GUWAHATI UNIVERSITY (Board Question of Auditing and Corporate Governance for B.COM 6th semester of 2023)
Board Question paper of Auditing and Corporate Governance for B.COM 6th semester of 2023, SOLVED
2023
COMMERCE
(Honours Core)
Paper: COM-HC-6016
(Auditing and Corporate Governance)
Full Marks: 80
Time: Three hours
The figures
in the margin indicate full marks for the questions.
Answer either
in English or
in Assamese. Write the answers to the two
Groups in separate
books.
Group-A
(Auditing)
Marks: 40
1. Answer as directed: 1 x 4 =4
(i) Internal check forms valuable part of internal
control True
(State whether the statement is True or False)
(ii) The word 'audit'
is derived from the Latin word “audire" (Fill in the blank)
(iii) Errors and frauds have the same meaning for an
auditor. (Comment on the Statement)
ANSWER - False. Errors
and frauds do not have the same meaning for an auditor. Errors are
unintentional misstatements, while frauds are intentional misrepresentations or
omissions with the intent to deceive.
(iv) Vouching is done
with reference to a "source document." (Fill
in the blank)
2. Answer the following: (any three) 2 x 3=6
(i) What is the
meaning of audit?
ANSWER - An audit is an
examination of financial records, statements, or processes to verify their
accuracy, authenticity, and compliance with relevant regulations, conducted by
an independent professional called an auditor.
(ii) Who is a company auditor?
ANSWER - A company auditor is
an independent professional appointed to examine and verify a company's
financial records, statements, and compliance with regulations to ensure
accuracy and transparency in financial reporting.
(iii) Mention two objectives of internal audit.
ANSWER - Two objectives of
internal audit are:
1. Review and evaluate the effectiveness of internal
controls and risk management processes within the organization.
2. Assess compliance with company policies, procedures, and
applicable laws and regulations to ensure adherence and identify areas for improvement.
(iv) Mention two distinctions between cost audit and
management audit.
ANSWER - 1. Evaluate internal
controls.
2.
Identify operational improvements.
(v) What is compensating error?
ANSWER -
Compensating error is when two or more errors in financial
records offset each other, leading to an overall correct balance.
3. Write on the following: (any
two) 5X2= 10
(i) Primary objective of audit
ANSWER -
The primary objective of an audit is to independently examine
and assess the accuracy, reliability, and fairness of financial information
presented by an organization. It aims to provide stakeholders with reasonable
assurance that the financial statements are free from material misstatements,
errors, or fraud, enhancing their confidence in the company's financial
reporting and decision-making processes.
(ii) Qualifications of a company auditor
ANSWER -
A company auditor should possess specific qualifications and
skills. They need to be a qualified Chartered Accountant (CA) or Certified
Public Accountant (CPA) with relevant experience. Additionally, they should
have a deep understanding of accounting principles, auditing standards, and
legal regulations. Good analytical skills, attention to detail, and ethical
conduct are also essential qualities for a company auditor.
(iii) Importance of Standards on Auditing (SA)
ANSWER -
Standards on Auditing (SA) are crucial as they provide
guidelines and uniform procedures for auditors to follow while conducting
audits. They ensure consistency and quality in auditing practices, enhancing
the credibility of financial statements. SA promotes transparency,
accountability, and reliable reporting, which builds trust among stakeholders.
Adherence to these standards helps identify errors, fraud, and inefficiencies,
leading to improved financial governance and better decision-making for
organizations.
(iv) Common features of valid voucher
ANSWER -
Valid vouchers share common characteristics:
1. Accurate Information: Voucher must contain correct
details of the transaction.
2. Authorization: Properly authorized by relevant personnel
before processing.
3. Adequate Supporting Documents: Supported by valid source
documents.
4. Completeness: Contains all necessary information for easy
understanding and audit trail.
5. Sequential Numbering: Vouchers should have unique and
consecutive serial numbers.
