1. What is routine checking?

Ans. The routine checking is a part of vouching, which is essential work of an audit. routine checking refers to the
process of examining transactions, documents, or records on a regular basis as part of the overall audit

ROUTINE CHECKING
procedures. This involves systematically reviewing financial statements, accounts, and supporting documentation
to ensure accuracy, completeness, and compliance with relevant accounting standards and regulations.
Ans.
2. What is audit report?
Ans. An audit report is a formal document prepared by auditors upon completion of an audit engagement. It
provides a summary of the audit findings, conclusions, and recommendations based on the auditor's examination
of an organization's financial statements, internal controls, or other specified areas.

3. What is meant by Internal Check System?

Ans. Internal check system refers to a set of controls, procedures, and measures put in place by an organization to
safeguard its assets, prevent errors or fraud, ensure accuracy in financial reporting, and promote operational
efficiency. It's essentially a way for a company to check itself internally.

4. Give three examples of compensating error.

Ans. the following errors were discovered:

 An invoice for $620 issued to Levis was recorded in the sales book as $1,620 and posted to the ledger
accordingly.

 A cheque for $1,780, received from Harry, was entered in the cash book but not posted to his personal
account in the ledger.
 Goods costing $950 were taken by the owner for their personal use but no corresponding entry was made
in the books.

5. Give difference between error and frauds?

Ans.

Aspect Errors Frauds

Definition Unintentional mistakes or omissions in Deliberate and intentional misstatements or

financial statements or accounting records. manipulations of financial statements or

accounting records.

Intent Lack of intent to deceive Intent to deceive or manipulate

Nature Unintentional and unintentional Intentional and deceptive

Cause Human error, technological glitches, Intentional manipulation, misrepresentation,

misinterpretation of facts concealment of facts

Detection May be identified through reconciliation, May be identified through investigation,

review, and audit procedures forensic accounting, and whistleblowing

Impact May affect financial statements and Can lead to significant financial loss,

business operations reputational damage, and legal consequences

Legal Typically not subject to legal action, Subject to legal action, potential criminal

Implications unless resulting from negligence charges, and civil penalties

Ans. Error Fraud
6. What is cost audit?
Ans. Cost audit is a process where a specialized auditor examines a company's cost accounting records to
ensure that the costs recorded are accurate and reasonable. It involves reviewing various aspects of cost
management, such as the allocation of expenses, pricing strategies, cost control measures, and adherence to
regulatory requirements.

7. Write a note on Audit Working Paper? 6m

Ans. Audit working papers are the documents prepared by auditors during an audit engagement. These
papers contain the evidence obtained and the procedures followed by the auditors in performing their
work. Its purpose is to record the audit process and provide a basis for the auditor’s conclusions and
opinions.
Audit working papers are very important as they serve as a reference for future audits and
help auditors ensure they conduct their work according to professional standards and regulatory
requirements. However, due to such sensitive information, these papers are confidential.
Audit working papers are typically the property of the audit firm that prepared them, but clients have the
right to access them and may request a copy for their records.

8. Bring out the difference between vouching and verification? 6m

Ans.
BASIS FOR
VOUCHING VERIFICATION
COMPARISON
Meaning Vouching means checking the accuracy Verification means a process to substantiate the
of the transactions recorded in the books validity of assets and liabilities appearing in the
of accounts. Balance Sheet.
Basis Documentary Evidence Observation and Documentary Evidence

Examination of Items of Profit & Loss account Items of Balance Sheet

Carried out by Audit clerks Auditor

Time Horizon Year-round At the end of the financial year.

