Q 1) Auditing can be understood as an examination of accounting records

undertaken with a view to establishing whether they correctly and completely

reflect the transactions to which they purport to relate.
Main objective
1. CONFIRMATION OF THE ACCURACY OF ACCOUNTS AND STATEMENTS.(True
and Fair View)
Incidental and secondary
1.
DETECTION OF FRAUDS AND ERRORS
2.
PREVENTION OF FRAUDS AND ERRORS.
3.
SPECIFIC OPINIONS ON SPECIFIC FIRMS
OBJECTIVES.

ADVANTAGES OF AUDITING
Ensures the correctness of accounts
Proper compliance of the law for maintaining books and accounts
Detection of errors and frauds .
Helpful to inspire the confidence to enter into business dealings.
It gives correct conclusions for the management decisions.
Loans and credit facilities can be easily obtained from the audited accounts.
Purchase consideration of the liquidated company can be easily calculated
based on audited accounts.
Assures the share holders and stake holders about the proper conduction of
business and keeping of books of accounts
Facilitates the needful in case of valuing the amount of loss for the damaged
business property.
Employees will be kept under checking and control.
LIMITATIONS OF AUDITING
Working Under the framework given
Communication and mental abilities to evaluate the evidence
More pressure from internal and external sources.
Knowledge of Standard Auditing Practices (SAP) and updates of the standards
issued by Auditing and Assurance Standard Board (AASB)
Q2) Internal check
The term internal check means a system under which the work connected
with carrying out and recording of transactions is allocated among the
various members of the staff so that errors and frauds are either prevented
altogether or if committed are rendered capable of early detection by
automatic operation of the system, unless all the clerks join hands in
defrauding.

PRINCIPLE OF INTERNAL CHECK

An efficient system of internal check should provide for an automatic
checking of the work of an assistant by other.
The division of work should not be much expensive.

Self balancing system should be invariably used.

The financial and administrative power should be assigned very judiciously to
different officer.
Person having physical custody of asset must not be permitted to have an
access to the books of account .
The work should be allocated among the staff of the business according to
the duties, responsibility and rights in such a way that there is no room for
interference.
No single person should have an independent control over all important
aspects of the business.
The duties among the staff of the business should be changed from time to
time so that no staff should be engaged in a particular job for a long time.
Every member of the staff should be encouraged to go on leave at least once
in a year. This will help in detecting the concealed fraud.
Q3) EDP
Computerization of Accounting
Faster processing
More data
Manual handling was impossible
Quick and Easy analysis
Problems in EDP environment
Absence of supporting vouchers: In computerized environment of high
degree, transactions are directly fed into computer without having
conventional documents like order form or sales invoice. So price
calculations, discount and other arithmetic manipulations are easily possible.
Lack of audit trail : In the computerized accounting and processing it is
possible that there may not exist the proper working sequence that is
available in a manual accounting system. For example, in a manual
accounting the purchase vouchers are first entered in the purchase book then
the entries are posted to the ledger. Later the sum is transferred to P&L
account
From ledger accounts the trail balance is made. Trial balance makes the base
for the preparation of the profit and loss account and the balance sheet. In an
EDP accounting, the data may be available in the final stage only after
being entered in to the system. An auditor may get only the end figure to
verify, without getting the intermediary records. This makes his job of
verification difficult. Manipulations might have been done in the records
that may be difficult to detect.
Chances of manipulations : the records kept on computer are more
vulnerable to manipulations. Best were the days when the accounting was
done in the bounded books. Any changes in such records were noticeable

immediately. Neither the figures could be changed, nor any pages of such
records could be removed.
Now in an EDP accounting figures as well as pages could be changed
with the stroke of a finger. Moreover such after changes are not visible at all.
Therefore the auditor should be very careful while checking the computerized
accounts. It should be kept in mind that it might contain manipulations.

Garbage in Garbage out - a wrong entry would result in wrong out put
Storage Problem Risk of loosing storage devises, manipulations and virus
threats.
Coding Problems Designing and operation of coded accounting versions
require care and experience
Computer Frauds unauthorized use of computer systems, manipulation of
framework, theft of confidential output, editing final output.
Leakage of confidential information : It is very easy to copy delete or
steal the records maintained on a computer. Any person who has an access
to the computer can copy any important file or record within a fraction of a
minute. The records kept on a computer should be properly guarded also.
Computer virus and other failures- Records maintained on computer are
prone to much distortion. The most important of such problems is the virus
that can damage the whole data within no time. Computer and software
breakdowns can damage the hard disc of the computer and as such the data
may be lost permanently.