4. Answer the following questions: (any two) 10
x 2 =20
(i) What is the meaning of
computer aided auditing technique? Explain its advantages and disadvantages.
ANSWER -
Computer-Aided Auditing Technique
(CAAT) refers to using software and technology to assist auditors in analyzing,
processing, and verifying large volumes of data efficiently during the audit
process.
Advantages of Computer-Aided Auditing Techniques
(CAATs):
1. Increased Efficiency: CAATs automate tasks, saving time
and effort in data analysis and processing.
2. Improved Accuracy: Reduced human error as software
performs calculations and data comparisons.
3. Greater Scope: Enables auditing of large volumes of data
and identifying patterns that may go unnoticed manually.
4. Enhanced Audit Trail: Detailed records help in better
understanding and reviewing audit procedures.
5. Real-time Analysis: Immediate access to data allows for
faster decision-making during audits.
6. Consistency: Standardized processes promote uniformity in
audit practices.
7. Data Visualization: CAATs present data in visual formats
for easy comprehension and identification of trends.
8. Customization: Flexible tools allow auditors to tailor
tests to specific audit requirements.
Disadvantages of Computer-Aided Auditing Techniques
(CAATs):
1. Costly Implementation: Initial investment in software and
training may be expensive.
2. Technical Expertise: Auditors need to be proficient in
using CAATs effectively.
3. Data Security: Sensitive information must be adequately
protected against breaches.
4. Software Limitations: CAATs might not be able to handle
certain unique scenarios or complex transactions.
5. Overreliance: Relying solely on technology may overlook
human intuition and judgment.
6. Outdated Software: Regular updates and maintenance are
essential to avoid obsolete tools.
7. Data Compatibility: CAATs may face challenges in working
with various data formats and systems.
8. Training Needs: Ongoing training is required to keep
auditors up-to-date with evolving technologies.
(ii) Discuss the basic principles
of audit.
The basic principles of an audit
are as follows:
ANSWER -
1. Independence: Auditors must remain impartial and
free from any influence that could compromise their objectivity.
2. Integrity: Auditors should be honest, trustworthy,
and adhere to high ethical standards throughout the audit process.
3. Objectivity: Auditors must approach the audit with
an unbiased and neutral mindset, without any preconceived notions.
4. Professional Competence: Auditors should possess
the necessary qualifications, knowledge, and skills to conduct the audit
effectively.
5. Confidentiality: Auditors must maintain the
confidentiality of client information and not disclose it without proper
authorization.
6. Evidence-Based: Audit opinions should be based on
sufficient and appropriate evidence obtained during the audit.
7. Fair Presentation: The audited financial
statements should fairly represent the financial position and performance of
the organization.
8. Compliance: Auditors should adhere to relevant
auditing standards, regulations, and legal requirements while conducting the
audit.
(iii) Explain the various rights and duties of a company auditor.
ANSWER -
Rights and Duties of a Company Auditor:
1. Rights:
a. Access to Books
and Records: The auditor has the right to access all books, records, and
documents related to the company's financial transactions.
b. Obtain
Information: The auditor can request information and explanations from company
personnel relevant to the audit.
c. Attend Meetings:
The auditor has the right to attend company meetings, such as board meetings,
to gather insights into financial matters.
2. Duties:
a. Examination of
Financial Records: The auditor is responsible for examining and verifying the
accuracy of financial records and statements.
b. Reporting: The
auditor must prepare and submit an audit report to the company's management and
shareholders, expressing their opinion on the financial statements' fairness
and compliance.
c. Independence and
Impartiality: The auditor should maintain independence and objectivity while
conducting the audit, ensuring unbiased conclusions.
d. Compliance with
Auditing Standards: The auditor is obliged to follow relevant auditing
standards and guidelines during the audit process.
(iv) What is internal check
system? Distinguish between internal check and internal audit
ANSWER -
Internal check system is a set of procedures and controls
implemented within an organization to ensure that tasks are divided,
cross-checked, and reviewed by different individuals, reducing the risk of
errors and fraud.