Objective To examine the correctness, validity and To confirm the ownership, possession,
completeness of the transactions. existence, valuation and disclosure of the items
appearing on the Balance Sheet.
9. What are the liabilities of statutory auditor under Companies Act, 2013?
Ans. Under the Companies Act 2013, statutory auditors are responsible for auditing the financial statements of
companies and issuing an audit report.If they fail to perform their duties properly, they can be held liable for various
penalties and legal actions. The following are some of the liabilities of statutory auditors under the Companies Act
2013:

i). Civil Liability: Statutory auditors can be held liable for civil damages if they are found to have committed any
negligence or misconduct in the performance of their duties. They can be sued by the company or its stakeholders for
any losses suffered due to their negligence or misconduct.

ii). Criminal Liability: If statutory auditors are found to have committed any fraud or misrepresentation in the audit of
financial statements, they can be held criminally liable under the Companies Act 2013. They can be prosecuted and
punished with imprisonment and fines.
iii). Professional Liability: If auditors fail to comply with the auditing standards and guidelines issued by the Institute of
Chartered Accountants of India (ICAI) then they can be held liable for professional misconduct.

iv). Regulatory Liability: If auditors fail to comply with the provisions of the act, rules, and regulations issued by the
SEBI or any other regulatory authority then they can be penalized and their registration can be cancelled.

v). Joint and Several Liability: In case of multiple auditors, they can be held jointly and severally liable for any
negligence or misconduct in the performance of their duties. This means that each auditor can be held liable for the
entire loss suffered by the company or its stakeholders.

9. What do you mean by Auditing? Discuss the objectives of Auditing? Highlight the differences between
continuous audit and periodical audit.
Ans Auditing is the process of examining and verifying a company's financial and operational records. The goal is
to ensure that financial statements and operations are accurate, complete, and compliant with applicable
regulations and standards.

Objectives
1. Ensuring Accuracy: Auditors verify the accuracy of financial records and statements to ensure they
reflect the true financial position and performance of the organization.
2. Compliance: Auditors ensure that the organization complies with relevant laws, regulations, and
accounting standards.
3. Detecting Errors and Fraud: Auditors identify errors, irregularities, or instances of fraud in financial
records and transactions, helping to prevent financial losses and maintain integrity.
4. Assessing Internal Controls: Auditors evaluate the effectiveness of internal controls and procedures to
safeguard assets, prevent fraud, and ensure operational efficiency.
5. Providing Assurance: Auditors provide assurance to stakeholders, including shareholders, investors,
creditors, and regulatory authorities, regarding the reliability of financial information.

Here comparison of continuous audit and periodical audit presented in a table format:

Aspect Continuous Audit Periodical Audit

Nature Ongoing, regular examination Conducted at specific intervals
Frequency Continuous or frequent intervals Specific intervals (e.g., annually, quarterly)

Automation Relies heavily on technology and automation May involve manual procedures

Risk Management Offers timely risk identification Historical perspective on risk detection
Scope Covers transactions throughout the year Reviews transactions for a specific period

Cost Relatively costly due to technology May be less costly, especially for smaller orgs

10. What is business ethics? How do values and ethics play an important role in the present day business? 3+9
Ans. Business ethics is the moral principles, policies, and values that govern the way companies and individuals
engage in business activity. It goes beyond legal requirements to establish a code of conduct that drives
employee behavior at all levels and helps build trust between a business and its customers.

Values and ethics are crucial in present-day business for several reasons:
1. Trust and Reputation: Upholding ethical standards builds trust with stakeholders and enhances the
reputation of the business. Customers, employees, investors, and partners are more likely to engage with
and support companies they perceive as ethical.
2. Legal Compliance: Adhering to ethical principles helps businesses comply with laws and regulations
governing their operations. It reduces the risk of legal disputes, fines and penalties that can arise from
unethical behavior.
3. Employee Morale and Engagement: Organizations that prioritize ethics create a positive work
environment where employees feel valued and respected. This fosters higher morale, loyalty and
engagement among staff, leading to increased productivity and retention.
4. Customer Satisfaction: Ethical business practices, such as honesty, transparency, and fair treatment,
contribute to customer satisfaction and loyalty. Satisfied customers are more likely to repeat purchases
and recommend the business to others.
5. Long-Term Sustainability: Ethical behavior is essential for the long-term sustainability of businesses. It
helps companies build enduring relationships with stakeholders, adapt to changing market conditions,
and mitigate risks associated with unethical conduct.
6. Social Responsibility: Businesses have a responsibility to contribute positively to society and the
environment. Ethical decision-making considers the impact of business activities on communities, the
environment and future generations.

