: This is the personal quality of an auditor. He should have the high moral standard. It is his duty to report on the fact basis. The auditor must be honest and sincere with his profession. He is responsible not to sign any paper which is no correct under his observation.
3. Up to Date Knowledge: An auditor's knowledge of auditing must be up to date. He must know the techniques of auditing. He must have the knowledge of other subjects relating auditing.
4. Knowledge of Business/Mercantile Law: It is the professional quality of an auditor to aware of the mercantile law, he has a complete knowledge of Contract Act, Sales of Good Act, Agency, Negotiable instruments Act, Partnership Act etc.
5. Knowledge of Taxation Law: It is also a professional quality of an auditor. He is aware of income tax ordinance 1979, sales tax and excise act and wealth tax etc this is helpful in checking the correct return of income etc.
6. Intelligent: It is also important quality of an auditor that he should be intelligent.
7. Qualification: For a professional auditor it is necessary that he should be charted accountant. According the company's ordinance 1984 it is essential qualification for auditor.
8. Tactful: It is also the personal quality of an auditor. Technical information is required to comment and criticize the policies of management. In case of missing can collect it from the client.
Advantages of Auditing                                               
A. Benefits of Business: Business may get many advantages of conducting audit by a qualified auditor. The advantages are discussed below:
(a) True and Fair view: With the help of audit of accounts, it is possible get a true and fair view of the financial position of the business.
(b) Detection of errors and frauds: If books of accounts are audited, errors and frauds can be detected and necessary action can be taken to prevent it.
(c) Moral pressure on the employees: If audit is conducted by the organization, employees should be cautions and there should be a moral pressure on them. As a result, chances of errors and frauds will be minimized.
(d) Proper accounting control: A system of regular audit helps the organization to maintain proper books of accounts regularly and books of accounts are kept up to date.
(e) Acceptable evidence: Audited accounts are very strong financial document acceptable to many interested parties e.g. taking loan from financial institution, determination of income tax, sales tax, amalgamation of companies, determination of purchase consideration, admission, retirement, death of a partner etc.
(f) Increase in goodwill: Audit of business on a regular basis increases confidence to the interested parties and general public. As a result goodwill of the business increases.
B. To the Owner: The owners of the business are also interested to know the financial position of the business. There are discussed below:
(a) Benefit to the sole proprietor: In case of large business, the proprietor can get a true and fair view of the accounts maintained by his employees and also able to know the state of affairs and profit made by him. The proprietor is also benefited for getting loan from financial institutions, to pay income tax etc.
(b) Benefits to the partners: Shareholders are the owners of a company. With the help of audited accounts help to the partners to settle their unsettled disputed, for taking loan from financial institutions, to get off the books of accounts maintained by the employees etc.
(c) Benefits to the shareholders: Shareholders are the owners of a company. With the help of audited accounts they get a real picture of the financial position of The company and they can assure that business is running efficiently.
(d) Benefit to the non-profit seeking organizations: There are different non-profit seeking organizations e.g., charitable institution, club, religious institute, school, college etc. This organization run with public money. Whether public money is properly utilized or not can be revealed from the audited accounts.
C. To the third parties: Besides business and the owners, there are different outside interested parties who required audited accounts for different purposes: These are:
(a) Government may be interested to get the audited accounts to show the deficiency of the business for giving grant and subsidy.
(b) Financial institutions sections loan to the organization on the basis of verification of financial soundness form the audited accounts.
(c) Tax authorities may depend on audited accounts for determination of income tax, sales tax, excise duty etc.
(d) Prospective buyers who want to invest money in shares and debentures of a company may rely on audited accounts.
(e) Creditors who supply goods to the business may asses the solvency and liquidity position of the business on the basis of audited accounts.
(f) For settlement of insurance claim, insurance companies can barely on audited accounts.
