B.com Part 2 Semester III Audit SGBAU Question Paper Solved.
Sant Gadge Baba Amaravati University, Amravati
Section 'B'
II. Short Answer type questions.
1. Define Audit. (4 marks)
INTRODUCTION
The practice of auditing existed even in the Vedic period. Historical records show that Egyptians, Greeks and Roman used to get this public account scrutinized by and independent official.
Kautilya in his book "arthshastra" has stated that "all undertakings depend on
finance, hence foremost attention should be paid to the treasury". Auditing as it exists today can be associated with the emerging a joint stock company during the industrial revolution. The company's act of 1956 gives regulations regarding the audit work.
Meaning of Audit:
The word audit is derived from the Latin word "AUDIRE" which means to hear. Initially auditor was a person appointed by the owners to check account whenever the suspected fraud, he was to hear explanation given by the person responsible for financial transactions. Emergence of joint stock companies changed the approach of auditing as ownership was pestered from management. The emphasis now is clearly on the verification of accounting date with a view on the reliability of accounting statement.
Definition:
Spicer and Peglar define auditing as "An examination of the books, accounts and vouchers of a business's shall enable the auditor to satisfy himself whether or not the balance sheet is properly drawn up so as to exhibit a true and correct view of the state of affairs of the business according to his best of the information given to him and as shown by the book.
Mautz: defines auditing as being "Concerned with the verification of accounting data with determining the accuracy and reliability of accounting statements and reports."
The international auditing practices committee defines auditing as "the Independent examination of financial information of any entity whether profit oriented or not and irrespective of size/legal form when such an examination is conducted with a view to express an opinion thereon".
2. What is Audit Program.
The success of audit plan depends on sound and solid audit Program. An audit plan is the Auditor's plan of action. The audit Program is specially designed for each audit is a plan of the work of examination and a set of audit procedures. A written audit Program begins with the recognition of specific objectives followed by specification of procedure design to produce sufficient competent evidential matter.
An audit Program acts as a guide to arrange and distribute the work and also to check work against the possibility of omissions. Auditor should first prepare the preliminary audit Program for compliance testing of internal accounting control systems and substantive testing of accounting balance.
Compliance Test
There are two types of compliance tests to evaluate internal control system of an organization.
A. Auditor observes control procedures that leave no trail of documentation.
B. The second step involves the examination of documentation; this indicates the
A performance of control procedures.
Types of Audit Program
Following are the two types of audit Program -
1. Fixed
2.Flexible
Fixed Audit Program - Audit staff has to follow the instructions mentioned in the Audit Program as laid down in it without any change. Even all are not applicable to that particular organization in a particular situation. Fixed audit Program is very rigid in nature and any modification or change is Program is not easily possible. Flexible Audit Program - Flexible Audit Program gives only the outline of the scope and the procedures to be followed instead of any fixed audit instructions. Therefore an Auditor has a choice to develop, adopt and modify an Audit Program as per the needs and requirements.
3. Describe the duties of company Auditor.
Duties of Company Auditor Under Chartered
Accountants Act, 1949:
(A) According to Section 144 of the Act, an aliter can services as are approved by the BOD (Board of Directors) the Aut Committee. He cannot render consulting and specialised servic which means any one or a combination of:
(1) Accounting and bookkeeping services
(2) Internal audit.
(3) Design and implementation of say financial
(4) Actuary Services
(5) Investment advisory services
(6) Investment banking services
(7) Rendering of outsourced financial services
(8) Any other kind of consultancy services
(B) He shall not allow any person to sign for anil on his behalf statement of Profit and Lew and Balance Sheet except his partner
(C) He shall not disclose information obtained during his empl ment without permission of the employer, unless he is required under isw
(D) If during the checking of a financial statement he one o a material fact that the disclosure of which is necessary to m misleading impression, he shall ducibus the came
4. Explain Divisible profits.
Divisible Profits:
Divisible profits are those profite which are arrived at after deducting all the expenses including the taxes payable to the state by the company. It is very difficult to define the term divisible profit but some general principles are to be followed to decide the divisible profits
(1) The provisons of Company Act should be complied with
(2) Before determing divisible profits due provision should be made for income tax.
(3) Dividends are recommended by the directors but are finally
approved by the shareholders in the general meetings. Difference between profit and divisible profit must be clearly understood. All of profit are not divisible. Only those profit, which can be legally distributed amongst the shareholders are divisible profita Divisible profit should be ascertained having regard to the provisions of the Companies Act, 2013 and in each the provisions of memorandum and articles of association and their validity must be considered. Dividend must also not be paid so as to deprive the creditors or debenture holders of their security.
In short, out of profit so earned by the company whatever portion is being distributed to the shareholders in proportion of their holdings in a company is considered to be the divisible profit that means distributable profits which shareholders are liable to take up in the form of dividend is known as divisible profits.
5. Write four points of insurance Audit.
After the nationalisation of general insurance companies (19 the audit of insurance companies comes under the purview of p sector enterprise. Every general insurance company has to manage the
following revenue account:
(a) Fire Insurace Revenue Account
(b) Marine Insurance Revenue Account
(c) Miscellaneous Insurance Revenue Account Besides these accounts, the company has to prepare state of P & Loss and Balance Sheet also. All these Accounts & Balance Shim must be prepared in agreement with the legal requirements.
Audit of Insurance Companies:
The auditor must have a full knowledge of the relevant la well as the prescribed forms of the revenue accounts and balance b The internal control system has also a great significnace for the audit. The auditor must pay special attention to the following items
1: Vouching of Income:
(1) The policies recorded in the Policy Register and issue the
has good to be vouched. (2) The receipts of premium must be voucher from Policy Reg and Premium Register.
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