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Get B.Com. semester 5 audit CU previous year question answers. Calcutta University's B.Com. semester 5 (formerly 3rd year) has a very important subject Auditing and Assurance. Under this article you will find Audit and Assurance question paper with answer. In this post we have given CU auditing previous year solved question papers on the auditing chapter 2 'Audit procedures and techniques'. Students can also download the CU previous year audit question paper PDF with answers.
Go through all chapter-wise CU 5th semester audit previous year question paper and suggestions:
CU sem 5 auditing previous year question papers with solved answers PDF
Download CU previous year questions papers and solutions on Auditing procedures and techniques:
CU Audit previous year questions and suggestions with answers (Chapter 2)
Let's check out which questions have come in CU B.Com. 5th semester auditing and assurance exam in the previous years. These questions can be used as suggestions for 5th sem audit for the upcoming exam.
1) What is Audit file? State two items which are recorded in a permanent audit file. (2+2)
Answer: An audit file, where the audit programme, audit note book, and other working papers are kept by the auditor, helps the auditor to carry out the tasks in the right direction for preparing the audit report in time. An etficient audit filing system strengthens the audit work.
Permanent Audit File consists of the following:
a) All sort of legal and basic documents such as memorandum of association, articles of association, land deeds, sale deeds.
b) Previous years' audit reports.
2) What do you mean by substantive testing in audit sampling? (4)
Answer: The word 'Substantive' means permanent and not temporary. In substantive testing, an auditor seeks evidence for the verification of assertion on any financial statement. Substantive testing stands face to face on the truth on the basis of documents likec audit working papers and evidence for judging financial statement before preparing the audit report.
Substantive testing helps the auditor in the following ways:
1. Assets and liabilities are properly exhibited in the balance sheet and depict the true and fair financial situation of the concern.
2. Assets are in accordance with the asset register and liabilities as per financial records.
3. All financial transactions are recorded in accordance with the matching concept and accounting period concept.
3) Discuss various tools and techniques used in analytical procedure. (6)
Answer: As per SA 520, analytical procedure may be conducted based on the following tools and techniques. In the following situations, the auditor relies upon analytical procedure:
1. Trend analysis: Significant variation of balance of important accounts over three to five years reveals the facts and justifies analytical procedures.
2. Relationship analysis: Relationship of one item with another is a very significant feature for analytical procedures. Material, wage, and interest have to be studied carefully as they constitute a large portion of expenditure. These items have to be analysed carefully. Volume of production is directly related with materials. The huge amounts pertaining to wage cost and interest cost are the main causes leading to the downhill journey of any organization. Analytical procedures reveal the truth.
3. Ratio analysis: Ratio analysis establishes a relationship among different items of income statements and balance sheet. As the ratios vary from industry to industry and from unit to unit, no standards have to be set up, although it is part and parcel of any analytical procedure.
4. Common size analysis: Common size analysis of balance sheets has to be made by expressing each item of the balance sheet with respect to the total assets. Common size analysis of income statements expresses each item of the income statement in terms of sales.
5. Information: The following information constitutes the fundamental base of analytical procedures:
(a) Annual accounts
(b) Cash flow statement
(c) Audit report
(d) Budget
(e) Cash book, pass book, and bank reconciliation statement.
4) State six important aspects that are usually included in audit engagement letter. (6)
Answer:
1. Effective Date : Beginning on or after April,2010.
2. Scope: This SA deals with an independent auditor conducting an audit of financial statements in accordance with the standards. It sets out the overall objectives of the independent auditor, and explains the nature and scope of an audit designed to enable the independent auditor to meet those objectives.
3. Definition: This is used by management withun an acceptable financial reporting framework in the preparation of financial statements and the agreement of management and make appropriate those charged with governance to the promise on which the audit is conducted.
4. Objective:The objective of the auditor is to accept or continue an audit engagement only when the basis upon which it is to be performed has been agreed through:
(i) Establishing whether the preconditions for an audit are present; and;
(ii) Confirming that there is a common understanding between the auditor and management and where appropriate, those charged with governance of the terms of the audit engagement.
5. Preconditions for an Audit : In order to establish whether the predictions for an audit are present, the auditor should
(a) Determine whether the financial reporting framework to be applied in the preparation of the financial staterments is acceptable; and
(b) Obtain the agreement of management which acknowledges and understands its responsibility.