11. What is corporate social responsibility? What are the provisions on Corporate Social Responsibility
under the Companies Act, 2013?
Ans. Corporate Social Responsibility (CSR) refers to a business approach that contributes to sustainable
development by delivering economic, social and environmental benefits for all stakeholders. In essence, it involves
companies taking responsibility for their impact on society and integrating social and environmental concerns into
their business operations and interactions with stakeholders.

Under the Companies Act, 2013 in India, provisions for CSR are outlined in Section 135. The key provisions
include:

1. Mandatory CSR Spending: Companies meeting certain financial thresholds are required to spend at
least 2% of their average net profits of the preceding three financial years on CSR activities.

2. Eligibility Criteria: This mandate applies to companies with a net worth of Rs. 500 crore or more, or a
turnover of Rs. 1000 crore or more, or a net profit of Rs. 5 crore or more during any financial year.

3. Constitution of CSR Committee: Every eligible company must constitute a CSR Committee consisting of
three or more directors, with at least one independent director.

4. CSR Policy: The CSR Committee is responsible for formulating and recommending to the board a CSR
policy that outlines the activities to be undertaken by the company as specified in Schedule VII of the Act.

5. Disclosure Requirements: The board's report of a company covered under these provisions must include
a disclosure on CSR initiatives taken during the year. This should include the composition of the CSR
Committee, CSR policy, initiatives undertaken, amount spent, and reasons for underspending, if any.

6. Areas for CSR Activities: The Act specifies various areas where CSR activities can be undertaken,
including eradicating hunger, poverty, and malnutrition; promoting education; promoting gender equality
and empowering women; ensuring environmental sustainability; and more.
 7. Monitoring and Evaluation: The CSR Committee is tasked with monitoring the implementation of CSR
activities and evaluating their impact.

These provisions aim to encourage companies to contribute positively to society beyond their profit-making
activities, thereby fostering sustainable development and societal well-being.

12. “Accounting is a necessity while auditing is a luxury”. Comment.

Ans. Accounting is basically a service function that embraces the formal design, installation, and
operation of a system of accounts in order that business transactions maybe properly recorded and
reported. It is usually called the language of business, and an "aid to management".

It is therefore clear that Accounting is a NECESSITY in all kinds of business specially big companies,
whether a single owner or a corporation. ( non-profit or profit ) Even a family, father, mother and older
children needs accounting to check their incomes and expenses.

Who needs accounting information, mainly the financial statements ( The Balance Sheet or Statement of
Condition, and the Income Statement or Statement of Operation ) to safeguard their interests? We have
the 1. Management, 2. Creditors, actual and prospective, 3. Investors, actual and prospective, 4.
Stockholders, 5. Empoyees, unions, 6. Regulatory and taxing authorities, etc. The reasons are self
explanatory.

Auditing is actually a part of Accounting. It is a specialized area that deals with the examination and
review of the accounting records mainly, to find out the effectiveness of the accounting internal control
systems and procedures and also, management policies and practices. In short not only finding errors
and fraud, but to effectively assist management to avoid or reduce such occurrences. We have internal
auditors (co. employees ) and external auditors ( generally CPA's ) with the objective of forming an
independent opinion as to the fairness, and consistency of the Statements of operation and condition of
the company.

Based on above informations, we can therefore conclude that Accounting, with Auditing systems is
necessary in business and guides management in the effective implementation of its policies and
procedures for the success of the company