(b) What is the purpose of Internal Audit? State the differences between Internal Audit and Independent Audit. 4+10=14
Ans: Objective of Internal Audit:
1.       To comment of the effectiveness of the internal control system in force and means of improving it.
2.       To verify correctness accuracy and authenticity of the records presented to management.
3.       To facilitate early detection of errors and frauds.
4.       To ensure that standard accounting practices are followed.
5.       To ensure that assets are properly acquired, safeguarded and accounted for.
6.       To investigate in the areas as requested by the management.
7.       To see that exhibited liabilities are valid.
Difference between Internal audit and Independent audit
An internal audit is conducted by the permanent staff of the same office to detect weakness in system, procedures and for the improvement. But Independent audit is the act of checking books of accounts as per the provision of company act. Both of them check books of account; detect errors and frauds even though they have certain differences which are as follows:
1. Appointment: An internal auditor is generally appointed by the management but Independent auditor is appointed by the shareholders or Annual General Meeting.
2. Legal Requirement: Internal audit is the need of management but it is not legal obligation but Independent audit is the legal requirement.
3. Qualification: An internal auditor does not required specific qualification as per the provision of law but qualification of independent auditor is specified.
4. Conducting Of Audit: Internal audit is of regular nature but final independent audit is conducted after the preparation of final account.
5. Status: An internal auditor is a staff who is appointed by the management but independent auditor is an statutory auditor appointed by the shareholders.
6. Scope of Work: Internal audit is related to the examination of books of accounts and other activities of an organization but independent auditor checks the books of accounts and related evidential documents. So, scope of internal audit is vague but scope of independent audit is limited.
7. Removal: Internal auditor can be removed by the management but independent auditor can be removed by the annual general meeting only.
8. Remuneration: Internal auditor is appointed by the management; so remuneration is fixed by the management but remuneration of independent auditor is fixed by the shareholders.
2. (a) Explain the importance of Vouching. What are the importance points to be considered by an auditor while vouching? What are the duties of an auditor with reference to the vouching of payments?                        2+5+7=14
Ans: Importance of vouching: Vouching of transactions is the most important audit step in any type of auditing. Voucher is the document which describes any transaction and whole building of accounting stands on vouchers. Such is the importance of voucher and vouching. The importance and objectives of vouching are given below:
1.       Back bone of auditing: Vouching is first step in detailed auditing. It gives grounds and reasons for further investigation. It is primary activity to know the worth of any business.
2.       Careful vouching helps the auditor to detect fraud, misappropriation of money, errors, falsification etc.
3.       Detailed vouching acts as a moral check on employees.
4.       Vouching helps in separation of revenue with capital items.
5.       Vouching helps in ascertaining whether the transaction is in relation to business or some other activity outside the business.
6.       It is the foundation stone for any accounting process.
7.       Effective vouching makes the rest of audit easy and fast.
8.       Vouching helps the auditor to determine whether the voucher belongs to the period of audit.
From the above discussion, it is clear that vouching is the essence of audit.
Auditor’s Duty regarding Vouching:
The auditor’s basic duty is to examine the accounts, not merely to see its arithmetical accuracy but also to see its substantial accuracy and then to make a report thereon.  This substantial accuracy of the accounts and emerging financial statements can be known principally by examination of vouchers which are the primary documents relating to the transactions.  If the primary document is wrong or irregular, the whole accounting statement would, in turn, become wrong and irregular.  Precisely auditor’s role is to see whether or not the financial statements are wrong or irregular, and for this, vouching is simply imperative.  Thus, vouching which has traditionally been the backbone of auditing does not merely involve checking arithmetical accuracy but goes much beyond and aims to check the genuineness as well as validity of transactions contained in accounting records.
VOUCHING OF PAYMENTS TO CREDITORS: Auditor should check the following things while vouching the payments to the creditors:
1. Checking Of Invoice: All the invoices should be checked by the auditor.
2. Checking Of Receipts: Auditor should also verify the receipts given by the payee.
3. Checking Of Account Statements: All the accounts statements of creditors must be verified. He can send these statements to the creditor for confirmation with the permission of his client.
