2019 answers auditing

1. Give the meaning of the term auditing.

Auditing is the systematic and independent examination of financial records,

statements, and internal controls of an organization to ensure their accuracy,
reliability, and compliance with applicable laws, regulations, and accounting
standards.

2. A sale of Rs. 50,000 to A was entered as a sale to B. Briefly explain the type of error
made in this transaction.

This is an error of commission, where the transaction is recorded correctly in terms of

value but is attributed to the wrong party.

3. What is a Government Company?

A Government Company is a company in which at least 51% of the paid-up share

capital is held by the central government, state government, or a combination of both.

4. State any two reasons for the preparation of audit program.

a. To provide a structured approach to the audit process.

b. To ensure that all relevant areas of the audit are covered and completed efficiently.
5. Differentiate internal check with internal control.

Internal check is a specific procedure within the internal control system that aims to
prevent or detect errors and fraud. Internal control is a broader concept that
encompasses the entire system of policies, procedures, and measures implemented by
an organization to ensure the accuracy, reliability, and compliance of its financial
records and operations.

6. Mention the techniques for evaluating an internal control system.

a. Walkthroughs: Tracing transactions through the system to identify control points.

b. Questionnaires: Gathering information from employees about the control

environment.

7. Write a brief note on primary vouchers and collateral vouchers with examples.

Primary vouchers are original documents that provide evidence of a financial

transaction, such as invoices, receipts, or bank statements. Collateral vouchers are
supplementary documents that support the primary vouchers, such as correspondence,
contracts, or purchase orders.

8. List any two differences between vouching and routine checking.

a. Vouching focuses on verifying the authenticity and accuracy of financial

transactions, while routine checking involves the regular review of accounting records
for accuracy and completeness.

b. Vouching is typically performed by auditors, while routine checking can be

performed by internal staff or external auditors.

9. How do you differentiate between vouching and verification?

Vouching is the process of examining documentary evidence to support the accuracy

and authenticity of financial transactions, while verification is the process of
confirming the existence, ownership, and accuracy of assets and liabilities in the
financial statements.

10. Explain the term qualified report.

A qualified report is an auditor's opinion that, except for specific issues or limitations,
the financial statements present a true and fair view of the organization's financial
position and performance in accordance with applicable accounting standards.

11. Explain the concept of adverse report.

An adverse report is an auditor's opinion that the financial statements do not present a
true and fair view of the organization's financial position and performance, due to
significant misstatements or non-compliance with accounting standards.
 12. Why the audit of a limited company needs special attention?

The audit of a limited company needs special attention because it involves a higher
level of legal and regulatory compliance, increased complexity in financial
transactions, and a greater responsibility to protect the interests of shareholders and
other stakeholders.

13. Whether you would accept the offer of appointment as auditor of a firm in which your
brothers are partners? Justify in the light of conditions of appointment of an auditor.

No, I would not accept the offer, as it would create a conflict of interest and impair
my independence as an auditor, which is a fundamental requirement for the
appointment of an auditor.

14. “Verification includes valuation”. Comment

Verification is the process of confirming the existence, ownership, and accuracy of

assets and liabilities in the financial statements. Valuation, which is the process of
determining the monetary value of assets and liabilities, is an integral part of the
verification process, as it helps ensure that the financial statements present a true and
fair view of the organization's financial position.

15. Differentiate between Accountancy and Auditing. Quote relevant examples.

Accountancy and auditing are both important disciplines in the field of finance, but they
serve different purposes.

Accountancy: Accountancy, also known as accounting, is the process of recording,

classifying, summarizing, interpreting, and communicating financial information about a
business entity. It involves the preparation and analysis of financial statements, such as the
balance sheet, income statement, and cash flow statement. Accountants are responsible for
ensuring the accuracy and reliability of financial records and statements, and they provide
valuable information for decision-making, budgeting, and tax compliance.

Example: An accountant prepares the financial statements of a company at the end of the
financial year by analyzing the company's transactions, reconciling accounts, and ensuring
compliance with accounting principles and regulations. They also handle day-to-day
bookkeeping tasks, such as recording sales, purchases, and expenses, and maintaining general
ledgers.

