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 objective1. CONFIRMATION OF THE ACCURACY OF ACCOUNTS AND STATEMENTS.(True and Fair View)Incidental and secondary1.DETECTION OF FRAUDS AND ERRORS2. PREVENTION OF FRAUDS AND ERRORS.3.SPECIFIC OPINIONS ON SPECIFIC FIRMSOBJECTIVES.

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 checkThe 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 environmentAbsence 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 bookAn 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 whole2.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 auditorA 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 report1. 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, 20031. 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 OpinionAn 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.