Auditing and Assurance Chapter 13: Audit of Different Types of Entities

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CA Inter Auditing and Assurance Chapter 13, Audit of Different Types of Entities, Important Solved Questions for May 2021 & November 2021 Exams.

Question 1

Central Govt. hold 55% of the paid up share Capital in Kisan Credit Co-operative Society, which is incurring huge losses. Advise when the Central Government can direct Special Audit under Section 77 of the Multi State Co-operative Society Act.


Central Government shall order for special audit only if that Government or the State Government either by itself or both hold fifty-one percent or more of the paid-up share capital in such Multi -State co-operative society. Under section 77 of the Multi-State Co-operative Societies Act, 2002, where the Central Government is of the opinion:

  1. that the affairs of any Multi-State co-operative society are not being managed in accordance with self-help and mutual deed and co-operative principles or prudent commercial practices or with sound business principles; or
  2. that any Multi-State co-operative society is being managed in a manner likely to cause serious injury or damage to the interests of the trade industry or business to which it pertains; or
  3. that the financial position of any Multi-State co-operative society is such as to endanger its solvency.

Thus, in the given case since Central Govt is holding 55% shares and financial position of Kisan Credit co- operative society is in danger, Central government can direct for special audit.

Question 2

The general transactions of a hospital include patient treatment, collection of receipts, donations, capital expenditures. You are required to mention special points of consideration while auditing such transactions of a hospital?


Special points of consideration while auditing certain transactions of a hospital are stated below-

(i) Register of Patients: Vouch the Register of patients with copies of bills issued to them. Verify bills for a selected period with the patients’ attendance record to see that the bills have been correctly prepared. Also see that bills have been issued to all patients from whom an amount was recoverable according to the rules of the hospital.

(ii) Collection of Cash: Check cash collections as entered in the Cash Book with the receipts, counterfoils and other evidence for example, copies of patients bills, counterfoils of dividend and other interest warrants, copies of rent bills, etc.

(iii) Legacies and Donations: Ascertain that legacies and donations received for a specific purpose have been applied in the manner agreed upon.

(iv) Reconciliation of Subscriptions: Trace all collections of subscription and donations from the Cash Book to the respective Registers. Reconcile the total subscriptions due (as shown by the Subscription Register and the amount collected and that still outstanding).

(v) Authorisation and Sanctions: Vouch all purchases and expenses and verify that the capital expenditure was incurred only with the prior sanction of the Trustees or the Managing Committee and that appointments and increments to staff have been duly authorised.

Question 3

As an auditor , what would be your areas of consideration while auditing the element of ROOM SALES during the audit of a 5-Star Hotel.


Following points merit consideration while auditing the element of ROOM SALES during the audit of a Hotel :-

(a) The charge for room sales is normally posted to guest bills by the receptionist/ front office or in the case of large hotels by the night auditor.

(b) The source of these entries is the guest register and audit tests should be carried out to ensure that the correct numbers of guests are charged for the correct period.

(c) Any difference between the charged rates used on the guests’ bills and the standard room rate should be investigated to ensure that they have been properly authorised.

(d) In many hotels, the housekeeper prepares a daily report of the rooms which were occupied the previous night and the number of beds kept in each room. This report tends not to be permanently retained and the auditor should ensure that a sufficient number of reports are available for him to test both with the guest register and with the individual guest’s bill.

(e) Ensure compliance with the provisions of FEMA and RBI if receipts are in foreign currency. Ensure application of proper Conversion rate.

(f) Special emphasis to be laid on receipts through Credit Cards.

(g) The auditor should ensure that proper valuation of occupancy-in-progress at the balance sheet date is made and included in the accounts.

Question 4

Explain in detail the duties of Comptroller and Auditor General of India


Duties of C&AG: The Comptroller & Auditor General’s (Duties, Powers and Conditions of Service) Act, 1971 lays down duties of the C&AG as under-

(i) Compile and submit Accounts of Union and States – The C&AG shall be responsible for compiling the accounts of the Union and of each State from the initial and subsidiary accounts rendered to the audit and accounts offices under his control by treasuries, offices or departments responsible for the keeping of such account.