Auditing: Auditing, on the other hand, is an independent examination of the financial

statements and records of an organization to express an opinion on their fairness, accuracy,
and compliance with applicable laws and regulations. Auditors evaluate the financial
statements prepared by accountants and assess the internal controls and systems in place.
Their objective is to provide assurance to stakeholders regarding the reliability and credibility
of the financial information presented.

Example: An auditor conducts an audit of a company's financial statements by examining

supporting documents, conducting physical inventory counts, verifying account balances, and
testing internal controls. The auditor may identify any discrepancies, errors, or potential fraud
during the audit process and provide recommendations for improvements in financial
reporting or internal controls.

In summary, accountancy involves the preparation and analysis of financial information,

while auditing focuses on verifying the accuracy and reliability of that information through
independent examination.

16. (a) Differentiate between audit in depth and routine checking.

Audit in depth: Audit in depth, also known as a detailed audit, is a comprehensive and
thorough examination of financial records and transactions. It involves a detailed analysis of
financial statements, supporting documents, and underlying accounting records. The
objective of an audit in depth is to obtain reasonable assurance about the accuracy,
completeness, and reliability of the financial information.

Example: During an audit in depth, the auditor may select a sample of transactions and trace
them through the accounting system from the original source documents to the final financial
statements. They may also perform analytical procedures, review internal controls, and
conduct interviews with key personnel to gain a deeper understanding of the organization's
financial activities and processes.

Routine checking: Routine checking, also known as compliance testing, is a limited review of
financial records and transactions. It is less detailed compared to an audit in depth and
focuses on ensuring compliance with established procedures, policies, and regulations.
Routine checking is usually performed on a regular basis and may cover specific areas or
transactions.

Example: In routine checking, the auditor may review invoices, receipts, and other relevant
documents to verify that transactions have been recorded correctly and are supported by
appropriate documentation. They may also check for adherence to internal controls and
organizational policies. However, routine checking does not involve the same level of
detailed analysis and testing as an audit in depth.

(b) Write a short note on test checking.

Test checking: Test checking, also known as sampling, is a method used by auditors to select
and examine a sample of transactions or items from a larger population. Instead of reviewing
every single transaction, auditors use statistical techniques to select a representative sample
that can provide reasonable assurance about the overall population.

Example: Suppose an auditor is conducting an audit of sales transactions for a retail

company. Instead of examining every individual sale, the auditor may select a sample of sales
invoices for a specific period, such as a week or a month

17. Distinguish between Internal audit and External audit.

Internal Audit: Internal audit is conducted by employees within an organization who are
independent of the activities they are auditing. It is a managerial tool designed to review and
assess the effectiveness of internal controls, risk management processes, and operational
efficiency within the organization. The primary objective of internal audit is to provide
management with assurance on the adequacy and effectiveness of internal controls and to
suggest improvements where necessary. Internal auditors are employed by the organization
and report to management or the audit committee.

External Audit: External audit is conducted by independent professionals who are not
employed by the organization being audited. These professionals are usually Certified Public
Accountants (CPAs) or Chartered Accountants (CAs) who are authorized to perform audits.
The main purpose of an external audit is to express an opinion on the fairness and reliability
of the financial statements of the organization. External auditors examine the financial
records, transactions, and internal controls of the organization to determine if they comply
with applicable accounting standards, laws, and regulations. Their findings are presented in
the form of an audit report, which is provided to shareholders, stakeholders, and regulatory
authorities.

Key Differences:

1. Independence: Internal auditors work within the organization, while external auditors
are independent professionals external to the organization.
2. Objective: Internal audit focuses on evaluating internal controls, risk management,
and operational efficiency, whereas external audit focuses on expressing an opinion
on the financial statements' fairness and compliance.
3. Reporting: Internal audit reports to management or the audit committee, while
external audit reports to shareholders, stakeholders, and regulatory authorities.
4. Scope: Internal audit has a broader scope, including non-financial areas such as
operational processes, while external audit primarily focuses on financial statements.
5. Legal Requirement: External audit is often a legal requirement for companies, while
internal audit is not mandatory but is considered good corporate governance practice.