Q1) Audit note book

An audit note books is usually a bound book in which a large variety of
matters observed during the course of audit are recorded.
The audit note book should be in two parts:
1.
for keeping a record of general information as regards the
audit as a whole
2.
for recording special points which have
been observed
during the course of audit
of the accounts of different years.
2) Review of internal control by the auditor
A review of the internal control can be done by a process of study,
examination and evaluation of the control system installed by the
management.
To facilitate the accumulation of the information necessary for the
proper review and evaluation of internal controls, the auditor can use,
1. Narrative record: The narrative record is a complete and exhaustive
description of the system as found in operation by the auditor.
2.
Check List: It is a series of instruction and/or questions which the
auditing staff must follow and/or answer.

Questionnaire: It is a comprehensive series of questions concerning internal

control.
4.
Flow chart: It is a graphic presentation of each part of the companys
system of internal control. It is the most concise way of recording auditors
review of the system.
Q3) Format of audit report
1. Title: An appropriate title such as Auditors report, helps the reader to
identify the report and to distinguish it from reports issued by others.
2. Addressee: The report should be appropriately addressed.
3. Identification of financial statements: The financial statements can be
identified by including the name of the entity and the date and period
covered by the financial statements
4. Reference to Auditing standards or practices: such a reference assures
the reader that the audit has been carried out in accordance with established
standards or practices.
5. Opinion on the financial statements: The report should clearly set forth
the auditors opinion on the entitys financial postion and operational results,
including reference to AS.
6. Signature: The report should be signed in the name of the audit firm or the
auditor or both as appropriate.
7. Auditors address: The report should name a specific location, which is
usually the city in which the auditor maintains his office.
8. Date of the report: The report should be dated.
Q4) CARO, 2003
1. This order may be called the Companies (Auditors Report) Order, 2003.
2. It shall apply to every company including a foreign company as defined in
section 591 of the Act, except the following :
(i) a Banking company as defined in clause (c) of section 5 of the Banking
Regulation Act, 1949 (10 of 1949);
(ii) an insurance company as defined in clause (21) of section 2 of the Act;
(iii) a company licensed to operate under section 25 of the Act; and
(iv) a private limited company with a paid-up capital and reserves not more
than fifty lakh rupees and does not have loan outstanding exceeding Rupees
Twenty Five lakhs from any bank or financial institution and does not have a
turnover exceeding five crores rupees at any point of time during the
financial year
3. It shall come into force on the 1st day of July, 2003.

Q5) Types of Opinion

An opinion may be unqualified, qualified or adverse. In appropriate
cases, an auditor may also disclaim the opinion(state that he is unable to
express an opinion). In some cases, an opinion may be limited only to certain
aspects.
Unqualified Opinion:
Where an auditor gives an opinion on the various matters without any
reservations, it is an unqualified opinion.
Qualified Opinion:
Where an auditor gives an opinion subject to certain reservations, he is
said to have given an qualified opinion.
Adverse or Negative Opinion:
Where the auditor concludes that, based on his examination he does
not agree with the affirmations to be made, he gives an adverse opinion.
Disclaimer Opinion:
Where an auditor fails to obtain sufficient information to warrant an
expression of opinion, he makes a disclaimer of opinion.
Piecemeal Opinion:
Such an opinion may be given in case the auditor concludes that he is
unable to give an opinion on the statements taken as a whole but he believes
that he can express his opinion limited to certain items in the statements,
with which he is satisfied.
6) Computer Assisted Auditing Techniques(CAAT)
The overall objectives and scope of an audit do not change when
an audit is conducted in a computer information systems (CIS) environment.
The application of auditing procedures may, however, require the
auditor to consider techniques known as Computer Assisted Audit
Techniques (CAATs) that use the computer as an audit tool for enhancing the
effectiveness and efficiency of audit procedures.
CAATs are computer programs and data that the auditor uses as
part of the audit procedures to process data of audit significance, contained
in an entitys information systems.