STUDY NOTE 6

Evolution
 Traces 3600 – 3200 B.C.

Nature of Auditing
 Auditor is a watchdog not a bloodhound.

Aspects to be covered in an audit

 Accounting and internal control system
 Examination of books and records
 Compliance with law and regulations
 Reporting

Objectives of Auditing
 Primary:- Determine whether B/s present true and fair view or not
 Secondary; prevention and detection of errors and frauds.

Basic principles governing and audit

 Integrity objectivity and independence
 Confidentiality
 Skills and competence
 Work performed by others
 Documentation
 Planning
 Audit evidence
 Accounting system and IC
 Audit conclusions and reporting.

Inherent limitations of audit

 No guarantee of complete detection
 Professional scepticism
 Materiality

Fundamental accounting assumptions

 Going concern
 Consistency
 Accrual

Factors determining accounting policies

 Prudence

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  Substance over form
 Materiality

Types of audit
1. Organisational structure
 Voluntary / pvt audit
 Statutory audit
 Govt. Audit

2. Objective
 Independent financial audit
 Internal audit
 Cost audit
 Mgmt audit
 Tax audit
 Secretarial audit
 Forensic audit
 Information security audit
 Social audit
 Environmental audit
 Performance audit
 Propriety audit
 Operational audit

3. Timing
 Continuous audit
 Annual audit
 Interim audit
 Balance sheet audit

4. Scope
 Complete audit
 Partial audit
 Detailed audit

Govt. Audit
 Transaction audit
o Expenditure
 Audit against rules and orders
 Audit of sanctions

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  Audit against provision of funds
 Audit of financial propriety.
o Receipt
 Efficiency cum performance audit

Audit Risk
 Inherent risk
 Control risk
 Detection risk

Method to obtain audit evidence

 Inspection
 Observation
 Inquiry & confirmation
 Computation
 Analytical review

Procedures to find audit evidence

 Compliance procedures
 Substantive procedures

Internal control
 Internal check + internal audit

Cut off procedures

 Adopted to allocate revenue and costs to proper accounting period.

Examination in depth
 Also called auditing in depth and walk thorough test
 Verification through audit trial

Types of IC
 Preventive
 Detective
 Corrective

Techniques to evaluate IC
 Narrative Record
 Check list
 Flow chart

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  IC Questionnaire

Types of vouchers
 Original and collateral vouchers
 Internal and external vouchers
 Missing vouchers

Teeming and landing / lapping

 Receipt from one shown in another

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 STUDY NOTE – 7 / 7&8
Subsequent Auditor
 Appointed at 1st AGM
 Retires at 6th AGM
 Almost 5 year tenure
 Process goes on.
 Recommended by audit committee to BOD.
 Further by BOD to GM.
 Appointment by shareholders.

Auditor will furnish

 Consent
 Eligibility certificate= Eligibility + Within Limit + Tenure as per Law +
List of pending proceedings to be correct

ROC Filing
 ADT – 1 in 30 days.

Rotation of Auditors
 5 + 5 – for individual CA
 5 + 5+ 5 – for partnership firm
 Applicability:-
o Listed Co.
o Public Co. with PSC 10 Cr or more.
o Pvt. Co. with PSC 50 Cr or more
o Co. with borrowing or public deposits or both Rs. 50 Cr. Or more.

Subsequent Auditor in Govt. Co.

 Appointed each year within 180 days from 1st April.
 Retires at next AGM

First Auditor
 Appointed by BOD in 30 days of COI
 Else by EGM in next 90 days.
 Retires at first AGM.

First Auditor of Govt. Co.

 Appointed by CAG in 60 days of COI.
 Else by BOD in next 30 days.
 Else by EGM in next 60 days.

Casual Vacancy
 Filled by BOD in next 30 days

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  Ratification by shareholders in next 3 months only in case of resignation
 Holds office only upto next AGM

Casual Vacancy in Govt. Co

 Filled by CAG in 30 days
 Else by BOD in next 30 days

Reappointment
 Always allowed
 Subject to rotation

Removal
 CG approval (ADT-2) in 30 days of BR + SR

Resignation
 Addressed to Co. + ADT-3 by auditor to ROC in 30 days

Eligibility
 Practicing CA
 Either individual or firm or LLP.

Disqualifications
 Body corporate other than LLP
 Officer or employee
 Partner or employee of employee
 Security holder but relative can hold securities upto Rs. 1 lakh, any
excess to be reduced in 60 days.
 Debtor of Co. more than Rs. 5 lakh
 Guarantor or security provider beyond Rs. 1 lakh.
 Business relationship except ALP
 Relative director or KMP
 Ceiling limit reached
 Convicted for fraud and 10 years are not over from expiry of sentence.
 Person providing prohibited services.

Ceiling Limit
 20 audit per partner
 Exceptions
o OPC
o Small Co.
o Dormant Co.
o Pvt. Co. with PSC < 100 Cr.

