AUDITING

Origin of auditing: - The origin of audit may traced to middle ages but the audit in the present sense can
be developed after the introduction of large production in consequence of industrial revolution during the 18th century. Before this era goods were produced by individual, on small scale. There was not much capital. But established governments, expansion of banking facilities and new means of communication have widened the scope of investment and business. The businessman would like to see that his investment is safe, for this purpose the account must be checked and audited. In the presents after the introduction of double entry system by Luca Pacialo in 1994. He mentioned and described the duties and responsibilities of an auditor.

Definition of audit: The word audit is derived from the Latin word audire which means, to hear. In olden times whenever the owner of a business suspected fraud, they appointed certain person to check the accounts. Such person sent for the accountants and heard whatever they had to say in connection with the accounts. In others words the object of audit was to find out whatever cash has been embezzled (misuses) and if so who embezzled it and what amount was involved. In short it is belong to checking of accuracy of accounting. According to Spicer and Pegler. Audit as such as examination of the books, account and voucher of business as will enable the auditor to satisfy himself that the balance sheet is properly drawn up, so as to give a true and fair view of the state of the affairs of the business, and whether the Profit and Loss Account gives a true and fair view of profit and loss for the financial period, according to the best of his information and the explanations given to him and as shown by the books; and it in what respect he is not satisfied. Audit may be said to be the verification of the accuracy and correctness of the books of accounts by independent persons qualified for the job and not in any way connected with this preparation of such account (R.B.Bose) From the above discussant can be concluded that the audit means critical and intelligent examination of facts financial or otherwise to give in the form of certificate or report an attestation an expert opinion or an expert advice.

Function of auditing: Following are the important functions of auditing i. Reviewing system and procedures of business ii. Examining documentary evidence to established the accuracy or recorded transactions iii. Reviewing the system of accounting and internal control iv. To verify the existence of assets and their valuation. v. To see whether the statutory requirements have been complete. vi. To verify the distinction between capital and revenue items.

Scope of Auditing: Generally auditing is concerned with i. Studying the organization structure, authority and responsibility rule and procedures. ii. Reviewing the internal control and accounting system iii. Test checks are applied to determine the arithmetical accuracy of accounting data. iv. Obtaining the evidence in support of accounting data Auditing, Book Keeping, Accounting and Investigation: Difference between Auditing and Account

Auditing i. Scope:-Auditing refers to examination and checking of these accounting records ii. In nature:-Auditing is an typical in nature and essential retrospe ii. Qualification:-An auditor must be a person registered with the auditor general office under auditor related act 2036 B.S Objects:-The objectives of auditing is verifying to correctness of financial transactions vi. Commencement: -The work of auditing starts only when the work of account has been completed. vii. Status:-An auditor is not a permanent employee.

Accounting i. Scope:-Accountancy refers to the preparation of final account and its interpretation. ii. In nature:-Accounting is primarily constructive and concerned with current recording of business facts. iii. Qualification:-An accountant needs to be registered with any office under any act. iv. Objects:-The objectives of accountancy is to accretion the result of financial transactions v. Commencement:-When book keeping records are completed they became available for the beginning of the work of accountancy vi. Status:-An accountant is permanent employee.

Difference between Auditing and Investigation Auditing Investigation

Auditing is conducted to find out whether the balance sheet is properly prepared or not and exhibits a true and fair view of the state of affairs of a concern. Audit usually relates to one year. The audit report is prepared according to the format specified in the act. Investigation is carried out with a certain out with a certain object in view e.g. to find out the financial position of a concern or a fraud and the extent there of Where as Investigation covers several year i.e. 3,5 or 7 years to find the capacity of firm? The investigation report is prepared according to the necessity of situation.

Objectives of Auditing: The main objectives of auditing are to verify /check the arithmetical accuracy of accounting books. The major objectives are given as follows. 1. Test of accuracy of accounts 2. Provide information relating to financial matters 3. Detection and prevention of errors:- Some errors may be arise due to the following causes a. Errors of Omission b. Errors of Principles c. Errors of Commission d. Compensating Errors 4. Detection and prevention of Fraud:- Fraud are also made to different ways a. Embezzlement of cash b. Fraud over the account 5. Assessment of income tax 6. Observance of various laws 7. Satisfactions of company act. 8. Determination of financial position.

