Auditing Solved Question Paper 2025
Dibrugarh University BCOM 6th SEM
CBCS Pattern
Paper: C-613 Subject: Auditing
Full Marks:
80 Pass Marks:
32 Time:
3 hours
The
figures in the margin indicate full marks for the questions.
1.
(a) State whether the
following statements are True or False: 1×4=4
(i) Auditing is analytical in nature.
Ans: True
(ii) Legally it is not binding on a company or firm to write
off goodwill.
Ans:
True
(iii) Stock can be partly paid-up like shares.
Ans:
False
(iv) Auditing starts where accounting ends.
Ans:
True
(b) Fill in the blanks: 1×4=4
(i) __________ audit is a compulsory audit.
Ans:
Statutory Audit
(ii) The ledger containing the accounts of debtors and
creditors is known as __________ ledger.
Ans:
Personal ledger
(iii) Rights and duties of an Auditor is covered under Section
__________ of the Companies Act, 2013.
Ans:
Sec. 143
(iv) Share Premium Account may be used for __________.
Ans:
Issuing fully paid bonus shares or writing off preliminary expenses.
2.
Write short notes on:
4×4=16
(a)
Mutual relationship
between Internal Auditor and External Auditor
Ans: The Internal Auditor are an employee of the
company and the External Auditor are an independent professional but both have different
objectives. Their relationship is often complementary which can be understand
with the following points:
1. Reliance on Work: The external auditor may rely
on the work performed by the internal auditor to determine the nature, timing,
and extent of audit procedures. But the external auditor is solely responsible
for his opinion.
2. Different Perspectives: The internal auditor
focuses on operational efficiency of the organisation and internal control
strength, while the external auditor focuses on whether the financial
statements show a "true and fair view" of the position of the organisation.
3. Cooperation: To avoid duplication of effort, both
auditors often coordinate their work. Before relying on the work of internal
auditor, the external auditor evaluates the internal auditor’s competence,
objectivity, and the quality of his work.
4. Communication: The internal and external auditor often
hold meetings to discuss risk assessments, audit findings, and internal control
weaknesses discovered during their performance of duties.
(b) Documentary and Physical evidence
Ans: Evidence is the basis upon which an auditor
forms an opinion. These are two primary types:
1. Documentary Evidence: This includes
various documents that are gathered, verified, or checked during the auditing
process. This includes written or
electronic records such as invoices, bank statements, contracts, minutes of
meetings, and vouchers. It can be Internal which is created within the
organization, like sales invoices or External which are created by third
parties, like bank statements. External documentary evidence is generally
considered more reliable than internal documentary evidence.
2. Physical Evidence: This involves
the physical inspection of assets and their counts as necessary. Physical
evidence is collected based on the nature of the audit and the specific
requirements of the assessment. This is obtained
through the direct observation or inspection of tangible assets. Examples
include counting cash in hand, inspecting inventory or verifying plant and
machinery. Physical evidence is highly reliable for proving the existence of an
asset, though it does not necessarily prove ownership or valuation.
(c)
Reserve vs. Provision
Ans:
Difference between reserves and provisions
|
Basis |
Provision |
Reserve |
|
Meaning |
An amount set
aside to meet a known liability
whose amount cannot be determined with accuracy. |
An amount set
aside out of profits to strengthen the financial position of the business. |
|
Nature |
It is a charge against profit. It must be
created even if there is a loss. |
It is an appropriation of profit. It is
created only when there are sufficient profits. |
|
Objective |
It is created to cover
a specific anticipated loss or expense e.g., Provision for Bad Debts,
provision for depreciation etc. |
It is create to
meet future contingencies, or to equalize dividends e.g., General Reserve,
specific reserve etc. |
|
Dividend |
Provisions Cannot
be used for the distribution of dividends. |
All Reserves
except capital reserve Can be used for dividend distribution. |
|
Position |
Provisions are Shown
on the liabilities side or as a deduction from the asset. |
All reserves are
shown under the heading “Reserves and Surplus" on the liabilities side. |
(d)
Elements of Audit Report
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 of 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.
Also Read: Auditing Solved Question Papers (Dibrugarh University BCOM 6th SEM)
Buy Auditing Solved Question Papers 2013 to 2024 @Rs. 125 only.
3.