18.Explain the Vouching of receipts from debtors.

Vouching of receipts from debtors is a process performed by auditors to verify the accuracy
and authenticity of the recorded revenue received from debtors or customers. It involves
examining the supporting evidence or documents for each receipt and ensuring that they are
valid and properly recorded.

The following steps are typically involved in vouching receipts from debtors:

1. Selecting the sample: The auditor selects a sample of receipts from the debtor's ledger
or accounts receivable records for examination. The sample should be representative
and cover a significant portion of the transactions.
2. Tracing to source documents: The auditor traces the selected receipts back to the
original source documents, such as sales invoices, delivery notes, or contracts. This
ensures that the recorded receipts are supported by valid sales transactions.
3. Checking the accuracy: The auditor verifies that the amounts recorded in the books
match the amounts on the source documents. Any discrepancies or errors are
investigated and reconciled.
4. Examining the terms and conditions: The auditor reviews the terms and conditions of
the sales agreements or contracts to ensure that the recorded receipts are in
accordance with the agreed-upon terms, including the payment terms, discounts, or
any other specific conditions.
5. Confirming with debtors: The auditor may send confirmation letters to selected
debtors to independently verify the amounts recorded as receipts. The debtor's
response is compared with the recorded amounts to identify any discrepancies or
potential irregularities.
6. Testing for completeness: The auditor also performs tests to ensure that all receipts
from debtors are properly recorded. This may involve examining bank statements,
cash receipts records, and other relevant documents to identify any unrecorded or
under-recorded receipts.

By vouching receipts from debtors, auditors can provide reasonable assurance that the
recorded revenue is valid, accurate, and complete, thus enhancing the reliability of the
financial statements.

19. Verification and Valuation of Assets: Verification of assets refers to the process of
examining and confirming the existence, ownership, and value of assets as reported in
the financial statements. It is an important aspect of the audit process to ensure that
the assets presented in the financial statements are valid and accurately represented.

Points to be kept in mind by an auditor in verifying assets:

1. Physical Existence: The auditor needs to physically verify the existence of assets by
conducting physical inspections or observing the assets firsthand. This ensures that
the assets are real and not fictitious.
2. Ownership and Rights: The auditor should confirm the ownership of the assets and
ensure that they are owned by the entity being audited. This can be done by
examining legal documents such as title deeds, contracts, and agreements.
3. Completeness: The auditor needs to ensure that all the assets are included in the
financial statements. This involves comparing the assets listed in the records with the
physical assets observed during the verification process.
 4. Valuation: The auditor should assess whether the valuation of assets is appropriate
and in accordance with accounting standards. This may involve reviewing market
values, appraisals, depreciation methods, and impairment tests.
5. Disclosure: The auditor should verify that all relevant information about the assets is
properly disclosed in the financial statements and related footnotes. This includes
details about significant assets, their valuation methods, and any associated risks.
6. Cut-off: The auditor needs to ensure that the assets are recorded in the correct
accounting period, as inappropriate cut-off dates can result in misstatement of assets.
7. Consistency: The auditor should check for consistency in the accounting policies and
practices applied to value the assets. Any changes in the valuation methods should be
appropriately disclosed and justified.
8. Rights and Obligations: The auditor should verify whether the assets are free from
any liens, encumbrances, or legal restrictions that could affect the entity's rights over
the assets.
9. Presentation and Disclosure: The auditor should review the presentation of assets in
the financial statements to ensure they are appropriately classified, described, and
disclosed.
10. Audit Evidence: The auditor should gather sufficient and appropriate audit evidence
to support the verification and valuation of assets. This may include documents,
confirmations, expert opinions, and physical inspection reports.
11. (a) Contents of an Audit Report: An audit report is a formal document prepared by an
auditor after conducting an audit of the financial statements. Its contents may vary
depending on the reporting framework and the specific requirements of the
engagement, but generally, an audit report includes the following:
12. Title: The report is usually titled as "Independent Auditor's Report" to indicate the
independence of the auditor from the entity being audited.
13. Addressee: The report is addressed to the shareholders, board of directors, or other
appropriate parties, as specified in the engagement.
14. Introductory Paragraph: This section identifies the financial statements audited,
including the balance sheet, income statement, statement of cash flows, and
accompanying notes.
15. Management's Responsibility: The auditor states management's responsibility for the
preparation and fair presentation of the financial statements in accordance with the
applicable financial reporting framework.
16. Auditor's Responsibility: The auditor describes their responsibility to express an
opinion on the financial statements based on the audit conducted. This includes
compliance with auditing standards and obtaining reasonable assurance about the
absence of material misstatements.
17. Scope Paragraph: The auditor outlines the nature and extent of the audit procedures
performed, including the testing of internal controls and the assessment of accounting
estimates.
18. Opinion Paragraph: The auditor expresses their opinion on the financial statements.
The opinion may be unqualified (clean opinion), qualified (with exceptions or
limitations), adverse (material misstatements exist), or a disclaimer (unable to form an
opinion).

