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Here you will find auditing bcom 3rd year semester 5 question papers. This Calcutta University previous year question papers on Auditing and Assurance Chapter 1 (Introduction to Auditing) will help you to get important question suggestion auditing for CU sem 5 exam. The auditing previous year question paper of CU consists of the chapter wise important questions of auditing that have come in previous year of exams. Here are important suggestion of previous year CU audit questions came in the 2015 to 2018 exams.
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1) Define interim audit and state two of its necessities. (2+2)
Answer: An audit which is conducted in between the two annual audits with a view to find out interim profits to enable the company to declare and interim dividend should be called as interim audit.
Necessities of interim audit:
1) Interim audit is necessary to declare and pay out interim dividend
2) Taking mid-term preventive measures regarding errors and frauds.
2) Distinguish between audit and investigation. (6)
3) State the advantages and disadvantages of continuous audit. (3+3)
Answer: A continuous audit or a detailed audit is an audit which involves a detailed examination of the books of accounts at regular intervals, every month or every three months. The advantages and disadvantages are duscussed below:
Advantages:
1) Easy and quick discovery of errors and frauds: Errors and frauds can bd discovered easily and quickly as tge auditor checks the accounts at regular intervals and in detail. If the auditor checks the accounts after one year it would be difficult to locate and error and fraud. The auditor visits the organisation every month or every two or three months. The number of transactions tends to be few, and errors and frauds can be easily detected.
2) Quick presentation of accounts: Since most of the checking has already been carried out during the financial year, the final audited accounts can be presented soon after the end of the financial year at the annual general meeting.
3) Preparation of interim audit: When the director of a company has desire to declare and interim dividend, continuous audit will help to prepare the interim accounts without much delay.
Disadvantages:
1) Continuous Audit is Expensive: Continuous audit may not be suitable for small scale businesses because it involves lot of time, effort and money.
2) Dislocation of Client’s Work: The frequent visits of the auditor may cause inconvenience to the staff of the business and the office routine may be dislocated.
3) Unhealthy Relationship: Frequent visit of audit staff is likely to establish an unhealthy relationship between the audit and the client’s staff. Hence the moral check upon them may be lessened.
4) 'Fraud does not necessarily involve misappropriation of cash or goods.' Discuss. (6)
Answer: Other than embezzlement of cash or misappropriation of goods, frauds can also be comitted through manipulation of accounts and window dressing.
Fraudulent manipulation of accounts:
Manipulation or falsification of accounts refers to changing the profit or loss figure with a specific intention. Such frauds are difficult to detect as they are committed by the people at the helm of affairs who are presumed to be trustworthy, honest, and responsible and hence no suspicion falls on them. Such frauds are cleverly committed and so the auditor must in detecting them. He / She should carry out routine checking and vouching more carefully and make necessary searches and inquiries intellectually and tactfully.
Window - dressing:
Window - dressing is the diametrically opposite concept of true and fair view. It is the outcome of cosmetics accounting. The basic purpose of window - dressing is to exhibit what it is actually not. Window - dressing may occur in the following ways:
(a) Undercharging depreciation
(b) Making less amount of provision for bad debts;
(c) Charging revenue expenditure as capital expenditure
(d) Over - valuation of closing stock
Hence, it can be reasonably concluded that fraud does not necessarily involve misappropriation of cash or goods.
5) Write a short note on Environmental audit (5)
Answer: An environmental audit is a type of evaluation intended to identify environmental compliance and management system implementation gaps, along with related corrective actions. In this way they perform an analogous function to financial audits.
Environmental auditing originated in the USA to check whether the company complies with the environ mental laws of the country or not. In the year 1978, TISCO started an environmental audit.
As per the requirement of Water (Prevention and Control of Pollution) Act, 1974, Air (Prevention and Control of Pollution) Act, 1981, Environment (Protection) Act, 1986, and Wastes (Management and Handing) Rules, 1989, environmental audit report has to be submitted.
Objectives of environmental audit:
1. To ensure that the environment is least affected.
2. To judge the risk factor included in the operation of the organization.
3. To judge if the operation of the organization conforms to sustainable economic development.
4. To ensure that environmental laws and regulations are followed.
6) Write a short note on social audit. (5)
Answer: Social audit assess the social, economic and environmental benefits it derives from the society and gives to the society.