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Prohibited Services
 Accounting / book keeping
 Internal audit
 Design and implementation of financial MIS
 Actuarial service
 Investment advisory
 Investment banking
 Outsourcing of financial services
 Management services
 Others as may be prescribed.

Remuneration of Auditor
 Fixed by shareholders
 But for first auditor, by BOD

Fraud Reporting
 Inform BOD / Audit committee in 2 days of knowledge
 Wait for their reply for 45 days
 Write to MCA in next 15 days, only if dissatisfied (ADT-4)
 Only if matter is of more than Rs. 1 Crore.

Attendance at AGM
 Compulsorily required
 Alternatives:-
o Take leave
o Send another PCA as representative

Audit committee
 Min 3 directors
 Majority of ID
 Applicability:-
o Listed Co.
o Public Co. with PSC ≥ Rs. 10 Cr.
o Public Co. with turnover ≥ Rs. 100 Cr.
o Public Co. with O/S ≥ Rs, 50 Cr.

Cost Audit
 Only on companies specified.
 Regulated Sector (6)
 Unregulated sector (33)
 Regulated sector
a) Total turnover ≥ 50 Cr.
b) Concerned turnover ≥ 25 Cr.

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  Unregulated sector
a) Total turnover ≥ 100 Cr.
b) Concerned turnover ≥ 35 Cr.
 Exceptions
a) Operating in SEZ
b) 75% export revenue
c) Electricity production for captive consumption
 Appointed in 180 days from 1st April
 Report in 180 days from 31st march
 Only by cost accountant in practice
 Rotation does not apply.

Secretarial Audit
 Only in companies specified
 Applicability:-
a) Listed Co.
b) Public Co. with PSC ≥ 50 Cr.
c) Public Co. with turnover ≥ 250 Cr.
 Report MR-3
 Only by PCS.

Basic Elements of audit Report

 Table
 Addressee
 Opening paragraph
 Scope paragraph
 Opinion paragraph
 Date
 Place
 Signature of auditor

Types of audit report

1. Unqualified
2. Qualified or modified
 Qualified
 Disclaimer of opinion
 Adverse opinion.

CARO – 2020: - Applies on all companies including foreign companies except

a) Banking co.
b) Insurance co.
c) Section 8 co.
d) OPC

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 e) Small Co.
f) Specified Pvt Co.
 Should not be subsidiary of public Co.
 Should not be holding of public
 PSC + R/S ≤ 1 Cr.
 Borrowing ≤ 1 Cr.
 Revenue ≤ 10 Cr.

Branch audit
 Can be done by co, auditor or auditor separately appointed
 Foreign branch can be audited by a person qualified there.

Special Audit
 Bank Audit
 Educational institutions
 Hospital
 Co-operative Societies
 Municiapliaties and Panchayat
 Trust
 Cinema Hall
 Hotel
 Amusement Park
 Restuarants

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 Objective Questions

(a) Choose the correct answer from the given four alternatives: [6x1=6]
(ii) The _________________ is also expected to provide the resources needed and select staff
members to accompany the auditors. (a) Auditor (b) Client (c) Internal auditor (d) Auditee

(iii) Each of the three parties involved in an audit _____________ plays a role that contributes to its
success. (a) the client, the auditor, and the auditeer (b) the client, the auditor, and the audite (c) the
client, the moderator, and the auditee (d) the client, the auditor, and the auditee

(iv) SA 230 stands for ___________________. (a) Quality control for an audit of financial Statements
(b) Agreeing the terms of Audit engagements. (c) Audit Documentation (d) Responsibility of Joint
Auditor

(v) Permanent Audit file contains _________________. (a) Copies of management letters (b) Audit
Programme (c) Analysis of transaction and balances (d) Analysis of significant ratios and trends

(vi) Internal Control Questionnaire contains the questions need to be followed by the
_____________ (a) Employer of the organisation (b) Employee of the organsation (c) Auditor of the
entity (d) Banker to the organsation

(vii) Secretarial Audit is covered under Section ____________ of Companies Act, 2013. (a) Section
204 (b) Section 148 (c) Section 139 (d) None of the above

State whether the following statements are True (or) False. [4×1=4]

(i) "Branch office", in relation to a company, means any establishment described as such by the
company.
(ii) Internal Auditor can be removed by the Board.
(iii) Final dividend is declared in the general meeting.
(iv) ―Debenture‖ includes debenture stock, bonds or any other instrument of a company evidencing
a debt, whether constituting a charge on the assets of the company or not.
Answer: (i) True; (ii) True; (iii) True; (iv) True.