4. Checking Of Creditors Name: Auditor should also verify the names of the creditors.
5. Checking Of Account Posting: Auditor should check that posting to the relevant account is correct or not.
(b) What are the differences between Vouching and Verification? Describe the duties of an auditor regarding valuation and verification of stock.                             6+8=14
Ans: Difference between Verification and Vouching
1. Nature
It examines the entries relating to the transactions recorded in the books of accounts with the help of documentary evidence.
Verification examines truth about assets and liabilities appearing in the Balance Sheet of the concern.
2. Basis
It is based on documentary evidences.
It is based on personal investigation as well as documentary evidences.
3. Time
It is done during the whole year.
It is done at the end of the year when the Balance sheet of the concern is prepared.
4. Valuation
It is not concerned with valuation.
Verification includes valuation in its Scope.
5. Utility
It certificates correction of records.
It certifies the existence of assets and liabilities at balance sheet date.
6. Personnel
It is done by the junior staff of the auditor like audit clerk.
It is done by the auditor himself or by his assistant.
Stock/ Inventories: Stock is the life blood of the business. It consists of stores and spares, raw materials, work in progress, and finished goods. If stock is incorrectly recorded, verified or valued, the P&L a/c doesn’t show correct balances. It also affects the BS if stock if overvalued profit is inflated and if its understated it encourages creation of secret reserves. The objective of verifying stock is to see that it exists and is correctly valued. It may not be possible to verify the entire stock. Hence he has to go for the checks to ascertain the accuracy of stock. In the case of Kingston cotton mills co., ltd the judge observed that, “it is no part of the auditor’s duty to take stock, he must rely on other people for details of stock in trade.” It was further observed that “an auditor is not bound to b a detective. He should not start his work with a foregone conclusion that there is something wrong. He is a watch dog and not a blood hound to be a detective. He is justified in believing in trust worthy servants of the company provided it takes reasonable care”.
In another case it was decided that ‘it is certainly not the duty of the auditor to take stock. He should check the calculation with proper care’. While verifying stock:
a)      He should review the procedure for maintenance of stock and records.
b)      Examine the efficiency of internal check and control system.
c)       See whether stock verification process contains adequate safeguards against possible errors and frauds.
d)      Test check the physical existence of a part of the stock. Stock is valued at cost price/ market price whichever is lower/less.
3. (a) Who can be an auditor of a company? Explain the various rights and duties of an auditor as per the provisions of Companies Act, 2013.                                                    4+10=14
Ans: Qualification and Disqualification of a Company Auditor
According to Section 141 of the Companies Act, 2013 the prescribed qualifications of an auditor are as follows:
a. An individual shall be eligible for appointment as an auditor of a company only if he is a chartered accountant.
b. A firm shall be eligible for appointment as an auditor of a company in the name of the firm only if majority of its partners are practicing in India as chartered accountants. Where a firm including a limited liability partnership is appointed as an auditor of a company, only the partners who are chartered accountants shall be authorised to act and sign on behalf of the firm.
Rights, Duties and Liabilities of Auditors
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 nonpayment 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 a Company Auditor
According to Sec. 143 of the Companies Act, 2013, the duties of auditors are classified under the following headings:
a)      Duty to Enquire: It is the duty of auditor to inquire into the following matters:
i.         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.
ii.       Whether transactions of the company which are represented merely by book entries are prejudicial to the interests of the company.
iii.      Whether loans and advances made by the company have been shown as  deposits.
iv.     Whether personal expenses have been charged to revenue accounts.
v.       Whether or not cash has actually been received from allotment of shares.
vi.     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.
b)      Duty to make report: The auditor shall make a report to the members of the company. In his report, the auditor shall report on:
                     i.            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.
                   ii.            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.
                  iii.            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.
                 iv.            Whether in his opinion, the financial statements comply with the accounting standards.
                   v.            Whether any director is disqualified from being appointed as a director.
                 vi.            Whether the company has adequate internal financial control system in place and the operating effectiveness of such control.
                vii.            Such other matters as may be prescribed under rule 11: The auditor’s report shall also include views and comments on the following matters.
1)      Whether the company has disclosed the impact, if any, of pending litigations on its financial position in its financial statement.
2)      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.