As per section 135 (1) of the Companies Act, 2013 in case of companies having net worth of rupees five hundred crore or more or turnover of rupees thousand crore or more or net profit of rupees five crore or more during any financial year they have to spend 2 per cent of the net profit on account of corporate social responsibility.
Objectives of social audit:
1. To assess that the company has discharged its social responsibility towards stakeholders.
2. To assess that the company has discharged its social obligation towards shareholders, customers, debt ors, creditors, and the government.
3. To ensure that the company discharges its statutory obligation.
Advantages of social audit:
1. Fulfils social obligations.
2. Makes the society aware of the functioning of the organization.
3. Assesses the social performance of the organization.
7) Write a short note on propriety audit. (5)
Answer: Propriety audit measures the rightness of policy and procedure. It also measures the decisions and actions made in the public interest and mitigates the standard code of conduct. Propriety audit involves checking if trans actions have been made in conformity with the principles, rules, regulations, guidelines, and standards which are in the best interest of the public.
Objectives:
1. To ensure operation is being conducted in conformity with rules and regulations.
2. To check that books of accounts are being maintained properly.
3. To see that funds are being utilized in the best interest of the concern.
4. To work towards the desired results of the concern.
Advantages:
1. Ensures that public money is not being misused from the point of view of propriety.
2. Ensures that policies and procedures are being followed accordingly.
3. Ensures that public interest is being safeguarded.
8) Write a short note on performance audit. (5)
Answer: A performance audit ascertains if the internal activities of the organization are carried out efficiently or not. Performance audit has some sort of symmetry with internal audit. Performance audit studies the competence of achieving goals.
Objectives:
1. To strengthen performance control and improve internal audit.
2. To study whether management controls are functioning effectively and efficiently.
3. To appraise and review efficiency.
4. To be obliged towards the attainment of organizational goals.
Advantages:
1. Reduces the area of uncertainty in business.
2. Removes bottlenecks in achieving goals.
3. Removes inefficiencies and ineffectiveness.
4. Achieves operational goals smoothly.
9) Name any four Standard on Auditing(SA) as prescribed by ICAI till date. (4)
Ans. Standards on Auditing(SA) refers to a set of guidelines for conducting audit in a scientific way. Standards incrporate techniques and principles to run the audit in an efficient and effective manner.
Four Standard on Auditing(SA) and their purposes as prescribed by ICAI :
1. SA 210 (W.e.f. 1st april, 2010): Quality control for an audit of financial statements.
2. SA 230 (W.e.f. 1st april, 2009): Audit Documentation.
3. SA 320 (W.e.f. 1st april, 2010) :Materiality in planning and performing an audit.
4. SA 500 (W'e'f' 1st april, 2009) :Audit Evidence.
10) Write a short note on "Auditor's Independence" with special reference to the provisions of the Companies Act and SA if any . (6)
Ans. The very concept of 'independence of auditor' reflects the underlying concept that auditing is not influ- enced by the appointing authority. Independent opinions passed by the appointed auditor makes the transparent and widely accepted in all parts of the society. An audited financial statement is accepted by the Income Tax department, banks or financial institutions, local authorities (corporation, municipality, or a notified area authority) or any other purpose deemed to be fit for the purpose of clarification, explanation, and support.
Section 144 of the Companies Act, 2013 also upholds the independent character of the auditor. He / she must not render the following services directly or indirectly to the company, its holding company, or a subsidiary company:
(a) Accounting and book-keeping
(b) Internal audit
(c) Design and implementation of any financial information system
(d) Actuarial services
(e) Investment advisory services
(f) Investment banking services
(g) Rendering of outsourced financial services
(h) Management services
(i) Any other kind of services as may be prescribed.
It is clear that the auditor must not render any sort of services that will hamper his/her honesty, integrity, and independence. He/She will perform his/her statutory obligation and no way deviate from the ethical code of conduct, as laid down in the Chartered Accountants Act, 1949.
11) Define investigation. State Clearly different purposes of an investigation. (2+4) OR Make a brief outline of investigation in respect of misappropriation of cash by a dishonest employee. (6)
Ans. Investigation means an enquiry into the financial accounts of the concern with special objective. In the words of Myles E. Taylor and Charies E. Perry, "Investigation involves enquiry into facts behind the books and accounts, into the technical, financial and economic position of the business or organization."