(ii) General Provisions Relating to Audit – It shall be the duty of the C&AG –

(a) to audit and report on all expenditure from the Consolidated Fund of India and of each State and of each Union Territory having a Legislative Assembly and to ascertain whether the moneys shown in the accounts as having been disbursed were legally available for and applicable to the service or purpose to which they have been applied or charged and whether the expenditure conforms to the authority which governs it;

(b) to audit and report all transactions of the Union and of the States relating to Contingency Funds and Public Accounts;

(c) to audit and report on all trading, manufacturing profit and loss accounts and balance-sheets and other subsidiary accounts kept in any department of the Union or of a State.

(iii) Audit of Receipts and Expenditure – Where any body or authority is substantially financed by grants or loans from the Consolidated Fund of India or of any State or of any Union Territory having a Legislative Assembly, the Comptroller and Auditor General shall, subject to the provisions of any law for the time being in force applicable to the body or authority, as the case may be, audit all receipts and expenditure of that body or authority and to report on the receipts and expenditure audited by him.

(iv) Audit of Grants or Loans – Where any grant or loan is given for any specific purpose from the Consolidated Fund of India or of any State or of any Union Territory having a Legislative Assembly to any authority or body, not being a foreign State or international organisation, the Comptroller and Auditor General shall scrutinise the procedures by which the sanctioning authority satisfies itself as to the fulfillment of the conditions subject to which such grants or loans were given and shall for this purpose have right of access, after giving reasonable previous notice, to the books and accounts of that authority or body.

(v) Audit of Receipts of Union or States – It shall be the duty of the Comptroller and Auditor General to audit all receipts which are payable into the Consolidated Fund of India and of each State and of each Union Territory having a Legislative Assembly and to satisfy himself that the rules and procedures in that behalf are designed to secure an effective check on the assessment, collection and proper allocation of revenue and are being duly observed and to make this purpose such examination of the accounts as he thinks fit and report thereon.

(vi) Audit of Accounts of Stores and Inventory – The Comptroller and Auditor General shall have authority to audit and report on the accounts of stores and inventory kept in any office or department of the Union or of a State.

(vii) Audit of Government Companies and Corporations – The duties and powers of the Comptroller and Auditor General in relation to the audit of the accounts of government companies shall be performed and exercised by him in accordance with the provisions of the Companies Act, 2013. The comptroller and Auditor-General of India shall appoint the auditor under sub-section (5) or sub-section (7) of section 139 (i.e. appointment of First Auditor or Subsequent Auditor) and direct such auditor the manner in which the accounts of the Government company are required to be audited and thereupon the auditor so appointed shall submit a copy of the audit report to the Comptroller and Auditor-General of India which, among other things, include the directions, if any, issued by the Comptroller and Auditor-General of India, the action taken thereon and its impact on the accounts and financial statement of the company.

Question 5

You are auditing the Books of accounts of Karla Multiplex which runs 15 Film shows everyday. One of the major issues which are of concern to you as an auditor is the Agreement entered into the Multiplex owners with the Film Distributors. State what points would you check as an auditor in this respect.


Agreement with the Distributors :-

(a) Vouch payments on account of film hire with bills of distributors and in the process, the agreements concerned should be referred to.

(b) Examine unadjusted balance out of advance paid to the distributors against film hire contracts to see that they are good and recoverable. If any film in respect of which an advance was paid has already run, it should be enquired as to why the advance has not been adjusted. The management should be asked to make a provision in respect of advances that are considered irrecoverable.