20 (a) State the contents of an audit report.

An audit report is a formal document prepared by an auditor after conducting an audit of an
organization's financial statements. The contents of an audit report typically include the
following:

1. Title: The report is titled as "Independent Auditor's Report" or similar, indicating the
independence of the auditor.
2. Addressee: The report specifies the intended recipient of the report, usually the
shareholders, board of directors, or management.
3. Introductory Paragraph: This section identifies the financial statements audited,
including the balance sheet, income statement, statement of cash flows, and notes to
the financial statements. It also mentions the responsibilities of the auditor and
management.
4. Scope Paragraph: The auditor describes the extent of the audit work performed,
including the assessment of internal controls, testing of transactions, and examination
of supporting documents.
5. Opinion Paragraph: This is a crucial part of the audit report where the auditor
expresses their professional opinion regarding the fairness of the financial statements.
The opinion can be unqualified (clean opinion), qualified, adverse, or a disclaimer of
opinion.
6. Basis for Opinion: The auditor provides a brief explanation of the basis for their
opinion, highlighting the auditing standards followed and the evidence obtained
during the audit.
7. Key Audit Matters: In certain cases, the auditor may include a separate section to
communicate the most significant matters that required significant attention during the
audit. These matters are typically related to areas with higher risks of material
misstatements.
8. Other Reporting Responsibilities: The auditor may include additional sections if
required by the applicable reporting framework or regulations. These sections may
cover matters such as going concern, compliance with laws and regulations, or other
specific requirements.
9. Signature and Date: The report is signed by the auditor or audit firm, along with the
date of completion of the audit.
10. Auditor's Address: The report includes the address of the auditor or audit firm for
communication purposes.

(b) Explain the audit considerations related to profits and divisible profits.

When auditing profits and divisible profits, auditors need to consider several factors to ensure
the accuracy and reliability of the financial information. Some of the key audit considerations
related to profits and divisible profits are:

1. Revenue Recognition: Auditors assess the appropriateness of revenue recognition

policies and examine supporting evidence for revenue transactions. They verify
whether revenue is recognized in accordance with accounting standards and assess the
completeness and accuracy of recorded revenue.
2. Expense Recognition: Auditors examine expense transactions and evaluate whether
they have been appropriately recognized and allocated. They assess the compliance
with accounting standards and company policies, ensuring that expenses are properly
recorded in the period to which they relate.
 3. Accruals and Provisions: Auditors review accruals and provisions to assess their
adequacy and reasonableness. They examine the supporting documentation, evaluate
the underlying assumptions, and determine whether the amounts are fairly stated and
comply with relevant accounting principles.
4. Accounting Policies: Auditors assess the appropriateness and consistency of
accounting policies related to profit recognition. They ensure that accounting policies
comply with applicable accounting standards and disclose any significant changes in
policies or estimates.
5. Divisible Profits Calculation: For companies distributing dividends, auditors verify
the calculation of divisible profits. They examine the relevant provisions of company
law, articles of association, and any other relevant legal requirements. Auditors
review the accuracy of the calculations, ensuring compliance with legal and
regulatory requirements.
6. Management Estimates: Auditors evaluate significant management estimates that
impact the determination of profits, such as provisions for bad debts, impairment of
assets, or contingent liabilities. They assess the reasonableness of the assumptions
used and consider the potential risks of material misstatement

