CU-MCOM-SEM-IV-Company Accounts & Audit

complaints filed and resolved the status of action plans from recent employee opinion surveys, and the effectiveness of performance management system. Review of Safety and Risk Management The goal of HR department’s safety and risk management program is to create and maintain a safe work environment. Auditing safety and risk management function goes beyond merely assessing adherence to company occupational health safety policy;however, it includes assessing employee participation in maintaining a safe work environment, measuring the effectiveness of safety training to reduce the number of workplace injuries, and providing training related to workplace violence, actions of disgruntled employees and civil unrest. Review of Compensation and Benefits Reviewing compensation and benefits begins with an analysis of compensation practices — review the employee survey to get sure that organization’s pay practices are appropriate for each job group, as competitive as possible for geographic area and the industry, and, importantly, the pay practices must be fair. Reviewing compensation plans takes time to complete; based on the size of the workforce. This part of your person policy review may be more effectively outsourced than conducting the analyses in-house. Recruitment and Selection Organization’s recruitment and selection process shapes part of company’s reputation. Reviewing human resources employment function involves a review of the way applicants are received. A review should reveal how knowledgeable the engaged employment specialists are concerning organizational structure, positions within each department, and fair employment practices in recruiting and hiring candidates. HR Departmental Practices In addition to auditing specific areas of human resources department, review of HR function in its totality and in relationship to other departments is also required. An ineffective HR programs can undermine an organization’s ability to achieve its mission by stunting its competitiveness in the labor market, increasing unjustified financial costs, and putting the organization at risk for lawsuits or regulatory inquiries due to non-compliance or misconduct 11.7 APPRAISAL OF MANAGEMENT DECISIONS Management decision making Decision-making is an essential aspect of modern management. It is a primary function of management. A manager takes hundreds of decisions consciously and subconsciously. A decision may be defined as “a course of action which is consciously chosen from among a set of alternatives to achieve a desired result.” It represents a well-balanced judgment and a commitment to action. Decision-making pervades all managerial actions and a continuous process. Decision-making is an indispensable component of the management process itself. 251 CU IDOL SELF LEARNING MATERIAL (SLM)

Management decision-making process steps: 1. Define the problem. 2. Identify limiting factors. 3. Develop potential alternatives. 4. Analyse the alternatives. 5. Select the best alternative. 6. Implement the decision. 7. Establish a control and evaluation system. Objectives of appraisal of management decisions The main objective of appraisal of management decision is to see how decisions are taken, whether decisions taken are meeting the organization objectives. Whether documentation is made to substantiate the decision-making process. Management decision making appraisal process 1. In appraisal of management decision, one of the most important things is to see whether the objectives are well defined. Objectives and outputs should be set out clearly and relate explicitly to policy or strategy. They should be defined so that it can be established by evaluation after the event whether and to what extent objectives have been met. It is important that objectives are not described in such a way as to exclude options. Ideally objectives should be SMART i.e., specific, measurable, agreed, realistic and time-dependent 2. Check while taking the decision how many options have been considered. These must include a “do nothing” or “do minimum” option which provide a benchmark against which other options can be judged. Factors below could influence the choice of alternatives:  Risk;  Timing;  Scale and location;  Scope for shared service arrangements with other public bodies  Degree of private sector involvement;  Capacity of the market to deliver the required output;  Alternative asset uses;  Use of new or established technology; and 252 CU IDOL SELF LEARNING MATERIAL (SLM)

