12.)What are the objectives of preparing an Audit Programme
Ans.The objectives of preparing an audit program are:
Planning and Organization: An audit program helps in planning the audit engagement by outlining the scope, objectives, and timing of audit procedures. It helps in organizing audit tasks and resources efficiently.
Risk Assessment: It allows auditors to identify and assess the risks associated with the audit, including financial, operational, and compliance risks. This helps in determining the extent and nature of audit procedures required.
Compliance with Standards: Ensuring that the audit is conducted in accordance with auditing standards and regulations is a fundamental objective of an audit program.
Documentation: It provides a structured framework for documenting audit evidence, findings, and conclusions, which is essential for accountability and transparency.
Efficiency: An audit program helps in optimizing the use of audit resources by setting priorities and avoiding duplication of efforts.
Communication: It serves as a communication tool between the audit team and stakeholders, such as management and the audit committee, to convey the audit plan and obtain their input.
Control and Accountability: By detailing the audit procedures, responsibilities, and timelines, an audit program enhances control and accountability within the audit process
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Quality Assurance: It contributes to the quality of the audit by ensuring that audit procedures are comprehensive and aligned with the audit objectives.
Review and Supervision: Facilitating review and supervision of audit work is another key objective of an audit program, helping senior auditors or managers oversee the audit team's activities.
Continuous Improvement: An audit program can be a valuable tool for post-audit evaluations and continuous improvement of the audit process.
In summary, the primary goal of preparing an audit program is to ensure that the audit is well-planned, systematic, and conducted in a manner that adheres to standards while efficiently addressing identified risks and objectives.
13) What is Promissory Note?
Discuss it's features
promissory note is a written agreement in which one party promises to pay another party a specific amount of money at a specified time. Promissory notes are often used to document loans, but they can also be used to document other types of debts, such as credit card debt or student loan debt.
Features of Promissory Notes
Unconditional promise to pay: A promissory note must contain an unconditional promise to pay. This means that the maker of the note cannot make any conditions or excuses for not paying.
Specific amount: A promissory note must specify the amount of money that is to be paid.
Specific date: A promissory note must specify the date on which the payment is due.
Signatures of both parties: Both the maker and the payee of the promissory note must sign it.
In addition to these essential features, promissory notes may also include other information, such as:
Interest rate: If interest is to be charged on the loan, the interest rate must be specified in the promissory note.
Payment schedule: If the loan is to be repaid in installments, the promissory note should specify the payment schedule.
Collateral: If the loan is secured by collateral, the promissory note should identify the collateral.
Types of Promissory Notes
There are two main types of promissory notes:
Demand promissory notes: A demand promissory note is payable on demand. This means that the payee can request payment at any time.
14)What are the consequences of not registering a partnership?
Ans.There are several consequences of not registering a partnership, including:
Legal disabilities
An unregistered partnership cannot file a lawsuit against a third party in a court of law.
An unregistered partnership cannot claim set-off for any sum exceeding Rs. 100.
An unregistered partnership cannot file a legal suit against any of its partners.
Partners of an unregistered firm cannot file any suit to enforce a right against the firm.
A partner of an unregistered firm cannot file a suit against other partners.
Other disadvantages
Unregistered partnerships have difficulty obtaining bank loans and other forms of credit.
Unregistered partnerships may have difficulty entering into contracts with third parties.
Unregistered partnerships may have difficulty attracting and retaining customers.
Unregistered partnerships may have difficulty expanding their business.
However, it is important to note that non-registration of a partnership does not affect the following rights:
The right of a partner to sue for the dissolution of the firm or for the accounts of a dissolved firm or to enforce any right or power to realise the property of a dissolved firm.
The power of an Official Assignee or Receiver to realise the property of an insolvent partner.
The rights of the firm, or its partners, having no place of business.
Overall, it is in the best interests of a partnership to register with the Registrar of Firms. This provides the firm and its partners with a number of legal and practical benefits.
15)Difference between Cheque and Promissory Note
Ans.A cheque and a promissory note are both negotiable instruments, but there are some key differences between the two.
Cheque
A cheque is a written order to a bank to pay a specified sum of money from the drawer's account to the payee.
Cheques are payable on demand, which means that the bank must pay the cheque immediately if it is presented for payment.
Cheques are typically used for making payments to individuals or businesses.
Cheques must be drawn on a specific bank and must be signed by the drawer.
Promissory Note
A promissory note is a written promise to pay a specified sum of money to a specified person on a specified date.
Promissory notes can be payable on demand or on a specific date.
Promissory notes are typically used for loans and other credit transactions.
Promissory notes must be signed by the maker (the person who promises to pay).
Here is a table that summarizes the key differences between cheques and promissory notes:
In general, cheques are more commonly used for day-to-day financial transactions, while promissory notes are more commonly used for loans and other credit transactions
16)On what grounds are cheques rejected?
Ans)Cheques can be rejected for various reasons, including:
Insufficient funds: When the issuer's bank account doesn't have enough money to cover the cheque amount.
Missing or incorrect information: If the check is not properly filled out with accurate information, such as the payee's name or the date.
Stale-dated: Cheque are typically only valid for a certain period, and if presented after that date, they may be rejected.
Post-dated: A cheque with a future date may be rejected until the specified date arrives.
Stop payment: If the issuer instructs their bank to stop payment on a check, it won't be honored.
Endorsement issues: If the payee's endorsement is missing or doesn't match the name on the cheque, it can be rejected.
Altered checks: Cheque that appear to have been tampered with or altered in any way may be rejected.
Account closed: If the issuer's bank account has been closed, the check won't be valid.
