IGNOU| ELEMENTS OF AUDITING (ECO - 12)| SOLVED PAPER – (DEC - 2022)| (BDP)| ENGLISH MEDIUM
BACHELOR'S DEGREE PROGRAMME
(BDP)
Term-End Examination
December - 2022
ECO-12
ELEMENTS OF AUDITING
Time: 2 Hours
Maximum Marks: 50
Note: Attempt any five questions. All questions carry
equal marks.
हिंदी माध्यम: यहां क्लिक करें
1. Define Auditing. Explain its objectives and importance. 2, 4, 4
Ans:- Auditing is the process of examining and
verifying the accuracy of financial reports. It may also refer to on-site
verification of a process or quality system to ensure compliance.
Auditing can
be done by:-
(i)
Business Management: As an internal control process
(ii)
Government: If they notice suspicious financial activity
(iii)
External third parties: usually for financial statement audit
The main
objective of auditing is to express an opinion on financial statements. The
auditor verifies the financial statements and books of accounts to certify the
truth and fairness of the financial position and operating results of the
business.
Some other
objectives of auditing include:-
(i) To examine
the internal investigation system
(ii) To check
the arithmetical accuracy of books of accounts
(iii)
Confirming the authenticity and validity of the transaction
(iv) To check
the appropriate difference between capital and revenue nature of transactions
(v) Detection
of fraud and errors
(vi)
Preventing fraud and errors
(vii)
Confirming the existence and value of assets and liabilities
(viii) To
verify whether all statutory requirements are met or not
Auditing also
ensures checking of compliance with relevant regulations and standards.
Auditing is a
tool that can help ensure the integrity of financial statements and compliance
with regulatory guidelines. Auditing can also help prevent fraud, detect
errors, and maintain accurate records.
Auditing can
be important for many reasons, including:-
(i) Ensuring
accuracy: Auditing can help ensure that a company's financial statements
are accurate and comply with regulatory guidelines.
(ii) Fraud
detection: Auditing can help prevent and detect fraudulent reporting and
errors.
(iii)
Maintaining records: Auditing can help businesses maintain accurate records
and verify the accuracy of accounts.
(iv) Ensuring
compliance: Auditing can help ensure that accounts comply with generally
accepted accounting principles (GAAP).
(v) Providing
credibility: Auditing can provide credibility to the audited.
2. "An auditor is watch-dog and not a blood-
hound." Explain this statement. 10
Ans:- The statement “An auditor is a watchdog, not a
bloodhound” means that an auditor's role is to ensure that an organization's
financial statements are accurate and complete. Auditors should act like
watchdogs by keeping an eye on the company's financial records and making sure
everything is in order. They should not behave like bloodhounds by aggressively
searching for errors or wrongdoings.
The statement
“The auditor staff is like a watchdog, not like a bloodhound” means that
auditors should work like watchdogs by keeping an eye on the company's
financial records and making sure that everything is in order. They should not
behave like bloodhounds by aggressively searching for errors or wrongdoings.
An auditor is a
watchdog, not a bloodhound, which means that just as a dog always thinks about
the owner, an auditor always thinks about the owner of the company. It is the
responsibility of finding the true and fair value of the business and gives all
the details (errors and frauds) of all the business.
(i) The notion
of auditor's duty with respect to detection and prevention of frauds and errors
was initially based on the decision given in Kingston Cotton Mills Company
(1896) case.
(ii) The judge
summarized the auditor's duty by saying, "The auditor is a watchdog, not a
bloodhound."
(iii) It was
noted that auditors were to be appointed by the shareholders, and were to
report directly to them, and not to or through the directors.
(iv) The
objective was to ensure that shareholders "obtain independent and reliable
information about the true financial position of the company at the time of
audit."
(v) The duty of
the auditor is to be honest i.e., he should not certify what he does not
believe to be true, and he should exercise reasonable care and skill before
believing that what he certifies is true.
(vi) What
constitutes reasonable care in a particular case must depend on the
circumstances of that case.
(vii) Where
there is nothing to give rise to suspicion, a very short inquiry will suffice.
(viii) where
doubt arises greater care is clearly necessary; But nevertheless an auditor is
not obliged to exercise more than reasonable care and skill even in case of
doubt, and where special knowledge is required it is entirely appropriate to
act on the opinion of an expert.
(ix) An auditor
is not bound to be a detective, or, as was said, to view his work with
suspicion or with a foregone conclusion that there is something wrong.
(x) He is a
watchdog, but not a bloodhound. It is advisable to rely on proven servants of
the company whom the company trusts.
(xi) He has a
right to believe that they are honest, and to rely on their representation,
provided he takes reasonable care.
Auditors are
responsible for:-
(i) To find out
the true and fair value of the business
(ii) Giving full
details of all business (errors and frauds)
(iii) Verifying
and not detecting
(iv) To
investigate the matter thoroughly and if anything suspicious is found, to
inform the shareholders about the same.
Auditors are seen
as impartial critics and observers of a business. Their work may be limited by
client influence such as gifts or threats.
3. What is continuous audit? Discuss its advantages and
disadvantages. 3,7
[COMING SOON]
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