21 Explain with suitable examples regarding the important aspects to be covered while
auditing the banking company

When auditing a banking company, there are several important aspects that need to be
thoroughly covered to ensure a comprehensive and accurate assessment of the organization's
financial position. Here are the key aspects to consider, along with suitable examples:

1. Regulatory Compliance: Auditors need to ensure that the banking company adheres to
the regulations and guidelines set forth by regulatory authorities. This includes
assessing compliance with laws related to lending practices, capital adequacy, risk
management, and customer protection. For example, auditors may review loan
documentation to verify compliance with lending regulations, such as interest rate
caps or collateral requirements.
2. Financial Reporting and Disclosure: Auditors must examine the accuracy and
completeness of financial statements, ensuring that they conform to applicable
accounting standards and provide relevant information to stakeholders. They review
the income statement, balance sheet, and cash flow statement to verify the fair
presentation of the bank's financial position. For instance, auditors may analyze the
adequacy of loan loss provisions and the valuation of investment securities.
3. Internal Controls: Auditors assess the effectiveness of internal control systems that
safeguard assets, prevent fraud, and ensure the reliability of financial reporting. They
evaluate controls related to cash handling, loan disbursement, reconciliation
procedures, and information technology systems. As an example, auditors may test
 the segregation of duties to determine if there are proper checks and balances in place
to prevent unauthorized transactions.
4. Loan Portfolio Quality: A significant portion of a bank's assets consists of loans, so
auditors must assess the quality and valuation of the loan portfolio. They examine the
credit assessment process, loan classification, and provisioning practices. For
instance, auditors may review loan files, analyze collateral values, and assess the
adequacy of loan loss provisions based on historical default rates.
5. Risk Management: Auditors evaluate the bank's risk management practices, including
identification, measurement, and mitigation of various risks such as credit risk, market
risk, liquidity risk, and operational risk. They assess risk management policies, risk
monitoring procedures, and the adequacy of risk capital. As an example, auditors may
review stress testing methodologies used by the bank to assess its resilience to adverse
economic scenarios.
6. Anti-Money Laundering (AML) and Know Your Customer (KYC) Procedures: Given
the potential for illicit activities in the banking sector, auditors need to review the
bank's AML and KYC procedures. They assess the effectiveness of customer due
diligence, transaction monitoring, and suspicious activity reporting. For example,
auditors may test the bank's compliance with regulatory requirements for customer
identification and verification.
7. IT Systems and Data Security: In today's digital banking environment, auditors must
evaluate the bank's IT systems, cybersecurity measures, and data protection protocols.
They assess the adequacy of controls to prevent unauthorized access, protect customer
information, and ensure the integrity of financial data. As an example, auditors may
review the bank's disaster recovery plans and test the effectiveness of security
measures like firewalls and encryption.
8. Related Party Transactions: Auditors examine transactions between the bank and its
related parties, such as directors, officers, and significant shareholders, to ensure
proper disclosure and fair treatment. They assess the adequacy of controls and
scrutinize any potential conflicts of interest. For instance, auditors may review loan
agreements, lease agreements, or other financial arrangements involving related
parties.

In conclusion, auditing a banking company requires a comprehensive approach that covers

regulatory compliance, financial reporting, internal controls, loan portfolio quality, risk
management, AML and KYC procedures, IT systems, and related party transactions. By
thoroughly examining these aspects, auditors can provide assurance regarding the accuracy of
financial statements and the bank's adherence to regulatory requirements.
22 (a) Explain: Duty of an Auditor with regards to Detection of Fraud and Error.

The duty of an auditor regarding the detection of fraud and error is of significant importance.
Auditors are responsible for assessing the financial statements of an organization and
providing an opinion on their accuracy and reliability. While their primary focus is not to
detect fraud or error, they have a professional obligation to plan and perform their audit in a
manner that includes reasonable assurance of detecting material misstatements resulting from
fraud or error.

