Q.No.3 Distinguish between Auditing and Accounting?

Accounting
1. It is an art of recording, classifying, summarizing and interpreting the Transaction.

Auditing
1. It is an examination and reporting on their accuracy.

2. It works with raw or primary data and has primary responsibility for bringing out useful results of operation.

2. Auditing works beings, where the accounting work ends

3. Accountant is primarily responsible for the preparation of financial statements.

3. It is concerned with the preparation & submission of report

4. Accountant need not to be qualified chartered Accountant

4. He must be a Chartered Accountant in case of public limited company.

5. The management determines the extent of work.

5. The extent of work is determined by Companies Ordinance.

Q.no13: Distinguish between: -

Articles of Association and Memorandum of Association. Memorandum of Association. Articles of Association

1.

It contains the conditions upon which the company is granted incorporation.

1)The article is the internal regulation of the company and over these the members have

full control and they can be easily altered.

2.

It cannot give the company power to do anything contrary to the provision of the Companies Ordinance.

3.

2) They are not only limited by the Ordinance but they are also subsidiary to the memorandum.

It is in the nature of a contract between the company and the outside world dealing with the company. 3) They do not create a contract between the company & the outsiders.

4.

It contain the object & power of the company

5.

It cannot be altered except as regards certain specified particulars & in accordance with the provisions of the law.

4) They provide the regulations by which those object and power are to be carried into effect.

5) The can be altered by a special resolution at any time.

Q.No.17 Distinguish between an external auditor and internal auditor

Although there are various similarities of work of an internal auditor and external auditor. But still there are major differences between the two, which are narrated as under: -

External Auditor
1 Main objective
To express an opinion whether the financial statement discloses a true fair view of the companys affairs.

Internal Auditor

To detect error and fraud or as determined by the management.

2. Appointment Appointed by the shareholders. Appointed by the management. 3. Scope

Determined by statues (e.g. Companies Ordinance 1984)

Determined by the management. 4. Status

He is working independently by his responsibility is to report to the shareholders.

1. Qualification In case of public limited companies, the auditor must be a chartered Accountant. He is an employee of the company and is responsible to report to the management.

In this case the qualification is determined by the management.

Q.19: Ans.

Distinction between Financial Audit and Cost Audit. It is difficult to make distinction between Financial Audit and Cost Audit from the Practical point of view though in Principle the difference does exist. As a matter of fact, in cost as well as in Financial Audit, the audit it is ultimately concerned with the financial Audit, the auditor is ultimately concerned with the financial aspect of every business transaction. However, a few points of distinction between the two audits are given below:

Financial Audit

Cost Audit

1. It is Compulsory under companies ordinance It is not Compulsory 1984. 2. Objects are to find out proper maintenance of accounts and representing fair and correct view of the state of affairs of the companys Balance sheet and profit and loss Account. Objects are to find out whether expenditure involved has been wisely incurred or not and to find out the cost of manufacture of each unit of goods.

3. The auditor does not go into the details of Auditor has to check details the cost account the cost of records. to detect manipulations 4. Auditor has to see whether inventories have Auditor has to see whether the inventories are been properly valued and shown correctly for excessive or inadequate for the need of the the purpose of Balance Sheet. factory. 5. Auditor has to see whether the ledger Auditor has to take into account the storage entries and castings are correct. cost. 6. Auditor is not concerned with the issuance Auditor has to see that materials issued of Raw Material according to the program. according to the program

7. The field audit is limited.

The field of audit is wide.

8. Auditor is concerned with the examination Auditor is concerned with the cost aspect of of financial aspect of accounts. the accounts. 9. Primarily concerned to serve the interests of Primarily concerned to serve the interests of the shareholders. the management.

10. The role is in the office.

The role is in the factory.

11. Auditor has to certify the arithmetical Auditor has to go through Subsidiary / ledger accuracy of the entries in the proper books of regarding material, labour and other items of accounts. costs.

INTERNAL CONTROL
Q.45: What is internal Control? Clearly distinguish between Internal Check, Internal Audit and Internal Control.

Internal Control According to International Auditing Guideline No. 6, the system of internal control is the plan of organization and all the methods and procedures adopted by the management of an entity to assist in achieving management objectives of ensuring, as far as practicable, the orderly and efficient conduct of its business, including adherence to management polices, the safeguarding of assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and he timely preparation of reliable financial information. The system of internal control extends beyond those

Internal Check Internal Check can be defined as the checks on the day to day transactions which operate continuously as part of the routine system whereby he work of one person is proved independently, the objective being the prevention or early detection of errors and frauds, it includes matter such as the delegation and allocation of authority and he division of work the method of recording transactions, and the use of independently ascertained total against a large number of individual items can be proved .