(a) Choose the correct answer from the given four alternatives: [6x1=6]

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(i) The purpose of internal audit is to protect the (A) Assets (B) Audit staff (C) Accountant (D)
Management
(ii) Proving the truth means vouching of ___________________. (A) Payment (B) Expenses (C) Assets
(D) Liabilities
(iii) Form for maintenance of Cost Records by the Company is ____________________. (A) CRA-1 (B)
CRA-2 (C) CRA-3 (D) CRA-4
(iv) The meetings of Audit committee should be ______________ in a year. (A) 4 (B) 5 (C) 3 (D) 2
(v) An audit report is the __________ product of audit. (A) Main (B) Final (C) Semi final (D) None of
the above
(vi) Statutory Auditor can be removed by the __________________ (A) Shareholders (B) Audit
committee (C) BOD (D) None of the above.

(c) State whether the following statements are True (or) False. [4×1=4]
(i) Should reporting in Audit report comply with the requirements as made by statues? (ii) An audit
work reflects the work done by the management.
(iii) The concept of true or fair is a fundamental concept in auditing. (iv) An auditor is not insurer.
Answer: (i) True; (ii) False; (iii) False: (iv) True.

(a) Choose the correct answer from the given four alternatives: [6x1=6]

(i) First auditor of the company is appointed by the BOD within (A) 15 days (B) 30 days (C) 45 days
(D) 60 days
(ii) Proving the truth means vouching of ___________________. (A) Payment (B) Expenses (C) Assets
(D) Liabilities
(iii) Form for Secretarial Audit Report is (A) MR-2 (B) MR-3 (C) MR-4 (D) MR-5
(iv) The meetings of Audit committee should be ______________ in a year. (A) 4 (B) 5 (C) 3 (D) 2
(v) An audit report is the __________ product of audit. (A) Main (B) Final (C) Semi final (D) None of
the above
(vi) Cost Auditor is appointed by the (A) Audit Committee (B) BOD (C) BOD on recommendation of
Audit Committee (D) None of the above

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Answer: (i) — (B) (ii) — (B) (iii) — (B) (iv) — (A) (v) — (B) (vi) — (C)

(c) State whether the following statements are True (or) False. [4×1=4]
(i) Cost Accounting Standards is mandatory as per section 143 of the companies Act 2013.
(ii) Audit report reflects the work done by the employees.
(iii) The concept of true or fair is a fundamental concept in auditing.
(iv) Statutory Auditor is appointed by the shareholder in the general meeting. Answer: (i) False; (ii)
False; (iii) False: (iv) True.

(a) Choose the correct answer from the given four alternatives: [6x1=6]
(i) The most comprehensive type of audit is the _________system audit, which examines suitability
and effectiveness of the system as a whole. (a) Quantity (b) Quality (c) Preliminary (d) Sequential
(ii) Each of the three parties involved in an audit _____________ plays a role that contributes to its
success. (a) the client, the auditor, and the auditeer (b) the client, the auditor, and the audite (c) the
client, the moderator, and the auditee (d) the client, the auditor, and the auditee
(iii) SA 300 stands for ___________________. (a) Quality control for an audit of financial Statements
(b) Agreeing the terms of Audit engagements. (c) Audit Planning (d) Responsibility of Joint Auditor
(iv) Internal Check is a valuable part of the _______________ control. (a) Internal (b) External (c)
Bothe (a) and (b) (d) None of the above
(v) Remuneration of auditors is covered under Section ____________ of Companies Act, 2013. (a)
Section 142 (b) Section 148 (c) Section 139 (d) None of the above
(vi) CAATS stands for (a) Cornwall Air Ambulance Trust (b) Children Air Ambulance Trust (c) Center
for alternatives to Animal Testing (d) Computer Assisted Auditing Technique Answer: (i) — (b) (ii) —
(d) (iii) — (c) (iv) — (a) (v) — (a) (vi) — (d)

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(c) State whether the following statements are True (or) False. [4×1=4]
(i) An audit report should have a proper title.
(ii) Auditor has right to disclose the client information to a third party.
(iii) An in depth examination to detect a suspected fraud is termed as Investigation.
(iv) ―Debenture‖ includes debenture stock, bonds or any other instrument of a company evidencing
a debt, whether constituting a charge on the assets of the company or not. Answer: (i) True; (ii)
False; (iii) True; (iv) True.