Advantages and Importance of audit Auditing is widely popular techniques of checking the error of accounting. It has played great role in modern accounting stage it importance are as follows: A. Advantages to business: - Auditing is very important for business to obtain the following benefits. i. To find out errors and frauds ii. To test the financial position iii. To find out profit and loss iv. Loan facilitating - Audit refers the actual condition of business by showing the actual conditions of business through balance sheet. Sound balance sheet/ Position of business is very helpful to take the loan. v. Correct and perfect work vi. Sale of business: - There is no problem will be raised for the sale of business it is audited properly. vii. Help to management. B. Advantage to government: - It is equally helpful to government while charging property tax, income tax, and others taxes over the business properties. C. Advantages to insurance company: - It helps to insurance company to find out the actual amount of compensation. D. Advantages to finance: - It is important for amalgamation of company.

Qualification of an Auditor: - Under the company act 2053 an auditor should have the following
qualification. i. ii. iii. iv. An auditor should passed the C.A level C.A equivalent level passed and 5 years experience in accounting or auditing. Charted Accountancy or equivalent level passed of M.Com or MBA or equivalent level passed and two years experience in accounting or auditing. Having the certificate of an auditor before implementation of these rules.

Disqualification of an Auditor: - An auditor will be disqualified according to section 5 of the Auditors

related Act 2056 for his/her jobs. i. Unsound mind ii. Person sentence to more than six moth of imprisonment by court of law for any criminal act. iii. A person can be appointed as an auditor if he is debtors of company iv. Relative of company directors partner

Qualities of an Auditor: Auditing is very challenging as well as intellectual jobs so an auditor should have the qualification of auditing as well as qualities. The major qualities are as follows: i. He should have the qualities of Honesty. ii. He should be tactful iii. Qualities of confidentiality iv. He must be patient v. Good manner vi. Qualities of prudent , practical vii. Qualities of secrecy viii. Punctuality ix. Knowledge of rules and regulation of accounting and auditing x. Skill and competence xi. He must never relax his standard.

Types of Auditors
i. External or Statutory auditor: - An auditor who is appointed under some statue by share holder it is also necessary that he is registered under the auditor related act 2036 BS. The responsibilities, duty rights and powers of statutory auditor are determined by the acts covering their appointment. Internal auditor: - An auditor is appointed, as an employee by the management knows as internal auditor. He is appointment is optional. No need to follow the qualification of auditors acts.

ii.

Difference between Internal auditor and statutory or external auditor Internal Auditing External Auditing It provides the information to owner of Co. and Main purpose of external audit is to give the management only. information of internal as ell as external i.e. owner, government etc. Employee under the direct control of management does internal audit. This audit is made by the registered auditor Internal auditor is fully related to management External auditor is free from management It is continuos nature It is conducted periodically. Internal auditor may or may not have * In all case of statutory audit, auditor must have professional qualifications. professional qualification

Modes / Method of Auditing

I. Continuous Audit: - An audit which involves a detailed examination of the books of account of regular intervals is know as continuos audit i.e. one month or three month. It is applied in big organization. Advantages of Continuous audit i. To find out immediately of errors and frauds ii. Due to regular audit it is very prompt to prepare the final account iii. Regular audit creates good moral to the staffs. They are always becare of good accounting records. iv. Regular audit is helpful to check the detail accounting record. v. Efficient audit. Disadvantage of Figures: i. Alternation of figures: - Figures in the books of accounts which have already been checked by the auditor at his previous visit may be altered by a dishonest clerk and the frauds may be altered by a dishonest clerk and the frauds may thus be perpetrated. ii. Expensive:- It is an expensive system of audit iii. Difficult to work iv. Under continuous audit, work becomes too mechanical since it continuos throughout he years. Periodical Audit or Final or Completed audit: - Periodical audit is one which is taken up at the dose of the finical on trading period when all the accounts have been balanced and trading and profit and loss and the balance sheet have been prepared. It is best for small size organization. Advantages: i. Satisfactory ii. It save the time because auditing is not done regularly iii. It is less expensive iv. Suitable for small business Dis- advantages: i. Lack of deeply tests: - Auditing is done after the long gap so it is not possible to check the accounting records. ii. Unsuitable for large scale business iii. Errors are not completely detected iv. Difficult to correction

Interim audit: - An audit, which is, conducted between the two periodical or balance sheet auditors
Advantages: i. ii. iii. iv. This type of audit is good where the publication of the interim figures are necessary The final audit can be completed very soon it their has been an interim audit. Errors and frauds can be more quickly found and detected during the course of the year. There is moral check on the staff of the client as the accounts are checked say after three of six months.