 Environmental equality. 3. For Major Investment Projects as wide a range of options as possible should be considered before preparing a short list for full appraisal. Time pressures frequently cause a manager to move forward after considering only the first or most obvious answers. However, successful problem solving requires thorough examination of the challenge, and a quick answer may not result in a permanent solution. Thus, a manager should think through and investigate several alternative solutions to a single problem before making a quick decision. Techniques like brainstorming, Delphi technique, and nominal group technique may be used to develop alternative solution. Where some options are dismissed before a full appraisal the reasons should be explained. 4. Whether potential options are analyzed reviewed in terms of value costs, benefits, risk and uncertainties of optionswhile evaluating various options, it is necessary to decide the relative merits of each idea. Managers must identify the advantages and disadvantages of each alternative solution before making a final decision. Evaluating the alternatives can be done in numerous ways.  Determine the pros and cons of each alternative.  Perform a cost-benefit analysis for each alternative.  Weight each factor important in the decision, ranking each alternative relative to its ability to meet each factor, and then multiply by a probability factor to provide a final value for each alternative. Regardless of the method used, a manager needs to evaluate each alternative in terms of its  Feasibility — can it be done?  Effectiveness — how well does it resolve the problem situation?  Consequences — what will be its costs (financial and nonfinancial) to the organization? 5. Whether the options are selected after due analysis and a consensus decision is takenafter a manager has analyzed all the alternatives, it is necessary that the best one should be selected. While reviewing the management decision making, it is necessary to see which option have been selected. If an option other than the best option have been selected, it is necessary that justification need to be given. While reviewing whether the selected decision is best of not, justification given may be evaluated. The basic elements of internal control should prevail in decision making processsometimes, though; the best alternative may not be obvious. That’s when a manager must decide which alternative is the most feasible and effective, coupled with which carries the lowest costs to the organization. Probability estimates, where analysis of each alternative’s chances of success takes place, often come into play at this point in the decision-making process. In those cases, a manager simply selects the 253 CU IDOL SELF LEARNING MATERIAL (SLM)

alternative with the highest probability of success. All such cases should be reviewed with utmost care 6. Whether the selected alternative implemented efficientlyManagers are paid to make decisions, but they are also paid to get results from these decisions. Positive results must follow decisions. Everyone involved with the decision must know his or her role in ensuring a successful outcome. To make certain that employees understand their roles, managers must thoughtfully devise programs, procedures, rules, or policies to help them in the problem-solving process. While reviewing the implementation phase, it should be seen whether the proper policies and program have been designed to implement the selected proposition. Whether the selected alternative has been implemented as decided. 7. Review of management decision control and evaluation systemongoing actions need to be monitored. An evaluation system should provide feedback on how well the decision is being implemented, what the results are, and what adjustments are necessary to get the results that were intended when the solution was chosen. In order for a manager to evaluate his decision, he needs to gather information to determine its effectiveness. Was the original problem resolved? If not, is he closer to the desired situation than he was at the beginning of the decision-making process? If a manager’s plan hasn’t resolved the problem, he needs to figure out what went wrong. A manager may accomplish this by asking the following questions:  Was the wrong alternative selected? If so, one of the other alternatives generated in the decision- making process may be a wiser choice.  Was the correct alternative selected, but implemented improperly? If so, a manager should focus attention solely on the implementation step to ensure that the chosen alternative is implemented successfully. 11.8 SUMMARY  Strong internal control system is very important for an organization. The strength of internal control system only decides the need and depth of audit. Internal control review is a very important task both for internal auditor as well as for external auditor.  Material purchase constitutes about 50-70% of the cost of a product and an efficient internal control over the purchasing activities of an organization is very much required.  While reviewing internal control system over the purchasing system it is ascertained whether controls are in place in the process to ensure accountability is established as early as possible at all points along the accountability chain. Whether segregation of duties, or mitigating controls, exists within transaction processing authorization, 254 CU IDOL SELF LEARNING MATERIAL (SLM)