(a) Choose the correct answer from the given four alternatives: [6x1=6]
(i) Audit Procedures to obtain audit evidences include (A) Compliance Procedure (B) Substantive
Procedure (C) Both (A) and (B) (D) Neither (A) nor (B)
(ii) A Cost Auditor submits his report to (A) Board of Directors (B) Government (C) Shareholders (D)
Statutory Auditor
(iii) The first Auditor of a Company shall be appointed by the Board of Directors within (A) 30 days
from the date of registration. (B) 90 days from the date of registration. (C) 30 days from the date of
first AGM. (D) 1 year from the date of registration.
(iv) The purpose of internal audit is to protect the (A) Assets (B) Audit staff (C) Accountant (D)
Management
(v) Proving the truth means vouching of ___________________. (A) Payment (B) Expenses (C) Assets
(D) Liabilities
(vi) Form for maintenance of Cost Records by the Company is ____________________. (A) CRA-1 (B)
CRA-2 (C) CRA-3 (D) CRA-4 Answer: (i) — C (ii) — A (iii) — B (iv) — A (v) — B (vi) — A

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(c) State whether the following statements are True (or) False. [4×1=4]
(i) Audit report should comply with the requirements made by statues.
(ii) An audit work reflects the work done by the management.
(iii) The first auditor of a company is appointed by the shareholders of the company at the general
meeting. (iv) A company auditor can render actuarial services to his client. Answer: (i) True; (ii) False;
(iii) False: (iv) False.

(a) Choose the correct answer from the given four alternatives: [6x1=6]
(i) The most comprehensive type of audit is the _________system audit, which examines suitability
and effectiveness of the system as a whole. (A) Quantity (B) Quality (C) Preliminary (D) Sequential
(ii) Each of the three parties involved in an audit _____________ plays a role that contributes to its
success. (A) the client, the auditor, and the auditeer (B) the client, the auditor, and the audite (C) the
client, the moderator, and the auditee (D) the client, the auditor, and the auditee
(iii) SA 300 stands for ___________________. (A) Quality control for an audit of financial Statements
(B) Agreeing the terms of Audit engagements. (C) Audit Planning (D) Responsibility of Joint Auditor
(iv) Internal Check is a valuable part of the _______________ control. (A) Internal (B) External (C)
Bothe (a) and (b) (D) None of the above
(v) Remuneration of auditors is covered under Section ____________ of Companies Act, 2013. (A)
Section 142 (B) Section 148 (C) Section 139 (D) None of the above
(vi) CAATS stands for (A) Cornwall Air Ambulance Trust (B) Children Air Ambulance Trust (C) Center
for alternatives to Animal Testing (D) Computer Assisted Auditing Techniques Answer: (i) — (B) (ii) —
(D) (iii) — (C) (iv) — (A) (v) — (A) (vi) — (D)

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(c) State whether the following statements are True (or) False. [4×1=4]
(i) An audit report should have a proper title.
(ii) Auditor has right to disclose the client information to a third party.
(iii) An in depth examination to detect a suspected fraud is termed as Investigation.
(iv) ―Debenture‖ includes debenture stock, bonds or any other instrument of a company evidencing
a debt, whether constituting a charge on the assets of the company or not. Answer: (i) True; (ii)
False; (iii) True; (iv) True.

(a) Choose the correct answer from the given four alternatives: [6x1=6]
(i) An audit committee should have ______ directors. (A) 3 (B) 2 (C) 1 (D) 4
(ii) Appointment of auditor for government company is done by (A) BOD (B) Audit committee (C)
Managing Director (D) CAG
(iii) An in depth examination to detect a suspected fraud is termed as _______________. (A) Cost
Audit (B) Bank Audit (C) Investigation (D) None of the above
(iv) _____________ Audit is conducted at the end of the accounting year, after the books of
accounts have been closed. (A) Interim (B) Annual (C) Investigation (D) None of the above
(v)Form CRA -_________ is related to appointment of Cost Auditor. (A) 1 (B) 2 (C) 3 (D) 4
(vi) Each of the three parties involved in an audit _____________ plays a role that contributes to its
success. (A) the client, the auditor, and the auditeer (B) the client, the auditor, and the audite (C) the
client, the moderator, and the auditee (D) the client, the auditor, and the auditee

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(c) State whether the following statements are True (or) False. [4×1=4]
(i) Internal audit, in its initial stages, was developed as a branch of Operational auditing.
(ii) An auditor is not insurer.
(iii) The first auditor of a company is appointed by the shareholders of the company at the general
meeting.
(iv) Balance sheet audit is generally synonymous with statutory audit.
Answer: (i) False; (ii) True; (iii) False: (iv) True.

(a) Choose the correct answer from the given four alternatives: [6x1=6]
(i) Proving the truth means vouching of ___________________. (A) Payment (B) Expenses (C) Assets
(D) Liabilities
(ii) In case there is an Audit Committee the Cost Auditor is appointed by the (A) Audit Committee (B)
BOD (C) BOD on recommendation of Audit Committee (D) None of the above
(iii) Internal Check is a valuable part of the _______________ control. (A) Internal (B) External (C)
Bothe (a) and (b) (D) None of the above
(iv) CAATS stands for (A) Cornwall Air Ambulance Trust (B) Children Air Ambulance Trust (C) Center
for alternatives to Animal Testing (D) Computer Assisted Auditing Techniques
(v) The most comprehensive type of audit is the _________system audit, which examines suitability
and effectiveness of the system as a whole. (A) Quantity (B) Quality (C) Preliminary (D) Sequential
(vi) Cost Audit is covered under (A) Section 204 (B) Section 148 (C) Section 139 (D) None of the above

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(c) State whether the following statements are True (or) False. [4×1=4] (i) An audit report should
have a proper title. (ii) Auditor has right to disclose the client information to a third party. (iii) An in
depth examination to detect a suspected fraud is termed as Investigation. (iv) Before submission of
the report to the Board the Audit Committee has the power to review the Financial Statement.
Answer: (i) True; (ii) False; (iii) True; (iv) True.