Purpose of Investigation :
In some special situation investigation may occur:
1. For Purchase of Business: Prospective buyer may investigate the earning capacity of the business and valued the assets and liabilities to assess the value of the firm;
2. For Sanctioning of loan: At the time of providing loan, investigation is required to judge credit worthiness i.e., repayment capacity of the borrower;
3. For Investment: Investment decision is based on value of the concern and dividend decision of the concern. Investigators judge the situation in true way.
4. For Suspected Fraud: Fraud may occur by the employee and investigator could be the person who unearthed the fraud;
5. Admission or Retirement of Partner: Valuation is made by the investigator at the time of entry or exit i.e., admission of new partner or retirement of existing partner;
6. Judge Sickness or Weakness of the concern: Any concern may be healthy, weak or sick: For the purpose of turnaround proposal or takeover proposal by the government concerns financial health has to be judge by the investigator;
7. For the Merger of the Concerns: For the purpose of merger or takeover the firm, techno-economic viability has to be judge by the investigator;
8. Compliance of Companies Act, 2013: The central Government may give the order for investigation
9. Abnormal Situation: If any abnormal situation arises the investigator may be appointed to judge the real thing.
12) Write a Short Notes : Standards on Auditing (SA). (5)
Ans. Standards on Auditing(SA) refers to a set of guidelines for conducting audit in a scientific way. Standards incrporate techniques and principles to run the audit in an efficient and effective manner.
Purpose of SA
1. The task of the Auditing and Assurance Standards Board (AASB) is to review the prevailing guidelines and issue the new guidelines.
2. At the time of issuing standards, the International Accounting Standard (IAS), International Financial Reporting Standard (IFRS) has to be borne in mind.
3. The AASB has to issue a guidelines note if problems arise.
4. AASB reviews the situation after a certain interval and if required, modification and issue of new guide- lines may be provided.
Importance of SA
1. Codification of auditing practice is possible through SA.
2. Professional pronouncement has to be maintained.
3. The importance of prescribing guidelines is to ensure sound auditing standards.
4. Auditing standards are considered to be the standard tools on auditing.
5. Auditing standards help in the prevention of errors and frauds.
6. Auditing standards make it easy to prepare the audit report and to show the true and fair view.
13) What is System Audit? (4)
Ans. System audit judges if the various systems of accounting and control mechanisms are efficiently followed in the organization or not. Financial statements are the outcome of the prevailing system. The auditor has to judge if the systems are being properly followed or not.
Objectives :
1. There is no stress to judge transactions.
2. More emphasis is laid on internal control and internal check.
3. In the prevailing internal control system, the auditor has to judge whether financial statements are free from errors and frauds.
Advantages :
1. The outcome of the system audit is more transparent.
2. System audit expedites the audit functioning.
3. It justifies the accounting system.
4. Internal control will be imposed strongly.
14) Write short notes on 'Government Audit'. (4)
Ans. The audit of government companies, public sector undertakings (PSUS), and both central and state gov- erntnent departments has to be conducted by the Comptroller and Auditor General of India (CAG). The appointment, remuneration, duties, and powers of the CAG have to be stated in Articles 148 to 151 of the Constitution of India.
The objectives of the government audit are as follows:
1. To ensure that the financial transactions of government companies, public sector undertakings, and government departments are made in conformity with financial rules.
2. To ensure that expenses are made within the purview of the budget.
3. To ensure that all the activities of the government companies, government undertakings, and govern- ment departments are made for public interest.
4. To generate maximnum output against minimum input.
5. To ensure that all the activities are made for public interest and funds are not misused.
15) 'Detection and prevention of errors and frauds are the main objective of auditing' Comment on the statement and explain the duties of an auditor in this regard. (6)
Ans. The auditor's duty regarding detection of frauds and errors is largely based on legal decisions and professional guidelines.
1. Legal decisions: The auditor's duty regarding frauds and errors was first mentioned by Justice Lord Lindley in the judgement of London and General Bank Ltd. In the words of Justice Lindley, the auditor is not bound to exercise more than reasonable care and skill in course of audit. He is not an insurer; he does not guarantee that books do correctly show the true position of the company.
In the case of Kingston Cotton Mills Co. Justice Lopes made historical remarks by stating, 'An auditor is not bound to be detective and to work with their suspicion, that there is something wrong. He is a watchdog not a blood hound. He is justified in believing tried servant of the company and is entitled to rely upon their representation provides he takes reasonable care.'
Irish Woollen Co. Ltd. vs Tyson and Others case frauds were committed through falsification of accounts by suppression of purchase invoices.At the same time purchased goods was taken into stock to enhance profit. The auditor was held guilty, not for taking reasonable care and skill for the purpose of vouching.
