STUDY MATERIAL FOUNDATION PROGRAMME FUNDAMENTALS OF ACCOUNTING AND AUDITING PAPER ICSI House, 22, Institutional Area, Lodi Road, New Delhi 110 003 tel 011-4534 1000, 4150 4444 fax +91-11-2462 6727 email info@icsi.edu website www.icsi.edu i © THE INSTITUTE OF COMPANY SECRETARIES OF INDIA TIMING OF HEADQUARTERS Monday to Friday Office Timings – 9.00 A.M to 5.30 P.M Public Dealing Timings Without financial transactions – 9.30 A.M to 5.00 P.M With financial transactions – 9.30 A.M to 4.00 P.M Phones 41504444, 45341000 Fax 011-24626727 Website www.icsi.edu E-mail info@icsi.edu Laser Typesetting by AArushi Graphics, Prashant Vihar, New Delhi, and Printed at M P Printers/10000/February 2012 ii FOUNDATION PROGRAMME – IMPORTANT NOTE The study material has been written in lucid and simple language and conscious efforts have been made to explain the fundamental concepts and principles of accounting and auditing This study material is divided into two main parts – Part-A Fundamentals of Accounting, and Part-B Fundamentals of Auditing The institute has decided that the first examination for Foundation Programme under new syllabus will be held from December 2012 session in the Optical Mark Recognition (OMR) format, whereby students are required to answer multiple choice questions on OMR sheet by darkening the appropriate choice by HB pencil One mark will be awarded for each correct answer There is NO NEGATIVE mark for incorrect answers The specimen OMR sheet is appended at the end of the study material There are two self test question papers in the study to acquaint students with the pattern of examination These are for practice purpose only, not to be sent to the institute For supplementing the information contained in the study material, students may refer to the economic and financial dailies, commercial, legal and management journals, Economic Survey (latest), CS Foundation Course Bulletin, Suggested Readings and References mentioned in the study material and relevant websites The objective of the study material is to provide students with the learning material according to the syllabus of the subject of the Foundation Programme In the event of any doubt, students may write to the Directorate of Academics and Professional Development in the Institute for clarification at faa@icsi.edu Although due care has been taken in preparing and publishing this study material, yet the possibility of errors, omissions and/or discrepancies cannot be ruled out This publication is released with an understanding that the Institute shall not be responsible for any errors, omissions and/or discrepancies or any action taken on the basis of contents of the study material Should there be any discrepancy, error or omission noted in the study material, the Institute shall be obliged if the same are brought to its notice for issue of corrigendum in the CS Foundation Course Bulletin iii SYLLABUS PAPER 4: FUNDAMENTALS OF ACCOUNTING AND AUDITING Level of Knowledge: Basic Knowledge Objective: To familiarize and develop an understanding of the basic aspects of accounting, auditing concepts and their principles PART A: FUNDAMENTALS OF ACCOUNTING (70 MARKS) Theoretical Framework – Meaning and Scope of Accounting; Accounting Concepts; Accounting Principles, Conventions and Standards – Concepts, Objectives, Benefits; Accounting Policies; Accounting as a Measurement Discipline – Valuation Principles, Accounting Estimates Accounting Process – Documents & Books of Accounts: Invoice, Vouchers, Debit & Credit Notes, Day books, Journals, Ledgers and Trial Balance – Capital and Revenue: Expenditures and Receipts; Contingent Assets and Contingent Liabilities – Rectification of Errors Bank Reconciliation Statement – Meaning; Causes of difference between