3)      Whether there has been any delay in transferring amounts, required to be transferred, to the investor education and protection fund by the company.
c)       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.
(b) Explain the meaning of the term ‘Divisible Profit’ and ‘Dividend’. What are the sources out of which dividends may be paid?     6+8=14
Ans: Divisible Profits and Rules regarding Dividends and Transfer to reserves
The term “Divisible Profit” is a very complicated term because all profits are not divisible profits. Only those profits are divisible profits which are legally available for dividend to shareholders. Dividends cannot be declared except out of profits, i.e. excess of income over expenditure; ordinarily capital profits are not available for distribution amongst shareholders because such profits are not trading profits. Thus, profits arising from revaluation or sale of fixed assets or redemption of fixed liabilities should not be available for distribution as dividend amongst shareholders.
Shareholders expect some return for the money invested by them in the company. They get the return on their investment in the form of dividends given to them from time to time. Thus, dividends are the profits of the company distributed amongst the shareholders. The company may declare dividends in general meeting, but no dividend shall exceed the amount recommended by the Board of Directors. Thus, shareholders in annual general meeting can only reduce the amount of dividends but cannot increase the amount of dividends recommended by the Board of Directors. The directors may no recommend dividend even if there are profits if they think that distribution of dividend will impair the financial position of the company.
Dividends are usually paid on the paid up value shares in the absence of any indication to the contrary in the Articles of Association. For example, if a company has share capital of 1,00,000 equity shares of Rs. 10 each, Rs. 7 per share called up, and paid up and if the rate of dividend is 15%, total dividend paid will be 15% of Rs. 7,00,000 paid up capital (i.e. 1,00,000 shares @ 7 each) i.e. Rs. 1,05,000.
Sources of Declaring Dividend
As per Section 123 of the Companies Act, 2013 dividend may be declared out of the following three sources:
1)      Out of Current Profits: Dividend may be declared out of the profits of the company for the current year after providing depreciation. The company must transfer the prescribed percentage of its profits to general reserve before declaring dividends. This percentage depends on the percentage of dividend declared.
2)      Out of Past Reserves: Dividend may be declared out of the profits of the company for any previous financial year or years arrived at after providing for depreciation in accordance with the provisions of Schedule II of the Companies Act, 2013 and remaining undistributed. Section 123 of the Act, requires that dividend can be declared out of the reserves only in accordance with the rules framed by the Central Government in this behalf.
3)      Out of Money provided by the Government: A company can also declare dividend out of the moneys provided by the Central Government for payment of such dividend in pursuance of guarantee given by the Government.

4. (a) Discuss the various points to be considered by the auditor while auditing the accounts of a banking company.      14
(b) What are the characteristics of Investigation? Explain the general procedure followed in an Investigation.                 6+8=14
5. (a) Describe the contents in an Ideal Audit Report. What are the circumstances in which an auditor may consider it necessary to write qualified audit report?                                                           8+6=14
Ans: Elements of Audit Report or Essentials of Good Audit Report
1. Title: An auditor report must have appropriate title, such as "Auditor's Report". It is helpful for the reader to identify the auditor's report. It is easy to distinguish it from other reports. The management can issue any report about the business performance. The title o the report is essential. 
2. Addressee: The addressee may be shareholder or board of director of a company. The auditor can audit financial statements of any business unit as per agreement. The report should be appropriately addressed as required by engagement letter and legal requirements. The report is usually addresses to the shareholders or the board of directors. 
3. Date of Report: The report should be dated. It informs the reader that the auditor considered the effect on the financial statements and in his report of events or transactions about which he become aware the occurred up to that date.
4. Identification: The audit report should identify the financial statement that have audited. The financial statement may include trading profit and loss accounts, balance sheet and statement of changes in financial position and sources and application of frauds statement. The report should include the name of the entity. Moreover the data and period covered by the financial statement are also stated in it. 
5. Reference to Auditing Standards: The audit report should indicate the auditing standard or practice followed in conducting the audit. The international auditing guidelines need assurance that the audit has been conducted as per set standards. 