Disadvantages: i. Figures may be altered in the accounts which have already been audited ii. It will mean that the audit staff will have to prepare notes when they finish the interim audit iii. This made of audit involves additional work.

INTERNAL CHECK OR CONTROL

Internal Check: - It is a method of organization the accounts system of business concern or a factory where the duties of different clerks are arranged in such a way that the work of one person is automatically checked by another. Under this method frauds and errors or irregularity is minimized. Objective of Internal Check i. Detection of Frauds and stop to it ii. Help to low misplace of entry iii. Limit fixation of duties and liabilities iv. Increment of staff work efficiency v. To exercise moral pressure over the staff

Features of good Internal Check System: a. b. c. d. e. f. Division of Work: - No one should be allowed to have right to perform the work from origin to end. There should be a proper division of responsibilities among the members of staff. Standard Forms: - There should be a standard ruling and design of forms and accounting records with numbering etc. to standardize the records and to save time. Job Rotation: - No Individual clerk should be allowed to occupy a particular area of operations for long. Safe Guard: - An adequate safeguard method should be prescribed to keep unused receipts, chequebooks, files bills etc. to avoid their misuse. Authority Level: - There must be clear-cut authority levels for according sanctions to various transactions. Separation of Accounting and Control: - This is also an important feature of an efficient system of internal check. No person should be able to established accountability over his own operations.

Advantages of Internal Check i. It is not suitable for small Concern ii. It is more expensive methods iii. Due to a rigid internal check system may lead to groupies among employee iv. There is doubt for errors

Difference between Internal Check and internal audit INTERNAL AUDIT Nature of check It is belong to check of the according records not to recording Work Opening Need for separate staff Objectives:It starts when the accounting process of different transaction is finished For this Job separate staff is appointed It mains purpose is to detect the errors and frauds which have already been committed.

INTERNAL CHECK It is belongs to recording to the transactions as well as checking of them properly It is operation during the course of transactions No need of separated staff for this jobs The purpose if internal check is to prevent or minimize the possibilities of errors, frauds or irregularities.

Meaning and Definition of Internal Control: Internal control is a broad concept with a wide coverage of the management functions. The aim for precipitin and practice of such system is to ensure control over accounting and other administrative areas in order to bring forth efficiency and orderliness. According to Spicer and Peglar Internal control is best regarded as the whole system of controls, financial and otherwise, established by the management in the conduct of a business including internal check, internal audit and other forms of control. Advantages of Internal Control: i. Provides reliable data of business ii. It protects the physical properties i.e. Assets, Machinery, Furniture etc by proper control iii. It promotes the efficiency of business with reducing so many frauds and misuse of resources iv. It maintains the sound disciplines among the staff.

Test Check: Testing and test checking means to select and examine a representative sample from a large member of similar items. It is used in such types of organization where the number of transaction are more and auditor doesnt have the time to go through all of them few transaction may be checked at random. Precaution to be taken while applying test checks: i. Entries of every description should be checked ii. Selection of entries to be checked be at random iii. A large number of entries of the first and last months of the audit period should be checked. iv. The test check should be so arranged that the work done by every clerk be checked. v. Test check should not be applied to cashbook, where every transaction should be checked. Transaction not suitable for Test Checking a. Cash Book entries b. Opening entries c. Closing entries d. Bank Reconciliation Statement e. Depreciation

