Audit & Compliance in Indian Companies: Study of Sweat Equity & Cost Accounting, Exams of Business Management and Analysis

Download Audit & Compliance in Indian Companies: Study of Sweat Equity & Cost Accounting and more Exams Business Management and Analysis in PDF only on Docsity! 1/2009/SMSA (OS) P. T. O. : 1 : 333 Roll No.......................... Time allowed : 3 hours Maximum marks : 100 Total number of questions : 7 Total number of printed pages : 8 P A R T — A (Answer ANY TWO questions from this part.) 1. (a) Choose the most appropriate answer from the given options in respect of the following : (i) Investor Education and Protection Fund shall be credited with –– (a) Amounts in the unpaid dividend accounts which remained unpaid for more than three years (b) The application moneys received for allotment of securities and due for refund remaining unclaimed for more than one year (c) Matured debentures remaining unclaimed for more than seven years (d) Matured deposits remaining unclaimed for more than three years. (ii) Sweat equity shares means equity shares issued by the company to –– (a) Employees for their hard work and loyalty (b) Employees to keep peaceful industrial relations (c) Employees or directors to bring down the attrition rate (d) Employees or directors for providing innovative methods, technology or value addition. (iii) The following does not fall under forms to be filed with the Registrar of Companies for information purposes –– (a) Form 1AA (b) Form 23 (c) Form 23 AA (d) Form 24 AB. (iv) The following is not a fraudulent and unfair trade practice under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 — (a) Active concealment of a fact (b) Indulgence in any act which results in reflection of prices of securities based on transactions that are not genuine trade transactions (c) A general comment made in good faith in regard to trends in securities market (d) Indulgence in falsification of the books, accounts and records. : 2 : 1/2009/SMSA (OS) Contd... 333 (v) Which of the following does not constitute ‘good delivery’ – (a) Share certificate without mentioning the place of issue (b) Share certificate with irrelevant or extraneous rubber stamp or writing on the script without affecting material portion (c) Share certificate and transfer deed not attached together (d) Logo of the stock exchange on the reverse of the transfer deed is missing. (1 mark each) (b) Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figure(s) : (i) Where a Company Secretary retains the records and books of the client and fails to return on request without a reasonable cause, the act falls under____________. (ii) Practising Company Secretary received statutory recognition for the first time in the history of corporate legislations under_______________. (iii) Most of the e-forms require the _____________ of the Managing Director or Director, Manager or Secretary for successful filing. (iv) Failure to give notice to the Registrar of Companies of conversion of shares into stock, etc., entails punishment under ____________ of the Companies Act, 1956. (v) Regulation 55A of the SEBI (Depositories and Participants) Regulations, 1996 requires the submission of ___________ to stock exchanges. (1 mark each) (c) Give a list of audit points for the purpose of compliance certificate by the Practising Company Secretary in the matter of conversion of a public company into a private company. (5 marks) (d) Elucidate the salient features of clause 43A of the listing agreement as per the SEBI circular dated 27th December, 2007 regarding monitoring of utilisation of the issue proceeds. (5 marks) 2. (a) State, with reasons in brief, whether the following statements are correct or incorrect: (i) While vouching the compliance of issue of sweat equity shares by an unlisted company, the Practising Company Secretary should ensure that the company has not issued shares for more than 15% of total paid-up equity share capital in that year. (ii) Non-filing of particulars of a charge with the Registrar of Companies renders the charge void against the liquidator or against any other creditor of the company. (iii) The stamp duty payable for the transfer of debentures is the stamp duty applicable to the State in which the transfer is executed. 1/2009/SMSA (OS) P. T. O. : 5 : 333 (d) Cost auditor has the same rights and responsibilities as an auditor of a company under section 227(1) of the Companies Act, 1956. Explain. (4 marks) (e) Write a brief note on the functional areas to be reviewed for efficacy of the MIS and the aspects to be examined in respect of production and sales. (4 marks) 5. (a) State, with reasons in brief, whether the following statements are correct or incorrect: (i) An increase in the credit period will lead to an increase in the debtors turnover ratio. (ii) The level of detection risk is related indirectly to the auditor’s substantive procedures. (iii) As per the Cost Audit Report Rules, 2001, ‘Capital Employed’ means Net Fixed Assets + Net Working Capital. (iv) Operational audit provides an assurance to the management regarding the effectiveness of controls and MIS reporting. (v) Adequacy of internal audit function is reviewed by the external auditor and also by the audit committee. (2 marks each) (b) Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figure(s) : (i) Susceptibility to a misstatement that could be material assuming that there were no related internal controls is called____________. (ii) Cost audit report shall be forwarded by the cost auditor to the Central Government within ____________. (iii) Efficiency audit is to ensure that every rupee invested in capital or other fields gives the________________. (iv) Inter-firm comparison and flow charts form part of techniques adopted for_______________. (1 mark each) (c) ‘Propriety audit’ has to ensure the observance of cannons of financial propriety. Critically examine. (6 marks) : 6 : 1/2009/SMSA (OS) Contd... 333 6. (a) During the course of audit of the cost accounting records of a company covered under section 209(1)(d) of the Companies Act, 1956, the auditor has inter alia observed that the following practices are followed by the company in computing the cost of production of captive consumption : (i) Fringe benefits of employees directly engaged in manufacture are included under factory overheads, e.g., gratuity, medical benefits, children’s education allowance, subsidised food, etc. (ii) CENVAT credit, sales tax set-off, duty drawback, etc., are taken as miscellaneous income and adjusted in the cost of production. (iii) Certain input materials of either direct or indirect nature, including packing material which is supplied free of cost by the captive user are not considered in computing cost of production as the manufacturing unit has not incurred any cost. (iv) Moulds, tools, dies and patterns, etc., received free of cost are not considered. Critically examine and offer your comments. (6 marks) (b) Consider the following financial data : Rs. Sales for the year 2,00,000 Stock 1,00,000 Credit sales 1,50,000 Debtors 75,000 Total assets 3,00,000 Share capital (10,000 shares of Rs.10 each) 1,00,000 Net profit 50,000 Market price of a share 20 From the above information, compute the following and give your opinion on each ratio in two or three sentences : (i) Stock turnover ratio; (ii) Debtors/Creditors turnover ratio; (iii) Net profit to total assets ratio; (iv) Price-earnings ratio; and (v) Earnings per share. (2 marks each) 1/2009/SMSA (OS) P. T. O. : 7 : 333 (c) Auditor should use professional judgement to assess audit risk and to design audit procedures to ensure that it is reduced to an acceptably low level. Discuss the components of audit risk. (4 marks) 7. (a) Choose the most appropriate answer from the given options in respect of the following : (i) Compared with a manual system, the consequences of error in a computer system often are more serious because –– (a) Errors in computer system tend to be stochastic (b) Computer system processes more data than manual system (c) Errors in computer system are generated at high speed, and the cost to correct and re-run programs may be high (d) Users of computer systems place too much faith in the correctness of computer output. (ii) A program check that ensures data entered by a data entry operator is complete is an example of –– (a) Detective control (b) Corrective control (c) Preventive control (d) Redundancy control. (iii) The primary objective of tests of controls is to –– (a) Determine whether controls are operating effectively (b) Identify any material errors that have occurred in major classes of transactions (c) Understand whether a control is in place (d) Identify major patterns of errors or irregularities that might exist in final account balances. (iv) Relative to general fraud and embezzlement, computer fraud and embezzlement seem to be –– (a) Unaffected by deterrent controls (b) Smaller in size (c) Larger in size (d) Easier to prosecute via law. (1 mark each)