(a) Choose the correct answer from the given four alternatives: [6x1=6]
(i) Audit is a fact-finding process that compares actual results with___________. (A) Specified
standards and plans (B) Expected results (C) Premature results (D) Preliminary results
(ii) _______ ________ is a continuous critical review of financial and operating activities by a staff
member of the auditor. (A) Internal Check (B) Internal Control (C) Internal Audit (D) None of the
above
(iii) Preventive Controls is a type of _______ _______. (A) Internal Control (B) Detective Control (C)
Verification (D) None of the above
(iv) Which of the following is/are technique of Verification? (A) Inspection (B) Observation (C)
Confirmation (D) All of the above
(v) The purpose of Internal audit is to detect the error in the; (A) Accounting records (B) Employees
records (C) Bank records (D) None of the above
(vi) Form CRA -_________ is related to Cost Audit Report. (A) 1 (B) 2 (C) 3 (D) 4

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(c) State whether the following statements are True (or) False. [4×1=4]
(i) An audit report do not require a proper title.
(ii) Flow Chart is a pictorial representation of the internal control system depicting its various
elements.
(iii) Audit Report reflects the work done by the Shareholders.
(iv) Partial audit is a non statutory audit. Answer: (i) False; (ii) True; (iii) False: (iv) True.

(a) Choose the correct answer from the given four alternatives: [6x1=6]
(i) A cost auditor submits his report to – (A) Government (B) Shareholders (C) Statutory Auditor (D)
Board of Directors
(ii) Appointment of auditor for government company is done by (A) BOD (B) Audit committee (C)
Managing Director (D) CAG
(iii) Form for maintenance of Cost Records by the Company is ____________________. (A) CRA-1 (B)
CRA-2 (C) CRA-3 (D) CRA-4
(vi) Each of the three parties involved in an audit _____________ play a role that contributes to its
success. (A) the client, the auditor, and the auditeer (B) the client, the auditor, and the audite (C) the
client, the moderator, and the auditee (D) the client, the auditor, and the auditee
(iv) An audit report is the __________ product of audit. (A) Main (B) Final (C) Semi final (D) None of
the above
(v) Statutory Auditor can be removed by the __________________ (A) Shareholders (B) Audit
committee (C) BOD (D) None of the above.
(vi) Remuneration of auditors is covered under Section ____________ of Companies Act, 2013. (A)
Section 142 (B) Section 148 (C) Section 139 (D) None of the above

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(c) State whether the following statements are True (or) False. [4×1=4] (i) Joint auditors shall not be
jointly and severally responsible in respect of undivided work. (ii) An audit work reflects the work
done by the management. (iii) The concept of true and fair is a fundamental concept in auditing. (iv)
An auditor is not insurer. Answer: (i) False; (ii) False; (iii) True: (iv) True.

(a) Choose the correct answer from the given four alternatives: [6x1=6]
(i) The most comprehensive type of audit is the ......... system audit, which examines suitability and
effectiveness of the system as a whole. (a) Quantity (b) Quality (c) Preliminary (d) Sequential
(ii) Cost Audit is covered under (a) Section 204 (b) Section 148 (c) Section 139 (d) None of the above
(iii) Cost Auditor is required to submit the cost audit report in : (a) CRA -1 (b) CRA-2 (c) CRA-3 (d)
CRA-4
(iv) Secretarial Audit is applicable to the public sector company having the turnover of- (a) 100 crore
(b) 200 crore (c) 250 crore (d) 300 crore
(v) Audit of debenture is covered under section- (a) Section 70 (b) Section 71 (c) Section 72 (d)
Section 73
(vi) The ......... is also expected to provide the resources needed and select staff members to
accompany the auditors. (a) Auditor (b) Client (c) Internal auditor (d) Auditee Answer: (i) — (b) (ii) —
(b) (iii) — (c) (iv) — (c) (v) — (b) (vi) — (d)

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(c) Say True or False for the following question: [5×1=5]
(i) There is no difference between statutory and external audit.
(ii) The concept of true and fair is a fundamental concept in auditing.
(iii) As per ICAI (CA) auditor need to retain the working paper for a period of 5 years.
(iv) An audit report is the end product of auditing.
Answer: (i) False (ii) False (iii) False (iv) True