Alternate
Let's delve into each aspect to understand the statement in depth:
1. Accounting as a Necessity:
Accounting is the systematic process of recording, summarizing, and analyzing financial transactions of a business
entity. It provides the foundation upon which financial information is communicated to stakeholders, including
investors, creditors, management, and regulatory authorities. Here's why accounting is considered a necessity:
a. Financial Reporting: Accounting generates financial statements such as the balance sheet, income statement,
and cash flow statement, which are essential for assessing the financial health and performance of a company.
These statements are indispensable for decision-making by investors, creditors, and other stakeholders.
b. Compliance: Businesses are legally required to maintain accurate accounting records in compliance with
accounting standards and regulatory requirements. Failure to do so can result in penalties, legal liabilities, and
damage to the company's reputation.
c. Decision Making: Management relies on accounting information to make informed decisions regarding
resource allocation, investment strategies, pricing, and operational efficiency. Without accurate accounting data,
effective decision-making becomes difficult, leading to potential inefficiencies and losses.
d. Investor Confidence: Transparent and reliable accounting practices enhance investor confidence in the
company's financial reporting, thereby facilitating access to capital markets and attracting investment.
2. Auditing as a Luxury:
Auditing is an independent examination of a company's financial statements and underlying accounting records by
a qualified auditor to ensure their accuracy, reliability, and compliance with applicable standards and regulations.
While auditing is essential for enhancing trust and confidence in financial information, it is often perceived as a
luxury due to the following reasons:
a. Cost: Auditing services incur additional costs for businesses, including fees paid to external auditors. Small
businesses or startups with limited resources may view auditing as a luxury that they cannot afford, especially in
the initial stages of operations.
b. Voluntary Nature: While statutory audits are mandatory for certain types of companies or above a certain
threshold, many businesses are not legally required to undergo external audits. As a result, some companies may
perceive auditing as optional or discretionary, especially if they believe that internal controls and management
oversight are sufficient to ensure financial accuracy.
c. Resource Intensive: Auditing requires significant time, expertise, and resources, both from the company being
audited and the auditing firm. This can be perceived as a luxury, particularly in organizations where resources are
already stretched thin or where the focus is primarily on day-to-day operations.
d. Risk Perception: Some companies may underestimate the importance of auditing, especially if they perceive
the risk of financial misstatement or fraud to be low. This perception can lead to complacency and a reluctance to
invest in auditing as a risk mitigation measure.

13. What is test checking? What precautions has to be taken while test checking? 3+3
Ans. Test checking is a sampling technique used in auditing to review a portion of transactions rather than
examining every single one. Test checking allows auditors to obtain reasonable assurance about the accuracy and
reliability of financial information while minimizing time and effort.

1. Sample Size: A larger sample size generally provides more reliable results, but it also requires more time
and resources. Balancing sample size with efficiency is crucial.
2. Documentation: Document the sampling process thoroughly, including the criteria used for selection, the
rationale behind the sample size, and any deviations from the planned sampling approach. Clear
documentation helps ensure transparency, accountability, and reproducibility of the audit procedures.
3. Evaluation of Results: Analyze the results obtained from the test checking process carefully. Assess
whether any errors or irregularities detected in the sample are indicative of systemic issues or isolated
incidents. Consider the implications of the findings for the overall reliability of the financial information
and the effectiveness of internal controls.
14. “An auditor is a watchdog and not a bloodhound”. —Explain. 6m
Ans. Let's delve into the key characteristics of both perspectives to understand this debate better.

1. Watchdog: A watchdog, in the context of auditing, refers to an independent professional who acts as a
guardian or overseer. Here are some reasons why an auditor can be considered a watchdog:

Independent Oversight: Auditors act as a safeguard against potential fraud, errors, and irregularities in the
financial statements. Their primary responsibility is to provide assurance to stakeholders, including shareholders,
creditors, and regulators, that the financial information presented is reliable and accurate.

- Compliance with Laws and Regulations: Auditors ensure that an organization complies with applicable laws,
regulations, and accounting standards. They review the internal control systems to identify any weaknesses or
deficiencies that may lead to non-compliance.
- Risk Management: Auditors assess the risk environment within an organization, identify potential risks and
provide recommendations to mitigate those risks.

2. Bloodhound: A bloodhound, on the other hand, refers to a detective-like approach where an auditor is seen as
actively searching for any signs of wrongdoing or irregularities. Here are some reasons why an auditor can be
considered a bloodhound:

- Forensic Analysis: Auditors perform detailed examination and analysis of financial records, transactions, and
documents to identify any discrepancies or suspicious activities. They use various audit techniques, including
data analysis, to uncover potential fraud or errors.