Internal Audit Internal Audit can be defined as, An independent appraisal activity within an organization for the review of operations as a service to management, it is a managerial control which functions by measuring and evaluation the effectiveness and other control. Internal Audit acts as a separate, higher level of internal control to determine the level whether the underlying accounting system and internal accounting controls there in a re functioning effectively.

matters, which relate directly to the functions of accounting system.

AUDITING
1. MAIN OBJECTIVES: To verify whether the financial statement display a true and fair view of the state if affairs and working results of an undertaking.

INVESTIGATION
To establish a fact or happening or to assess a particular situation.

2. LIABILITY: Auditor liability is determined by statute and cannot be limited. Investigators liability is based on the engagement letter and can be limited.

3. Approach: a) Test examination based on review of internal control. Relatively through examination of the select areas.

b) Auditor may rely on compliance and prima facie evidence. Investigators have to obtain substantive and conclusive evidence. c) Auditor should assume a figure or a fact as correct unless evidences obtained prove otherwise.

Investigator should not accept a fact as correct until it is substantiated.

d) Auditor would reelect a representative sample of transactions, examine them in depth and if nothing arouses suspicion he his conclude his examination.

Investigator would attempt to locate substantive evidence in support of the quantitative and monetary figures and would check all related records thoroughly and use of statistical or discovery-sampling techniques would assist him to narrow down his inquiry.

4.Auditor is concerned about the consistent use of accounting policies and compliance Investigators may have no relevance with the

with disclosure requirements.

accounting conventions, disclosure requirements, etc.

Q.21 DIFFERENTIATE BETWEEN CONTINUOUS AND INTERIM AUDIT.

Continuous Audit 1. Object: The object of continuous audit is to show the trade and fair view of financial statement.

Interim Audit 1. Object: The object of interim audit is to determine and check the profit or loss for the period under audit. 2. Report: The reported can be presented at the and of the interim audit and it is submitted to owners. 3. Period: The interim audit can examine the accounts books and other records up to particular date. 4. Scope:

2. Report: The report can be presented at the end of the accounting year under continuous audit.

3. Period: The continuous audit can examine the accounts books and other record for one whole year.

4. Scope:

There is detailed checking of accounting records under continuous audit

There are no detailed checking of accounting records under interim audit. 5. Verification: In interim audit the verification of assets and liabilities is made at the tone of such audit. 6. Trial Balance:

5. Verification: The continuous audit requires verification of assets and liabilities at the end of financial year.

6. Trial Balance:

The trial balance is not The trial balance is prepared at intervals in prepared and in checking at the continuous audit time of interim audit. 7. Fee: The auditor can take high fee according to time period spent on audit work 7. Fee: The auditor can charge less fee due to less time spent on audit work. 8. Interest: The third parties have no interest in interim audit as it does not serve their purpose. 9. Regular:

8. Interest: The third parties have some interest in continuous audit as it can serve their purpose

9. Regular:

Continuous audit is a Interim audit is not regular feature of a regular feature business working. It goes of business working. It is

from year to year.

conducted occasionally. 10. Size: Interim audit is possible in large scale as well as small scale business units. 11. Goals: The audit is conducted for one purpose or goal only. The manager and owner can determine the goals.

10. Size: Continuous audit is possible for large-scale business units due to heavy work.

11. Goals: The audit is conducted for many purpose or goals. It is legal duty to carry out audit`

CONTINUOUS AUDIT 1. Scope

FINAL/COMPLETED AUDIT

In continuous audit there is detailed and In final audit there is no detailed and complete complete checking of accounts books Records checking of accounts books.

2.

Visit

The audit staff frequently visits and checks the The audit staff visits once and checks the accounts. Business accounts.

3.

Time

The continuous audit is possible as and when The final audit is possible only when all the accounting entries recorded in books. entries are recorded in the books of accounts. 4. Cost

The continuous audit is expensive than final The final audit is cheaper than continuous audit due to high audit cost. audit due to less audit cost. 5. Check

The continuous audit can put more check on The final audit can put less pressure on moral the accounting employees. value of the accounting staff. 6. Entity

The continuous audit is desirable for large- The final audit is desirable for small-scale scale business. business 7. Continuity

The continuous audit may continue for whole The final audit cannot continue for whole Year, year with fixed or variable intervals it is completed in one session 8. Control

Continuous audit can be started even if there Final audit requires effective internal control. is poor system of internal control. 9. Plans

In continuous audit the accounts are prepared The final audit is made after the end of year.

in time so plans can made in time. 10. Chance

Planning for future period becomes late.

The chance of errors and fraud are reduced to The chance of error and fraud are there due to no big time gap between accounting work and sufficient time between accounts work and audit. audit. 11. Dividend

The management can declare interim dividend The management cannot declare interim dividend as audit is completed as the end of due to continuous audit. the year.