2. Professional guidelines: As per the guidelines of ISA 240: the Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements 'has clearly mentioned the auditor's responsibility in this regard.'
Answer: An audit which is conducted in between the two annual audits with a view to find out interim profits to enable the company to declare and interim dividend should be called as interim audit.
Necessities of interim audit:
1) Interim audit is necessary to declare and pay out interim dividend
2) Taking mid-term preventive measures regarding errors and frauds.
2) Distinguish between audit and investigation. (6)
3) State the advantages and disadvantages of continuous audit. (3+3)
Answer: A continuous audit or a detailed audit is an audit which involves a detailed examination of the books of accounts at regular intervals, every month or every three months. The advantages and disadvantages are duscussed below:
Advantages:
1) Easy and quick discovery of errors and frauds: Errors and frauds can bd discovered easily and quickly as tge auditor checks the accounts at regular intervals and in detail. If the auditor checks the accounts after one year it would be difficult to locate and error and fraud. The auditor visits the organisation every month or every two or three months. The number of transactions tends to be few, and errors and frauds can be easily detected.
2) Quick presentation of accounts: Since most of the checking has already been carried out during the financial year, the final audited accounts can be presented soon after the end of the financial year at the annual general meeting.
3) Preparation of interim audit: When the director of a company has desire to declare and interim dividend, continuous audit will help to prepare the interim accounts without much delay.
Disadvantages:
1) Continuous Audit is Expensive: Continuous audit may not be suitable for small scale businesses because it involves lot of time, effort and money.
2) Dislocation of Client’s Work: The frequent visits of the auditor may cause inconvenience to the staff of the business and the office routine may be dislocated.
3) Unhealthy Relationship: Frequent visit of audit staff is likely to establish an unhealthy relationship between the audit and the client’s staff. Hence the moral check upon them may be lessened.
4) 'Fraud does not necessarily involve misappropriation of cash or goods.' Discuss. (6)
Answer: Other than embezzlement of cash or misappropriation of goods, frauds can also be comitted through manipulation of accounts and window dressing.
Fraudulent manipulation of accounts:
Manipulation or falsification of accounts refers to changing the profit or loss figure with a specific intention. Such frauds are difficult to detect as they are committed by the people at the helm of affairs who are presumed to be trustworthy, honest, and responsible and hence no suspicion falls on them. Such frauds are cleverly committed and so the auditor must in detecting them. He / She should carry out routine checking and vouching more carefully and make necessary searches and inquiries intellectually and tactfully.
Window - dressing:
Window - dressing is the diametrically opposite concept of true and fair view. It is the outcome of cosmetics accounting. The basic purpose of window - dressing is to exhibit what it is actually not. Window - dressing may occur in the following ways:
(a) Undercharging depreciation
(b) Making less amount of provision for bad debts;
(c) Charging revenue expenditure as capital expenditure
(d) Over - valuation of closing stock
Hence, it can be reasonably concluded that fraud does not necessarily involve misappropriation of cash or goods.
5) Write a short note on Environmental audit (5)
Answer: An environmental audit is a type of evaluation intended to identify environmental compliance and management system implementation gaps, along with related corrective actions. In this way they perform an analogous function to financial audits.
Environmental auditing originated in the USA to check whether the company complies with the environ mental laws of the country or not. In the year 1978, TISCO started an environmental audit.
As per the requirement of Water (Prevention and Control of Pollution) Act, 1974, Air (Prevention and Control of Pollution) Act, 1981, Environment (Protection) Act, 1986, and Wastes (Management and Handing) Rules, 1989, environmental audit report has to be submitted.
Objectives of environmental audit:
1. To ensure that the environment is least affected.
2. To judge the risk factor included in the operation of the organization.
3. To judge if the operation of the organization conforms to sustainable economic development.
4. To ensure that environmental laws and regulations are followed.
6) Write a short note on social audit. (5)
Answer: Social audit assess the social, economic and environmental benefits it derives from the society and gives to the society.
As per section 135 (1) of the Companies Act, 2013 in case of companies having net worth of rupees five hundred crore or more or turnover of rupees thousand crore or more or net profit of rupees five crore or more during any financial year they have to spend 2 per cent of the net profit on account of corporate social responsibility.