(a) What are the different types of frauds in connection with accounts? Give three examples of frauds
and state how auditor can detect and prevent such frauds. 4+10=14
Ans: Types of Frauds in Accounts
1. 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. E.g.: showing wages to dummy workers. Cash can also be
misappropriated by showing less receipts E.g.: not recording cash sales. Not
allowing discounts to customers. The cashier may also misappropriate the cash
when it is received.
2. 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.
3. Manipulation of Accounts
(Window Dressing): This fraud is usually committed by the high-level management;
this involves falsifying the financial statements to show a better or worse
financial position than reality. 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.
Examples and Detection, and Prevention of frauds
1. Teaming and Lading (Lapping): This is a method of hiding cash
shortages by using subsequent receipts from one customer to cover the theft of
cash from a previous customer. For example: Cash received from 1st customer is
misused when the 2nd customer pays it is transferred to the 1st customer’s
account. When the 3rd customer pays it goes forever. Such a fraud is known as
“Teaming and Lading”.
Detection: In order to detect
such fraud, the auditor should perform a detailed Checking of all Receipts by
comparing the dates on the carbon copies of receipts with the entries in the
cash book. They should also perform a bank reconciliation and verify the
"Pay-in-slips" to see if the actual cheques deposited match the names
in the ledger.
Prevention: In order to prevent
such fraud, the company should implement a strict Internal Check system where
the person receiving cash does not have access to the accounts receivable
ledger. Also, Mandatory leave for employees in the cash department can also be
implemented to prevent such fraud.
2. Creation of Dummy Workers: In this case, management or the
payroll clerk adds dummy names of the non-exist workers to the wage sheet to
pocket the extra salary payments. For example, name of 40 workers are added in
wages sheet instead of actual 35 workers.
Detection: In order to detect
such fraud, the auditor should conduct a Surprise Visit during the time of wage
payment. They should compare the wage sheet with the personnel records,
attendance registers, and bank transfer instructions to identify any names that
lack proper documentation or a valid National ID/Employee Code.
Prevention: There should be a
clear "Segregation of Duties" between the person who prepares the
wage sheet and the person who distributes the payments. Periodic audits of the
HR database and physical verification of employees are essential.
3. Window Dressing (Inflation of
Profits): Window Dressing refers is the manipulation or adjustment of financial
data to make the company’s financial health appear more favourable than it is. There are
numerous techniques that businesses or individuals will use to increase the
attractiveness of their financial standing. For example, Management may overvalue closing
stock or record "fictitious sales" at the end of the year to show
higher profits to the bank or shareholders.
Detection: The auditor must
perform Physical Verification of stock and compare it with the book balance.
They should also check Cut-off Procedures to ensure that sales made in the new
year are not recorded in the current year. Any sudden, large sales to related
parties at the end of the financial year should be treated with suspicion.
Prevention: Strong Internal
Controls over the financial reporting process and an independent Audit
Committee to oversee management's accounting policies can prevent such
manipulations.
OR
(b)
What is Audit Planning? How can you develop a good Audit Plan? How a good Audit Programme
helpful for proper implementation of Audit Plan? 4+5+5=14
Ans: Get Our YouYube Membership For Rs. 59 and Get Full notes and Solved Question Papers from 2012 to 2025
4.
(a) What is vouching? Explain
precautions that the auditor should take while examining a voucher. 4+10=14
Ans: Vouching (2013, 2015): The act
of examining vouchers is referred to as vouching. It is the practice followed in an audit, with
the objective of establishing the authenticity of the transaction recorded in
the primary books of account. It
essentially consists of verifying a transaction recorded in the books of
account with the relevant documentary evidence and the authority on the basis
of which the entry has been made; also confirming that the amount mentioned in
the voucher has been posted to an appropriate account which would disclose the
nature of transaction on its inclusion in the final statements of account. After examination, each voucher is marked in
a manner to ensure that it may not be presented again in support of another
entry.