1. Purpose:
- Internal Check: Internal check refers to the ongoing internal control measures built into the day-to-day operations of the organization. It involves the segregation of duties and responsibilities among employees to minimize the risk of errors and fraud.
- Internal Audit: Internal audit, on the other hand, is a periodic and systematic examination of the organization's processes, systems, and financial records. Its primary purpose is to assess the effectiveness of internal controls, identify weaknesses, and recommend improvements.
2. Frequency:
- Internal Check: Internal checks are continuous and embedded in the routine activities of the organization. They occur on a daily basis as employees perform their tasks.
- Internal Audit: Internal audits are conducted at regular intervals, usually annually or quarterly, depending on the size and complexity of the organization.
3. Conducted by:
- Internal Check: Internal checks are conducted by employees within the organization as part of their normal responsibilities.
- Internal Audit: Internal audits are performed by an independent and specialized internal audit department or external auditors hired for this purpose.
4. Scope:
- Internal Check: Internal checks primarily focus on the accuracy and reliability of day-to-day transactions and records within individual departments.
- Internal Audit: Internal audits have a broader scope, encompassing various departments and processes across the organization to assess overall compliance, efficiency, and risk management.
5. Reporting:
- Internal Check: The findings of internal checks are typically reported to the immediate supervisor or department head to take corrective action promptly.
- Internal Audit: Internal audit reports are presented to higher management, such as the board of directors, audit committee, or senior executives, and may include recommendations for process improvements and risk mitigation.
GROUB – B
(Corporate
Governance)
Marks: 40
1. Choose the correct option from the following: 1 X 4 =4
(a) The board of directors must ensure that the company's
corporate governance policies Incorporate.
(i) Corporate
strategy
(ii) Risk management
(iii) Ethical business practices
(iv) All of the above
ANSWER: (IV) All of the above
(b) Corporate governance is a form of
(i) External regulation
(ii) Self-regulation
(iii) Government control
(iv) None of the above
ANSWER: (ii) Self-regulation
(c) Poor corporate governance can cast doubt on a company's
(i) Reliability
(ii) Integrity
(iii) Financial transparency
(iv) All of the above
ANSWER: (IV) All of the above
(d) The framework for establishing good corporate governance
was originally set up by the
(i) Nestle Committee
(ii) Rowntree Committee
(iii) Cadburry Committee
(iv) None of the above
ANSWER: (iii) Cadbury Committee
2. Briefly answer the following questions: 2 X 3 =6
(a) What is morality?
ANSWER -
Morality refers to the principles and values that guide
individuals and societies in distinguishing right from wrong, leading to
ethical behavior and decision-making based on standards of good and bad.
(b) What is corporate ethics?
ANSWER -
Corporate ethics refers to the moral principles and standards that
guide the behavior and actions of a company and its employees, promoting
integrity, fairness, and responsibility in business practices.
(c) What is good governance?
ANSWER -
Good governance refers to the effective and transparent
management of an organization or institution, where decisions are made responsibly,
ethically, and in the best interest of stakeholders, ensuring accountability
and efficiency.
3. Answer any two from the following questions: 5 X 2 =10
(a) Explain the principles of corporate governance.
ANSWER -
The principles of corporate governance are guidelines that
promote transparent, accountable, and responsible management of companies. They
include ensuring fairness, independence, and ethical conduct of the board and
management, protecting stakeholders' rights, disclosing information, and
fostering a corporate culture that upholds integrity and long-term
sustainability.
(b) Explain the significance of corporate philanthropy.
ANSWER -
Corporate philanthropy is important as it showcases a
company's commitment to giving back to society by donating funds, resources, or
time to charitable causes. It enhances the company's reputation, builds
goodwill, and fosters positive relationships with communities. Corporate philanthropy
also addresses social issues, helps those in need, and contributes to the
overall well-being and development of society.
(c) Explain the relationship between CSR and business
ethics.