End

COST ACCOUNTING
Method and Classification of Costs 1. Define Cost Accounting in your own language. Ans.: Cost accounting is practice and process of cost which determine the profitability of a business concern by controlling the cost with the application of cost accounting principles, process and rules. 2. State three objectives of Cost accounting. Ans: The main objectives of cost accounting are: i. To ascertains cost of production ii. To determine the selling price of a product iii. To minimize of reduce cost 3. What are the advantages of cost accounting? Ans : The following are the advantages of cost accounting: i. Help in Cost control: Cost may be controlled effectively from cost accounting. Under this System, inventories and stories are supervised regularly. Techniques like standard costing and budgetary control are developed to control cost. ii. Helps in formulating policies: Cost accounting provides detailed information, which are indispensable while formulating the futures policies. iii. Helps in decision making: - Cost accounting helps providing information for various decision like make or buy produce or drop, or close of any department etc. 4. Point out the features of cost accounting. Ans : The main objective of cost accounting is analysis the financial activities from which the cost involved. The main objective is as follows: i. Ascertainment of cost ii. To determine the selling price iii. To help to analysis the cost iv. To control cost v. To assist the management vi. To assist in preparation of final account 5. Write in brief any two limitation of financial accounting. Ans: The financial account suffers from the following limitations: i. Lack of Cost Analysis: Cost analysis is not done under financial accounting it present only the net result of collective activities of the business. The system in fail to maintain the records of each batch, each unit, each department separately. ii. Inadequate for management: It does not supply adequate and useful data to management for taking various financial decisions. Detailed information facilities them to take decision like expansion of business etc management must rely on cost accounting for such data. 6. What is the difference between financial and cost account? Explain. Ans : The following are some of the most important differences between financial accounting and Cost accounting. i. Purpose: The Purpose of financial accounting is external reporting whereas the purpose of cost accounting is for internal reporting. Accounting is for external reporting. ii. Statutory requirement: Financial account is compulsory by law but cost account is kept to meet the requirement of management and it is optional. iii. Duration of reporting: Financial accounting cover the transaction of whole firm for the definite period but cost accounting furnishes cost data at frequent interval. iv. Basis: Financial account is historical in nature while cost account is historical and futuristic as well.

7. Classify costs according to element functions and variability. Ans: According to elements, cost has been divided into three categories i.e. materials, labours and other expenses. According to functions cost may be sub divided on production costs, office and administrative cost and selling and distribution cost. Cost can also be classified according to their variability. According to this there are three cost fixed, variable and semi-variable cost. 8. Distinguished between direct cost and indirect cost. Ans: Direct material cost: Those materials which can be directly identified with each units of finished product is know as direct materials. Indirect material cost: Those materials which are necessary for production but cannot be traced as a part of the product produced in know as indirect materials. 9. What are controllable and un- controllable costs? Ans: Controllable costs: Cost, which is influenced by the action of management, is controllable cost. Practically all variable cost are controllable. Un-contable cost : Cost, which can not be controlled by management action, is called un-contrable costs

Accounting for material and store Keeping

{This section of the text is designed for the short answer theroetical questions carrying 2 to 3 marks} 1. Why is material control is needed ? Ans : Material control is needed for following reasons : i. To ensure the availability of materials ii. To ensure optimum investment in materials iii. To ensure minimum wastage iv. To provide information about the availability of materials. v. To ensure reasonable price. 2. Write the advantages of centralized stores. Ans : The advamtages of centralized stores are : i. It minimize the demerits of centralized store. ii. It avoid delay in issuing materials. iii. It facilitates easier location of discrepancies in stores. 3. What is a Bin Cards ? Ans : A place on rack on cupboard where materials have been kept is denoted by Bin and the Card issued to identify and records the material at the bin is known as Bin Cards. 4. What is a Classification and Codification of Materials ? Ans : The Process of grouping of each material either on the basis of their nature is known as classficiation. The procedure for assigning symbols for each items in accordance with a proper management is know as codification. 5. Explain the main points of different between the Bin Card and Store Ledger. Ans; The difference between Bin Card and Store Ledger are : BIN CARDS STORE LEDGER 1. Bin Cards are used in store It is used in costing department 2. It records only the quantity received issued and It records unit price and total value of materials. balance and net the price. 3. Bin cards are kept in stores along with materials. Store ledgers are kept outside the store.