Important points to be considered
while vouching or using vouchers: (Precautions)
a) Numbered, printed and serially filed:
All the vouchers must be printed, serially numbered and filed. Any hand written
voucher must be seen with suspicion. Accounting entries must correspond to
serial number of vouchers.
b) Date and Amount: The auditor should
see that the date and amount of the voucher tallies with the date and amount of
the transactions recorded in the books of accounts.
c) Signature of the payee: The auditor
should note the signature of the payee. Wherever possible, he should try to
ascertain its genuineness.
d) Cancelled: All the inspected vouchers
are cancelled by a mark or stamp.
e) Period: Voucher should belong to the
period under audit and it should be in the name of client.
f) Receipts: Receipt voucher should have
signature of recipient if received in cash.
g) Payments: Payment should be made
through cheques only. Cash payment voucher should be examined in detail to
detect embezzlement or misappropriation of money.
h) Authenticity: All voucher should be
seen and signed by the competent authority of business, i.e. voucher is duly
authorised;
i) Completeness: The voucher comprised
all the relevant documents which could be expected to have been received or
brought into existence on the transactions having been entered into, i.e., the
voucher is complete in all respects and the account in which the amount of the
voucher is adjusted is the one that would clearly disclose the character of the
receipts or payments posted thereto on its inclusion in the final accounts.
j) Reasonable: All expenses and
expenditure should be reasonable in the eyes of auditor. He can always raise
his eyebrows if any excessive payment is noticed.
k) Personal: All vouchers should relate
to business. Any voucher of personal expense should not be paid by the
business.
l) Verification
of other Documents: If required, verify further with other documents like
Memorandum of Association, Articles of Association, Prospectus, Partnership
deed etc.
OR
(b)
What is the general procedure of valuing and verification of stock-in-trade? Mention the responsibilities of
an auditor for verification of stock-in-trade. 7+7=14
Ans: Get Our YouYube Membership For Rs. 59 and Get Full notes and Solved Question Papers from 2012 to 2025
5. (a) Describe the procedure to be followed in order to appoint
auditor of a company in the following circumstances: 4+4+6=14
Ans: Ans: Get Our YouYube Membership For Rs. 59 and Get Full notes and Solved Question Papers from 2012 to 2025
OR
(b)
Discuss the duties of an auditor as regard to audit of the share capital of a
company. 14
Ans:
Share Capital Audit for a New Company / First Issue
Audit
involves three stages, namely the application share capital of a new company in
the first issue stage, the allotment stage and the call stage. However, the
company is required to fulfill a lot of formalities before actually going for
public subscription. The auditor should examine compliance of provisions.
Verification of Capital
1. The auditor should confirm that the
permission of the Controller of Capital Issues has been obtained in case the
issue exceeds Rs. One crore.
2. He should study the terms and
conditions of issue contained in the Memorandum and Articles and Prospectus or
Statement In lieu of Prospectus and see that these have been fully complied
with.
3. He should ensure that the prospectus
contains a provision in terms of Sec. 26 A that any person who
a) Makes, in a fictitious name, an
application to a company for acquiring or subscribing for, any shares therein,
or
b) Otherwise induces a company to allot
or register any transfer of shares therein to him, or any other person in a
fictitious name, shall be punishable with imprisonment for a term which may
extend up to five years.
4. He should verify that preliminary
contracts, if any, entered into for the purchase of a property or business, for
creating on organisation for management of the company etc., have been carried
out strictly as laid down in the prospectus.
5. He should as certain that there exist
in internal check on receipts of amount along with the application.
6. He should examine shares issued for
cash and shares issued for consideration other than cash, if any.
Auditor’s Duties
1. Application stage: The
auditor should undertake the following checks:
1) Checking of the original applications
with the application and allotment sheets.
2) Checking and comparing entries in the
application and the allotment books as regards deposit of money at the time of
application with those in the cash book.
3) Vouching that amounts pertaining to
rejected applications, non-allotted application or any excess amount there to
have been returned by comparing entries in the cash book with that of
application and allotment sheets (books) or letters of regret, if any.
4) Examining that the issue is within the
limits authorized by the Memorandum and Articles of Association.
5) Examining that the minimum
subscription fee, the amount received on application being not less that 5% of
the nominal value of shares, has actually been received before making the
allotment.
6) Checking the balance on the
application and allotment sheets (book) and verify the total capital issued.
2. Allotment stage: Following
steps may be taken in this stage.
1) Examining the Director’s Minute Book
to verify approval of allotments which may be in stages as spreading over a
number of days. He should note that recording at each stage was properly
initialed by at least one director. He should also see that the allotment was
legally in order.
2) Comparing copies of letters of
allotment / letters of regrets with entries in the application and allotment
sheets (book).
3) Vouching money receipt on allotment by
comparing the entries in the application and allotment sheets with the cash
book or bank statement.