custody, and recording functions. Separation of duties exists between the various types of transaction processing (e.g., procurement, accounts payable, disbursements).  While reviewing the management information system of an organization first step is to determine if MIS policies or practices, processes, objectives, and internal controls are adequate and whether MIS applications provide users with timely, accurate, consistent, complete, and relevant information.  The survival of an organization largely depends on the effectiveness of selling and distribution function. Review of sales and distribution function is very important from internal control point of view and it requires a detailed understanding of company business. In review of sales and distribution policies and programs, it is sales and distribution policies are matching with the overall corporate objective and are able enough to serve customers of all regions.  Manufacturing operations is a prime source of money outflow i.e., a large amount of money is spent on manufacturing process e.g., in buying machinery, consumables, paying salary to workers etc. It is very important to review the manufacturing operations in timely manner so that the identified in-efficiency may be eliminated controlled on immediate basis.  In review of personal polices, several functions of Human resources department are reviewed. This review is more than just looking at personnel files to make sure they’re complete and consistent with applicable laws and legislation pertaining to employment practices. In personal policies review it is ascertained whether human resource’s function is supporting the company philosophy, mission and values.  Decision-making is an essential aspect of modern management. A manager takes hundreds of decisions consciously and subconsciously. Decision-making pervades all managerial actions and a continuous process. Decision-making is an indispensable component of the management process itself. The main objective of appraisal of management decision is to see how decisions are taken, whether decisions taken are meeting the organization objectives. Whether documentation is made to substantiate the decision-making process. 11.9 KEYWORDS  Review and reconciliation: Review and reconciliation are a very important part of purchase internal control system. Timely review of supplier’s invoice, packing slips, and purchase orders is very necessary to ensure accuracy of the information for prior payment, correct quantity ordered, and price charged. Monthly ledger reconciliation enables to find improper charges and validate appropriate financial transactions.  Review of purchase operations: Purchase is one of the most important functions in a manufacturing organization. In most of the manufacturing and trading organization, 255 CU IDOL SELF LEARNING MATERIAL (SLM)

purchases constitute about 50-70% of the cost. So, it becomes very important to have an efficient internal control over the purchasing activities of an organization.  Management decision making: Decision-making is an essential aspect of modern management. It is a primary function of management. A manager takes hundreds of decisions consciously and subconsciously. A decision may be defined as “a course of action which is consciously chosen from among a set of alternatives to achieve a desired result.”  Physical control over of assets: Once the purchases are done, it is necessary to secure the materials in a safe location. To ensure that the resources are accounted for, it is necessary to periodically verify the inventory and compare the results with the books.  Objectives of appraisal of management decisions: The main objective of appraisal of management decision is to see how decisions are taken, whether decisions taken are meeting the organization objectives. Whether documentation is made to substantiate the decision-making process 11.10 LEARNING ACTIVITY 1. What is review of purchase firm? ___________________________________________________________________________ ___________________________________________________________________________ 2. What is Appraisal of Management Decisions? ___________________________________________________________________________ ___________________________________________________________________________ 11.11 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Explain the objectives of the review of purchase firm. 2. Explain the term ‘Segregation of duties’ in context of purchase control review. 3. Prepare a small questionnaire enlisting the important things to be reviewed in case of purchase control of an organisation. 4. What are the objectives of review of management information system of an organisation? 5. What are the main characteristics of information? List down the main points to be considered while evaluation the MIS. Long Questions 256 CU IDOL SELF LEARNING MATERIAL (SLM)

1. How would you carry out the review of discount given by an organisation? Explain the main points to be considered. 2. Explain the points to be considered while carrying out the internal control review of an organisation over the selection of transporter. 3. Explain the internal control review points for reviewing the marketing function of an organisation? 4. What are the points to be considered while reviewing the quality management system of a manufacturing organisation? 5. What are the pints to be considered while carrying out the internal control review of recruitment function? 6. Explain the main points to be considered in reviewing the decision-making process of management. B. Multiple Choice Questions 1.Internal controls are grouped into the following categories: a. Effective operations, financial reporting, and compliance. b. Efficient operations, financial analysis, and management reporting. c. Efficient operations, financial analysis, and compliance. d. Production and operations, financial reporting, and management reporting. 2.Which of the following makes for an effective control environment with regards to commitment to competence? a. Reduce pressure to meet unrealistic performance targets. b. Assure independence from management. c. Its culture is one in which quality and competences are openly valued. d. Increase interaction between senior management and operating management. 3.To determine a positive control environment, the auditor should consider which of the following control environment actions for integrity and ethical values? a. Review the nature of business risk accepted. b. Encourage independence from management. c. Create formal or informal job descriptions or other means of defining tasks that comprise particular jobs. d. Remove incentives and temptations that prompt personnel to engage in fraudulent or unethical behavior. 257 CU IDOL SELF LEARNING MATERIAL (SLM)