To fulfill their duty, auditors employ various procedures during the audit process:

1. Risk Assessment: Auditors assess the risk of fraud by understanding the entity's
internal control system, identifying areas prone to fraud, and evaluating management's
integrity and ethical values.
2. Internal Control Evaluation: Auditors evaluate the effectiveness of internal controls in
place to prevent and detect fraud. They examine control activities, segregation of
duties, and authorization processes to identify weaknesses that could potentially lead
to fraudulent activities.
3. Analytical Procedures: Auditors perform analytical procedures to identify unusual or
unexpected fluctuations in financial data. This helps them uncover potential fraud or
error by comparing current and prior year figures, industry benchmarks, or other
relevant data.
4. Substantive Procedures: Auditors conduct substantive procedures, such as vouching,
verification, and physical inspection, to obtain evidence supporting the amounts and
disclosures in the financial statements. These procedures may uncover discrepancies
or irregularities that indicate the presence of fraud or error.
5. Professional Skepticism: Auditors maintain an attitude of professional skepticism,
questioning management's assertions and remaining vigilant for signs of fraudulent
activities. This involves a critical evaluation of evidence, cross-referencing
information, and investigating any inconsistencies or red flags.
It is important to note that auditors are not infallible and cannot guarantee the detection of all
instances of fraud or error. However, they are expected to exercise due care and professional
skepticism in their work to enhance the likelihood of detecting material misstatements arising
from fraud or error.

(b) Write a note on Cost Audit.

Cost audit is a specialized type of audit that focuses on verifying and validating the cost
accounting records and practices of an organization. It is primarily concerned with ensuring
that the costs incurred by a company are accurately recorded, allocated, and reported in
accordance with relevant laws, regulations, and accounting standards.

The objectives of cost audit can vary depending on the jurisdiction and industry. Some
common goals of cost audit include:

1. Compliance: Cost audit ensures compliance with applicable laws, regulations, and
accounting standards related to cost accounting practices. This helps prevent any non-
compliance issues and ensures accurate financial reporting.
2. Cost Control: Cost audit helps identify inefficiencies, wastages, and areas of
excessive costs within an organization. By examining cost accounting records and
practices, auditors can provide recommendations for cost reduction and improved cost
management.
3. Pricing Decisions: Cost audit assists in determining appropriate pricing strategies by
providing reliable cost information. It helps ensure that prices are set at levels that
cover costs and provide a reasonable profit margin.
4. Cost Estimation: Cost audit aids in the estimation of costs for budgeting, project
evaluation, and decision-making purposes. By reviewing cost accounting methods and
techniques, auditors can assess the reliability and accuracy of cost estimates.
5. Management Information: Cost audit contributes to the availability of accurate and
timely cost-related information for management decision-making. It helps
management assess the profitability of products, departments, and projects, and
enables them to make informed strategic decisions.

Cost audit is usually conducted by qualified cost accountants or auditors who possess
expertise in cost accounting principles and techniques. The scope of cost audit may cover
various aspects such as material costs, labor costs, overhead costs, cost allocation methods,
cost variance analysis, and cost reporting

23. Distinguishing between Internal Control, Internal Check, and Internal Audit:
 Criteria Internal Control Internal Check Internal Audit
The process implemented The system of internal An independent
by management to ensure verification and cross- examination of an
Definition the reliability of financial
checking of organization's internal
reporting and compliance transactions within an controls, systems, and
with laws and regulations.organization. financial statements.
Evaluate the effectiveness
Prevent and detect
Prevent and detect errors, of internal controls and
Purpose errors, fraud, and
fraud, and irregularities. provide recommendations
irregularities.
for improvement.
Review of financial
Overall management Day-to-day
Scope statements, internal
activities and policies. operational activities.
controls, and systems.
Responsibility Management Employees Independent auditors
Audit reports on the
Management reports on Management reports
effectiveness of internal
Reporting the effectiveness of on the effectiveness of
controls and financial
internal control. internal check.
statements.
Frequency Continuous Continuous Periodic (usually annually)
Not legally mandated Mandatory for certain
Legal Mandatory under various
but considered good organizations (e.g., listed
Requirement laws and regulations.
practice. companies).