- Reporting and Disclosure: Auditors have a duty to report any material findings or issues identified during the
audit process. They communicate their findings through the audit report, which provides crucial information to
stakeholders.

15. What is Corporate Governance Rating?

Ans. A corporate governance rating refers to the status of a company with respect to the adoption of
corporate governance practices. This rating is the final opinion regarding the important a corporation
attached to corporate governance by looking at the information they provide to stakeholders, relationship
with financiers, customers, suppliers, the community and others.

16. What is auditor’s certificate?

Ans. An auditor's certificate is a formal document issued by an independent auditor or auditing firm after
conducting an audit of a company's financial records. It serves as an assurance to stakeholders, such as
shareholders, creditors, and regulators, that the financial statements of the company are accurate and reliable.

17. What is Compensating error?

Ans. A compensating error is an accounting error that offsets another accounting error. These errors can be
difficult to spot when they occur within the same account and in the same reporting period, since the net effect
is zero

18. What is Tax Audit?

Ans. The tax audit ensures that the taxpayer has provided complete and accurate information regarding his
income, deductions, and taxes. This is to be conducted by a Chartered Accountant. The entity has to maintain
proper books of accounts to be audited by a Chartered Accountant.

19. What is Green Governance?

Ans. Green governance in corporate settings involves initiatives to tackle climate change, protect biodiversity, and
ensure decent work while still earning profits. It's important because of environmental sustainability, increasing energy
demand, and environmental degradation due to global warming.

Green governance aims to improve environmental essentials in different sectors, such as: buildings, water, transport,
public health, industry, climate, rural abandonment, and energy.

20. Distinguish between Internal Check and Internal Control.?

Ans.
Aspect Internal Check Internal Control
Verification of transactions by employees Comprehensive system of policies, procedures, and
to detect and prevent errors and fraud practices implemented by management to ensure
through mutual checks and cross-checks efficient operations, safeguard assets, and achieve
Definition within the organization. organizational objectives.
 Aspect Internal Check Internal Control
Detect and prevent errors and fraud Ensure the effectiveness and efficiency of
through mutual checks and cross-checks operations, reliability of financial reporting, and
Objective within the organization. compliance with laws and regulations.
It is a part of the system of internal It encompasses the entire system of internal
Nature control. controls.
Primarily focused on transactional Broader scope covering all aspects of organizational
Scope accuracy and integrity. operations and risk management.
Includes techniques like rotation of duties, Comprises elements such as control environment,
supervision, and division of work among risk assessment, control activities, information and
Components employees. communication, and monitoring.
Involves management at various levels, including
Typically involves line staff or operational top management, as well as internal audit and
Responsibility personnel. compliance functions.

21. Briefly discuss the characteristics of good audit report.?

Ans. A good audit report possesses several key characteristics that contribute to its effectiveness and reliability.
Here are some of the most important characteristics:

1. Clear and Concise: The report should be written in clear and simple language, avoiding technical jargon
and ambiguity. It should communicate the audit findings and conclusions in a concise manner that is easy
for the intended audience to understand.

2. Objective and Impartial: The report should maintain objectivity and impartiality throughout, presenting
findings based on evidence and facts rather than personal bias or opinion. It should be free from any
conflicts of interest or undue influence.

3. Comprehensive Coverage: The report should cover all relevant aspects of the audit engagement,
including the scope, objectives, methodology, findings, conclusions, and recommendations. It should
address key risks and areas of concern identified during the audit process.

4. Evidence-based: Findings and conclusions should be supported by sufficient and appropriate evidence
gathered during the audit. The report should clearly reference the sources of evidence and the procedures
used to gather it, providing transparency and credibility.

5. Risk-focused: The report should prioritize and emphasize significant risks and areas of non-compliance
or weakness identified during the audit. It should help stakeholders understand the most critical issues that
require attention and action.

6. Timely: The report should be issued in a timely manner, providing stakeholders with relevant information
when they need it most. Delays in issuing the report can diminish its value and impact on decision-making.

