Auditing Practical Questions/B14__________________________________1 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 by the management from the actuary. Therefore, the auditor must follow the requirements of AAS9
before relying upon the certificate obtained by the
management from the actuary.
Q.No.3. Auditor is responsible for expressing opinion on financial statements in statutory audit. Comment.
Sol.: The objective of the audit of the financial statements prepared within a Framework of recognized accounting policies and practices and relevant statutory requirements if any, is to enable an author to express an opinion on such financial statements. As per the requirements of section 227 of the Companies Act, 1956, the Auditor is required to express his opinion on (i) whether books of account As required by law have been kept by the company so far as it appears from The examination of the books and proper returns adequate for the purpose of audit have been received from branches not visited by them (ii) Whether the accounts give the information required by the act in the manner so required (iii) whether the accounts give a fair view in case of the balance sheet, the state of the companies affairs and in case of the profit and loss account of the profit and loss for the year.
The auditor is responsible for forming and expressing his opinion on the financial statements. However, the responsibility for their preparation is that of the management of the enterprise. Management responsibilities include the maintenance of adequate accounting records and internal controls, the selection and application statements does not relieve the management of its responsibilities.
Auditing Practical Questions/B 14__________________________________2 WWW.GNTMASTERMINDS.COM
CONCEPTS OF AUDITING
Q.No1. An assistant of X & Co., Chartered Accountants detected an error of Rs.5 for interest payment which occurred number of times. The General Manager (Finance) of T Ltd. advised him not to request for passing any adjustment entry as individually the errors were of small amounts. The company had 2,000 deposit Accounts and...
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