Question 6

An NGO operating in Delhi had collected large scale donations for Tsunami victims. The donations so collected were sent to different NGOs operating in Tamil Nadu for relief operations. This NGO operating in Delhi has appointed you to audit its accounts for the year in which it collected and remitted donations for Tsunami victims. Draft audit programme for audit of receipts of donations and remittance of the collected amount to different NGOs. Mention six points each, peculiar to the situation, which you will like to incorporate in your audit programme for audit of said receipts and remittances of donations


Receipt of Donations:

(i) Internal Control System: Existence of internal control system particularly with reference to division of responsibilities in respect of authorised collection of donations, custody of receipt books and safe custody of money.

(ii) Custody of Receipt Books: Existence of system regarding issue of receipt books, whether unused receipt books are returned and the same are verified physically including checking of number of receipt books and sequence of numbering therein.

(iii) Receipt of Cheques: Receipt Book should have carbon copy for duplicate receipt and signed by a responsible official. All details relating to date of cheque, bank’s name, date, amount, etc. should be clearly stated.

(iv) Bank Reconciliation: Reconciliation of bank statements with reference to all cash deposits not only with reference to date and amount but also with reference to receipt book.

(v) Cash Receipts: Register of cash donations to be vouched more extensively. If addresses are available of donors who had given cash, the same may be cross-checked by asking entity to post thank you letters mentioning amount, date and receipt number.

(vi) Foreign Contributions, if any, to receive special attention to compliance with applicable laws and regulations.

Remittance of Donations to Different NGOs:

(i) Mode of Sending Remittance: All remittances are through account payee cheques. Remittances through Demand Draft would also need to be scrutinised thoroughly with reference to recipient.

(ii) Confirming Receipt of Remittance: All remittances are supported by receipts and acknowledgements.

(iii) Identity: Recipient NGO is a genuine entity. Verify address, 80G Registration Number, etc.

(iv) Direct Confirmation Procedure: Send confirmation letters to entities to whom donations have been paid.

(v) Donation Utilisation: Utilisation of donations for providing relief to Tsunami victims and not for any other purpose.

(vi) System of NGOs’ Selection: System for selecting NGO to whom donations have been sent.

Question 7

Define Government Audit & explain its objectives.


Government Audit is the objective, systematic, professional and independent examination of financial, administrative and other operations of a public entity ,made subsequently to their execution for the purpose of evaluating and verifying them, presenting a report containing explanatory comments on audit findings together with conclusions and recommendations for future action by the responsible officials and in the case of examination of financial statements, expressing the appropriate professional opinion regarding the fairness of the presentation.


1. Accounting for Public Funds :- It serves as a mechanism or process for public accounting of government funds.

2. Appraisal of Govt. Policies :- It also provides public accounting of the operational, management, programme and policy aspects of public administration as well as accountability of the officials administering them.

3. Corrective Actions :- Audit observations based on factual data collection also serve to highlight the lapses of the lower hierarchy, thus helping supervisory level officers to take corrective measures.

4. Administrative Accountability :- The main objective of audit is a combination of ensuring accountability of administration to legislature and functioning as an aid to administration.

Question 8

You have been appointed as an auditor of an NGO, briefly state the points on which you would concentrate while planning the audit of such an organisation?


While planning the audit of an NGO, the auditor may concentrate on the following:

(i) Knowledge of the NGO’s work, its mission and vision, areas of operations and environment in which it operate.

(ii) Updating knowledge of relevant statutes especially with regard to recent amendments, circulars, judicial decisions related to the statutes.

(iii) Reviewing the legal form of the Organisation and its Memorandum of Association, Articles of Association, Rules and Regulations.

(iv) Reviewing the NGO’s Organisation chart, then Financial and Administrative Manuals, Project and Programme Guidelines, Funding Agencies Requirements and formats, budgetary policies if any.

(v) Examination of minutes of the Board/Managing Committee/Governing Body/Management and Committees thereof to ascertain the impact of any decisions on the financial records.

(vi) Study the accounting system, procedures, internal controls and internal checks existing for the NGO and verify their applicability.

(vii) Setting of materiality levels for audit purposes.

(viii) The nature and timing of reports or other communications.

(ix) The involvement of experts and their reports.

(x) Review the previous year’s Audit Report.