22. Specify three advantages and three disadvantages of test checking.

Ans.Here are three advantages and disadvantages of test checking:

Advantages:
1. Cost-Effectiveness: Test checking can be more cost-effective compared to examining every single item
in a population. It reduces the time and resources required for auditing processes while still providing
reasonable assurance of accuracy.
2. Time Efficiency: Test checking allows auditors to cover a larger population within a shorter period.
Instead of examining every single transaction, they can select a representative sample, enabling them to
complete audits more efficiently.
3. Risk Identification: Through test checking, auditors can identify potential risks and areas of concern
within a population. By examining a sample, they can pinpoint irregularities or anomalies that may
indicate systemic issues, fraud, or errors.

Disadvantages:

1. Sampling Error: Test checking introduces the risk of sampling error, where the selected sample may not
accurately represent the entire population. This can lead to incorrect conclusions about the overall
accuracy or integrity of the population.
2. Limited Assurance: While test checking provides some level of assurance, it does not guarantee the
detection of all errors or irregularities within a population. There is always the possibility that significant
issues may remain undetected if they are not included in the sample.
3. Subjectivity in Sample Selection: The process of selecting a sample for test checking can be subjective
and influenced by auditor judgment. If auditors do not apply appropriate sampling techniques or if there
is bias in the selection process, it can compromise the validity of the audit results.

23. What is management audit? State the advantages of management audit.

Ans. Management Audit is a process of evaluation of work done at all levels of Management. This ensures that the

efficiency and productiveness of the management team is maintained.

Evaluation is done from the highest level to the bottom to make sure that the work is going smoothly at all levels.

It reviews all aspects of management from planning, organization, implementation and control. This also shows

whether the managerial team is efficient in handling their employees or not and shows weaknesses of the company.

The importance of Management Audit and the advantages it provides to an organization is given below.
1. Systematic evaluation of efficiency

Efficiency of the organization can be evaluated systematically and independently and achievements can be
compared to the standards set up by the company.
2. Scrutiny of policies and procedures

Policies and procedures undertaken by management are scrutinized in order to ascertain whether
organization goals have been reached.
3. Correction of policies and procedures

Ineffective policies and procedures are corrected and revised to better suit the organization's needs.
 4. Rectification of decision making

Ineffective decisions made by management are rectified and help is provided to management to make better
decisions in the future.
5. Helps to increase profitability

A Management Audit helps an organization in the long run by increasing its profitability. This can be done
by proper resource allocation and funds.
6. Results-oriented

Management Audits are result oriented and they prioritize the end performance and results over procedures
followed.

24. “Vouching is the backbone of auditing” – Explain the statement.

Ans. Vouching plays a crucial role in the auditing process, acting as the backbone that ensures the reliability and
accuracy of financial statements. It involves examining and verifying the authenticity of transactions and
supporting documents by linking them to source documents, such as invoices, receipts, contracts, and
agreements.

**Importance of Vouching in Auditing:**

1. **Verification of Existence and Occurrence:** Vouching helps auditors confirm whether the recorded
transactions actually occurred and whether the goods or services mentioned in the financial statements exist. By
examining source documents, auditors can ensure the validity of these transactions and prevent the inclusion of
fictitious entries.

2. **Detection of Errors and Frauds:** Vouching acts as a preventive measure against errors and frauds. By
tracing transactions back to their source documents, auditors can identify any discrepancies, such as incorrect
amounts, unauthorized transactions, or unrecorded liabilities. This process helps in detecting and rectifying errors
and preventing fraudulent practices.

3. **Validation of Ownership and Rights:** Vouching also helps auditors validate ownership and rights
associated with the transactions. By verifying supporting documents like agreements, contracts, and deeds,
auditors can ensure that the organization holds legal ownership of assets, rights, or interests mentioned in the
financial statements.

4. **Compliance with Standards and Regulations:** Vouching assists auditors in ensuring compliance with
applicable accounting standards, regulations, and laws. By examining transactions and supporting documents,
auditors can verify whether the financial statements adhere to the required accounting principles and regulatory
frameworks
.
5. **Enhancement of Credibility and Reliability:** Vouching provides credibility and reliability to financial
statements by substantiating the recorded transactions. Stakeholders, such as investors, creditors, and
shareholders, rely on audited financial statements to make informed decisions. The thorough examination of
transactions through vouching helps in building trust and confidence in the financial reporting process.