6. Write Short notes on FIFO and LIFO. Ans : First and First out (FIFO method) : This method takes into account of the price of materials at which they are bought for the purpose of Valuing them at the time of issue. Last in First out (LIFO method) : The assumption of this method is that the materials last purchase are issued first. 7. Write the advantage of perpetual inventory system. Ans : The advantage of perpetual inventory system are; i. Production will not be held up at the time of stock taking. ii. Store information is easily available iii. It also helps to settle claim with the insurance company. 8. Write in short any three advantage of LIFO method ? Ans : Short advantage of LIFO method are; i. This method is easy to understand and simple to operate ii. This method like FIFO does not result in any unrealistic profit or loss. iii. It is most suitable when pricing are rising.

Inventory Management
1. What do you understand by Re-order level ? How do you calcualte it. Ans : This is the level on reaching of which a fresh order is prepaid and placed with the supplier. It depends upon the lead time, Rate of consumption and sometimes minimum level. The ROL is generally calculated by one of the following formula: Re-order level (point):- Lead time x Daily Consumption = Maximum consumption x maximum lead time = minimum level + lead time x daily consumption. 2. What are the assumptions of EOQ? Ans. EOQ is based on the following assumptions: i. Requirement quantity of the items is questions should be known ii. Ordering costs per order should be known iii. Average carrying costs of inventory should be fixed iv. Unit cost of items in questions should be known.

Financial Statement Analysis

(This section of the text is designed for short answer theoretical question carrying 2 to 3 marks and practical problems carrying 3 to 10 marks) 1. What do you mean by financial statement ? Ans: Financial statement includes trading , profit and loss account and balance sheet. The organized summary of detailed information about position and performance of a concern in known as financial statement. The financial statements are prepared as the end of accounting period. 2. Write any three financial statements. Ans. Three Financial statements are: i. Financial statements are historical in nature and relate to the past period. ii. Financial statements are expressed in financial or monetary terms. iii. Financial statements indicates the financial position of a business. 3. Give any three limitation of financial statements. Ans . Financial statements has certain limitations, which are given below: i. Ignore the qualitative elements ii. Effect of accounting concepts and conventions iii. Lacks of accuracy iv. Not helpful in inter- firm comparison

4. State any three importance of funds flow statements. Ans. The importance of funds flow statements are as under; i. Analysis of Financial operations ii. Evaluation of the firms financing iii. Comparative study 5. List out major sources of funds. Ans. The major sources of funds are as follows: i. Issue of Shares ii. Issue of debentures iii. Sale of fixed assets iv. Sale of investment v. Dividend received vi. Increased in long term liabilities. 6. What is ratio analysis? Write any two advantanges of ratio analysis ? Ans : Ratio analysis is a technique of analysis and interpretation of financial statement the evaluation of performance of an organized by creating the ratios from the different accounting figures consisting in income statement and the balance sheet is known as ratio analysis. The advantages of ratio analysis are: i. Helps in communicating financial information in a menaingful manner and also enhances the values of financial statement. ii. Useful for simple assessment of liquidity profitability, solvency and efficiency of the firm 7. Write any four limitation of Ratio Analysis ? Ans: Some of the limitation of the ratio analysis are given below: i. Limited use of single ratio ii. Diffcult to interpret iii. Wrong conclusion iv. Personal bias.

Single or Output Costing

1.What do you understand by unit costing ? Ans. This method is applied in such undertaking which produces one product of only a few grades of similar no. of unit produced articles. The cost per unit is arrived at by dividing the total cost by the total. 2. What is cost sheet? What are the components of a cost sheet? Ans. The statements of cost according to elements wire is know as cost sheet. It is an statement showing in details of total cost of a job. It may be prepared on the basis of actual data or on the basis of estimated data.\ Component of a cost sheet. The components of a cost sheet as follows : i. Prime cost ii. Factory / work cost iii. Office and administrative cost iv. Cost of sales 3. State the limitation of cost sheet ? Ans. The limitation of cost sheet are: i. It can not be used by those industries which are engaged in provision of services. ii. The confindentially of cost data can not be maintained as every component of cost has to be shown in the cost sheet. 4. What is prime cost ? Give the items of expenses under it. Ans : It is the aggregate of direct materials cost, direct labour and direct expenses. The item of expenses under it is:

i. ii. iii.