Legal reasons: Cheques can also be rejected due to legal issues, such as disputes or court orders.
Bank policy: Some banks may have specific policies that can lead to check rejection.
It's important to ensure that your cheques are properly filled out and that you have sufficient funds in your account to cover them to avoid rejection.
17)What are the precautions to be taken while test checking in audit program?
17)What are the precautions to be taken while test checking in audit program?
Ans.When test checking in an audit program, there are several precautions that should be taken to ensure the accuracy and reliability of the audit process. Some of these precautions include:
Random Selection: Ensure that the items selected for testing are chosen randomly and not based on any bias. This helps in obtaining a representative sample.
Document Your Methodology: Clearly document the methodology used for test checking, including the criteria for selection and the reasons behind the choices made.
Sample Size: Determine an appropriate sample size that is statistically significant to draw conclusions. The size of the sample should be based on the risk and materiality factors.
Independence: Ensure that the individuals conducting the test checking are independent from the areas being tested to avoid conflicts of interest.
Consistency: Apply consistent audit procedures and methodologies throughout the testing process to maintain reliability.
Documentation: Properly document all work performed, including the results of the test checking, any exceptions or discrepancies found, and the procedures followed.
Professional Skepticism: Maintain a skeptical attitude throughout the process, and be alert to potential signs of fraud or irregularities.
Materiality: Consider the materiality of the items being tested and focus on areas where misstatements are more likely to have a significant impact on the financial statements.
Reperformance: Where appropriate, perform rechecks or retests to validate the accuracy of the initial test results.
Supervision and Review: Ensure that the work is supervised and reviewed by experienced auditors to minimize errors and biases.
Audit Program Compliance: Confirm that the test checking procedures align with the overall audit program and objectives.
Sampling Method: Choose an appropriate sampling method (e.g., random sampling, systematic sampling, judgmental sampling) based on the audit objectives and the population being tested.
Testing for Controls: In addition to substantive testing, consider testing internal controls to identify areas of weakness or potential fraud.
Timeliness: Complete test checking in a timely manner to allow for the integration of findings into the audit report.
Communication: Maintain open communication with the auditee to ensure access to necessary records and cooperation during the testing process.
Professional Development: Keep auditors updated with the latest auditing standards and techniques through training and professional development.
Ethical Considerations: Adhere to professional ethical standards and avoid conflicts of interest when conducting test checking.
These precautions are crucial to ensure the effectiveness and integrity of the audit process and to provide reliable and meaningful results for financial reporting and decision-making.
18.What are the social objectives of cost audit?
Ans.The social objectives of cost audit typically include:
Consumer Protection: Cost audits help ensure that companies do not engage in unfair pricing practices, which can protect consumers from overpriced or substandard products.
Fair Employment Practices: By scrutinizing labor costs, cost audits can help identify and rectify any unfair employment practices, such as underpayment of workers.
Job Security: Cost audits can indirectly contribute to job security by helping companies operate efficiently and sustainably, reducing the likelihood of layoffs or job losses.
Economic Stability: By promoting transparency and efficiency in business operations, cost audits can contribute to overall economic stability.
Reducing Income Inequality: Cost audits can help identify and address income disparities within a company, potentially leading to fairer wage distribution.
Compliance with Regulations: Ensuring compliance with government regulations and corporate social responsibility standards is another social objective of cost audit.
These objectives are aimed at promoting social welfare, fairness, and transparency in business practices.
19.Distinguish between financial audit and cost audit
Ans.Financial audit and cost audit are two distinct types of audits performed by professionals to evaluate different aspects of a company's financial and accounting information. Here's how they differ:
Purpose:
Financial Audit: A financial audit is conducted to examine a company's financial statements and ensure they provide a true and fair view of its financial position and performance. It focuses on verifying the accuracy and reliability of financial information for the benefit of shareholders, investors, and regulatory authorities.
Cost Audit: Cost audit, on the other hand, is specifically aimed at verifying the accuracy of cost accounting records and assessing the efficiency and economy of a company's operations. It helps in ensuring that cost information is accurate and is used for various purposes such as pricing decisions, cost control, and compliance with legal requirements.
Scope:
Financial Audit: The scope of a financial audit is broader and includes a review of the entire financial reporting system, including balance sheets, income statements, cash flow statements, and related disclosures.
Cost Audit: Cost audit focuses primarily on evaluating the cost structure of a company, including the methods used for costing, allocation of costs to products or services, and compliance with cost accounting standards.
Regulatory Requirement:
Financial Audit: In many countries, financial audits are legally required for publicly traded companies to ensure transparency and accountability. They are also commonly performed for private companies, especially if they have external stakeholders or creditors.
Cost Audit: The requirement for cost audits varies from country to country and is often mandatory for certain industries or companies that meet specific criteria. Not all companies are obligated to conduct cost audits.
Auditor's Focus:
Financial Audit: Financial auditors mainly concentrate on financial statements, internal controls, and compliance with accounting standards, laws, and regulations.
Cost Audit: Cost auditors focus on the cost accounting system, cost allocation methods, and the efficiency and effectiveness of cost management within the organization.
Reporting:
Financial Audit: The result of a financial audit is typically presented in the form of an audit report that provides an opinion on the fairness of the financial statements.
Cost Audit: A cost audit report is generated to highlight findings related to cost structures, adherence to cost accounting standards, and cost-efficiency.
In summary, financial audits primarily deal with the accuracy of financial statements, while cost audits are concerned with the accuracy of cost accounting records and the efficiency of cost management within a company. Both types of audits serve distinct purposes and may be conducted separately or in conjunction, depending on the specific needs and regulatory requirements of the organization.
