Master of Business Administration -Semester III MF0013 –Internal Audit and Control- 4 Credits (Book ID:B1211) Assignment Set

- 1 (60 Marks)

Note: Each Question carries 10 marks. Answer all the questions. Q1. Discuss, in brief, the advantages and limitations of auditing.
Advantages of Audit We know that the prime objective of an audit is to make a critical review of, the system of book keeping, accounting, and internal control etc. and report to the members stating whether, in the opinion of the auditor, the accounts shows a true and fair view of the affairs of the company. This report lends credibility to the financial standards prepared by the company’s management. Moreover, the company’s management knows that the financial statements, prepared by them would be subject to an independent professional review. Hence, they remain very vigilant and alert in preparation of financial statements, result in less erroneous and/or fraudulent information dissemination. Apart from above some other important advantages of audit are as follows: 1. It facilitates the early detection and easy prevention of fraud and errors. 2. It helps in reducing wastages and chances of losses or damage to business property. 3. Banks, financial institutions and Government required audited accounts before granting any financial assistance to the enterprises. 4. Liability of the enterprise as to income tax, wealth tax, VAT, etc can easily be determined on the basis of audited accounts as these are readily believed by the tax authorities. The Income Tax Act also contains a provision for holding tax audit. 5. Audited accounts help in determining purchase consideration of enterprise in case of outright sale, merger and acquisition etc. Self Assessment Questions 17. Audit keeps management more alert and vigilant. (True/False) 18. The Income Tax Act does not contain a provision for holding tax audit. (True/False) 1.11 Limitations of Audit As per SA 200A issued by The Institute of Chartered Accountants of India, on objective and scope of Audit, the objective of an audit is to express an opinion as to the true and fair view of the

financial statements. The user, should, however, not assume that this opinion is as assurance as to the future viability of the enterprise or the efficiency or the effectiveness with which the management has conducted the affairs of the enterprise. Moreover, the user should also understand that audit of accounts do not guarantee the detection of all the errors and/or frauds. These conceptual restrictions arise due to following inherent limitations of Auditing: 1. Postmortem of accounts: Auditing begins where accounting ends. The job of an auditor starts where an accountant finishes his task of preparation of accounts. Naturally, the auditor has to rely on different information and explanations given to him by the Accountant. In the process many times, misstatement of facts remain undiscovered even after the accounts have been audited. 2. Test nature of audit: Due to time and cost factors, the auditor does not usually examine all the transactions. He applies test checks and/or statistical sampling techniques. The inherent weaknesses of such methods bring an uncertainty or risk element in Auditing. Thus, Auditing only reduces and does not eliminate the possibilities of errors and frauds in the Books of Accounts and Financial Statements. 3. Inherent limitations of internal control system: An auditor before expressing his opinion mostly relies on the internal control system of the enterprise. Internal control is the overall control environment established by Management of an enterprise for effective and efficient monitoring and control of its operation. Internal control goes beyond the accounting functions of the organization and incorporates both accounting and administrative controls. The inherent limitations of internal control are the major hurdles in achieving the objectives of audit. Some of the limitations of internal control are as follows:

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Q2. What is internal check? Explain with example. Q3. Discuss about the codes of ethics of internal auditor Q4. Explain the use of Sampling technique in Internal audit Q5. Explain the internal control system in banks. Q6. Discuss about the Computer Assisted Audit Techniques (CAATs).

Master of Business Administration - Semester III MF0013 –Internal Audit and Control- 4 Credits Assignment Set- 2 (60 Marks)

Note: Each Question carries 10 marks. Answer all the questions. Q1. Discuss the main scope and objects of internal audit?

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Q2. What matters the internal auditor should consider in developing his overall audit plan? Q3. What matters the internal auditor should consider in developing his overall audit plan? Q4. Explain the steps of evaluating internal control system using flow chart Q5. Describe the features of a good internal audit report. Q6. Explain the appraisal of accounting system and related internal control.

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