IPCC

AUDIT
MOCK TEST-PHOENIX ED

RAJAT MODI

[SAMPLE QUESTIONS AND

SUGGESTIONS]
Answer question no. 1 and any 8 from the rest do not use unfair means or else you would not be allowed to
continue with the exam. The total time allotted is 3 hours. You need to carry your own stationary. All the best!
Rajat Modi SAMPLE QUESTIONS AND SUGGESTIONS

Question No.1
State with reasons in short whether the following statements are true or false
Answer any ten  x    Marks

1. While auditing the accounts of a company, it is obligatory that the auditor must adopt
Sampling technique.

2. Interim dividend is not a part of dividend.

3. A casual vacancy caused by resignation of the auditor can be filled by the Board of
Directors.

4. The auditor, in the interest of the users, while explaining the nature of his reservation,
can describe the work of the expert with his name, in the audit report without obtaining
prior consent of the expert.

5. The auditee firm has no right to compel the auditor to provide copies of the working papers.

6. The principle of confidentiality precludes auditor to disclose the information about the
client to a third party at all circumstances without any exception.

7. Auditing in-depth implies that the auditor vouches almost all transactions in a manner
that the chances of not checking any transaction are left at minimum.

8. Taking management representation is a convenient, economical and equally acceptable

auditing method even where the direct access by auditor to audit evidence is possible.

9. An auditor of a company in which not less than 25% of authorized capital is held by
public financial institution is to be appointed by a special resolution in general meeting.

10. It is no part of subsequent auditor's duty to verify opening balances of Ledger accounts
of current years, on the basis of Balance Sheet audited by Previous Auditor.

11. AAS 25 (SA 710) on 'comparatives' is applicable to corresponding previous year’s figures
and not to comparative Financial statement.

12. AS 10 "Accounting for fixed assets" is also applicable to wasting assets like quarries,
minerals and oil and natural gas

13. When Government grants are received in the form of assets such as land, plant and
equipments etc., free of cost, then, such assets should be entered in the books of
accounts at nominal value.

14. Contingent liabilities are provided for in the accounts if they crystallize between the end
of the accounting year and the date of signing the audit report.

15. The fixed deposit held with bank by a company is to be shown under the head
investments in Balance Sheet as per the requirements of part I of schedule VI to the
Companies Act, 1956.

PHOENIX ED2
Rajat Modi SAMPLE QUESTIONS AND SUGGESTIONS

Question No.2
In auditing, the auditor checks the specific assertions of the items appearing in the financial
statements and opines about the overall assertions they signify. Explain specific assertions
and overall assertions in this context. (10 Marks)

Question .3

a M, Statutory Auditor of ABC Ltd wants to verify cash on hand as on 31st March, 2009.
The Management informs Mr. M. that it is not possible to cooperate, as cashier has been
hospitalized. Advise Mr. M. on how to deal with the situation. (4 Marks)

(b) As an auditor of a Limited Company, you observe that during the month of March, 2010,
sales invoices were not recorded in books of accounts. You also observe that payment of
wages was much higher compared to last year. Keeping in mind the above, analyze
possible ways of manipulation of accounts. (6 Marks)

Question .4

a What are the six important points that will attract your attention in the case of audit of a
Hotel? (5 Marks)

(b) State the information to be disclosed in the financial statements according to the
requirements of AS 6. (5 Marks)

Question .5
(a) Comment on the following situation: (5 x 2 = 10 Marks)

• XYZ Co. Ltd. reappointed A and B as their joint auditors in the Annual General Meeting.
The AGM authorized the Board for fill up the vacancy on their own in the event of both or
either of auditors declined to accept the assignment. The Board passed a resolution to
appoint C if any of the auditors declined to accept the assignment.

• B declined to accept the assignment and Board of Directors appointed C in place of B as

per its resolution.

Question .6

How would you vouch/verify the following? (Answer anyone) (10 MARKS)
a) Leasehold property.
b) Goods sent out on Sale or Return Basis.
c) Bank overdraft.

PHOENIX ED3
Rajat Modi SAMPLE QUESTIONS AND SUGGESTIONS

Question .7

(a) State clearly provisions of the Companies Act, 1956 with regard to issue of shares at
a discount. (5 Marks)
(b) As an auditor, comment on the following situation: (5 Marks)
MNR Co. Ltd. did not provide for depreciation during the financial year 2007-08 due to
inadequacy of profits. The company declared dividend during the financial year 2008-09
without providing for the previous year's depreciation.

Question .8

Comment on the following situations:

(a) Sri Limited charged depreciation on its plant and machinery comprised in fixed assets at
rates different from what had been specified in schedule XIV, to the Companies Act,
1956. The auditor insisted that the rates of depreciation adopted should be mentioned in
the notes to the account, else, he would make qualification in his audit report. The
Management of the company contended that there is no impact in profits due to its
omission to disclose the fact and hence on considerations of principle of materiality, the
auditor is wrong in mentioning this omission in his report by way of qualification.
(4 Marks)

(b) On 31.12.2010, Amudhan Company Limited invested Rs.45 lakhs in cumulative fixed deposits
of Algar Bank Ltd. The deposits carry interest @10% per annum compoundable quarterly and
amount of interest is added to the principal and is due and payable on the maturity date which
is 5 years from the date of investments?
For the year ended 31st March, 2011, the company did not book any revenue of interest on
the ground that interest amount is not available at their disposal till maturity date of investment.
(4 Marks)

(c) P, the first auditor of XYZ Ltd. resigned as auditors of the Co. Board of Directors appointed
Mr. Q as statutory auditors in their place. (2 Marks)

Question .9

Comment on the following situations:

(a) XYZ Ltd. Co. gave a donation of Rs.50,000 each to a Charitable Society running a school
and a trust set up for the service of Blind during financial year ending on 31st March, 2009.
The average net profits of the company for the last three years were 15 lakhs. (4 Marks)
(b) Mr. X, a shareholder of the company pointed out that:
(i) The goodwill in the Balance Sheet of the company has appeared on same figure
during the past three years.(2 Marks)
(ii) Premium received on issue of shares prior to the date of balance sheet has been
transferred to Profit and Loss account for arriving at the figure of commission
payable to the managing director. (2 Marks)
(c) A, B & C Company Ltd. removed its first Auditor before the expiry of his term without
obtaining approval of the Central Government. (2 Marks)

PHOENIX ED4