24. Vouching has been described as 'the essence of auditing'. Amplify this statement and
explain why attaching such importance to vouching is necessary.

Vouching is indeed considered the essence of auditing because it is a fundamental and

indispensable procedure that auditors perform to gather evidence and ensure the reliability of
financial information. It involves examining documentary evidence and tracing transactions
from the financial statements back to the supporting source documents. Here are a few
reasons why vouching is crucial and why it should be given significant importance:

1. Verification of Transactions: Vouching helps auditors verify the accuracy and

authenticity of transactions recorded in the books of accounts. By examining
supporting documents such as invoices, receipts, contracts, and bank statements,
auditors can ensure that the recorded transactions actually occurred, were properly
authorized, and are correctly stated in the financial statements.
2. Detecting Errors and Frauds: Vouching acts as a detective control mechanism by
identifying errors and fraudulent activities. It allows auditors to compare the recorded
transactions with the source documents to check for any discrepancies, such as
unauthorized or fictitious transactions, misstatements, or omissions. Vouching helps
uncover intentional misrepresentation or unintentional errors, providing an
opportunity to rectify them.
3. Substantive Evidence: Vouching provides substantive evidence for the existence,
occurrence, ownership, and valuation of assets, as well as the completeness and
accuracy of liabilities and expenses. By examining the supporting documents related
to specific transactions, auditors can gather reliable evidence to support their
conclusions and opinions.
 4. Compliance with Accounting Standards and Regulations: Vouching helps ensure
compliance with applicable accounting standards, legal requirements, and regulations.
Auditors can use vouching to verify that the financial statements adhere to the
prescribed accounting principles, disclosure norms, and relevant laws. This promotes
transparency and reliability in financial reporting.
5. Enhancing Audit Quality and Professional Judgment: Vouching requires auditors to
exercise professional judgment, critical thinking, and analytical skills. It helps
auditors gain a deep understanding of the client's business processes, systems, and
controls. By vouching, auditors can assess the reliability of the client's internal
controls and identify areas where improvements are needed. This, in turn, contributes
to the overall quality and effectiveness of the audit.

In summary, vouching is the backbone of auditing as it ensures the accuracy, completeness,

and reliability of financial information. It helps auditors detect errors and frauds, gather
substantive evidence, ensure compliance, and enhance the overall quality of the audit process.
By attaching great importance to vouching, auditors can provide reasonable assurance to
stakeholders regarding the fairness and reliability of the financial statements.

25. How would you verify the following assets?

(a) Land and building:
To verify the land and building assets, the following steps can be taken:
 Physical inspection: Visit the location and physically inspect the land and building
to ensure their existence and condition.
 Title search: Conduct a search at the relevant land registry or government office to
verify the ownership of the land and building. Ensure that the title is clear and free
from any encumbrances.
 Land records: Examine the land records, such as property tax receipts, land survey
records, and land registration documents, to verify the details of the property.
 Valuation: Engage a qualified valuer to assess the fair market value of the land
and building. Compare the valuer's report with the carrying value in the financial
statements.
 Legal documents: Review the legal documents related to the land and building,
such as purchase agreements, lease agreements, construction contracts, and
property insurance policies.
 Repairs and maintenance: Inspect the maintenance and repair records to determine
whether the assets have been adequately maintained and if any significant repairs
are required.

(b) Plant and Machinery: To verify plant and machinery assets, the following steps can be
taken:

1. Physical inspection: Physically examine the plant and machinery to verify their
existence, condition, and usability.
2. Asset register: Review the company's asset register or fixed asset ledger to identify all
plant and machinery assets. Cross-check the details in the register with the physical
inspection.
3. Purchase and disposal records: Examine the purchase invoices, delivery notes, and
disposal records to verify the acquisition and disposal of plant and machinery assets.
Ensure that proper authorization procedures were followed.
 4. Valuation: Engage a qualified valuer to assess the fair value of the plant and
machinery assets. Compare the valuer's report with the carrying value in the financial
statements.
5. Maintenance records: Review the maintenance records to assess whether regular
maintenance and repairs have been performed on the assets.
6. Utilization: Evaluate the utilization of plant and machinery assets by analyzing
production records, operational logs, and maintenance schedules.