Direct material Direct labour Direct Expenses

5. What are the expenses which are excluded from cost sheet ? Ans : Expenses excluded from cost sheet are : i. Rent received ii. Income tax paid iii. Purchase of capital assets iv. Interest on capital v. Dividend paid vi. Capital losses vii. Discount on shares viii. Underwriting commission ix. Cash discount

Auditing
1. Write the meaning of auditing? Ans.: Auditing is the systematic and scientific examination of books of accounts of a business. It is concerned with the examination of accounting data to determine the extent of accuracy of profit and loss balance sheet prepared from such data. 2. Briefly explain any two objective of auditing? Ans.: The objective of auditing is: a. Detection and prevention of errors: Errors are generally committed innocently. Some errors may be committed without intention where as some may be committed deliberately. Some are easy to locate but some are difficult. b. Detection and prevention of frauds: Any errors committed knowingly and intentionally to defraud the owners of the concern is called fraud. Frauds are most serious than internal errors. 3. Write any three advantages of auditing. Ans. The advantage of auditing is: i. Audited accounts are taken to be more reliable for the purpose of various types of taxation ii. Auditing helps in detection and preventions of errors iii. Audited accounts are normally considered more helpful in obtaining additional capital from the bank. 4. Explain in brief about misappropriation of goods. Ans.; Frauds in respect of goods in referred by misappropriation of goods. Misappropriation of goods in a common practice among employees whether he is top official or junior employee. 5. Write any three differences between accounting and auditing. Ans. The difference between accounting and auditing are: Basic of difference Accounting Auditing 1. Meaning It is related with the preparation of final It is examination checking of account accounting record 2. Objective The main objective of accounting is to The objective of auditing is to certify find the working result of given period the correctness prepared by accountant 3. Knowledge of An accountant need not have through An auditor must have through subject: knowledge of auditing knowledge of accounting.

6. What is the valid qualification of an auditor? Ans.; The valid qualification of an auditor are as follows: Category Qualification Ka Auditor CA, MBA Kha Auditor CA, MBA MA, Math of Stat, Economics B.Com Ga Auditing Gha Auditor MA, (Economics) B.A Officer level One or Two level below officer level

Experience Five year experience in accounting Two year experience in accounting or auditing Five year experience in accounting or auditing Five years experience in accounting or auditing 3 years experience Five year experience Five year experience

7. State any four qualities of an auditor. Ans.: An auditor should posses the following qualities: i. He should be tactful ii. He should be honest iii. He must be patient iv. He should be prudent, practical and have common sense. 8. How can an auditor be disqualified? Ans.: Auditor is related act has stated the following person as disqualified to act as registered auditor: a. a person to be unsound mind b. if he/she is restricted be law/court Disqualification to be appointed as an auditor in the company. a. Director, Share holder , staff worker of the company b. Debtor or creditor of company c. Relative of company director 9. What do you mean by internal audit? Ans.: Internal audit is a continuous and systematic process of examining and reporting the operation and record of a concern by he employees selected specially for this purpose. The internal audit is one of the functions of management. 10. Write any five objective of internal audit. Ans.: The main objective of internal audit are: i. To examine the books of accounts, to detect error and fraud ii. To provide advisory service to management iii. To identify the weakness in the control system. iv. To suggest for operating improvement. 11. Write any three differences between statutory audit and internal audit. Ans.; The difference between statutory audit and internal audit are: Basic Statutory Audit Internal Audit 1. Statue It is an independent person It is an employee of an a company 2. Qualification Statutory auditor must be charted An internal auditor need not to be account CA 3. Report It has to submit his report to the It has to submit his report to the shareholder management.