Bank Book Balance and Balance as per Bank Pass Book / Bank Statement; Need of Bank Reconciliation Statement; Procedure for Preparation of Bank Reconciliation Statement Depreciation Accounting – Methods, Computation and Accounting Treatment of Depreciation; Change in Depreciation Methods Preparation of Final Accounts for Sole Proprietors – Preparation of Profit & Loss Account, Balance Sheet Partnership Accounts – Goodwill – Nature of and Factors Affecting Goodwill – Methods of Valuation: Average Profit, Super Profit and Capitalization Methods – Treatment of Goodwill – Final Accounts of Partnership Firms – Admission of a Partner – Retirement/Death of a Partner – Dissolution of a Partnership Firm Introduction to Company Accounts iv – Issue of Shares and Debentures; Forfeiture of Shares; Re-Issue of Forfeited Shares; Redemption of Preference Shares PART B: FUNDAMENTALS OF AUDITING (30 MARKS) Auditing – Concepts and Objectives – Principles of Auditing – Types of Audit – Evidence in Auditing – Audit Programmes Audits and Auditor’s Reports – Internal Audit – Statutory Auditor: Appointment, Qualification, Rights and Duties – Secretarial Audit: An Overview – Cost Audit: An Overview – Auditor’s Report: Meanings, Contents, Types, Qualifications v LIST OF RECOMMENDED BOOKS* PAPER : FUNDAMENTAL OF ACCOUNTING AND AUDITING READINGS M C Shukla, T S Grewal & S C Gupta Advanced Accounts Vol I, S Chand & Company Ltd., Ram Nagar, New Delhi-55 R L Gupta & V K Gupta Financial Accounting, Sultan Chand & Sons, New Delhi - J R Monga Financial Accounting – Concepts & Applications; Mayoor Paperbacks, A-95, Sector 5, Noida (U.P.) S N Maheshwari & S K Maheshwari Advanced Accounting, Volume I; Vikas Publishing House (Pvt.) Ltd., Jangpura, New Delhi-14 S P Jain & K L Narang Advanced Accounting, Volume I; Kalyani Publishers, Daryaganj, New Delhi - Ashok Sehgal & Deepak Sehgal Advanced Accounting (Financial Accounting); Taxmann’s, New Delhi Aruna Jha Student’s Guide to Auditing & Assurance, Taxmann Publications Pvt Ltd., New Rohtak Road, New Delhi S D Sharma Auditing Principles & Practice, Taxmann Publications Pvt Ltd., New Rohtak Road, New Delhi Anand G Srinivasan Auditing, Taxmann Publications Pvt Ltd., New Rohtak Road, New Delhi 10 S Sundharababu, A Handbook of Practice Auditing, S Chand, S Sundharsanam, B.N Tondon & Company, New Delhi REFERENCES T P Ghosh, A Banerjee Principles and Practice of Accounting, Galgotia Publishing Company, New Delhi-5 & K.M Bansal P C Tulsian Financial Accounting, Sultan Chand & Company, New Delhi R Narayanaswamy Financial Accounting – A Managerial Prospective; PHI Learning Pvt Ltd Ashish K Bhattacharyya Essentials of Financial Accounting; PHI Learning Pvt Ltd *This study material is sufficient from the point of view of syllabus The students may refer these books for further knowledge and study of the subject vi CONTENTS PART A: FUNDAMENTALS OF ACCOUNTING LESSON THEORETICAL FRAMEWORK Page Accounting Review Questions Book Keeping Systems of Accounting Accounting as Information System Role of Accountant Accounting Principles, Concepts and Conventions Accounting Standards 12 Accounting Policies 13 Accounting – A Measurement Discipline 13 Accounts and its Classification 13 Review Questions 15 Double Entry System 15 Rules of Debit and Credit 16 Accounting Equation 18 LESSON ROUND UP 18 GLOSSARY 19 SELF-TEST QUESTIONS 19 LESSON ACCOUNTING PROCESS-I (RECORDING OF TRANSACTIONS) Accounting Cycle 24 Journal 24 Ledger 29 Subsidiary Books of Accounts 33 – Purchases Book 34 – Sales Book 34 vii Page – Purchases Returns Book 34 – Sales Returns Book 35 – Bills Receivable Book 39 – Bills Payable Book 40 – Cash Book 40 Review Questions 42 Petty Cash Book 44 General Journal 46 Trial Balance 48 LESSON ROUND UP 54 