(c) Patents: To verify patents, the following steps can be taken:

1. Documentation review: Review the patent certificates, registrations, and related legal
documents to ensure the existence and validity of the patents.
2. Ownership verification: Confirm the ownership of the patents by examining
assignment agreements, licenses, or other contractual arrangements related to the
patents.
3. Patent portfolio analysis: Assess the company's patent portfolio by examining the
number of patents, their scope, and their relevance to the company's products or
services.
4. Legal opinion: Seek a legal opinion from a qualified intellectual property lawyer to
verify the validity and enforceability of the patents.
5. Disclosure and impairment: Evaluate the company's financial statements and
disclosures related to patents to ensure proper recognition and potential impairment.

(d) Trademarks: To verify trademarks, the following steps can be taken:

1. Trademark registrations: Verify the registration of the trademarks by reviewing the

trademark certificates and registrations with the relevant intellectual property offices.
2. Ownership confirmation: Confirm the ownership of the trademarks by examining
assignment agreements, licenses, or other contractual arrangements related to the
trademarks.
3. Trademark portfolio analysis: Assess the company's trademark portfolio by examining
the number of trademarks, their registration status, and their relevance to the
company's products or services.
4. Infringement checks: Conduct searches and investigations to identify any potential
trademark infringements or disputes.
5. Disclosure and impairment: Review the company's financial statements and
disclosures related to trademarks to ensure proper recognition and potential
impairment.

26) Discuss the process of appointment, removal and liabilities of the auditor under the Companies
Act 2013
Appointment of Auditor under the Companies Act 2013: The Companies Act 2013 lays down
specific provisions regarding the appointment, removal, and liabilities of auditors. Here is a
detailed discussion of each aspect:

1. Appointment of Auditor: a. First Auditor: The first auditor of a company is appointed

by the Board of Directors within 30 days of incorporation. If the Board fails to
appoint, the shareholders must do so within 90 days in an extraordinary general
meeting. b. Subsequent Auditors: After the first auditor, subsequent auditors are
appointed by shareholders at each Annual General Meeting (AGM). The appointment
must be made within 15 days of the AGM. c. Rotation of Auditors: Certain companies
are required to rotate auditors based on specific criteria. For example, listed
companies, certain classes of public companies, and private companies exceeding the
prescribed threshold of paid-up capital, borrowings, or turnover must rotate their
auditors after a specified period.
2. Removal of Auditor: a. Resignation: An auditor may resign by providing a notice in
writing to the company's Board of Directors. b. Special Resolution: The shareholders
may remove an auditor before the expiry of their term by passing a special resolution
in a general meeting. The auditor must be given a reasonable opportunity to be heard.
c. Tribunal's Intervention: In certain cases, the National Company Law Tribunal
(NCLT) may remove an auditor on an application made by the Central Government,
the company, or its members.
3. Liabilities of Auditor: a. Civil Liability: Auditors can be held liable for negligence,
misstatement, or breach of duty towards the company or its shareholders. The
company or any person who has suffered loss due to the auditor's negligence can file a
civil suit for damages. b. Criminal Liability: If an auditor is found guilty of fraud,
willful misconduct, or gross negligence, they can face criminal prosecution, leading to
imprisonment and/or fines. c. Liability under Professional Bodies: Auditors are also
subject to the disciplinary actions of professional bodies such as the Institute of
Chartered Accountants of India (ICAI). These bodies have the authority to suspend or
cancel an auditor's license for professional misconduct.

In summary, the process of appointment, removal, and liabilities of auditors under the
Companies Act 2013 involves the initial appointment by the Board or shareholders,
subsequent appointments at AGMs, rotation requirements, resignation, removal by
shareholders or NCLT, civil and criminal liabilities for negligence or misconduct, and
disciplinary actions by professional bodies.