4.That companies must comply with many laws and regulations including company law, tax law and environmental protection regulations require what category of internal control objectives? a. Government reporting. b. Effective operations. c. Financial reporting. d. Compliance. 5.the most emphasis by auditors is placed on understanding which of the following types of controls? a. Controls over efficiency of operations. b. Controls over disclosures. c. Controls over classes of transactions. d. Controls on account balances. Answers 1-a, 2-c, 3-d, 4-d, 5-c. 11.12 REFERENCES Reference books  M.C. Shukla, T.S. Grewal : & S.C. Gupta Advanced Accounts Vol. II; S. Chand & Company Ltd., 7361, Ram Nagar, New Delhi-110 055.  R.L. Gupta & :M. Radhaswamy Company Accounts; Sultan Chand & Sons,23, Daryaganj, New Delhi- 110 002.  S.P. Jain & K. L. Narang: Advanced Accountancy-Vol.II; Kalyani Publishers, 23, Daryaganj, New Delhi - 110 002.  S. N. Maheshwari &S.K. Maheshwari Advance Accounting Vol. II; Vikas Publishing House (Pvt.) Ltd., A-22, Sector 4, Noida – 201 301.  Ashok Sehgal & : Deepak Sehgal Textbook  Advanced Accounting Vol. 2; Taxmann’s,59/32, New Rohtak Road, New Delhi- 258 CU IDOL SELF LEARNING MATERIAL (SLM)

110 005.  J. R. Monga : Fundamentals of Corporate Accounting; Mayoor Paperbacks, A-95, Sector 5, Noida-201 301.  Goel, Maheshwari Gupta : Corporate Accounting, International Publishers, Daryaganj New Delhi  Kamal Gupta, Ashok Arora : Fundamentals of Auditing: Tata McGraw Hill Education Limited  Kamal Gupta: Contemporary Auditing: Tata McGraw Hill Education Limited  International Financial Reporting Standards (IFRS) Taxmann Publication (P) Limited, 59/32, New Rohtak Road, New Delhi- 110 005  Dolphy D’Souza : Indian Accounting Standards & GAAPP; Snow White Publications Pvt. Ltd., Her Mahal, 532, Kalbadevi Road, Mumbai – 400 002.  N S Zad : Company Accounts and Auditing Practices : Taxmann Publications (P) Ltd., 59/32, Rohtak Road, New Delhi - 110005 Website  https://icmai.in/upload/Students/Syllabus2016/Inter/Paper-12_070219.pdf  https://www.mca.gov.in/MinistryV2/accounts+and+audit.html 259 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT – 12 : MISCELLANEOUS AUDIT STRUCTURE 12.0 Learning Objective 12.1 Introduction 12.2 Branch Audit and Joint audit 12.3 Audit of shares and debentures 12.4 Audit of divisible profits and dividends. 12.5 Summary 12.6 Keywords 12.7 Learning activity 12.8 Unit end questions 12.9 References 12.0 LEARNING OBJECTIVE ‘Miscellaneous expenditure’ shown in the balance sheet of companies (or shown under this or some other appropriate heading in the balance sheet of other enterprises) embraces within its fold a variety of items of expenditure which are not entirely charged to income in the year in which they are incurred, but are carried forward in the balance sheet to be written-off in subsequent periods. Unless some benefit from the expenditure can reasonably be expected to be received in future and unless the amount of such benefit is reasonably determinable, there is no justification for carrying forward the expenditure for being written-off in subsequent periods. Also, the amount of expenditure to be carried forward should not exceed the expected future revenue/other benefits related to the expenditure. 12.1 INTRODUCTION Miscellaneous Audit is a part of the auditing process for companies with various expenses. In addition, there are many complex accounting issues surrounding the topic of miscellaneous expenditure. Companies have a temptation to overstate miscellaneous expenditure and thus overstate expenses. This means that auditors should focus on proper checking of expenses. 12.2 BRANCH AUDIT JOINT AUDIT Branch Audit 260 CU IDOL SELF LEARNING MATERIAL (SLM)