Management ensures internal control to enable for preparation of financial statements which are free from material misstatement due to fraud or error.
6. Limitation on Scope Prior to Audit Engagement Acceptance: If management or change of governance impose a limitation on the scope of an auditor's work in terms of a proposed audit engagement such that the auditor believes the limitation will result in the auditor disclaiming an opinion on the financial statements, the auditor shall not accept such a limited engagement as an audit engagement, unless required by the law or regulation to do so.
5) What is Audit Evidence? Give examples. (2+2)
Answer:
Audit Evidence :
An auditor should obtain sufficient evidence through compliance and substantive procedures to draw reasonable conclusions on the basis of judgements to form an opinion.
The Institute of Chartered Accountants of India defines audit evidence in the following words, The audit evidence should in total, enable the auditor to form an opinion on financial information. Information such an opinion, the auditor may obtain audit evidence on a selective basis by way of judgemental or statistical sampling procedures.'
As SA 500, the auditor designs audit procedure to get an appropriate and sufficient audit evidence at per the time of conducting an audit.
Examples of auditing evidence include bank accounts, management accounts, payrolls, bank statements, invoices, and receipts.
6) What is audit file? Mention one important document that is kept in 'Permanent' and 'Current' audit file. (2+2)
Answer: An audit file, where the audit programme, audit note book, and other working papers are kept by the auditor, helps the auditor to carry out the tasks in the right direction for preparing the audit report in time. An etficient audit filing system strengthens the audit work.
One Important document in Current file: Fixed deposit certificates, bank pass book, bank reconciliation statement.
One Important document in Permanent file: All sort of legal and basic documents such as memorandum of association, articles of association, land deeds, sale deeds.
7) What do you mean by auditing depth? (4)
Answer: Auditing in-depth is part and parcel of test checking technique. By way of test checking, from test or sample we try to understand the population. But without in depth study it is not possible.
In the words of ICAI (The Institute of Chartered Accountants of India), "Auditing in depth means the tracing of a transaction through its various stages from origin to conclusion examining the supporting records at each stage and ascertaining whether all the requirements laid down in the system of control check have been complied with."
In case of audit- in- depth any transition judge step- by- step to go inside into the transaction. If any anomalies are detected, auditor will be more cautious in case of judging further transaction. Test checking will over come the time and cost constraints of the auditor. Audit-in -depth lay the strong foundation in favour of test checking and minimise the future risk of the auditor.
8) Write three advantages and disadvantages of audit programme. (6)
Answer:
Advantages of Audit Programme:
1. Derive the benefit of a planned programme.
2. The progress of audit work can be reviewed within a certain interval.
3. Distribution of work can be done in tandem with qualification, experience, and work load.
Disadvantages of Audit Programme:
1. Static audit programme may jeopardize the ultimate result of the audit.
2. Mechanical audit programme may loosen the direction of audit work.
3. A rigid audit programme may be injurious to the audit work.
9) Write a short note on substantive procedure in auditing. (6)
Answer: The word 'Substantive' means permanent and not temporary. In substantive testing, an auditor seeks evidence for the verification of assertion on any financial statement. Substantive testing stands face to face on the truth on the basis of documents likec audit working papers and evidence for judging financial statement before preparing the audit report.
Substantive testing helps the auditor in the following ways:
1. Assets and liabilities are properly exhibited in the balance sheet and depict the true and fair financial situation of the concern.
2. Assets are in accordance with the asset register and liabilities as per financial records.
3. All financial transactions are recorded in accordance with the matching concept and accounting period concept.
10) Prepare an audit programme in respect of audit of a Hospital. (6)
Answer: A hospital is normally established for the purpose of charity, welfare, or as a social or private sector.
The steps involved in the audit of a hospital are as follows:
1. Legal status: The auditor should examine the trust deed or constitution under which it was formed.
2. Minute's book: The auditor should examine the minute's book related with finance.
3. Internal check system: The auditor should examine the internal check system prevailing in the hospital.
4. Cash book: The auditor should verify the cash book along with the cash balance.
5. Collection: The auditor should vouch for collections in the form of donations from India and abroad.
6. Grants received: The auditor should verify the grants received from the government and check if these have been utilized in time.