Question 9

State the points which merit consideration in the audit of a CLUB w.r.t its members.


The points which merit consideration in the audit of a CLUB w.r.t its members:-

(1) Entrance Fee :- Vouch the receipt on account of entrance fees with –

  • members’ applications and counterfoils issued to them,
  • on a reference to minutes of the Managing Committee.

(2) Member Subscriptions :- Vouch members’ subscriptions with –

  • the counterfoils of receipt issued to them,
  • trace receipts for a selected period to the Register of Members;
  • also reconcile the amount of total subscriptions due with the amount collected and that outstanding.

(3) Subscription Arrears/in Advance :- Ensure that –

  • arrears of subscriptions for the previous year have been correctly brought over,
  • arrears for the year under audit and subscriptions received in advance have been correctly adjusted.
  • Subscriptions received in advance should have been properly accounted for.

(4) Arithmetical accuracy:- Check totals of various columns of the Register of members and tally them across.

(5) Register of Members:- See the Register of Members to ascertain –

  • the Member’s dues which are in arrear and
  • enquire whether necessary steps have been taken for their recovery;
  • the amount considered irrecoverable should be mentioned in the Audit Report.

(6) Member Accounts :- Trace debits for a selected period from subsidiary registers maintained in respect of supplies and services to members to confirm that the account of every member has been debited with amounts recoverable from him.

Question 10

Mention the special points to be examined by the auditor in the audit of a charitable institution running hostel for students pursuing the Chartered Accountancy Course and which charges only` 500 per month from a studentfor his lodging/boarding.


1. General

(i) Study the constitution under which the charitable institution has been set up whether under the Society Registration Act, as a trust or as a company limited by guarantee. Verify whether it is managed as contemplated by the law and rules and regulations made thereunder.

(ii) Examine the internal control structure particularly with reference to admission to hostel, expenses incurred on different kinds of activities.

(iii) Verify the broad nature of expenses likely to be incurred with reference to the previous year’s annual audited accounts.

2. Verification of the receipts

(i) Check the amounts received on account of, monthly rentals, etc., and receipts issued for the same.

(ii) Ascertain that there is adequate internal control over the issue of official receipts, custody of unused receipt books, printing of receipt books, etc.

(iii) Cross – tally the rent received along with the number of students (from the student register) staying in the hostel during the year.

(iv) Check the amounts received from additional services rendered like guest fees, receipts for breakage, fines, penalties, etc.

3. Verification of expenses

(i) Check the day-to-day administration expenses incurred along with the necessary vouchers, supporting for the same like salary registers, repairs register, etc.

(ii) Verify whether the expenses incurred are in conformity with the budgets prepared internally or filed with the relevant authorities.

(iii) Check the amount spent on provisions of hostel facilities with reference to bills, etc.

(iv) See that whenever heavy expenditure has been incurred on renovation of the hostel, computer centre, etc. the same is accounted for properly (if such facilities are being provided by the hostel).

4. Verify investments made from surplus funds as well as existing investments by physically verifying the same and that they are in the name of the institution and that there is no charge/pledge against the same.

5. Verify all capital expenditure and expenditure on repairs, etc., incurred with the vouchers and also whether proper tenders, etc., were invited for the same. See that all furniture, glass, cutlery, kitchen utensils, liner, etc. are adequately depreciated.

6. Library Facilities: See that proper library register are maintained. The system regarding issue and receipt of books is in order. Late fee fines and money received on account of lost book is accounted for properly. Obsolete books are written off only after proper authorisation. Expenses incurred on newspapers and weekly magazines as compared to Journals and periodicals have been accounted for properly.

7. Check the provision of other additional facilities like computer facilities, etc. Ensure that proper registers are maintained for charging fees, based on monthly or hourly basis. In case such facility is extended to each room, whether the charges are payable on lump-sum basis or on actual usage basis. Also ensure that amounts spent have been allocated properly.

8. Verify whether the institution is eligible for income tax exemption and if not, whether provision for taxation has been made.


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