Institute of Chartered Financial Analysts of India (ICFAI) University 2010 C.A Chartered Accountant Auditing and assurance - Question Paper

1. State with reasons (in brief) whether the subsequent statements are actual or False.
(i) It is auditor's responsibility to maintain an adequate accounting system
incorporating different internal controls.
(ii) The risk of not detecting fault is more than the risk of not detecting fraud.
(iii) Basically, an auditor reports on the truth or otherwise of the financial statements;
prevention and detection of frauds and errors are secondary to this.
(iv) Fraud means misappropriation of goods or cash and artificial manipulation of
accounts.
(v) In case of audit of partnership or sole proprietorship, the auditor's duties are described
purely by the contract ranging from him and the client.
(vi) The auditor may, in planning the audit work, intentionally see the cut-off level for
verifying individual transactions at a lower level than in intended to be used to
evaluate the outcomes of the audit.
(vii) If the directors are of the opinion that any fixed asset does not have a realisable
value at lowest equal to its book value, the fact should be said in the accounts.
(viii) Interest accrued but not due on "Investments" is needed to be shown under
improper sub-heads under the head "Investments".
(ix) An auditor holds office till the due date of the next annual general meeting as
determined by parts 166 and 210 of the Companies Act, 1956.
(x) In extreme cases, such as situations involving multiple uncertainties that are
significant to the financial statements, the auditor should express a disclaimer of
opinion.
(xi) A company may maintain its books of accounts according to either mercantile
system of accounting or cash system of accounting but not mixed system.
(xii) An employee of the company cannot be appointed as auditor of its branch under
part 228.



2. As an auditor, comment on the subsequent situations/statements:
(a) In case the existing auditors reappointed at the Annual General Meeting refused to
accept the appointment, whether the Board of Directors could fill up the vacancy?
(b) At the AGM of a company, in which a Nationalised Bank held 25% of the subscribed
capital, Krishna & Co., Chartered Accountants, were appointed as auditor by
passing an ordinary resolution.
(c) The members of C Ltd. preferred a complaint against the auditor stating that he has
failed to send the auditors report to them.
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(d) 1 of the directors of Hitech Ltd. is attracted by the disqualification under part
274(1)(g).


3. 'In vouching payments, the auditor does not merely check proof that money has been
paid away.' explain.

Earning:   Approval pending.