7. Income from investment: The auditor should verify the non-operating income, that is, income from investment.
11) Define Analytical Procedure with the help of an example. (4)
Answer: All the errors or frauds come to the notice of an auditor at the time of routine checking or vouching. This nature of omission may occur at the time of sample checking, To reduce the possibility of omissions, the auditor would rely on analytical procedures.
As per SA 520, Analytical procedure means evolutions of financial information through analysis of plausible relationship among both financial and non-financial data. Analytical procedures also encompass such investigation as is necessary of identified fluctuations or relationship that are inconsistent with other relevant information or that differ from expected values by a significant amount.' Example: The balance of stock, debtors, creditors, sales, and purchase are reliable as per analytical procedures, which is why stock turnover, debtors turnover, and creditors turnover come out to be accepted parameters for decision-making.
12) Discuss the different points to be considered by a statutory auditor before commencement of a new audit. (6)
OR
Discuss the steps to be followed before commencement of new audit of a joint stock company (as per provisions of the Companies Act). (6)
Answer: Before commencement of a new audit, an auditor has to carry out the following tasks:
1. Appointment: The auditor has to see whether the appointment is made in accordance with the law or not. He the resolution of appointment either by the Board of Directors or by the shareholders in the must get AGM. The auditor has to sec whether the company has filed the notice of appointment with the Registrar of Companies within 15 days of the meceting where the appointments are made. [Section 139(1)
2. Acceptance of appointment: No listed company shall appoint or re-appoint an individual for more than one ermi of live consecutive years and an audit firm for more than two terms of five consecutive years, [Section 139 (2)]. Appointment has to be made in accordance with the law.
3. Documentation: A copy of the Memorandum of Association and Articles of Association has to be obtained and the different clauses have to be studied meticulously
4. Review previous audit report: The auditor should critically cxamine the previous audit report along with the income statement and balance sheet. If the previous audit report contains specific qualifications, those should be vigorously reviewed.
5. Internal control system: The auditor must judge the prevailing internal control system to look forward to future operations.
6. Accounting system: The prevailing accounting system slhould be reviewed. The concern may shift from manual accounting to corporatized accounting That also should be borne in mind. Accounting package of Tally or any sort of accounting package should be reviewed.
7. Books of special interest: List of statutory books, statistical books, and any sort of accounting books have to be prepared in advance for smooth functioning of audit work.
8. Arrangement of audit note book and file: Maintaining the file and audit note book is almost essential for smooth functioning of audit work.
13) Write in brief various stages in Audit Sampling. (6)
Answer:
Stages in Audit Sampling:
Stage I: Designing of Sampling: Considering the population sample has to be design. Not only that which type of sampling is going to be implemented that has to be determined.
Stage II: Determination of Sampling Size: Considering the population sample size has to be determined. Sample can't be to sample or to large. Sample is the mirror of population. We can give opinion on population based on sample.
Stage III: Selection of Sample Item: Selection of sample must be unbiased. Biasness will jeopardise the basic objective of sampling.
Stage IV: Application of Sampling in Audit Procedure: In most cases of auditing in medium or large organization auditor has to introduce sampling in audit procedure.
Stage V: Analysis of Deviation, if any: At the time of doing audit if any difference is recorded between actual and sample that has to be judged before taking into consideration.
Stage VI: Evaluation of the Result of Audit Sampling (both Errors and Risk): Result of audit sampling has to be consider keeping in mind chance of both errors and risk.
14) What is Audit Note Book? (4)
Answer: During the course of an audit, an auditor has to make several queries which might be satisfied by the concern; in that case, the auditor has to jot down the matter in a note book which is called audit note book. The audit note book is of great value to an auditor at the time of preparing the report to be submitted to the appointing authority.
In the 'City Equitable Fire Insurance Company Ltd.' case, the significance of an audit note book has already been established.
The audit note book contains the following:
1. Date of commencement of audit work and date of submission of audit report
2. List of books and accounts maintained by the organization.
15) Define Audit Memorandum? (4)
Answer: Audit memorandum is the collection of a client's business documents. All the relevant information and records collected by the auditor for smooth functioning of the audit is known as audit memorandum. The preparation of audit memorandum is very crucial. The changes to the audit memorandum give the reasonable best results.
