2018 (July)
COMMERCE
Paper: 302
(Auditing)
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.
Or
(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.
Or
(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
|
BASIS
|
VOUCHING
|
VERIFICATION
|
|
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.
Or
(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.
MEANING
OF DIVIDEND AND ITS TYPES
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
Or
(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.
Or
(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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