4) Confirming the journal entries
regarding allotment money, examining the ledger accounts and comparing the
balances in the ledger accounts with the number of shares allotted.
5) Verifying the entries in the Register
of Members by comparing these with a separate summary of shares allotted.
Verifying that the amounts of the shares allotted do not exceed the authorized
or nominal capital of the company.
6) Seeing that returns of allotment have
been filed with the Registrar of Companies.
3. Calls stage: The
auditor should take the following steps:
1) Examining the Director’s Minute Books
regarding decisions about calls.
2) Seeing that the calls as resolved are
within the provisions in the Articles of Association and statement in the
prospectus issued by the company.
3) Vouching amounts received against
calls with the counterfoils of receipts.
4) Checking postings of the amounts
received from the calls book (for calls due) and the cash book (for cash money
received) into the share register.
5) Comparing the application and
allotment books with the schedule of calls in arrears showing the difference
between calls due and calls received. He should confirm that the call in
arrears figure is correct.
6) Checking the calls received in advance
either in the cash book or through the journal and seeing that these are
transferred to a separate account not meant up with the share capital of the
company.
6.
(a) Discuss in brief
various types of Audit Report. 14
Ans: There
are four types of audit report which are given below:
1. 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.
2. 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.
From the
above discussion, we find the following differences between clean and qualified
report:
|
1. A clean report 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 |
1. A qualified
report is given by the auditor if he is not satisfied with the fairness of
balance sheet and profit and loss account. |
|
2. In a clean report, an auditor will
state something along with the lines,” In our
opinion, the financial statements give a true and fair view of the financial
position.” |
2. In a qualified report, an auditor
will state something along with the lines,” In
our opinion, with the exceptions of some areas, the financial statements give
a true and fair view of the financial position.” |
3. 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.
4.
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)
Explain the following: 7×2=14
(i)
Importance of Audit Report
Ans: Importance of Audit Report 2015, 2016, 2019, 2024
In a company, management is separate from ownership, and shareholders
appoint auditors to examine financial records and submit a report. However,
this report does not guarantee absolute accuracy. The auditor is neither a
guarantor nor an insurer. A legal precedent states that “the auditor must not
be held liable for failing to detect fraud when there is nothing to arouse
suspicion and when the fraud is committed by trusted employees of the company.”
Auditors are expected to act with honesty, reasonable skill, and
care. The audit report is crucial as shareholders and stakeholders rely on it
for financial transparency. An auditor may be guilty of professional misconduct
if they deliberately fail to disclose material facts, conceal misstatements, or
neglect obtaining essential audit information.
An audit report is important due to the following reasons:
1. Assurance of Accuracy: The report assures stakeholders that the
company’s financial statements are free from material misstatements caused by
fraud or error, enhancing the credibility of financial information.
2. Informed Decision-Making: Investors and creditors use the audit
report to make informed financial decisions, such as investments or loans. A
clean audit report boosts confidence in the company's financial health.
3. Compliance with Regulations: The report ensures adherence to
financial reporting standards and legal regulations, such as the Companies Act
in India, maintaining trust and preventing legal complications.
4. Risk Management: Audit reports highlight financial risks or
irregularities, helping management take corrective measures to mitigate risks
and enhance financial practices.
5. Enhancement of Corporate Governance: By promoting transparency
and accountability in financial reporting, the audit report strengthens
corporate governance and stakeholder confidence.
6. Public Trust: For publicly traded companies, the audit report
is essential for maintaining public confidence, particularly during financial
uncertainties.
7.
Foundation for Future Audits: It establishes a reference point for subsequent
audits, allowing organizations to address identified trends or issues and
improve financial integrity.
(ii) Difference
between Clean Audit Report and Qualified Audit Report
Ans: 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.
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.
From the
above discussion, we find the following differences between clean and qualified
report:
|
1. A clean report 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 |
1. A qualified
report is given by the auditor if he is not satisfied with the fairness of
balance sheet and profit and loss account. |
|
2. In a clean report, an auditor will
state something along with the lines,” In our
opinion, the financial statements give a true and fair view of the financial
position.” |
2. In a qualified report, an auditor
will state something along with the lines,” In
our opinion, with the exceptions of some areas, the financial statements give
a true and fair view of the financial position.” |
**************
Post a Comment
Kindly give your valuable feedback to improve this website.