Objectives of social audit:
1. To assess that the company has discharged its social responsibility towards stakeholders.
2. To assess that the company has discharged its social obligation towards shareholders, customers, debt ors, creditors, and the government.
3. To ensure that the company discharges its statutory obligation.
Advantages of social audit:
1. Fulfils social obligations.
2. Makes the society aware of the functioning of the organization.
3. Assesses the social performance of the organization.
7) Write a short note on propriety audit. (5)
Answer: Propriety audit measures the rightness of policy and procedure. It also measures the decisions and actions made in the public interest and mitigates the standard code of conduct. Propriety audit involves checking if trans actions have been made in conformity with the principles, rules, regulations, guidelines, and standards which are in the best interest of the public.
Objectives:
1. To ensure operation is being conducted in conformity with rules and regulations.
2. To check that books of accounts are being maintained properly.
3. To see that funds are being utilized in the best interest of the concern.
4. To work towards the desired results of the concern.
Advantages:
1. Ensures that public money is not being misused from the point of view of propriety.
2. Ensures that policies and procedures are being followed accordingly.
3. Ensures that public interest is being safeguarded.
8) Write a short note on performance audit. (5)
Answer: A performance audit ascertains if the internal activities of the organization are carried out efficiently or not. Performance audit has some sort of symmetry with internal audit. Performance audit studies the competence of achieving goals.
Objectives:
1. To strengthen performance control and improve internal audit.
2. To study whether management controls are functioning effectively and efficiently.
3. To appraise and review efficiency.
4. To be obliged towards the attainment of organizational goals.
Advantages:
1. Reduces the area of uncertainty in business.
2. Removes bottlenecks in achieving goals.
3. Removes inefficiencies and ineffectiveness.
4. Achieves operational goals smoothly.
9) Name any four Standard on Auditing(SA) as prescribed by ICAI till date. (4)
Ans. Standards on Auditing(SA) refers to a set of guidelines for conducting audit in a scientific way. Standards incrporate techniques and principles to run the audit in an efficient and effective manner.
Four Standard on Auditing(SA) and their purposes as prescribed by ICAI :
1. SA 210 (W.e.f. 1st april, 2010): Quality control for an audit of financial statements.
2. SA 230 (W.e.f. 1st april, 2009): Audit Documentation.
3. SA 320 (W.e.f. 1st april, 2010) :Materiality in planning and performing an audit.
4. SA 500 (W'e'f' 1st april, 2009) :Audit Evidence.
10) Write a short note on "Auditor's Independence" with special reference to the provisions of the Companies Act and SA if any . (6)
Ans. The very concept of 'independence of auditor' reflects the underlying concept that auditing is not influ- enced by the appointing authority. Independent opinions passed by the appointed auditor makes the transparent and widely accepted in all parts of the society. An audited financial statement is accepted by the Income Tax department, banks or financial institutions, local authorities (corporation, municipality, or a notified area authority) or any other purpose deemed to be fit for the purpose of clarification, explanation, and support.
Section 144 of the Companies Act, 2013 also upholds the independent character of the auditor. He / she must not render the following services directly or indirectly to the company, its holding company, or a subsidiary company:
(a) Accounting and book-keeping
(b) Internal audit
(c) Design and implementation of any financial information system
(d) Actuarial services
(e) Investment advisory services
(f) Investment banking services
(g) Rendering of outsourced financial services
(h) Management services
(i) Any other kind of services as may be prescribed.
It is clear that the auditor must not render any sort of services that will hamper his/her honesty, integrity, and independence. He/She will perform his/her statutory obligation and no way deviate from the ethical code of conduct, as laid down in the Chartered Accountants Act, 1949.
11) Define investigation. State Clearly different purposes of an investigation. (2+4) OR Make a brief outline of investigation in respect of misappropriation of cash by a dishonest employee. (6)
Ans. Investigation means an enquiry into the financial accounts of the concern with special objective. In the words of Myles E. Taylor and Charies E. Perry, "Investigation involves enquiry into facts behind the books and accounts, into the technical, financial and economic position of the business or organization."
Purpose of Investigation :
In some special situation investigation may occur:
1. For Purchase of Business: Prospective buyer may investigate the earning capacity of the business and valued the assets and liabilities to assess the value of the firm;
2. For Sanctioning of loan: At the time of providing loan, investigation is required to judge credit worthiness i.e., repayment capacity of the borrower;
3. For Investment: Investment decision is based on value of the concern and dividend decision of the concern. Investigators judge the situation in true way.
