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ACADEMIC TASK – TERM PAPER

Max. Marks: 40 Course Code: ACC615

Q1. Adrel Ltd. has grown from a small to medium sized manufacturing company over the last three years.
The company did not maintain any systematic stock records during these three years. After reviewing the
draft balance sheet and profit and loss account for the year ended 31st March 2017, you as an auditor
discover huge discrepancies between its stock ledgers and the actual stock along with decrease in its
gross profit margin. The management of the company has not been able to answer any satisfactory
explanation for such situation. Keeping in view your statutory responsibilities as auditor, how would you
consider this matter and verify the inventory of Adrel Ltd?

Q2. You are the trainee working with Mukhraj & co, Chartered Accountants and have been assigned the
audit of Natraj Ltd., whose annual turnover is around Rs. 2 crores. Detail the audit steps you would take
to verify the following items appearing in company's balance sheet as at 31-3-2017.

Plant and Machinery Rs. 25,00,000

Cash in hand Rs. 23,000
Sundry Debtors Rs. 13,60,000
Bank overdraft Rs. 2,50,00,000
Trade Creditors Rs. 15,00,000

Q3 A sum of Rs.25,070 has been shown as “paid” salaries to staff. However on your physical verification
of cash, you find the money lying with the cashier in his cash-box in separate envelopes bearing the
names and code numbers of the concerned employees. Being an auditor what will your decision in this
case?

Q4. Auditor of A Ltd. Had not discovered that certain payments relating to the dividends, directors fees
and bonus were irregular. This was because he had not concerned himself with the company’s articles.
Would he be held liable? Why/ Why not?

Q5.Mr. Colmer, an engineer, claimed damages from the defendant, the auditor, for losses sustained by
him by investing heavy sum of money on reliance of his report. The auditor was given only three days
time to prepare the annual accounts, therefore he did not undertake the complete audit or investigation.
The report was based on approximation. Would Mr. Colmer be successful in his claim?

Q6. A company had a poor system of dealing with sales in that the same invoice book was used for both
cash sales and credit sales, this led to defalcations. The auditor had drawn the attention of the directors
to the shortcomings but no action had been taken. Was the auditor responsible for the defalcation?

Q7. . Fast Move Ltd. Is a listed company in the food processing industry. They have 10 factory sites and
2500 workers. They have grown very rapidly in recent years under the direction of sidharth, who is very
dynamic character. He tries to operate on the lowest possible costs and sees internal control as himself
and his factory managers. The company has recently moved into the production of mass produced South-
Indian foods and gambled that they will grab a large market share. They have an audit committee(not
liked by sidharth) but no internal audit department. If they appoint a new audit department what would be
specific duties imposed on the auditor regarding internal control and internal audit?
Q8. Auditors Crash & Co have been approached to be the first auditors of Timpani Ltd and have
accepted. The financial year end is 31 December and they have been told that the AGM will be held on
21 April. It is now early September and the audit has to be completed in time to send the accounts to
the shareholders. You are the audit manager, draw up an outline plan of how the audit assignment will
be arranged. This will form the basis of detailed planning later.

Q9. AOA of a company was amended through a special resolution authorizing the directors to create
secret reserve and use the same in interest of the company in future. The amendment also imposed
restriction on the auditor from disclosing the existence and mode of utilization of secret reserve. The
validity of the resolution was challenged by one of the shareholders. Would the shareholder be
successful?

Q10. B. Ltd acquired a car for its managing director on hire purchase basis. The interest payable as well
as penalty for late payment of instalments was added to the cost of the car. How would you judge the
said transaction in your report.