CMA Inter Audit Important Questions

Chapter 6: Basic Concepts of Auditing

Principles Governing an Audit (June'23)

  • Integrity, Objectivity, Independence:

    • Auditor should be straightforward, impartial, honest, and sincere.

  • Confidentiality:

    • Must uphold the privacy of client information unless authorized or required by law.

  • Professional Care, Skill, Competence:

    • Must exercise due care and diligence in audit work.

  • Responsibility of Work Performed by Others:

    • Auditor must oversee and review work delegated to staff or performed by other auditors.

  • Documentation:

    • Necessary matters must be documented to provide audit evidence.

  • Planning:

    • Audit work should be strategically planned and continuously reviewed.

  • Audit Evidence:

    • Must collect sufficient and relevant evidence for conclusions.

  • Understanding of Internal Control:

    • Auditor should assess adequacy of internal control systems and risk management.

  • Audit Conclusions and Report:

    • Auditor must review conclusions drawn from evidence for the audit report.

Audit Engagement Letter (Dec 2022)

  • Contents of an Audit Engagement Letter:

    • Objective and scope of engagement.

    • Management’s responsibility for financial statements.

    • Limitations of the audit.

    • Use of internal auditors or experts.

    • Management confirmation letter.

    • Auditor’s liability restrictions.

    • Basis of audit fees.

    • Communication forms for results.

    • Validity of the report.

    • Limits on report submission.

Advantages of a Well-Organized Audit Program (June 19)

  • Serves as a checklist of audit procedures.

  • Facilitates proper allocation of tasks among assistants.

  • Helps track progress of audit work.

  • Promotes uniformity in audit work across time.

  • Useful for future audit planning and team selection.

  • Acts as evidence in case of auditor's accountability.

Internal Control Elements (Dec’23)

  • Financial and Organizational Plans:

    • Clearly defined roles and responsibilities of management and staff.

  • Competent Personnel:

    • Skills and efficiency of staff impact control effectiveness.

  • Division of Work:

    • Tasks should be classified and assigned based on employees' skills.

  • Separation of Responsibilities:

    • Prevent manipulation by separating roles in operations and record keeping.

  • Authorization:

    • Activities must be authorized by appropriate levels of management.

  • Managerial Supervision:

    • Ongoing evaluation and adaptation of internal control systems.

Techniques for Evaluating Internal Control System (June'23)

  • Narrative Record:

    • Detailed description of the control system, useful for informal controls.

  • Check List:

    • Instructions for audit staff to verify procedures followed.

  • Flow Chart:

    • Visual representation of internal control processes aiding comprehension.

  • Internal Control Questionnaire:

    • Pre-designed questions to gather relevant internal control information.

Auditor's Duties Regarding Internal Check System (Dec 2022)

  • Auditor assumes accuracy but must conduct test checks.

  • Must randomly sample transactions and verify their validity.

  • Findings should prompt thorough investigation if suspicions arise.

Types of Internal Control Systems (June 19)

  • Preventive Controls:

    • Discourage errors/irregularities beforehand (e.g. segregation of duties).

  • Detective Controls:

    • Identify errors after occurrence (e.g. performance reviews, reconciliations).

Audit Evidence Needs (Dec 2022)

  • Audit evidence is critical for assertions about the reliability of financial statements:

    • Existence, Rights and Obligations, Occurrence, Valuation, Measurement, Presentation, and Disclosure.

Chapter 7: Provisions Relating to Companies Act, 2013

Statutory Audit vs. Government Audit (Dec'23)

  • Statutory Audit:

    • Applicable to private companies, cooperatives, etc.

    • Report submitted to owners/shareholders.

  • Government Audit:

    • Applicable to government departments and entities.

    • Report submitted to the Comptroller and Auditor General.

Appointment of the First Auditor (Dec'23)

  • First auditor appointed within 30 days by the Board; if not done, members appoint.

  • Auditor serves until the first annual meeting.

Rotation of Auditors (Dec'23)

  • Compliance with specified procedures for auditor rotation to promote independence.

Provisions on Auditor's Duties (Dec 2021)

  • Rights to inspect accounts, obtain explanations, attend meetings, and receive audit reports.

  • Removal: Only by special resolution with prior approval from Central Government.

Significance of Qualified Reports (Dec 2022)

  • A Qualified Report conveys the auditor's reservations and clarifies their nature and implications.

Auditor's Duties regarding Fraud Reporting (Dec 2022)

  • Duty to report known or suspected fraud within stipulated time to Central Government.

Chapter 8: Auditing of Different Types of Undertakings

Audit of Educational Institutions (Dec 23)

  • Verify fee receipts against registers and ensure deposits align with records.

  • Confirm that all dues are collected before closing accounts.

Audit of Hospitals (June 23)

  • Validate billing practices, confirm legitimacy of income sources, review control systems for purchases and wages.

Auditor's Duty in Co-operative Society (Dec 22)

Income Audit:

  • Vouch cash receipts with various registers and records.

Expenditure Audit:

  • Validate expenditures with proper authorizations and documentation.

Audit of Municipalities and Panchayats (Dec 19)

  • Focus on fairness, internal control adequacy, value for money and fraud detection.