PAPER - 2 : AUDITING QUESTIONS
1. The management has obtained a certificate from an actuary on the provision of
gratuity payable to its employee. Give your comments in this regards.
2. At the AGM of ICI Ltd., Mr. X was appointed as the statutory auditor. He, however,
resigned after three months since he wanted to give up practice and join industry.
State, how the new auditor will be appointed by ICI Ltd.
3. Mr. Budha, Statutory Auditors of Secret Ltd. was not permitted by the Board of
Directors to attend general meeting of the company on the ground that his right to
attend general meetings is restricted only to those meetings at which the accounts
audited by him are to be presented and discussed.
4. State the important points you as an auditor will consider while conducting the audit
of a Leasing company.
5. What are the basic principles governing an audit as laid down in SA 200? Explain in
brief.
6. The Vidhwat College, an institution managed by Dayal Trust, has received a grant of
Rs 1.35 crore from Government nodal agencies for funding a project of research on
rural health systems in
Draft an audit programme for auditing this fund in the accounts of the college.
7. Write a short note on - Statutory Auditor versus Internal Auditor.
8. How will you vouch and/or verify the following?
(a) Research and Development expenses
(b) Recovery of Bad Debts written off
(c) Goods sent out on
(d) Borrowing from Banks
9. As an auditor, comment on the following:
RT Ltd. Received Rs. 50 lacs as grant from the State Government towards the part cost of a specific machinery. The company credited the above sum of Rs. 50 lacs as income in its Profit and Loss Account for the year. What are your views on the accounting treatment of the above receipt of Rs. 50 lacs?
10. What is clean audit report? Explain, how it is different from qualified report affecting
Auditor’s opinion.
11. As an auditor, comment on the following situations/statements:
(a) The surplus arising from sale of investment was set-off against a non-recurring loss
and was not disclosed separately.
(b) The register of members of AP Ltd. has not been written up-to-date and as a result,
the balances in the register do not agree with the amount of issued Share Capital.
12. How the audit is advantageous to Sole Trader?
13. Write short notes on the following:
(a) Change in Accounting Policies
(b) Management representation as an audit evidence
14. How the work of an expert should be evaluated before accepting the same as an
Audit evidence?
15. How is an auditor of Government Companies Appointed?
16. Comment on the following:
(a) In case the existing auditor(s) appointed at the Annual General Meeting refused to
accept the appointment, whether the Board of Directors could fill up the vacancy.
(b) X and Co., Chartered Accountants, who were appointed as the first auditors of the
company, were removed without the prior approval of the Central Government,
before the expiry of their term, by calling an Extraordinary General Meeting.
(c) Due to the resignation of the existing auditor(s), the Board of directors of X Ltd
appointed Mr. Hari as the auditor. Is the appointment of Hari as auditor valid?
(d) At the Annual General Meeting of the Company, a resolution was passed by the
entire body of shareholders restricting some of the powers of the Statutory Auditors.
Whether powers of the Statutory Auditors can be restricted?
17. With reference to Government Audit, what do you understand by “Audit of
Commercial Accounts”?
18. What will be position of the Auditor in the following cases?
(a) A, a chartered accountant has been appointed as auditor of Laxman Ltd. In the
Annual General Meeting of the company held in September, 2008, which
assignment he accepted. Subsequently in January, 2009 he joined B, another
chartered accountant, who is the Manager Finance of Laxman Ltd., as partner.
(b) K, a chartered accountant, was appointed as auditor of Y Ltd. In the 12th Annual
General Meeting of the company in September, 2008. In June, 2009 the company
removed him through a resolution in the general meeting and appointed Ram as its
auditor.
(c) Y, is the auditor of X Pvt. Ltd. In which there are four shareholders only, who are
also the Directors of the company. On account of bad trade and for reducing the
expenses in all directions, the directors asked Y to accept a reduced fee and for that
he has been offered not to carry out such full audit as he has done in the past. Y accepted the suggestions of the directors.
(d) While conducting the audit of a limited company for the year ended 31st March,
2009, the auditor wanted to refer to the Minute Books. The Board of Directors
refused to show the Minute Books to the auditor.
19. As on Auditor, comment on the following:
(a) Sri Limited is a manufacturing company engaged in manufacture of cement. It had
three plants already commissioned in its site at Chennai. The company expanded
its plant capacity by contracting with a supplier for the purchase and installation of
one additional plant. The project was commenced on 1.7.2008 and the new plant
commenced commercial operations on 1.1.2009. The new plant was capitalized and
shown as Fixed asset as on 31.3.2009 at cost which included, besides other things,
the following:
(i) Contract price of plant and equipment and installation costs
(ii) Interest due for the period till 31.3.2009 for the term loan taken from scheduled
bank for financing the project which is repayable over five years commencing from 1.7.2009.
(iii) Salaries, welfare expenses of the plant engineers of the company for the
period from 1.7.2008 to 31.12.2008 who supervised the contract work.
(b) The Investments of ABC Limited includes 5,000 equity shares of Rs. 100 each in
Amudhan Bank Limited. Amudhan Bank Ltd. declared 20% dividend for the year
ended 31.3.2009 at its General Meeting held on 30.6.2009. ABC Limited finalised its
accounts for the year ended 31.3.2009 on 30.8.2009 and it includes Rs. 1,00,000
being the amount of dividend received by it from Amudhan Bank Ltd. in its other
income subsequent to its Balance Sheet date before approval by the Board of
Directors.
(c) AS Limited purchased on 1.4.2009 a machinery from a foreign country at a price of
$ 1, 50,000 upon terms of credit that the price should be settled within six months
from the date of purchase. The company capitalised the Asset and created Liability
for the capital goods converting the foreign currency liability to Indian Rupees at a
rate of exchange prevailing as on 1.4.2009. When the company settled the liability
on 18.7.2009, it had to incur an additional amount of Rs. 6, 75,000 due to change in
foreign exchange rate on the date of settlement. It added this additional amount of
exchange variation in the capital cost of the asset and charged depreciation upon
the enhanced amount of asset value from 18.7.2009.
20. State briefly how you will verify the following:
(a) Building
(b) Bank Balances
(c) Bills Payable
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