Auditing:

Unit 1: Introduction to Auditing

1. What is Auditing?
o Auditing is the systematic examination of financial records, statements, and
procedures of an organization to ensure accuracy and compliance with
regulations.
2. State two objectives of Auditing.
o Primary Objective: To determine whether financial statements show a true
and fair view.
o Secondary Objective: To detect errors and fraud.
3. What are the basic principles of Auditing?
o Integrity, objectivity, confidentiality, professional competence, and due care.
4. What are the advantages of Auditing?
o Helps in error detection, improves financial control, and builds investor
confidence.
5. Mention two limitations of Auditing.
o Time Constraint: Limited time may not allow full checking.
o Dependence on Estimates: Some financial figures are based on estimates and
judgments.
6. What is Internal Audit?
o Internal audit is an independent review conducted within an organization to
assess internal controls and risk management.
7. What is Vouching?
o Vouching is the process of examining documentary evidence to verify
transactions recorded in the books of accounts.
8. What is Internal Control?
o It refers to policies and procedures implemented to ensure reliability of
financial reporting, compliance with laws, and safeguarding assets.
9. What is Internal Check?
o Internal check is a system in which work is allocated in a way that one
employee’s work is checked by another, reducing fraud and errors.
10. What is the difference between Verification and Vouching?

• Vouching checks the authenticity of transactions, while Verification confirms the

existence, ownership, and valuation of assets and liabilities.

Unit 2: Audit of Companies

1. Who can be appointed as a company auditor?

o A Chartered Accountant (CA) or a firm of CAs can be appointed as a
company auditor.
2. Mention two disqualifications of a Company Auditor.
o If the person is a company employee or holds shares in the company.
3. Who appoints the First Auditor of a company?
 o The Board of Directors appoints the first auditor within 30 days of
incorporation.
4. How is the removal of a Company Auditor done?
o An auditor can be removed before their term ends only with prior approval of
the Central Government and passing a special resolution in a general meeting.
5. State any two rights of a Company Auditor.
o Right to Access Books of Accounts: Can examine financial records.
o Right to Attend General Meetings: Can participate in discussions related to
the audit.
6. What are the duties of a Company Auditor?
o To verify financial records, prepare an audit report, and detect fraud and
misstatements.
7. What is a Statutory Audit?
o A statutory audit is a mandatory audit required by law for companies to ensure
financial transparency.
8. What is a Divisible Profit?
o The portion of profit available for distribution to shareholders after
considering depreciation, reserves, and other statutory requirements.
9. What is meant by Depreciation as per Companies Act, 2013?
o Depreciation is the allocation of the cost of an asset over its useful life to
match expenses with revenues.
10. What is the purpose of creating a Reserve?

• A reserve is created to strengthen the financial position, meet future liabilities, and
comply with legal requirements.

Unit 3: Audit Report and Certificates

1. What is an Audit Report?

o It is a formal opinion given by an auditor about a company’s financial
statements and records.
2. State two features of an Audit Report.
o Independence: It is unbiased and objective.
o Clarity: It should be clear and concise.
3. What is the difference between an Audit Report and an Audit Certificate?
o An audit report expresses an opinion, while an audit certificate guarantees
accuracy of financial statements.
4. Mention two types of Audit Reports.
o Clean (Unqualified) Report: Financial statements give a true and fair view.
o Qualified Report: Financial statements contain certain material
misstatements.
5. What are the contents of an Audit Report?
o Title, scope, auditor’s opinion, basis of opinion, responsibilities of
management, and auditor’s signature.
6. What is a True and Fair View in an Audit Report?
o It means the financial statements accurately reflect the financial condition of
the company.
 7. Under which section of the Companies Act, 2013, is an Auditor’s Report
prepared?
o Section 143 of the Companies Act, 2013.
8. What is a Modified Audit Report?
o A report issued when financial statements contain misstatements or when the
auditor cannot obtain sufficient audit evidence.
9. What is a Disclaimer of Opinion in an Audit Report?
o It is issued when the auditor is unable to form an opinion due to insufficient
information.
10. Why is an Audit Report important?

• It ensures financial transparency, helps in decision-making, and boosts investor

confidence.

Unit 4: Audit of Different Institutions

1. What is an Audit of Educational Institutions?

o It involves verifying financial transactions, grants, fees, and expenses of
schools and universities.
2. What is Library Audit?
o A library audit examines the stock of books, subscription records, and
financial transactions.
3. What is Hospital Audit?
o It involves checking patient records, donations, and expenditures in hospitals.
4. Why is the Audit of a Club important?
o To ensure proper management of membership fees, donations, and expenses.
5. What is meant by Hotel and Restaurant Audit?
o It is the audit of income, room occupancy, kitchen expenses, and inventory in
hotels and restaurants.
6. What documents are required for Transport Company Audit?
o Ticket sales, fuel expenses, maintenance costs, and payroll records.
7. What is the main objective of an Audit of Charitable Institutions?
o To check if funds are used for charitable purposes as per the organization’s
objectives.
8. What are the key areas in the audit of a Hospital?
o Patient fees, insurance claims, medicine purchases, and staff salaries.
9. What is a Revenue Audit in Educational Institutions?
o It ensures proper recording of tuition fees, government grants, and donations.
10. What challenges are faced in Auditing Non-Profit Organizations?

• Lack of proper records, cash transactions, and unauthorized expenses.

Unit 5: Special Areas of Audit

1. What is Cost Audit?

o It is an audit of cost records to verify the accuracy of cost accounting.
2. What is Management Audit?
o A systematic evaluation of managerial effectiveness and efficiency.
3. What is Tax Audit?
o An audit conducted under Section 44AB of the Income Tax Act to ensure
compliance with tax laws.
4. What is Social Audit?
o An audit that evaluates an organization’s social responsibility and impact on
society.
5. What is Environmental Audit?
o It examines the environmental policies, compliance, and impact of an
organization.
6. What is the main objective of a Cost Audit?
o To determine whether cost records are maintained as per legal requirements.
7. What are the benefits of a Management Audit?
o Improves efficiency, decision-making, and governance.
8. What is the purpose of a Tax Audit?
o To verify compliance with tax laws and ensure accurate tax reporting.
9. What is the importance of an Environmental Audit?
o Ensures compliance with environmental laws and minimizes environmental
impact.
10. How is a Social Audit different from a Financial Audit?

• A social audit focuses on ethical and social responsibilities, whereas a financial audit
checks financial accuracy.