MASTER MINDS - QUALITY EDUCATION BEYOND YOUR IMAGINATION
AUDITING PRACTICAL QUESTIONS
INTRODUCTION TO AUDITING
Q.No.1. Mr. Aditya, a practicing chartered accountant is appointed as a “Tax Consultant” of ABC
Ltd., in which his father Mr. Singhvi is the Managing Director.
Sol.: A chartered accountant appointed as an auditor of the company, should disclose his
interest while making the audit report. If the disclosure is not made, it would amount
to “misconduct” under the Chartered Accountants Act, 1949.
In this case, Mr Aditya is a “Tax Consultant” and not a “Statutory Auditor” of ABC Ltd., hence
he is not liable to disclose his relationship with Managing Director of the company except as
required by section: 349 of the Companies Act; 1956.
Q.No.2.Give your comments and observations on the following: The management has obtained a
certificate from an actuary regarding provision of gratuity payable to employees.
Sol.: The Computation of gratuity liability payable to employees is dependent upon several factors
such as age of the employee, expected span of service in the organisation; life expectancy of the
employee, prevailing economic environment, etc. Thus, it gives rise to uncertainty in the
determination of provisions of liabilities. Under the circumstances, the management is required to
make an assessment and estimate the amount of provision. In view of this, the management may
engage an expert in the field to assist them in arriving at fair estimation of the liability. Therefore, it is
an accepted auditing practice to use the work of an expert.
on "Using the Work of an Expert" also states that an expert may be engaged /employed by the
client. It further requires the auditor to assess skill, competence and objectivity of the expert
amongst other factors and evaluate the work of an expert independently to conclude whether or
not to rely upon such a certificate obtained... [continues]
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