model question paper on audit

Kaustuv (Practicing CA) (1773 Points)

10 May 2007  
here is one model question set for audit paper


Questions 1 and 2 are compulsory. Attempt any four of the other questions.

1) How do you react as an auditor in the following situations?

a) A listed company issues 10 lakh equity shares of Rs 100 each to the public, of which, 30 per cent is reserved for allotment to the IDBI and LIC of India. Rs 70 was called up. Calls in arrears were Rs 50 due on six-lakh shares held by the public. The auditors were appointed by passing a special resolution at the AGM. (5 marks)

b) The first auditor of a company incorporated on February 1 XXXX (26 per cent of the subscribed capital of which is held by the State government) is appointed by the board of directors on March 1 XXXX. (4 marks)

c) A company does not provide depreciation for 2001-02 and 2002-03. Necessary notes got appended to the balance sheet. For 2003-04, the company made substantial profits and proposed to pay dividends. To comply with law they provide depreciation for the earlier two years. Your partner contends that the depreciation of earlier two years is a prior period item. (4 marks)

d) An educational institution makes a fixed deposit with a bank for Rs 20 lakh and marks a lien on it in favour of the Andhra Pradesh Government. It is disclosed under the head investments. (5 marks)

2) Give your opinion on the following:

a) A corporate college received University Grants Commission (UGC) grant of Rs 20 lakh for payment of salaries, and it was shown as income, as a separate item. (5 marks)

b) A company shows its assets bought under hire purchase at full value and charges depreciation on its full value as per rates prescribed by Companies Act. Amount due to the hire vendor is shown as sundry creditors. (4 marks)

c) A company issues to the public shares in it even before obtaining the certificate of commencement of business. (5 marks)

d) A chartered accountant advances Rs 1 lakh to a private limited company on the condition that he will be appointed as the auditor of that company. (4 marks)

3(a) Suggest an internal control system for collection of fees by a school. (8 marks)

b) What factors do you consider to determine the acceptability of audit evidence? (8 marks)

4) How do you vouch/verify the following: a) stocks pledged to bank; b) cost of conversion; c) wages paid at construction sites; and d) managerial remuneration. (4x4 = 16 marks)

5(a) What are the requirements of an audit report? Explain with reference to AAS 28. (10 marks)

(b) What are the requirements of reporting under Section 227 (1A). (6 marks)

6(a) What is audit risk? What are its components? (5 marks)

(b) An auditor should be thorough in his efforts to gather audit evidence and be objective in its evaluation. Elaborate. (6 marks)

(c) Explain the concept of confidentiality as per AAS 1. (5 marks)

7(a) What precautions do you think of in the audit of a partnership firm? (8 marks)

(b) How do you carry out audit of a small company? (8 marks)

8) Write short notes on: a) audit risk; b) auditing in depth; c) management representation; d) retail method. (4x 4 =16 marks)


Questions 1 and 2 are compulsory. Attempt any four of the other questions.

1) How do you react as an auditor in the following circumstances: a) A company holds equity shares of Rs 10 each in another company, Rs 7 paid-up. The investment is showed at face value and the uncalled value is disclosed as current liability. (5 marks)

b) Preoperative expenses are shown under the head fixed assets. The management argues that these expenses are any way to be adjusted to the fixed assets. (5 marks)

c) A company imported raw materials on two months' credit from Japan for manufacturing goods to be exported to the US. The cost of imports was 25 million yen. The company recorded the purchase at rates prevailing as on the date of purchase. Finished goods were at the port awaiting shipment, but the invoice was not yet sent from the US. Tsunami washed away the entire stocks. (4 marks)

d) A company issued debentures for financing a project. Its internal auditor suggests capitalising the interest on debentures as per AS 16, as the asset was still not operative. The book value of the asset was exceeding fair-market value. The management proposes to start charging the interest on debentures to revenue w.e.f. April 1, 2004. (5 marks)

2) Discuss if any of the following situations lead to professional misconduct:

a) A chartered accountant advances Rs 1 lakh to a private limited company on the condition that he will be appointed as the auditor of that company. (5 marks)

b) Mr Ashok accepts appointment as auditor of a company, which was made by the board through a circular resolution. (4 marks)

c) Mr Sarma is appointed as tax consultant in place of Mr Sastry. He does not communicate to Mr Sastry before accepting the assignment. (5 marks)

d) Two chartered accountants start a firm of chartered accountants. They also float a private limited company with the objective of rendering management services. The firm is appointed as statutory auditors and the private limited company as internal auditors. Both the assignments are accepted by them. (4 marks)

3) Give your views n the following: (a) a company charges depreciation on written-down value (WDV) basis. It acquired a new company by merger. The merged company was charging depreciation on straight-line method. (4 marks)

b) Mr Prasad is the auditor of a branch of a nationalised bank. During the period of audit, he assesses that the bank is making very good profits and buys shares of that bank immediately after signing his audit report. (4 marks)

c) Three firms of chartered accountants were appointed as joint auditors by a single resolution. (4 marks)

d) An insurance company releases a claim of fire of Rs 50,000 without arranging a survey. (4 marks)

4(a) Discuss the provisions of law for tax audit. (8 marks)

(b) A firm had gross sales of Rs 41 lakh and after allowing for discounts and sales returns, the net sale value was taken at Rs 39.6 lakh. Do they have to get audit done under Section 44 AB? (4 marks)

(c) What is the difference between audit under Sections 142(2) and 44AB of the I-T Act? (4 marks).

5(a) What is a computerised information systems environment? (4 marks)

(b) What are the characteristics of a CISE? (4 marks)

(c) What are the provisions of special audit under the Companies Act? (8 marks)

6(a) Explain the following terms in the context of stockbrokers: a) contract note; b) rolling settlement; c) hit or take; d) mark to market. (8 marks)

(b) What are the various types of reinsurances? (8 marks)

7(a) How do you audit money at call and short notice? (4 marks)

(b) What is long form audit report? (4 marks)

(c) How is inter-branch reconciliation done in banks? (8 marks)

8) Write short notes on the following: (a) due diligence; b) management representation; c) negative confirmations; and d) CAATS. (4x4 = 16 marks)