GLOSSARY 55 SELF-TEST QUESTIONS 55 LESSON ACCOUNTING PROCESS-II (RECTIFICATION OF ERRORS) Errors 60 Classification of Errors 60 Errors Disclosed by Trial Balance 61 Errors Not disclosed by Trial Balance 62 Review Questions 62 Steps to locate Errors 63 Rectification of Errors 63 – Before the preparation of Trial Balance 63 – After the preparation of Trial Balance but before the preparation of Final Accounts 67 – In the next accounting period 70 LESSON ROUND UP 78 GLOSSARY 78 SELF-TEST QUESTIONS 78 LESSON ACCOUNTING PROCESS-III (CAPITAL AND REVENUE ITEMS) Capital Expenditure 82 Revenue Expenditure 82 viii Page Deferred Revenue Expenditure 82 Capital and Revenue Receipts 83 Capital and Revenue Profits 84 Capital and Revenue Losses 84 Review Questions 84 Contingent Assets 86 Contingent Liability 87 LESSON ROUND UP 87 GLOSSARY 88 SELF-TEST QUESTIONS 88 LESSON BANK RECONCILIATION STATEMENT Introduction 92 Review Questions 93 Causes of difference between Bank Balance as per Cash Book and Pass Book 93 Significance of Bank Reconciliation Statement 94 Procedure of preparing Bank Reconciliation Statement 94 – Preparation of Bank Reconciliation Statement when overdraft balances are given 96 – Preparation of Bank Reconciliation Statement when extracts of cash book and pass book are given 98 Illustrations 98 LESSON ROUND UP 108 GLOSSARY 108 SELF-TEST QUESTIONS 109 LESSON DEPRECIATION ACCOUNTING Introduction 114 Accounting Concept of Depreciation 116 Review Questions 117 Methods of Providing Depreciation 118 – Uniform Charge Methods 118 – Fixed Instalment Method or Straight Line Method 118 ix Page – Depreciation Fund (Sinking Fund) Method 120 – Insurance Policy Method 124 – Annuity Method 126 – Declining Charge Depreciation Methods 128 – Diminishing Balance Method (Reducing Balance Method) 128 – Sum of Years’ Digits Method 130 – Double Declining Balance Method 130 – Other Methods 131 Change in Method of Depreciation 132 Calculation of Profit or Loss on Assets Sold 133 Depreciation and Replacement of Assets 136 LESSON ROUND UP 137 GLOSSARY 137 SELF-TEST QUESTIONS 137 LESSON PREPARATION OF FINAL ACCOUNTS FOR SOLE PROPRIETORS Introduction 142 Trading Account 142 Profit & Loss Account 143 Review Questions 144 Balance Sheet 145 Review Questions 146 Classification of Assets 146 Classification of Liabilities 146 Adjustment Entries 148 Closing Entries 157 Manufacturing Account 158 Limitations of Financial Statements 159 Illustrations 160 LESSON ROUND UP 172 GLOSSARY 172 SELF-TEST QUESTIONS 172 x 380 FP-FA&A (c) Debiting to partner’s account (d) Crediting to partner’s account 25 A5,000 incurred for upgradation of computer by installation of 128 MB RAM is (a) Capital expenditure (b) Deferred revenue expenditure (c) Revenue expenditure (d) None of the above 26 Errors of commission arises when: (a) Any transaction is recorded on the wrong side of the account (b) Any transaction is omitted to be recorded partially (c) Any transaction is omitted to be recorded completely (d) Revenue expenditure is treated as capital expenditure 27 Furniture purchased for resale is an example of : (a) Capital expenditure (b) Deferred revenue expenditure (c) Revenue expenditure (d) Current Liability 28 A change in accounting policy is justified (a) To comply with accounting standard (b) To ensure more appropriate presentation of the financial statement of the enterprise (c) To comply with law (d) All of the above 29 Original cost = 2,26,000 Salvage value = 26,000 Useful Life = years Annual depreciation under Straight Line Method will be (a) A40,000 (b) A20,000 (c) A80,000 (d) A60,000 30 If Cost of goods sold is A2,50,000, Opening stock A20,000 and Closing stock A36,000 Then the amount of purchase will be (a) A2,50,000 (b) A2,66,000 Test Papers 381 (c) A2,00,000 (d) A3,00,000 31 If Average Stock = A12,000 Closing stock is A6,000 more than opening stock then the value of closing stock will be (a) A12,000 (b) A24,000 (c) A15,000 (d) A18,000 32 Ganesh got a salary A10,000 per month and withdrew goods worth A2,500 for personal use and got salary A9,500 in cash The excess payment of A2,000 will be debited to (a) Sales account (b) Goods account (c) Salary account (d) Salary in advance account 33 If sales revenues are A4,00,000; cost of goods sold is A3,10,000 and operating expenses are A60,000 the gross profit is (a) A30,000 (b) A90,000 (c) A3,40,000 (d) A60,000 34 If sales are A2,000 and the rate of gross profit on cost of goods sold is 25%, then the cost of goods sold will be (a) A2,000 (b) A1,500 (c) A1,600 (d) None of the above 35 In case of retirement, accumulated profits/losses are transferred to the capital accounts in the (a) Capital ratio (b) Old profit sharing ratio (c) New profit sharing ratio (d) None of the above 36 A, B, & C are sharing profits in the ratio of 1/2:3/10:1/5 Calculate the new profit sharing ratio if A retires: (a) 2:3 (b) 3:2 382 FP-FA&A (c) 5:2 (d) 2:5 37 A, B and C are the partners sharing profits and losses in the ratio of 4:3:1 B died on June 30th 2010 What will be the share of B in goodwill of the firm if it is decided to value goodwill on the basis of two year’s purchase of average profits of completed years immediately preceding the year of the death of the partner Profits for the year ended 2007 is A1,60,000, 2008 is A20,000, 2009 is A20,000 and 2010 is A80,000 (a) 1,20,000 (b) 60,000 (c) 52,500 (d) 90,000 38 Zodiac Ltd issued 10,000 shares of A10 each The called up value per share was A8 The company forfeited 200 shares of Mr A for non-payment of 1st call money of A2 per share He paid A6 for application and allotment money On forfeiture, the share capital account will be _ (a) Debited by A2,000 (b) Debited by A1,600 (c) Credited by A1,600 (d) Debited by A1,200 39 A to whom 100 shares of A10 each was allotted at par, paid A3 on application, A3 on allotment but could not pay the first and final call money of A4 His shares were forfeited by the directors The amount to be credited to shares forfeited account will be (a) A500 (b) A400 (c) A600 (d) A1,000 40 Ashish Ltd issued shares of A100 each at a premium of 25% Manas, who has 2,000 shares of Ashish Ltd., failed to pay first and final call totalling A5 Premium was taken by Ashish Ltd at the time of allotment On forfeiture of Manas’s shares, the amount to be debited to Share premium account will be (a) A5,000 (b) A10,000 (c) A15,000 (d) Nil 41 Indigo Ltd had A9000, 10% redeemable preference shares of A10 each, fully paid up The company decided to redeem these preference shares at par by the issue of sufficient number of equity shares of A10 each fully paid up at a discount of 10% The number of equity shares issued should be: (a) 9,000 Test Papers 383 (b) 11,000 (c) 10,000 (d) None of the above 42 Bank overdraft is shown on the side of trial balance (a) Debit (b) Credit (c) None (d) Both 43 Aditya Ltd issued equity shares of 50,000 shares of A10 each for subscription 40,000 shares were subscribed by the public by paying A3 as application money Number of shares allotted to public by Aditya Ltd will be (a) 50,000 shares (b) 40,000 shares (c) 30,000 shares (d) 10,000 shares 44 Recovery of bad debt is a: (a) Revenue receipt (b) Capital receipt (c) Capital expenditure (d) Revenue expenditure 45 Depreciation is provided only on (a) fixed assets (b) current assets (c) liquid assets (d) fictitious assets 46 A company issued 1,00,000 equity shares of A10 each at a premium of A2 and 5,000 10% Debentures of A100 each at 10% discount All the shares and debentures were subscribed