Branch Audit is an official inspection of an Organisation, Entity, or Company Branch. Branch Audit helps organisations to keep clear records and maintain proper books. As per the Act passed in 2013, every company has to maintain the books of accounts and other relevant documents of its Branch. This account and documents should be maintained every year to give a fair state of affairs for every company. Branch Audits are done by Auditors; they are known as Branch Auditors. Joint Audit In joint audits, two (or more) audit firms are appointed to share responsibility for a single audit engagement and to produce a single audit report. Joint audits typically involve joint planning, fieldwork allocated between the firms, and a cross-review by each firm of the other’s work. The firms jointly report to the audit committee and are both party to the audit report 12.3 AUDIT OF SHARES AND DEBENTURES, Audit of Shares The audit procedure in case of audit of shares issued for cash can be studied in three stages, as below: 1. Application Stage: At application stage, application money is received along with application. The auditor should proceed to audit in the following manner: 1. The auditor should examine the original application sent by the investors and vouch the entries made in the Application and Allotment Book with these applications. 2. He should also compare entries in the Application and Allotment Book with those in the Cash Book. 3.. He should ensure that the application moneys received were deposited into a Scheduled Bank until the certificate of commencement of business is obtained /are returned as per the provisions of Section 69(5). 4. He should see whether the amount received on application is not less than five percent of the nominal value of shares issued. 5. He should vouch the amounts refunded to applicants to whom shares are not allotted with copies of letters of regret sent to them. 6. If the prospectus specifies that application shall be made for quoting shares on a Stock Exchange, he should see whether the permission to deal has been granted by the Stock Exchange. In case the permission has been refused, he should see that the application money has been returned to the applicants as per the provisions of the Companies Act. 261 CU IDOL SELF LEARNING MATERIAL (SLM)

7. He should check the totals in the Application and Allotment Book and see whether appropriate journal entry is duly passed by debiting Share Application Account and crediting Share Capital Account. 2. Allotment Stage: In order to verity the share allotment, the auditor should follow the audit procedure: 1. The auditor should examine the Director’s Minute Book and verify whether they approved the allotment. 2. He should vouch the entries made in the Application and Allotment Book with copies of letters of allotment and letters of regret. 3. He should check the money received on allotment by comparing the entries in the Application and Allotment Book with the Cash Book /Bank Statement. 4. He should check the postings made as to the amount received on application and allotment in the Share Register. 5. He should ensure that the total of shares issued does not exceed the total authorized capital specified in the Memorandum. 6. He should see that the amount has been correctly totaled and that the relevant journal entry is passed. 3. Call Stage: The audit procedure at call stage is as follows: 1. The auditor should examine the Director’s Minute Book and see whether Board approved the making of calls. 2. He should check the entries in the Calls Book with the help of copies of call letters. 3. He should compare the total amount due on calls with the entries made in the Cash Book or Bank statement, which will give the figures of calls in arrears. 4. He should also verify the calls received in advance. 5. He should see that the relevant journal entry is passed. 6. He should check the postings made from the Calls Book and the Cash Book into the Share Register. Audit of Debentures 1. First, the auditor should ensure that the company has complied with SEBI guidelines. 2. Debenture Trust Deed should be examined by the auditor to make sure that the company adheres to the conditions prescribed by the Trust Deed. 3. The auditor should also verify whether the prospectus was filed before the due date. 262 CU IDOL SELF LEARNING MATERIAL (SLM)