(a) Choose the correct answer from the given four alternatives: [6x1=6]
(i) Appointment of first auditor for government company is done by (a) BOD (b) Audit committee (c)
Managing Director (d) CAG.
(ii)Audit is a fact-finding process that compares actual results with...................... (a) Specified
standards and plans (b) Expected results (c) Premature results (d) Preliminary results.
(iii) Form for maintenance of Cost Records by the Company. (a) CRA-1 (b) CRA-2 (c) CRA-3 (d) CRA-4
(iv) SA 530 stands for (a) Quality control for an audit of financial statement. (b) Agreeing the terms of
Audit engagements (c) Audit Documentation (d) Audit Sampling
(v)Objective of an Audit is to formulate an overall opinion on (a) Cost statement (b) Financial
statement (c) Books of accounts (d) none of these
(vi) CAATS stands for – (a) Cornwall Air Ambulance Trust (b) Children Air Ambulance Trust (c) Center
for Alternative to Animal Testing (d) Computer Assisted Auditing Technique Answer: (i) (d) (ii) (a) (iii)
(a) (iv) (d) (v) (b) (vi) (d)

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(C) Say True or False for the following question: [4×1=4]
(i) In an audit report the Membership number of the Chartered Accountants is irrelevant.
(ii) Co-operative banks are not governed by the Co-operative Socities Act,1912 .
(iii) Cost Auditors has to follow the Cost Auditing Standards while calculating Cost Audit.
(iv) Secretarial Audit Report is attached with the Board report. Answer: (i) False (ii) False (iii) True (iv)
True

(a) Choose the correct answer from the given four alternatives: [6x1=6]
(i) Secretarial Audit is covered under (a) Section 204 (b) Section 148 (c) Section 139 (d) None of the
above
(ii) Audit Procedures to obtain audit evidences include (a) Compliance Procedure (b) Substantive
Procedure (c) Both (a) and (b) (d) Neither (a) nor (b)
(iii) An effective internal control system consists of which of the following steps? (a) Control
Environment (b) Assessment of Risk (c) Control Activities (d) All of the above
(iv) SA 230 is related to which of the following? (a) Audit Documentation (b) Audit Planning (c)
Appointment of auditors (d) None of the above
(v) USEPA stands for (a) United States Environmental Practice Agency (b) United States
Environmental Protection Agency (c) United States Environmental Protection Agreement (d) United
States Efficient Protection Agency
(vi) Transaction Audit contains which of the following (a)Expenditure Audit & Receipts Audit
(b)Expenditure Audit & Income Audit (c)Payments Audit & Receipts Audit (d)None of the above
Answer: (i) — (a) (ii) — (c) (iii) — (d) (iv) — (a) (v) — (b) (vi) — (a)

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(c) Say True or False for the following question: [4×1=4]
(i) An audit report should have a proper title.
(ii) Test checking depends upon the statistical technique applied.
(iii) Operational Audit is process based.
(iv) A voucher is a piece of substantiating evidence, in the form of a written record of expenditure,
disbursement, or completed transaction. Answer: (i) True (ii) False (iii) True (iv) True

(a) Choose the correct answer from the given four alternatives: [6x1=6]
(i) Statutory Auditor is appointed by the shareholder in the (a) General Meeting (b)Statutory
Meeting (c) EGM (d)Board Meeting
(ii) A Cost Auditor submits his report to (a) Board of Directors (b) Government (c) Shareholders (d)
Statutory Auditor
(iii) An audit committee should have ______ directors. (a) 3 (b) 2 (c) 1 (d) 4
(iv) Any fraud to involve an amount of _______ is to be reported to the Central government. (a) 5
crore or above (b) 100 crore or above (c) 1 crore or above (d) 10 crore or above
(v) Form for Secretarial Audit Report is- (a)MR-2 (b)MR-3 (c)MR-4 (d)MR-5
(vi) Preventive Controls is a type of __________ (a) Internal Control (b) Detective Control (c)
Verification (d) None of the above Answer: (i) — (a) (ii) — (a) (iii) — (a) (iv) — (c) (v) — (b) (vi) — (a)

(c) Say True or False for the following question: [4×1=4]

(i) Cut off procedures are generally applied to trading transactions.
(ii) The primary objective of the audit is for detecting frauds and error in the books of accounts and
financial records of the clients business.
(iii) If the debentures are issued as collateral security to the banks or creditors then auditor needs to
ensure that such issue is approved by debenture trustee.
(iv) Company Secretaries are eligible to conduct Cost Audit having valid certificate of practice.
Answer: (i) True (ii) False (iii) False (iv) False

(a) Identify the correct alternative: 1×6=6

(i) Which of the following is not an audit risk? (A) Inherent Risk (B) Detection Risk (C) Control Risk (D)
Omission Risk
(ii) Dividend cannot be paid out of (A) current year's profit after providing depreciation. (B)
undistributed profits for any previous financial year or years after providing for depreciation. (C)
profit on revaluation of any fixed assets. (D) money provided by the Central Government or a State
Government.