ANSWER -
CSR (Corporate Social Responsibility) and business ethics are
closely related concepts. CSR involves a company's commitment to act
responsibly and contribute positively to society and the environment. Business
ethics, on the other hand, guides the moral conduct of the company in its daily
operations. Both aim to promote responsible business practices, integrity, and
sustainable development while considering the welfare of stakeholders and the
larger community.
4. Answer any two from the following Questions: 10
X 2=20
(a) Explain the different types of ethical
issues in business. How to manage these ethical issues in business? Explain.
5+5=10
ANSWER -
Different types of ethical issues in business include
conflicts of interest, where personal interests of employees or stakeholders
may influence decisions. Employee treatment involves fair wages, working
conditions, and diversity. Environmental impact pertains to sustainable
practices and reducing harm to the environment. Product safety concerns
ensuring safe and reliable products for consumers. Fair competition involves
avoiding unfair business practices. Financial transparency ensures honest
reporting and accurate financial information. Ethical dilemmas arise when
balancing these issues while making decisions that align with moral principles
and societal expectations.
To manage ethical issues in business, companies can:
1. Establish a Code of Ethics: Develop a clear set of
ethical guidelines for employees to follow.
2. Ethics Training: Provide training to employees to raise
awareness and build ethical decision-making skills.
3. Ethical Leadership: Promote ethical behavior from the
top-down, setting an example for the organization.
4. Whistleblower Protection: Create a safe environment for
employees to report unethical practices.
5. Regular Audits: Conduct ethical audits to identify and
address potential issues.
6. Stakeholder Engagement: Involve stakeholders in
decision-making to ensure ethical considerations are taken into account.
(b) Define codes and standards of
corporate governance. Explain the significance of codes and standards on
corporate governance. 4+6=10
ANSWER -
Codes and standards of corporate governance are sets of guidelines
and rules that outline the principles, best practices, and ethical standards
for the management and operation of companies, ensuring transparency,
accountability, and responsible decision-making.
Codes and standards on corporate governance are significant
as they provide a framework for companies to follow, promoting transparency,
accountability, and ethical behavior. They help build trust among stakeholders
and investors, ensuring fair and responsible management practices. Compliance
with these guidelines fosters long-term sustainability and reduces the risk of
fraud or mismanagement. Codes and standards on corporate governance contribute
to a positive corporate culture, strengthen investor confidence, and enhance
the overall reputation of the company in the market.
(c) Briefly explain the symptoms
of corporate failure. Explain the common governance problems noticed in various
corporate failures. 4+6=10
ANSWER -
Symptoms of corporate failure include declining
profitability, increasing debt, loss of market share, ineffective leadership,
poor financial management, customer complaints, legal issues, and a lack of
innovation or adaptability to changing market conditions.
Common governance problems in corporate failures include:
1. Lack of Board Independence: Dominance by insiders or
inadequate oversight.
2. Weak Risk Management: Failure to identify and address
potential risks.
3. Ineffective Auditing: Flawed audits or failure to detect
financial irregularities.
4. Excessive Executive Compensation: Misalignment with
company performance.
5. Short-Term Focus: Neglecting long-term sustainability for
immediate gains.
6. Lack of Accountability: Insufficient consequences for
poor decisions or unethical behavior.
7. Inadequate Disclosure: Withholding critical information
from stakeholders, leading to mistrust.
8. Overly Complex Structures: Complicated corporate setups
hindering effective decision-making.
(d) Discuss the provisions of CSR
under the Companies Act, 2013
ANSWER -
Under the Companies Act, 2013, certain companies meeting
specific criteria are required to undertake Corporate Social Responsibility
(CSR) activities. They must spend at least 2% of their average net profits from
the preceding three years on CSR initiatives. The Act outlines eligible CSR activities,
emphasizes community development, environmental sustainability, education,
healthcare, and eradication of poverty. Companies must also report their CSR
efforts in their annual financial statements.
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