Content of Audit Memorandum :
The contents of the audit memorandum prescribed by Eric L. Kohler are as follows:
1. The location of the plant and registered office
2. Ownership, control, and nature of the organization
16) What is Cut-off Checking ? Give two examples of it, (2+2)
Answer: Cutoff means that transactions and events have been recorded in the correct accounting period. Cut-off checking segregates the transactions of any financial year from other financial years.
Examples:
1. All purchases and sales pertaining to a financial year cannot be combined with any other financial year.
2. Outstanding expenses or prepaid expenses have to be shown.
17) Define 'Test Checking'. (4)
Answer: Test checking is a technique of sampling. Test checking is being adopted to know in detail of the test item and justify the population from sample. In the words of Ronald Irish, "A test check is really a check on selection of entries, generally made at random or by scientific sampling to prove the reliability of accounting procedures and internal control. "In the words of Prof. Meigs, "test checking meansto select and examine a representative sample from a large number of similar items. "
An auditor has to overcome three constraints (viz. time constraints, money constraints and manpower constraints through the process of test checking by using the methods of selective verification from the discipline of statistics.
18) Discuss in brief various sample risk involved in audit sampling. (6)
Answer: Sampling Risk or Risk Factor in Auditing:
Risk is associated with sampling. Inspire of diligent caution and care errors and frauds may be occurring breaking internal control mechanism and audit procedure. The gap between population and sample may wider the risk. Audit sampling shall be implemented by using statistical or non -statistical methods .What ever methods of sampling be applied it can not be a full proof system and the chance or errors and frauds can not vanishes into blue.
As per SA 530 sampling risk leads to two basic conclusions:
1. Using substantive procedure material misstatement does not exist, even if it may occur;
2. Sampling risk is less effective when material misstatement exist in a minimum way.
19) Prepare an audit programme in respect of an Educational Institution or College . (6)
Answer : An educational institution is a miniature form of society. Every educational institution has to undergo an audit.
The steps involved in the audit of a college are as follows:
1. Legal status: The auditor should study the trust deed in the case of trust institutions. The auditor should verify whether the college is affiliated to the University or not. The auditor should verify that the college is approved by UGC under Sec. 2(f) and 12B of the UGC Act, 1956.
2. Minutes book: The auditor should verify the Finance Committee resolution and Resolution of the Governing Body related with finance.
3. Internal check system: The auditor should examine the internal check system prevailing in the college.
4. Cash book: The auditor should verify the cash book along with the cash balance.
5. Collection: The auditor should verify that the college is depositing a portion of the student fees to the government from time to time through the RBI.
6. Grants received: The auditor should also see if the college is getting any grant from the state government. He/She should also check if the college is getting any grant from the UGC or any other agncy. The auditor must also verify that the utilization of the grant is submitted in due course of time.
Answer: An audit file, where the audit programme, audit note book, and other working papers are kept by the auditor, helps the auditor to carry out the tasks in the right direction for preparing the audit report in time. An etficient audit filing system strengthens the audit work.
Permanent Audit File consists of the following:
a) All sort of legal and basic documents such as memorandum of association, articles of association, land deeds, sale deeds.
b) Previous years' audit reports.
2) What do you mean by substantive testing in audit sampling? (4)
Answer: The word 'Substantive' means permanent and not temporary. In substantive testing, an auditor seeks evidence for the verification of assertion on any financial statement. Substantive testing stands face to face on the truth on the basis of documents likec audit working papers and evidence for judging financial statement before preparing the audit report.
Substantive testing helps the auditor in the following ways:
1. Assets and liabilities are properly exhibited in the balance sheet and depict the true and fair financial situation of the concern.
2. Assets are in accordance with the asset register and liabilities as per financial records.
3. All financial transactions are recorded in accordance with the matching concept and accounting period concept.
3) Discuss various tools and techniques used in analytical procedure. (6)
Answer: As per SA 520, analytical procedure may be conducted based on the following tools and techniques. In the following situations, the auditor relies upon analytical procedure:
1. Trend analysis: Significant variation of balance of important accounts over three to five years reveals the facts and justifies analytical procedures.
2. Relationship analysis: Relationship of one item with another is a very significant feature for analytical procedures. Material, wage, and interest have to be studied carefully as they constitute a large portion of expenditure. These items have to be analysed carefully. Volume of production is directly related with materials. The huge amounts pertaining to wage cost and interest cost are the main causes leading to the downhill journey of any organization. Analytical procedures reveal the truth.
