SAP-5

Accounting

Q.1

Q.2

Q.3

Law, Ethics & Communication

Q.1

Q.2

Q.3

Q.4

Q.5

Q.6

Costing & Financial Management

Q.1

Q.2

Q.3

Q.4

Q.5

Taxation

Q.1

Q.3

Q.2

Q.4

Advanced Accounting

Q.1

Q.3

Q.4

Q.5

Auditing

Q.1

(i) Incorrect: The auditor should study the Memorandum of Association to check the objective of

the company to be carried on, amount of authorized share capital etc. and Articles of Association

to check the internal rules, regulations and ensuring the validity of transactions relating to

accounts of the company. To see the validity of appointment, the auditor should ensure the

compliance of the provisions of section 139, 140 and 141 of the Companies Act, 2013. In addition,

the auditor should study the appointment letter & the prescribed Form submitted to the Registrar

of the Companies to see the validity of his appointment.

(ii) Incorrect: As per section 141(2) of the Companies Act, 2013, where a firm including a limited

liability partnership (LLP) is appointed as an auditor of a company, only the partners who are

Chartered Accountants shall be authorised to act and sign on behalf of the firm.

(iii) Incorrect: If an auditor of a company, in the course of the performance of his duties as auditor,

has reason to believe that an offence involving fraud is being or has been committed against the

company by officers or employees of the company, he shall immediately report the matter to the

Central Government within 60 days of his knowledge and after following the prescribed

procedure.0

Q.2

(a) (i) Disclosure of Intangible Assets in the Books of Accounts: As per the provisions of AS 26

“Intangible Assets”, an intangible assets should be carried in the books at cost less accumulated amortization and accumulated impairment losses. The depreciable amount of an intangible asset

should be allocated on a systematic basis over the best estimate of its useful life. There is a

reputable presumption that the useful life of an intangible asset will not exceed ten years from the

date when the asset is available for use according to Para 63 of AS 26. In the given case, the

company has not amortized any value of goodwill since past three years. The auditor should have

indicated this fact in his report that no amount of goodwill has been written off during the past

three years.

(ii) Treatment of Premium Received on Issue of Shares: Premium received on issue of shares is

capital receipt and should not be credited to Statement of Profit and Loss. As per the provisions of

Section 198 of the Companies Act, 2013 on calculation of profits, premium on issue of shares

should not be considered in computation of net profit. The same need to be complied with for the

purpose of managerial remuneration. The auditor should have qualified the audit report and

qualified the amount by which the profit stands inflated.

(b) Removal of Auditor Before Expiry: As per sub-section (1) of Section 140 of the Companies Act,

2013, an auditor appointed under section 139 may be removed from his office before the expiry of

his term only by a special resolution of the company, after obtaining the prior approval of the

Central Government in that behalf as per Rule 7 prescribed under Companies (Audit & Auditors)

Rules, 2014:

(i) The application to the Central Government for removal of auditor shall be made in Form ADT-

2 and shall be accompanied with fees as provided for this purpose under the Companies

(Registration Offices and Fees) Rules, 2014.

(ii) The application shall be made to the Central Government within 30 days of the resolution

passed by the Board.

(iii) The company shall hold the general meeting within 60 days of receipt of approval of the

Central Government for passing the special resolution.

It is important to note that before taking any action for removal before expiry of terms, the auditor

concerned shall be given a reasonable opportunity of being heard. In the instant case, the first

auditor was removed by the company before the expiry of his term without obtaining approval of

the Central Government. Therefore, it may be concluded that the action of the company for

removal of the auditor before expiry of term is not justified and auditor may be removed from his

office only by following the above mentioned procedure.

Q.3

Appointment of Branch Auditor: The Companies Act, 2013 leaves it to the company to designate

or not to designate any establishment of the company as 'branch office'.

Under the Companies Act, 2013, only establishment "described as such by the company" shall be

treated as a 'branch office'. Further, as per Section 143(8) of the Companies Act, 2013, where a

company has a branch office, the accounts of that office shall be audited either by the auditor

appointed for the company (herein referred to as the company's auditor) under this Act or by any

other person qualified for appointment as an auditor of the company under this Act and

appointed as such under section 139, or where the branch office is situated in a country outside

India, the accounts of the branch office shall be audited either by the company's auditor or by an

accountant or by any other person duly qualified to act as an auditor of the accounts of the branch

office in accordance with the laws of that country and the duties and powers of the company's

auditor with reference to the audit of the branch and the branch auditor, if any, shall be such as

may be prescribed. It is provided that the branch auditor shall prepare a report on the accounts of

the branch examined by him and send it to the auditor of the company who shall deal with it in

his report in such manner as he considers necessary. Section 139(1) of the Companies Act, 2013

provides that every company shall, at the first annual general meeting, appoint an individual or a

firm as an auditor who shall hold office from the conclusion of that meeting till the conclusion of

its sixth annual general meeting and thereafter till the conclusion of every sixth meeting. The

shareholders in general meeting, instead of appointing branch auditor, may authorize the board

of directors to appoint branch auditors. In the present case, the board has appointed branch

auditors without obtaining authorization from the shareholders in general meeting. The board

had appointed the auditor where it did not have authority to do so. As such, the appointment is

invalid. The shareholder’s complaint is right. The branch auditor should ascertain before accepting the audit whether his appointment is valid.