4. He should verify the names, and addresses of the allottees and whether the allotment is authorized by the directors. 5. He should compare the Debenture Register with the ledger and ensure that the amount collected is duly accounted for. 6. It is known that debentures can be issued for cash, for consideration other than cash or as collateral security. In case debentures are issued as collateral security, the auditor has to examine the mortgage deed and ensure that the charge is recorded and also that it is registered with the Registrar of Companies. He should also verify whether the charge is clearly disclosed in the balance sheet. 7. If debentures are issued at a premium, the auditor should ensure that the premium account is treated as capital profit and accounted separately. 8. In the same way, if the debentures are issued at a discount, the auditor should ensure that the discount account is written off over the life time of the debenture or within a reasonable time. 9. If the debentures are to be redeemed at a premium, the balance sheet may show premium on redemption of debenture at the liability side of the balance sheet until the debentures are redeemed or the company may disclose the fact that the debentures are to be redeemed at premium by way of a note in the balance sheet. 12.4 AUDIT OF DIVISIBLE PROFITS AND DIVIDENDS. The profits available for the distribution among the shareholders of a company as dividend are called divisible profits. The profits are calculated by comparing the income and expense of one year. The necessary adjustments are made before calculating the profit of a business concern. The accounting principles are followed. The directors have the right to create provisions, reserves and funds out of business profits under the articles of association and the Companies Ordinance 1984. The remaining profit may not be used in full for dividend. A part of such profit can be used to pay dividend to the shareholders. Keeping in view business conditions, the directors can propose the rate of dividend. The shareholders can approve such rate of dividend in annual general meeting. The rate of dividend proposed by the directors cannot be increased by the shareholders at all. The proposed dividend is paid within 45 days after the declaration of it. Dividend must be paid out of the revenue profits. The correct calculation is essential for all who depends upon business. The overstatements can disturb one section of investors while understatement can upset another group. It is clear that divisible profits are profits available for shareholders in the shape of dividend. Principles of Divisible Profit: - 263 CU IDOL SELF LEARNING MATERIAL (SLM)

Following are the important principles of divisible profits: 1. Accordingthe Company Rules:- The articles of association are the rules of the company. The directors are entitled to distribute the profits under rules. They also follow the company law. The dividend can be paid out of revenue profit. 2. Follow the Court Cases:- While calculating the divisible profits, the court cases must be kept in mind. The auditors must know the decisions of the courts announced time to time. 3. Profit Not Out ofCapital:- The capital cannot be used to pay dividend. The revenue profits can be used for the payment of dividend. 4. Approval of Shareholders:- In the annual general meeting shareholders may approve the rate of profit recommended by the directors. So divisible profits can be used to pay as dividend after approval. 5. Right of Proposal:- The directors can purpose the rate of dividend out of divisible profits. After completing the legal formalities, the directors can decide the dividend. 6. Undistributed Profit: - It is the right of the directors to use such profit for the payment of dividend at the end of a year. It is revenue of the provision year. 7. Depreciation:- Before declaring revenue profits the depreciation on fixed assets must be charged. In manufacturing company, it is compulsory to charge depreciation before the declaration of profits. 8. Secrete Reserves:- If according the articles association it is allowed to create and use the reserves then these can be used for the payment of dividends. 9. Capital Profits:- Under certain conditions the capital profit can be used to pay dividend but articles association should allow the distribution of capital profit as dividend. 10. Capital Loss: - In spite of capital loss the dividend can be paid out of revenue profits. The capital profit must be used to eliminate capital loss first and then surplus can be used to pay dividends. 264 CU IDOL SELF LEARNING MATERIAL (SLM)