4. For Suspected Fraud: Fraud may occur by the employee and investigator could be the person who unearthed the fraud;
5. Admission or Retirement of Partner: Valuation is made by the investigator at the time of entry or exit i.e., admission of new partner or retirement of existing partner;
6. Judge Sickness or Weakness of the concern: Any concern may be healthy, weak or sick: For the purpose of turnaround proposal or takeover proposal by the government concerns financial health has to be judge by the investigator;
7. For the Merger of the Concerns: For the purpose of merger or takeover the firm, techno-economic viability has to be judge by the investigator;
8. Compliance of Companies Act, 2013: The central Government may give the order for investigation
9. Abnormal Situation: If any abnormal situation arises the investigator may be appointed to judge the real thing.
12) Write a Short Notes : Standards on Auditing (SA). (5)
Ans. Standards on Auditing(SA) refers to a set of guidelines for conducting audit in a scientific way. Standards incrporate techniques and principles to run the audit in an efficient and effective manner.
Purpose of SA
1. The task of the Auditing and Assurance Standards Board (AASB) is to review the prevailing guidelines and issue the new guidelines.
2. At the time of issuing standards, the International Accounting Standard (IAS), International Financial Reporting Standard (IFRS) has to be borne in mind.
3. The AASB has to issue a guidelines note if problems arise.
4. AASB reviews the situation after a certain interval and if required, modification and issue of new guide- lines may be provided.
Importance of SA
1. Codification of auditing practice is possible through SA.
2. Professional pronouncement has to be maintained.
3. The importance of prescribing guidelines is to ensure sound auditing standards.
4. Auditing standards are considered to be the standard tools on auditing.
5. Auditing standards help in the prevention of errors and frauds.
6. Auditing standards make it easy to prepare the audit report and to show the true and fair view.
13) What is System Audit? (4)
Ans. System audit judges if the various systems of accounting and control mechanisms are efficiently followed in the organization or not. Financial statements are the outcome of the prevailing system. The auditor has to judge if the systems are being properly followed or not.
Objectives :
1. There is no stress to judge transactions.
2. More emphasis is laid on internal control and internal check.
3. In the prevailing internal control system, the auditor has to judge whether financial statements are free from errors and frauds.
Advantages :
1. The outcome of the system audit is more transparent.
2. System audit expedites the audit functioning.
3. It justifies the accounting system.
4. Internal control will be imposed strongly.
14) Write short notes on 'Government Audit'. (4)
Ans. The audit of government companies, public sector undertakings (PSUS), and both central and state gov- erntnent departments has to be conducted by the Comptroller and Auditor General of India (CAG). The appointment, remuneration, duties, and powers of the CAG have to be stated in Articles 148 to 151 of the Constitution of India.
The objectives of the government audit are as follows:
1. To ensure that the financial transactions of government companies, public sector undertakings, and government departments are made in conformity with financial rules.
2. To ensure that expenses are made within the purview of the budget.
3. To ensure that all the activities of the government companies, government undertakings, and govern- ment departments are made for public interest.
4. To generate maximnum output against minimum input.
5. To ensure that all the activities are made for public interest and funds are not misused.
15) 'Detection and prevention of errors and frauds are the main objective of auditing' Comment on the statement and explain the duties of an auditor in this regard. (6)
Ans. The auditor's duty regarding detection of frauds and errors is largely based on legal decisions and professional guidelines.
1. Legal decisions: The auditor's duty regarding frauds and errors was first mentioned by Justice Lord Lindley in the judgement of London and General Bank Ltd. In the words of Justice Lindley, the auditor is not bound to exercise more than reasonable care and skill in course of audit. He is not an insurer; he does not guarantee that books do correctly show the true position of the company.
In the case of Kingston Cotton Mills Co. Justice Lopes made historical remarks by stating, 'An auditor is not bound to be detective and to work with their suspicion, that there is something wrong. He is a watchdog not a blood hound. He is justified in believing tried servant of the company and is entitled to rely upon their representation provides he takes reasonable care.'
Irish Woollen Co. Ltd. vs Tyson and Others case frauds were committed through falsification of accounts by suppression of purchase invoices.At the same time purchased goods was taken into stock to enhance profit. The auditor was held guilty, not for taking reasonable care and skill for the purpose of vouching.
2. Professional guidelines: As per the guidelines of ISA 240: the Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements 'has clearly mentioned the auditor's responsibility in this regard.'
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