3. Ratio analysis: Ratio analysis establishes a relationship among different items of income statements and balance sheet. As the ratios vary from industry to industry and from unit to unit, no standards have to be set up, although it is part and parcel of any analytical procedure.
4. Common size analysis: Common size analysis of balance sheets has to be made by expressing each item of the balance sheet with respect to the total assets. Common size analysis of income statements expresses each item of the income statement in terms of sales.
5. Information: The following information constitutes the fundamental base of analytical procedures:
(a) Annual accounts
(b) Cash flow statement
(c) Audit report
(d) Budget
(e) Cash book, pass book, and bank reconciliation statement.
4) State six important aspects that are usually included in audit engagement letter. (6)
Answer:
1. Effective Date : Beginning on or after April,2010.
2. Scope: This SA deals with an independent auditor conducting an audit of financial statements in accordance with the standards. It sets out the overall objectives of the independent auditor, and explains the nature and scope of an audit designed to enable the independent auditor to meet those objectives.
3. Definition: This is used by management withun an acceptable financial reporting framework in the preparation of financial statements and the agreement of management and make appropriate those charged with governance to the promise on which the audit is conducted.
4. Objective:The objective of the auditor is to accept or continue an audit engagement only when the basis upon which it is to be performed has been agreed through:
(i) Establishing whether the preconditions for an audit are present; and;
(ii) Confirming that there is a common understanding between the auditor and management and where appropriate, those charged with governance of the terms of the audit engagement.
5. Preconditions for an Audit : In order to establish whether the predictions for an audit are present, the auditor should
(a) Determine whether the financial reporting framework to be applied in the preparation of the financial staterments is acceptable; and
(b) Obtain the agreement of management which acknowledges and understands its responsibility.
Management ensures internal control to enable for preparation of financial statements which are free from material misstatement due to fraud or error.
6. Limitation on Scope Prior to Audit Engagement Acceptance: If management or change of governance impose a limitation on the scope of an auditor's work in terms of a proposed audit engagement such that the auditor believes the limitation will result in the auditor disclaiming an opinion on the financial statements, the auditor shall not accept such a limited engagement as an audit engagement, unless required by the law or regulation to do so.
5) What is Audit Evidence? Give examples. (2+2)
Answer:
Audit Evidence :
An auditor should obtain sufficient evidence through compliance and substantive procedures to draw reasonable conclusions on the basis of judgements to form an opinion.
The Institute of Chartered Accountants of India defines audit evidence in the following words, The audit evidence should in total, enable the auditor to form an opinion on financial information. Information such an opinion, the auditor may obtain audit evidence on a selective basis by way of judgemental or statistical sampling procedures.'
As SA 500, the auditor designs audit procedure to get an appropriate and sufficient audit evidence at per the time of conducting an audit.
Examples of auditing evidence include bank accounts, management accounts, payrolls, bank statements, invoices, and receipts.
6) What is audit file? Mention one important document that is kept in 'Permanent' and 'Current' audit file. (2+2)
Answer: An audit file, where the audit programme, audit note book, and other working papers are kept by the auditor, helps the auditor to carry out the tasks in the right direction for preparing the audit report in time. An etficient audit filing system strengthens the audit work.
One Important document in Current file: Fixed deposit certificates, bank pass book, bank reconciliation statement.
One Important document in Permanent file: All sort of legal and basic documents such as memorandum of association, articles of association, land deeds, sale deeds.
7) What do you mean by auditing depth? (4)
Answer: Auditing in-depth is part and parcel of test checking technique. By way of test checking, from test or sample we try to understand the population. But without in depth study it is not possible.
In the words of ICAI (The Institute of Chartered Accountants of India), "Auditing in depth means the tracing of a transaction through its various stages from origin to conclusion examining the supporting records at each stage and ascertaining whether all the requirements laid down in the system of control check have been complied with."
In case of audit- in- depth any transition judge step- by- step to go inside into the transaction. If any anomalies are detected, auditor will be more cautious in case of judging further transaction. Test checking will over come the time and cost constraints of the auditor. Audit-in -depth lay the strong foundation in favour of test checking and minimise the future risk of the auditor.