11. Loss of Provision Year: - If a company suffers a loss in one year but earns profit next year. Such loss can be adjusted by the company from benefit of the current year. 12. Revaluation of Assets: - After the revaluation of asset, if it becomes surplus then it can be used after realization. Profit may be paid after selling the assets. 13. Revenue Profits: - According the principle of divisible profit dividend must be paid out of revenue profit. But it is essential that calculation should be correct. 14. Asset Goodwill Written Down & Up:- If a company has written down good will out of profits, it may also write up this asset, with the appreciation. But the value written up should not excess than the true value. 12.5 SUMMARY General Standards 1. The examination is to be performed by a person or persons having adequate technical training and proficiency as an auditor. 2. In all matters relating to the assignment independence in mental attitude is to be maintained by the auditor or auditors. 3. Due professional care is to be exercised in the performance of the examination and the preparation of the report. Standards of Field Work 1. The work is to be adequately planned and assistants, if any, are to be properly supervised. 2. There is to be a proper study and evaluation of the existing internal control as a basis for reliance thereon and for the determination of the resultant extent of the tests to which auditing procedures are to be restricted. 3. Sufficient competent evidential matter is to be obtained through inspection, observation, inquiries and confirmations to afford a reasonable basis for an opinion regarding the financial statements under examination. Standards of Reporting 1. The report shall state whether the financial statements are presented in accordance with generally accepted principles of accounting. 2. The report shall state whether such principles have been consistently observed in the current period in relation to the preceding period. 265 CU IDOL SELF LEARNING MATERIAL (SLM)

3. Informative disclosures in the financial statements are to be regarded as reasonably adequate unless otherwise stated in the report. 4. The report shall either contain an expression of opinion regarding the financial statements, taken as a whole, or an assertion to the effect that an opinion cannot be expressed. When an over-all opinion cannot be expressed, the reasons therefor should be stated. In all cases where an auditor’s name is associated with financial statements the report should contain a clear-cut indication of the character of the auditor’s examination, if any, and the degree of responsibility he is taking. 12.6 KEYWORDS  Branch Audit -Branch Audit is an official inspection of an Organization, Entity, or Company Branch. Branch Audit helps organizations to keep clear records and maintain proper books. As per the Act passed in 2013, every company has to maintain the books of accounts and other relevant documents of its Branch.  Joint Audit - A joint audit is an audit on a legal entity by two or more auditors to produce a single audit report, thereby sharing responsibility for the audit. A typical joint audit has audit planning performed jointly and fieldwork allocated to the auditors. The auditors are typically not individuals, but auditing firms.  Stock Audit -Stock audit or inventory audit is a term that refers to physical verification of a company or institution's inventory assets. Every business organization needs to perform an audit once a year to update and ensure that the physical stock and the computed stock match  Debentures Audit -In case debentures are issued as collateral security, the auditor has to examine the mortgage deed and ensure that the charge is recorded and also that it is registered with the Registrar of Companies. He should also verify whether the charge is clearly disclosed in the balance sheet.  Divisible Profit - Divisible profits mean those profits which can legally be distributed to the shareholders of a company in the form of dividends. It also does not say that only “true profits” can be divided. 12.7 LEARNING ACTIVITY 1. What is difference between Branch Audit and Joint Audit? ___________________________________________________________________________ _____________________________________________________________________ 2. What is the difference between Audit of Shares and Audit of Debentures? ___________________________________________________________________________ _____________________________________________________________________ 266 CU IDOL SELF LEARNING MATERIAL (SLM)