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(iii) Permanent Audit File does not contain (A) a record of study and evaluation of internal control
system. (B) significant audit observations of earlier years. (C) copies of management letters. (D)
analysis of significant ratios and trends.
(iv) Audit Procedures to obtain audit evidences include (A) Compliance Procedure (B) Substantive
Procedure (C) Both (A) and (B) (D) Neither (A) nor (B)
(v) A Cost Auditor submits his report to (A) Board of Directors (B) Government (C) Shareholders (D)
Statutory Auditor
(vi) The first Auditor of a Company shall be appointed by the Board of Directors within (A) 30 days
from the date of registration. (B) 90 days from the date of registration. (C) 30 days from the date of
first AGM. (D) 1 year from the date of registration.

(a) (i) — D (ii) — C (iii) — C (iv) — C (v) — A (vi) — A

(1) C (2) D (3) A (4) B

(c) State whether the following statements are True or False: 1×4=4
(i) Audit Programme is a part of Current Audit File.
(ii) Internal audit is conducted by the staff of the entity or by an independent professional appointed
for that purpose.
(iii) The first auditor of a company is appointed by the shareholders of the company at the general
meeting.
(iv) A company auditor can render actuarial services to his client.
(i) True (ii) True (iii) False (iv) False

(a) Identify the correct alternative: 1×6=6

(i) An auditor should submit a Disclaimer of Opinion when (A) he is satisfied with the truth and
fairness of financial statements. (B) he has certain reservations as to the presentation of truth and
fairness in financial statements. (C) some material information is not available. (D) the effect of any
disagreement with the management is not so material.
(ii) In case of a company other than a Government Company, any casual vacancy in the post of
auditor is to be filled by the (A) Board of Directors (B) Managing Director (C) Comptroller and Auditor
General (CAG) (D) Shareholders
(iii) An Audit Committee should have a minimum of ____________ number of directors. (A) 4 (B) 3
(C) 5 (D) 6
(iv) SA 530 stands for (A) Audit Documentation (B) Audit Sampling (C) Responsibility of Joint Auditor
(D) Agreeing the terms of Audit Engagements
(v) Unpaid dividend standing at the credit of Unpaid Dividend A/C should be transferred to Investor
Education and Protection Fund after _______ years of its remaining unpaid. (A) six (B) eight (C)
seven (D) five
(vi) Which of the following services cannot be rendered by an auditor as per Companies Act 2013?
(A) Vouching (B) Verification of assets and liabilities (C) Issuing certificates on relevant matters (D)
Providing investment advisory services
(i) C (ii) A (iii) B (iv) B (v) C (vi) D

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(1) B (2) D (3) A (4) C

(c) State whether the following statements are true or false: 1x4=4
(i) As per Section 138 of Companies Act 2013, no private company or unlisted company is required to
appoint an internal auditor.
(ii) Audit Memorandum is a detailed plan of audit work clearly specifying the responsibilities of the
audit staff and time allotted to perform the same.
(iii) Substantive procedure is also known as test of control.
(iv) Cut-off procedures are adopted to allocate revenues and costs to the proper accounting period.
(i) False (ii) False (iii) False (iv) True

(a) Identify the correct alternative in each of the following cases: 1×6=6
(i) If the Debentures are issued as collateral security either to Banks or Creditors the Auditor needs
to ensure that such issue is approved by (A) Shareholders (B) Board of Directors (C) Debenture
Trustee (D) Audit Committee
(ii) As per SQC 1, Audit working papers should be retained for a period of (A) 2 years (B) 5 years (C) 7
years (D) 10 years
(iii) Current Audit files contains (A) Articles of Association and Memorandum of Association (B)
Analysis of significant ratios and trends (C) Notes regarding significant Accounting policies (D) Audit
Programme
(iv) Form for maintenance of Cost Records of a Company is (A) CRA-1 (B) CRA-2 (C) CRA-3 (D) CRA-4
(v) Secretarial Audit is applicable to every Public Company having a turnover of (A) ` 100 crores (B) `
150 crores (C) ` 250 crores (D) ` 200 crores
(vi) Statutory Auditor is appointed by the Shareholders in the (A) General Meeting (B) Statutory
Meeting (C) EGM (D) Board Meeting

(i) B (ii) C (iii) D (iv) A (v) C (vi) A

(1) C (2) D (3) A (4) B

(c) State whether the following statements are True or False: 1x4=4
(i) Section 70 deals with the Audit of Debenture.
(ii) An Audit Committee should have 4 directors.
(iii) CARO-Companies (Auditor's Report) order, 2016 is applicable to Banking Companies.

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(iv) Internal Check is part of Accounting Control.