8) Write three advantages and disadvantages of audit programme. (6)
Answer:
Advantages of Audit Programme:
1. Derive the benefit of a planned programme.
2. The progress of audit work can be reviewed within a certain interval.
3. Distribution of work can be done in tandem with qualification, experience, and work load.
Disadvantages of Audit Programme:
1. Static audit programme may jeopardize the ultimate result of the audit.
2. Mechanical audit programme may loosen the direction of audit work.
3. A rigid audit programme may be injurious to the audit work.
9) Write a short note on substantive procedure in auditing. (6)
Answer: The word 'Substantive' means permanent and not temporary. In substantive testing, an auditor seeks evidence for the verification of assertion on any financial statement. Substantive testing stands face to face on the truth on the basis of documents likec audit working papers and evidence for judging financial statement before preparing the audit report.
Substantive testing helps the auditor in the following ways:
1. Assets and liabilities are properly exhibited in the balance sheet and depict the true and fair financial situation of the concern.
2. Assets are in accordance with the asset register and liabilities as per financial records.
3. All financial transactions are recorded in accordance with the matching concept and accounting period concept.
10) Prepare an audit programme in respect of audit of a Hospital. (6)
Answer: A hospital is normally established for the purpose of charity, welfare, or as a social or private sector.
The steps involved in the audit of a hospital are as follows:
1. Legal status: The auditor should examine the trust deed or constitution under which it was formed.
2. Minute's book: The auditor should examine the minute's book related with finance.
3. Internal check system: The auditor should examine the internal check system prevailing in the hospital.
4. Cash book: The auditor should verify the cash book along with the cash balance.
5. Collection: The auditor should vouch for collections in the form of donations from India and abroad.
6. Grants received: The auditor should verify the grants received from the government and check if these have been utilized in time.
7. Income from investment: The auditor should verify the non-operating income, that is, income from investment.
11) Define Analytical Procedure with the help of an example. (4)
Answer: All the errors or frauds come to the notice of an auditor at the time of routine checking or vouching. This nature of omission may occur at the time of sample checking, To reduce the possibility of omissions, the auditor would rely on analytical procedures.
As per SA 520, Analytical procedure means evolutions of financial information through analysis of plausible relationship among both financial and non-financial data. Analytical procedures also encompass such investigation as is necessary of identified fluctuations or relationship that are inconsistent with other relevant information or that differ from expected values by a significant amount.' Example: The balance of stock, debtors, creditors, sales, and purchase are reliable as per analytical procedures, which is why stock turnover, debtors turnover, and creditors turnover come out to be accepted parameters for decision-making.
12) Discuss the different points to be considered by a statutory auditor before commencement of a new audit. (6)
Answer: Before commencement of a new audit, an auditor has to carry out the following tasks:
1. Appointment: The auditor has to see whether the appointment is made in accordance with the law or not. He the resolution of appointment either by the Board of Directors or by the shareholders in the must get AGM. The auditor has to sec whether the company has filed the notice of appointment with the Registrar of Companies within 15 days of the meceting where the appointments are made. [Section 139(1)
2. Acceptance of appointment: No listed company shall appoint or re-appoint an individual for more than one ermi of live consecutive years and an audit firm for more than two terms of five consecutive years, [Section 139 (2)]. Appointment has to be made in accordance with the law.
3. Documentation: A copy of the Memorandum of Association and Articles of Association has to be obtained and the different clauses have to be studied meticulously
4. Review previous audit report: The auditor should critically cxamine the previous audit report along with the income statement and balance sheet. If the previous audit report contains specific qualifications, those should be vigorously reviewed.
5. Internal control system: The auditor must judge the prevailing internal control system to look forward to future operations.
6. Accounting system: The prevailing accounting system slhould be reviewed. The concern may shift from manual accounting to corporatized accounting That also should be borne in mind. Accounting package of Tally or any sort of accounting package should be reviewed.
7. Books of special interest: List of statutory books, statistical books, and any sort of accounting books have to be prepared in advance for smooth functioning of audit work.
8. Arrangement of audit note book and file: Maintaining the file and audit note book is almost essential for smooth functioning of audit work.
13) Write in brief various stages in Audit Sampling. (6)
Answer:
Stages in Audit Sampling:
Stage I: Designing of Sampling: Considering the population sample has to be design. Not only that which type of sampling is going to be implemented that has to be determined.