25.What is meant by code of ethics? What are the benefits of maintaining code of ethics in an
organisation? 3+9
Ans.A code of ethics is a set of values and principles that guide the behavior of professionals, employees,
or members of an organization. It establishes the standard of behavior expected of them and may
include penalties for violating the code

A code of ethics in an organization can have many benefits, including:

 i)Building a good reputation: A strong code of ethics can enhance a business's reputation and brand
image. Consumers are more likely to trust and support businesses that align with their values, leading to
increased customer loyalty and brand advocacy.

ii)Attracting outstanding employees: A code of ethics can help attract outstanding employees.

iii)Promoting social change: Attention to business ethics has substantially improved society.

iv)Increasing employee performance: The perception of ethical behavior can increase employee
performance, job satisfaction, organizational commitment, trust and organizational citizenship behaviors.

v)Creating a better working environment: Businesses that respect the rights of the employees and
treat them fairly can create a better working environment with a strong and unified team of employees.

vi)Mitigating risks: A code of ethics acts as a safeguard against potential risks and conflicts in
outsourcing relationships. By clearly defining acceptable practices and behaviors, organizational leaders
can mitigate risks related to legal and regulatory compliance, data security, and confidentiality

26.What are the reasons for recent interest in Corporate Governance in India? What benefits does Corporate
Governance offer to the stakeholders of a corporation? 6+6
Ans. In India, there has been a growing interest in corporate governance due to several reasons:

1. Globalization and Competition: With India's increasing integration into the global economy, there's a
need for Indian companies to adhere to international standards of corporate governance to attract
foreign investment and compete effectively on a global scale.
2. Corporate Scandals: High-profile corporate scandals and fraud cases have highlighted the importance
of strong corporate governance practices in preventing unethical behavior, protecting investor interests,
and maintaining public trust in the business sector.
3. Regulatory Reforms: The Indian government and regulatory authorities have introduced various
reforms and regulations aimed at enhancing corporate governance standards, such as the Companies
Act, SEBI (Securities and Exchange Board of India) guidelines, and the establishment of institutions like
the National Financial Reporting Authority (NFRA).
4. Investor Activism: Increasing investor activism and shareholder awareness have put pressure on
companies to adopt transparent and accountable governance practices. Institutional investors, as well as
individual shareholders, now demand greater transparency, accountability, and fairness from the
companies they invest in.
5. Risk Management: Effective corporate governance helps companies identify, assess, and manage risks
more efficiently. By implementing robust governance mechanisms, companies can mitigate risks related
to fraud, financial mismanagement, compliance failures, and reputational damage.
6. Stakeholder Expectations: Beyond shareholders, other stakeholders such as employees, customers,
suppliers, and communities have also become more concerned about corporate governance practices.
Addressing the interests and concerns of all stakeholders is essential for sustainable business growth
and social responsibility.

Benefits of Corporate Governance to Stakeholders:

1. Shareholders: Corporate governance enhances shareholder value by ensuring transparency,
accountability, and effective oversight of management. Shareholders benefit from improved financial
performance, reduced risk, and increased confidence in the company's management.
2. Employees: Good corporate governance promotes a positive work culture, fair treatment of employees,
and opportunities for career growth. Employees feel more engaged, motivated, and loyal to companies
that prioritize their well-being and uphold ethical standards.
3. Customers: Customers prefer to do business with companies that demonstrate integrity, honesty, and
accountability. Strong corporate governance practices build trust and credibility with customers, leading
to increased customer loyalty and satisfaction.
4. Suppliers and Partners: Suppliers and business partners prefer to collaborate with companies that have
strong governance structures in place. They benefit from more transparent and reliable business
relationships, reducing the risk of non-payment, contract disputes, or unethical conduct.
5. Communities: Companies with good corporate governance contribute positively to the communities in
which they operate. They create employment opportunities, support local economies, and engage in
corporate social responsibility initiatives that benefit society as a whole.
6. Regulators and Government: Regulators and government authorities benefit from improved
compliance with laws, regulations, and reporting requirements. Effective corporate governance reduces
the risk of financial misconduct, fraud, and regulatory violations, leading to greater stability and
confidence in the financial markets.