12. Write the features of statuary audit. Ans. The main features of statutory audit are: i. It is compulsory in nature. ii. The auditor is an independent person. Management has on control over his work. iii. It is must be performed by a qualified auditor iv. It must be a complete audit. 13. Write in short about continuing audit. Ans.: An auditor who is done by the audit staff around the year is called continuous audit. As the audit is conducted through out the year, all the business transactions may be checked and audit in detail continuous audit is also known as details audit. 14. Write any four limitation of continuous audit. Ans.: Limitation of continuous is as follows: i. Convertible to the figures ii. Difficult to work iii. Costly iv. Fraud as leaves as same. 15. What do you mean by period final audit? Ans.: Audit conducted at the close of the financial year is called as periodic audit. The auditor visit his client only once in a year and check the account pertaining to the while period. 16. Write any three disadvantage of periodic audit. Ans.; The dis-advantage of periodic audit are follows: i. In periodical audit, detailed checking of account is not possible. ii. The errors are formed only after the close of the accounting period. iii. It is no suitable for the organization of the large size where the transaction are heavy 17. Write the meaning of internal check. Ans.: An arrangement of the duties of member of staff in such a manner that the work performed by a person is automatically and independent checked by another is known as internal check. The system is based on the principle of division of labor. 18. What are the objectives of internal check? Ans.: The objectives of internal checks are: i. To distribute work in such a way that no business transaction is left from recording. ii. To eliminate the acts of fraud and error. iii. To detect fraud promptly iv. To prevent the misappropriation of cash/ goods 19. Write the meaning and objective of internal control? Ans.: Internal control is a broader term, which includes all types of management control. The involves a number of check and control exercise in a business to ensure its efficient. Objective of internal control: i. That there is complete accountability for al assets ii. That use and access towards assets are made only with proper authorization iii. That adequate accounting systems appropriation to size and nature of business is in existence. 20. Give the meaning of test check? Ans.: In this business organization where internal check is efficiently used. It is not necessary for auditor to do detailed checking. A flow transaction may be checked at random such a check is called test check. 21. What are the limitations of test check? Ans.: The limitation of test check are:

i. ii.

It may result into failure to detect errors and frauds as the sample selected for test checking may not include them. It also increase the responsibility of an auditor to a great extent as he may be hold liable for negligence in case of subsequent detection of frauds.

22. Mention the points to be considered before applying test check. Ans. : The points to be considered before applying test check are: i. The test check must cover the work of every official connected with the maintenance of account. ii. Cash book should not be applied to cash book. iii. Test checking should be applied the transaction to be checked are of homogenous in nature. iv. While applying test checking the auditor must review the system of internal control, internal check or internal audit in detailed. v. The sample of records selected for test checking should be taken on random basis. 23. What are errors of Omissions? Ans.: When transactions is wholly on partially omitted to be recorded in accounting books that is known as errors of omission. Error of omission may be complete omission.

Accounting for labours and accounting for overheads

(These sections of the text is designed for short answer theoretical question of 2 of 4 marks and required to answer in 3 to 4 effective sentences) Define time rate system of wages payment. Ans.: Under this system wages are paid on the basis of time spent in a job by the workers. Without considering the output the unit of time may be an hour, a day, a week on a month. The payment is made on the basis of attendance. 1. Write one line each for only three disadvantages of time rate system of wage system. Ans.: i. No inducement for hand work. ii. Efficient workers to lengthen the work period. iii. Labour cost cannot be fix in advance. 2. Write in short what do you know about payroll accounting. Ans. : The payroll department is concerned with calculation disbursement of wages to employees. The main function of payroll accounting is to prepare payroll on wages sheet. 3. Mention three difference between time rate and piece rate. Ans.: Difference between time rate and piece rate Time Rate System Piece Rate System 1. Wage is base on the time worked Wages is base on unit produced. 2. Wages are not linked with the efficiency of Wages are directly link with the efficiency of the worker the workers 3. Easy to fix wage rate. It is not easy to fix wage rate. 4. State two functions of engineering department. Ans.: The function of engineering department will be: i. To determine production method for each job. ii. To prepare design for each job. iii. To conduct research and development work.

5. Write in short what do you know about time and motion study. Ans.: Time and motion study is based on scientific management. This department carefully determine a standard task for every workers by conducting method motion and time study. The objective of motion study is to improve the system of working by reducing fatigue. 6. Mention any three steps to be taken for minimize (prevention) the fraud in wage payment. Ans.: In order to minimize the frauds the following steps are to be taken: i. The wages of workers should be paid in the presence of supervisor so that the workers can be identified. ii. Each worker should be provided with an I-card.