KSLU Solved Question Papers
Principles and Practice of Auditing
Previous Year Question Paper with Solution
B.Com. LL.B. (Five Years) · Sem 3
2024 Aug Examination
munotes.in
Mumbai
B.Com. LL.B. (Five Years) Sem 3 Principles and Practice of Auditing 2024 Aug Question Paper with Solutions
First published on munotes.in on 21 October 2026.
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Contents
The questions below are the paper as Karnataka State Law University set it at the 2024 Aug examination, in the order it was set.
MarksPage
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2024 Aug examination, reproduced as Karnataka State Law University set them, in the order it set them. Long reading passages are shortened to their first and last lines and our summary; the original paper prints them in full. Only the answers are ours. See the original question paper.
Duration 3 hours · Total marks 80 · 20 questions answered
Instructions printed on the paper
- N.B. (1) Answer all five Units. (2) One essay type question and short note/problems is compulsory from each Unit. (3) Figures to the right indicate marks. (4) Answer should be written either in English/Kannada completely.
How to use this volume
Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.
Q1
Unit 1
(a)What is auditing ? Explain the objectives of auditing.[10]
Answer
For full marks, cover: what auditing is (an independent examination leading to an opinion); the main objective under SA 200 and section 143(2) of the Companies Act, 2013 (reasonable assurance and an opinion on the true and fair view); the subsidiary objectives: detection and prevention of errors (omission, commission, principle, compensating) and of frauds (misappropriation, manipulation of accounts), with the auditor's responsibility under SA 240; other objectives (reporting to members, checking compliance, moral check, help to users); a conclusion.
What auditing is
Auditing is an independent examination of the financial statements of an organisation, and of the records behind them, by a qualified person. The examination leads to an opinion on whether the statements present a true and fair view. The auditor does not prepare the accounts. The auditor examines them and reports to those who appointed him, usually the owners or members.
The main objective: an opinion on the financial statements
SA 200 states the auditor's overall objectives. The auditor must obtain reasonable assurance that the financial statements as a whole are free from material misstatement, whether due to fraud or error. The auditor must then express an opinion on whether they are prepared, in all material respects, under the applicable financial reporting framework. Finally, the auditor reports as the Standards on Auditing require.
For a company, section 143(2) of the Companies Act, 2013 requires the auditor to report to the members. The report states whether the accounts give a true and fair view of the state of affairs at the year end. It covers the profit or loss and the cash flow for the year as well. This is the primary objective of every audit.
Reasonable assurance is a high level of assurance, but not absolute. An auditor tests samples and relies on judgment, so some misstatements may remain undetected despite a proper audit.
Subsidiary objective 1: detection and prevention of errors
An error is an unintentional mistake. The main kinds are:
- Errors of omission: a transaction is not recorded at all, or only partly.
- Errors of commission: a wrong amount, a wrong account or a wrong total, such as posting a sale to the wrong debtor.
- Errors of principle: a breach of accounting principles, such as treating the purchase of a machine as an expense.
- Compensating errors: two errors that cancel each other, so the trial balance still agrees.
The auditor detects errors by vouching, checking postings and totals, and reviewing accounting policies. The existence of an audit also makes the client's staff more careful, which helps to prevent errors.
Subsidiary objective 2: detection and prevention of frauds
A fraud is an intentional act to deceive. It takes two main forms:
- Misappropriation of assets: theft of cash or goods, for example a cashier keeping cash received from debtors, or fictitious workers on the payroll.
- Manipulation of accounts (fraudulent financial reporting): management deliberately misstates the accounts. Examples are inflating profits, hiding losses or overvaluing stock, to raise a loan or the share price.
SA 240 deals with the auditor's responsibilities relating to fraud. The primary responsibility to prevent and detect fraud rests with management and those charged with governance. The auditor must plan and perform the audit with professional skepticism. The aim is reasonable assurance that the statements are free from material misstatement due to fraud.
For a company, section 143(12) of the Companies Act, 2013 adds a duty. An auditor who has reason to believe that a fraud is being committed by officers or employees must report it. A fraud of one crore rupees or more goes to the Central Government; a smaller one goes to the audit committee or the Board.
Other objectives
- Checking compliance: that the accounts follow the Accounting Standards or Ind AS, and that books are kept as the law requires.
- Reporting specified matters: for companies, the items in section 143(3) and in CARO 2020, such as internal financial controls and the physical verification of assets.
- Moral check: the knowledge that the books will be audited deters staff from fraud and carelessness.
- Help to users: audited accounts are trusted by lenders, investors, tax authorities and buyers of the business.
- Advice to management: weaknesses found during the audit are reported, so that controls can be improved.
Primary and subsidiary objectives together
| Objective | What it means | Main support |
|---|---|---|
| Opinion on the true and fair view | The primary objective | SA 200, Companies Act s.143(2) |
| Detecting and preventing errors | Subsidiary, arises in the course of the audit | Vouching, checking, analytical review |
| Detecting and preventing frauds | Subsidiary, with reasonable assurance only | SA 240, s.143(12) |
| Reporting specified matters | Statutory addition for companies | s.143(3), CARO 2020 |
Conclusion. The main objective of an audit is an independent opinion on whether the financial statements give a true and fair view. That opinion rests on reasonable assurance. SA 200 and section 143(2) of the Companies Act, 2013 set this objective. Detecting and preventing errors and frauds are subsidiary objectives that follow from it. SA 240 makes clear that management bears the primary responsibility for preventing fraud, while the auditor must plan the audit with professional skepticism. Section 143(12) adds a duty to report frauds. An audit also checks compliance and gives users confidence in the accounts.
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