Q.4

Concept of Materiality: According to SA 320 “Materiality in Planning and Performing an Audit”, financial reporting frameworks often discuss the concept of materiality in the context of the

preparation and presentation of financial statements. Although financial reporting frameworks

may discuss materiality in different terms, they generally explain that: • Misstatements, including omissions, are considered to be material if they, individually or in the aggregate, could reasonably

be expected to influence the economic decisions of users taken on the basis of the financial

statements; • Judgments about materiality are made in the light of surrounding circumstances, and are affected by the auditor’s perception of the financial information needs of users of the

financial statements, and by the size or nature of a misstatement, or a combination of both; and • Judgments about matters that are material to users of the financial statements are based on a

consideration of the common financial information needs of users as a group. The possible effect

of misstatements on specific individual users, whose needs may vary widely, is not considered.

(1) Such a discussion, if present in the applicable financial reporting framework, provides a frame

of reference to the auditor in determining materiality for the audit. If the applicable financial

reporting framework does not include a discussion of the concept of materiality, the

characteristics referred above provides the auditor with such a frame of reference. (2) The

auditor’s determination of materiality is a matter of professional judgment, and is affected by the auditor’s perception of the financial information needs of users of the financial statements. In this context, it is reasonable for the auditor to assume that users: (a) Have a reasonable knowledge of

business and economic activities and accounting and a willingness to study the information in the

financial statements with reasonable diligence; (b) Understand that financial statements are

prepared, presented and audited to levels of materiality; (c) Recognize the uncertainties inherent

in the measurement of amounts based on the use of estimates, judgment and the consideration of

future events; and (d) Make reasonable economic decisions on the basis of the information in the

financial statements. (3) The concept of materiality is applied by the auditor both in planning and

performing the audit, and in evaluating the effect of identified misstatements on the audit and of

uncorrected misstatements, if any, on the financial statements and in forming the opinion in the

auditor’s report. (Any 4 points)

Q.5

Factors Governing Modes of Communication of Auditor with Those Charged with Governance:

As per SA 260, “Communication with Those Charged with Governance”, the form of communication (e.g. whether to communicate orally, or in writing, the extent of detail or

summarisation in the communication, and whether to communicate in a structured or

unstructured manner) may be affected by such factors as:- (i) Whether the matter has been

satisfactorily resolved. (ii) Whether management has previously communicated the matter. (iii)

The size, operating structure, control environment, and legal structure of the entity. (iv) In the

case of an audit of special purpose financial statements, whether the auditor also audits the

entity’s general purpose financial statements. (v) Legal requirements. In some jurisdictions, a written communication with those charged with governance is required in a prescribed form by

local law. (vi) The expectations of those charged with governance, including arrangements made

for periodic meetings or communications with the auditor. (vii) The amount of ongoing contact

and dialogue the auditor has with those charged with governance.(viii) Whether there have been

significant changes in the membership of a governing body.

Information Technology

Q.1

Limitations of using Decision Table (i) All programmers may not be familiar with Decision Tables and therefore flow charts

are more common

(ii) Flowcharts can better represent a simple logic of the system rather than a decision

table.

(iii) The decision tables do not express the total sequence of the events needed to solve the problem.

Q.2

Q.3

Superficial or deficient executive involvement Deficient project management Breakdown in gap analysis Limited options for customization of the BPM software is required Not flexible enough or too complicated to be customized to meet the precise work flow

and business process. Failure to identify future business needs Inadequate assessment of the need for change management Persistent compatibility problems with the diverse legacy systems of the partners. Resources not available when desirable Software fails to meet business needs System may be over-engineered when compared to the actual requirements.

Technological obsolescence.

Q.4

Data Processing Cycle: It may be noted, that all the above cycles of processing involves data processing activities which has been updated and stored. The stored information has details about the resources affected by the event and agents who participated in the activity. If the process of updating of the data stored is periodic, it is referred to as batch processing and if involves immediate updating as each transaction occurs, it is referred to as on-line, real-time processing. In the data processing cycle, the processes of business activities about which data must be collected and processed are identified. Further, the activities, resources affected by that event, the agents who participate in that event and the event of interest could be the input, output, processing, storage, alerts, controls and feedback. The Data Processing Cycle consists of following basic steps with alerts, controls and feedback at each step:

Data input - Involves the activities like capturing the data, implementing control procedures, recording in journals, posting to ledgers and preparation of reports.

Data storage - Involves organizing the data in master file or reference file of an automated system for easy and efficient access.

- Involves addition, deletion and updating of the data in the transaction file, master file or reference file.

- Involves generation of documents and managerial reports in printable or electronic form for addressing queries, to control operational activities and help the management in decision making.

Q.5

Value chain refers to separate activities which are necessary to strengthen an organization's strategies and are linked together both inside and outside the organization. It is defined as a chain of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market.

Q.6

Total Quality Management (TQM) is a comprehensive and structured approach to organizational management that seeks to improve the quality of products and services through ongoing refinements in response to continuous feedback. TQM requirements may be defined separately for a particular organization or may be in adherence to established standards, such as the International Organization for Standardization's ISO 9000 series.

Strategic Management

Q.1

Q.2

Q.3

Q.4