27. What do you mean by Statutory Audit and Non-statutory Audit? Bring out differences between Statutory Audit
and Internal Audit.
Ans.

A statutory audit is required by law and must be performed by external auditors. It determines whether an
organization is providing a true and fair view of its financial performance. Statutory audits are required for certain
organizations, such as government corporations, banks, insurance companies, and charities. Small companies are
usually excluded from audits if they have fewer than 50 employees.

A non-statutory audit is usually conducted at the request of the directors, trustees, or shareholders, and can be
performed by internal auditors. It's not limited to financial reporting and can be used for any part of an
organization. Non-statutory audits are conducted to identify an organization's weaknesses that may hamper its
productivity and efficiency. They also provide assurance to stakeholders that the financial statements are free from
material misstatements and are presented fairly.

Here's a table summarizing the differences between statutory audit and internal audit:

Aspect Statutory Audit Internal Audit

Determines if financial statements are accurate Evaluates internal controls, risk management, and
Purpose and comply with laws and standards. operational effectiveness.

Requirement Legally mandated for certain organizations. Conducted at the discretion of management or the board.

Conducted External auditors appointed by shareholders or

by regulators. Internal auditors employed by the organization.
 Aspect Statutory Audit Internal Audit

External auditors are independent of the

Independence organization. Internal auditors are part of the organization's structure.

Primarily focuses on financial reporting and Can cover various aspects including financial,
Scope compliance. operational, and compliance areas.

Issues an audit opinion included in financial Provides reports to management and the board,
Reporting statements. highlighting findings and recommendations.

Typically conducted annually or as required by Conducted on a regular basis (e.g., quarterly, annually)
Frequency law/regulation. or as needed by management.

Reports are shared with shareholders, regulators, Reports are used internally by management and the
Audience and other stakeholders. board to improve controls and processes.

28. Discus the advantages of Audit to the

Management

Audit provides several advantages to management. Here are some key advantages.

Assurance of Accuracy: By examining financial records, transactions, and processes, auditors verify that financial
information is presented fairly and accurately, providing management with confidence in the reliability of their
financial reporting.

ii) Risk Identification and Mitigation: Audits identify potential risks and weaknesses in internal controls,
processes, and procedures. By assessing these risks, management can take proactive measures to mitigate them
then enhancing the organization's ability to prevent fraud, errors, and irregularities.

iii) Enhanced Decision-Making: Audits provide management with reliable financial information and insights into
the organization's financial health and performance. Armed with this information, management can make
informed decisions regarding investments, strategic planning, and resource allocation with organizational goals
and objectives.

Government

1. Enhancing Governance: Audits contribute to improved governance within government agencies. By

evaluating internal controls, governance structures, and risk management practices, auditors provide
recommendations for strengthening governance mechanisms and enhancing decision-making
processes.

2.Risk Management: auditors help government agencies identify potential risks and vulnerabilities, enabling
proactive risk management and mitigation strategies.
3.Detection and Prevention of Fraud and Corruption: Audits identify irregularities, fraud, and
corruption within government agencies. By detecting these issues early, audits help prevent financial
losses and protect public resources from misuse or misappropriation.

Shareholders

here are the key advantages of audits to shareholders:

1.Trust and Confidence: Audits provide shareholders with assurance that the company's financial
statements accurately reflect its financial position and performance. This transparency builds trust and
confidence in the company's management and operations.

2. Performance Evaluation: Audited financial statements provide shareholders with insights into the company's
financial health, performance, and prospects. Shareholders can use this information to evaluate the company's
profitability

Confidence in Dividend Payments: Audits help verify the accuracy of dividend declarations, giving shareholders
confidence in the company's dividend policy and financial stability.

Society