Stage II: Determination of Sampling Size: Considering the population sample size has to be determined. Sample can't be to sample or to large. Sample is the mirror of population. We can give opinion on population based on sample.
Stage III: Selection of Sample Item: Selection of sample must be unbiased. Biasness will jeopardise the basic objective of sampling.
Stage IV: Application of Sampling in Audit Procedure: In most cases of auditing in medium or large organization auditor has to introduce sampling in audit procedure.
Stage V: Analysis of Deviation, if any: At the time of doing audit if any difference is recorded between actual and sample that has to be judged before taking into consideration.
Stage VI: Evaluation of the Result of Audit Sampling (both Errors and Risk): Result of audit sampling has to be consider keeping in mind chance of both errors and risk.
14) What is Audit Note Book? (4)
Answer: During the course of an audit, an auditor has to make several queries which might be satisfied by the concern; in that case, the auditor has to jot down the matter in a note book which is called audit note book. The audit note book is of great value to an auditor at the time of preparing the report to be submitted to the appointing authority.
In the 'City Equitable Fire Insurance Company Ltd.' case, the significance of an audit note book has already been established.
The audit note book contains the following:
1. Date of commencement of audit work and date of submission of audit report
2. List of books and accounts maintained by the organization.
15) Define Audit Memorandum? (4)
Answer: Audit memorandum is the collection of a client's business documents. All the relevant information and records collected by the auditor for smooth functioning of the audit is known as audit memorandum. The preparation of audit memorandum is very crucial. The changes to the audit memorandum give the reasonable best results.
Content of Audit Memorandum :
The contents of the audit memorandum prescribed by Eric L. Kohler are as follows:
1. The location of the plant and registered office
2. Ownership, control, and nature of the organization
16) What is Cut-off Checking ? Give two examples of it, (2+2)
Answer: Cutoff means that transactions and events have been recorded in the correct accounting period. Cut-off checking segregates the transactions of any financial year from other financial years.
Examples:
1. All purchases and sales pertaining to a financial year cannot be combined with any other financial year.
2. Outstanding expenses or prepaid expenses have to be shown.
17) Define 'Test Checking'. (4)
Answer: Test checking is a technique of sampling. Test checking is being adopted to know in detail of the test item and justify the population from sample. In the words of Ronald Irish, "A test check is really a check on selection of entries, generally made at random or by scientific sampling to prove the reliability of accounting procedures and internal control. "In the words of Prof. Meigs, "test checking meansto select and examine a representative sample from a large number of similar items. "
An auditor has to overcome three constraints (viz. time constraints, money constraints and manpower constraints through the process of test checking by using the methods of selective verification from the discipline of statistics.
18) Discuss in brief various sample risk involved in audit sampling. (6)
Answer: Sampling Risk or Risk Factor in Auditing:
Risk is associated with sampling. Inspire of diligent caution and care errors and frauds may be occurring breaking internal control mechanism and audit procedure. The gap between population and sample may wider the risk. Audit sampling shall be implemented by using statistical or non -statistical methods .What ever methods of sampling be applied it can not be a full proof system and the chance or errors and frauds can not vanishes into blue.
As per SA 530 sampling risk leads to two basic conclusions:
1. Using substantive procedure material misstatement does not exist, even if it may occur;
2. Sampling risk is less effective when material misstatement exist in a minimum way.
19) Prepare an audit programme in respect of an Educational Institution or College . (6)
Answer : An educational institution is a miniature form of society. Every educational institution has to undergo an audit.
The steps involved in the audit of a college are as follows:
1. Legal status: The auditor should study the trust deed in the case of trust institutions. The auditor should verify whether the college is affiliated to the University or not. The auditor should verify that the college is approved by UGC under Sec. 2(f) and 12B of the UGC Act, 1956.
2. Minutes book: The auditor should verify the Finance Committee resolution and Resolution of the Governing Body related with finance.
3. Internal check system: The auditor should examine the internal check system prevailing in the college.
4. Cash book: The auditor should verify the cash book along with the cash balance.
5. Collection: The auditor should verify that the college is depositing a portion of the student fees to the government from time to time through the RBI.
6. Grants received: The auditor should also see if the college is getting any grant from the state government. He/She should also check if the college is getting any grant from the UGC or any other agncy. The auditor must also verify that the utilization of the grant is submitted in due course of time.
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