6. Opinion: The auditor's report should clearly state the auditor's opinion on the presentation in the financial statement of the entity's financial position and the result of its operations. The statement give a true and fair view is an auditor's opinion. This opinion is usually based on national standard or international accounting standards. 
7. Signature: The audit report should be signed in the name of the audit firm, the personal name of the auditor or both as appropriate. 
8. Auditor's Address: The address of auditor is stated in the audit report. The name of city is stated in the report for information of the readers. 
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.
(b) What is Cost Audit? Explain the objects, advantages and disadvantages of Cost audit.            2+12=14
Ans: Cost Audit : 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.
Following are the advantages of cost audit                                        
To The Management
a)      Cost audit helps in detection of errors and frauds.
b)      The management gets accurate and reliable data based on which they can make day-to-day decisions like price fixation.
c)       It helps in cost control and cost reduction.
d)      It facilitates the system of standard costing and budgetary control.
e)      It helps the management in inter-unit / firm comparison.
f)       It enables the management to identify loss making propositions.
 To The Government
a)      Cost audit ensures efficient functioning of the industry. This in turn, nurtures a healthy competition among the different companies and paves a path for fast progress.
b)      It helps in identification of sick units and enables the Government to make relevant decisions.
c)       It helps in fixing prices in the case of essential commodities and checking undue profiteering.
d)      It enables to take decisions as to granting of subsidies, incentives and protection to various industries.
e)      It helps to take decisions as to levies, duties and taxes.
To the Society
a)      Cost audit enables the Government to fix prices of essential commodities. This safeguards the interests of the society.
b)      Cost audit enables the Government to keep a check on undue profiteering by the manufacturers and avoids artificial price rise due to monopolistic tendencies.
To the Shareholders
a)      Cost audit reveals whether any of the products of the company are making losses. Thus though the company making an overall profit, a loss making line may eating up the company’s profits. This is brought to the notice of the shareholders and the management is forced to take remedial measures, thereby making optimum utilisation of resources.
Cost audit ensures that the shareholders get a fair return on their investments.
6. Write short notes on the following: (any four)                                                             5x4=20
1)         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.
According to Spicer and Pegler, “a continuous audit is one where the auditor’s staff is occupied continuously on the accounts the whole year round, or where the auditor attends at intervals, fixed or otherwise, during the currency of the financial year and performs an interim audit; such audits are adopted where the work involved is considerable and have many points in their favour although they are subject to certain disadvantages.”
2)         Utility of Audit Programme.
Ans: Advantages of audit programme                                   
a)      Audit programme is prepared to locate exactly the responsibility of every clerk in the auditor’s staff.
b)      It promotes division of work in a well organized manner.
c)       Since the programme takes into consideration all the details involved in the work to be followed during audit, no portion of the work is left from checking.
d)      It helps the auditor to monitor the progress of the work.
e)      It will be easier to fix responsibilities for omissions and commissions.
f)       It serves as a valuable evidence for the work done.
g)      It serves as a guide for future audit.
h)      It ensures that audit process in a systematic manner.
i)        It eliminates inefficiency and saves time.
j)        Incase if any audit assistant goes on leave, his work can be easily continued by others.
k)      Before signing the report, it is easily possible for the auditor to have the final review of the work done by him.  At this stage, it may be explored whether everything has been completed or not.
l)        It avoids duplication of work.
3)         Transfer of shares.
4)         Errors of principle.
Ans: Errors of Principles: These are the errors committed by not properly following the accounting principles. These arise mainly due to the lack of knowledge of accounting. E.g.: Revenue expenditure may be treated as Capital Expenditure. These types of errors are not disclosed by the trial balance.
5)         Internal check system.
Ans: The term internal check 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’.
Internal check is a system under which accounting methods and details of an establishment are laid out that the accounts and procedures are not under the absolute and independent control of any one person or the contrary the work of one employee is complementary to that of another. The system of IC is based upon the principle of division of labour; where in performance of each individual is automatically checked by another. This is possible by properly allocation the work and integration of function of the employees in such a manner their work complements each others.
6)         Audit of an educational institution.

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