12.8 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What is the CPA's responsibility as to events occurring between the date of the financial statements and the date of his report? 2. Why are prepaid expenses included in current assets and cash surrender value of life insurance policies excluded? 3. Is the CPA free to discuss his client’s affairs with bankers? 4. What is an ‘Audit Engagement Letter’? What are the points to be covered in every audit engagement letter? 5. The Companies Act, 2013 has introduced provision regarding rotation of auditors. Is the provision of rotation of auditors applicable to cost auditors also? Long Questions 1. Write Long Notes on Disclosure requirements under AS-11 2. Write Long notes on Issue of Sweat Equity Shares 3. Write a detailed explanation on Re-insurance 4. Write long notes on Money received against Share Warrants 5. Under what circumstances should an auditor express an adverse opinion or disclaimer of opinion? B. Multiple Choice Questions 1. The title of AAS-2 issued by Council of ICAI is ___ a. Objective and Scope of the Financial Statements b. Objective and Scope of the Audit of Financial Statements c. Objective and Scope of Business of an Entity d. Objective and Scope of Financial Statements Audit 2. Which of the following is not a limitation of audit as per AAS-4? a. Objectivity of auditor’s judgment b. Selective testing c. Persuasiveness of evidence d. Limitations of internal control system 3. As per AAS-4 if auditor detects an error, then – 267 CU IDOL SELF LEARNING MATERIAL (SLM)

a. He should inform the management. b. He should communicate it to the management if it is material c. The auditor should ensure financial statements are adjusted for detected errors. d. Both (b) and (c) 4. Which of the following is not a limitation of audit as per AAS-4? a. Objectivity of auditor’s judgment b. Selective testing c. Persuasiveness of evidence d. Limitations of internal control system 5. How many principles are listed in AAS1 which govern auditor’s professional obligation? a. Nine b. Fourteen c. Seven d. Eight Answers 1-b, 2-a, 3-d, 4-a, 5-a 12.9 REFERENCES Reference books  M.C. Shukla, T.S. Grewal : & S.C. Gupta Advanced Accounts Vol. II; S. Chand & Company Ltd., 7361, Ram Nagar, New Delhi-110 055.  R.L. Gupta & :M. Radhaswamy Company Accounts; Sultan Chand & Sons,23, Daryaganj, New Delhi- 110 002.  S.P. Jain & K. L. Narang: Advanced Accountancy-Vol.II; Kalyani Publishers, 23, Daryaganj, New Delhi - 110 002.  S. N. Maheshwari &S.K. Maheshwari Advance Accounting Vol. II; Vikas Publishing House (Pvt.) Ltd., A-22, Sector 4, Noida – 201 301.  Ashok Sehgal & : Deepak Sehgal Textbook 268 CU IDOL SELF LEARNING MATERIAL (SLM)

 Advanced Accounting Vol. 2; Taxmann’s,59/32, New Rohtak Road, New Delhi- 110 005.  J. R. Monga : Fundamentals of Corporate Accounting; Mayoor Paperbacks, A-95, Sector 5, Noida-201 301.  Goel, Maheshwari Gupta : Corporate Accounting, International Publishers, Daryaganj New Delhi  Kamal Gupta, Ashok Arora : Fundamentals of Auditing: Tata McGraw Hill Education Limited  Kamal Gupta : Contemporary Auditing: Tata McGraw Hill Education Limited  International Financial Reporting Standards (IFRS) Taxmann Publication (P) Limited, 59/32, New Rohtak Road, New Delhi- 110 005  Dolphy D’Souza : Indian Accounting Standards & GAAPP; Snow White Publications Pvt. Ltd., Her Mahal, 532, Kalbadevi Road, Mumbai – 400 002.  N S Zad : Company Accounts and Auditing Practices : Taxmann Publications (P) Ltd., 59/32, Rohtak Road, New Delhi - 110005 Website  https://icmai.in/upload/Students/Syllabus2016/Inter/Paper-12_070219.pdf  https://www.mca.gov.in/MinistryV2/accounts+and+audit.html 269 CU IDOL SELF LEARNING MATERIAL (SLM)