(c) (i) False (ii) False (iii) False (iv) True

(a) Identify the correct alternative in each of the following cases: 16=6
(i) Internal Auditor is appointed by (A) Audit Committee (B) Shareholders in General Meeting (C)
Extraordinary General Meeting (D) Board of Directors
(ii) Cost Audit Report is submitted to Board of Directors in Form No. (A) CRA-1 (B) CRA-2 (C) CRA-3
(D) CRA-4
(iii) Check list contains the instruction to be followed by the (A) Internal Auditor (B) External Auditor
(C) Audit Assistants (D) Employee of the organization
(iv) Form for Secretarial Audit Report is (A) MR-2 (B) MR-3 (C) MR-4 (D) MR-5
(v) Permanent Audit file contains (A) copies of management letters (B) audit programme (C) analysis
of transaction and balances (D) analysis of significant ratios and trends
(vi) Audit of debenture is covered under section (A) 70 (B) 71 (C) 72 (D) 73

(i) (D) . Board of Directors (ii) (C). CRA 3 (iii) (C). Audit Assistants (iv) (B). MR-3 (v) (D) . Analysis of
significant ratios and trends (vi) (B). Section 71

(c) State whether the following statements are True or False: 14=4
(i) The Branch Auditor shall prepare report on the Accounts of the Branch examined by him andsend
it to Audit Committee
(ii) Maintenance of Cost Accounting Standards is mandatory as per Section 143 of Companies Act
(iii) Routine checking is a substitute of vouching
(iv) Casual vacancy in the office of Cost Auditor is filled by Board of Directors

Answer: 1(c) (i) False (ii) False (iii) False (iv) True

(a) Choose the correct answer from the four alternatives given: 1×6=6
(i) A nomination and remuneration committee should have _________ directors. (A) 5 (B) 10 (C) 2
(D) 3
(ii) An individual auditor who has completed his term shall not be eligible for reappointment as
auditor in the same company for (A) Next 3 Years (B) Next 5 Years (C) Next 7 Years (D) Next 8 Years
(iii) Proving the truth means vouching of ____________ . (A) payment (B) expenses (C) assets (D)
liabilities

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(iv) Secretarial Audit is applicable to the Public Company having the paid-up share capital of ₹
__________________. (A) 50 crore (B) 75 crore (C) 100 crore (D) 200 crore
(v) Internal Control Questionnaire contains the questions which need to be followed by the
_________________________ . (A) Employer of the organisation (B) Employee of the organisation
(C) Auditor of the entity (D) Banker to the organisation
(vi) Declaration of dividend is covered under section _____________ of the Companies Act, 2013. (A)
122 (B) 123 (C) 124 (D) 125

(a) (i) D 3 (ii) B Next 5 years (iii) B expenses (iv) A ₹50 crore (v) B Employee of the organisation (vi) B
123

(b) 1. B 2. D 3. A 4. C

(c) State whether the following statements are true or false: 1x4=4
(i) An Audit notebook is a bound book in which a large variety of matters observed during the course
of audit are recorded.
(ii) The concept of true and fair is a fundamental concept in auditing.
(iii) First auditor of the company is appointed by the Board of Directors within 45 days from the date
of first AGM.
(iv) A Statutory Audit is an official investigation into alleged wrong doing.
(c) (i) True (ii) True (iii) False (iv) False

(a) Identify the correct alternative in each of the following cases: 1x6=6
(i) Section 146 of the Companies Act, 2013 deals with (A) Auditor not to render certain services (B)
Auditor to sign Audit Reports (C) Auditor to attend general meeting (D) Punishment for
contravention
(ii) Which of the following is not included in the Current Audit File? (A) Memorandum and Articles of
Association (B) Current year’s audit programme (C) Internal Control Questionnaire (D) Copies of
budget
(iii) Which of the following is not an external audit evidence? (A) Quotations (B) Confirmation from
debtors (C) Goods Received Note (D) Confirmation from bankers
(iv) The ___________ shall act as the secretary of the Audit Committee. (A) Auditor (B) Managing
Director (C) Comptroller and Auditor General (D) Company Secretary
(v) Cost Auditor is appointed by (A) Audit Committee (B) Board of Directors (C) Board of Directors on
recommendation from Audit Committee (D) None of the above
(vi) Remuneration of Auditors is covered under the following section of Companies Act, 2013: (A)
Section 142 (B) Section 148 (C) Section 139 (D) Section 143

(a) (i) (C) (ii) (A) (iii) (C) (iv) (D) (v) (C) (vi) (A)

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(b) 1. (D) 2. (C) 3. (B) 4. (A)

(c) State whether the following statements are True or False: 1x4=4
(i) An audit work reflects the work done by the Management.
(ii) “Branch Office” in relation to a Company means any establishment described as such by the
Company.
(iii) Cooling period of the individual auditor is 2 consecutive terms of 5 years.
(iv) There is no difference between Statutory and External audit. (c) (i) False (ii) True (iii) False (iv)
False

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