and allotted by crediting 10% Debentures account with (a) A10,00,000 (b) A12,00,000 (c) A5,00,000 (d) A4,50,000 47 Trading account is a: (a) Real account 384 FP-FA&A (b) Personal account (c) Nominal account (d) None 48 Balance sheet is a: (a) Period statement (b) Point statement (c) Both (d) None 49 Maximum number of partners in a banking partnership firm is (a) 10 (b) 20 (c) 25 (d) 30 50 Journal records the transactions of the firm in a: (a) Analytical manner (b) Chronological order (c) Periodical manner (d) Summarized manner 51 Discount allowed to Sohan A73 has been credited to his account by A37 the error will be rectified by: (a) Crediting Sohan by A36 (b) Debiting Sohan by A36 (c) Crediting discount by A36 (d) None 52 Preference shares amounting to A1,00,000 are redeemed at a premium of 5% by issue of shares amounting to A50,000 at a premium of 10% The amount to be transferred to capital redemption reserve account will be (a) A55,000 (b) A50,000 (c) A45,000 (d) A57,500 53 While finalizing the current year’s profit, the company realized that there was an error in the valuation of closing stock of the previous year In the previous year, closing stock was valued more by A50,000 As a result (a) Previous year’s profit is overstated and current year’s profit is also overstated Test Papers 385 (b) Previous year’s profit is understated and current year’s profit is overstated (c) Previous year’s profit is understated and current year’s profit is also understated (d) Previous year’s profit is overstated and current year’s profit is understated 54 Which of the following are of capital nature? (a) Purchase of a goods (b) Cost of repair (c) Wages paid for installation of machinery (d) Rent of a factory 55 Discount on issue of debentures is a (a) Revenue loss to be charged in the year of issue (b) Capital loss to be written off from capital reserve (c) Capital loss to be written off over the tenure of the debentures (d) Capital loss to be shown as goodwill 56 If the incoming partner brings any additional amount in cash other than his capital contributions then it is termed as (a) Capital (b) Reserves (c) Profits (d) Premium for goodwill 57 Fluctuating capital account is credited with (a) Interest on capital (b) Profits of the year (c) Salaries or remuneration of the partners (d) All of the above 58 On 1.1.2011, a machine costing A10,000 and a piece of furniture costing A20,000 was purchased Depreciation is provided @ 5% on furniture and 10% per annum on machine The depreciation for the year ended 31st March, 2011 should be: (a) A1,000 (b) A300 (c) A1,250 (d) A500 59 Which of the following errors will affect the trial balance? (a) Repairs to building wrongly debited to Building A/c 386 FP-FA&A (b) Total of Purchase Journal by A1,000 short (c) Freight paid on new machinery debited to Freight A/c (d) None of the three 60 Difference of totals of both debit and credit side of the trial balance is transferred to (a) Difference account (b) Trading account (c) Miscellaneous account (d) Suspense account 61 Machinery costing A20,00,000 was purchased on 1.4.2009 The installation charges amounting A5,00,000 were incurred The depreciation at 10% per annum on diminishing balance method for the year ended 31st March, 2011 will be (a) A2,50,000 (b) A2,00,000 (c) A2,25,000 (d) A1,50,000 62 The petty cashier generally works on _ system (a) Accrual (b) Balancing (c) Imprest (d) None of the three 63 All expense and _ accounts appearing in the trial balance are transferred to the trading and profit and loss account (a) Loss (b) Revenue (c) Asset (d) Liability 64 principle requires that the same accounting method should be used from one accounting period to the next (a) Conservatism (b) Consistency (c) Business entity (d) Money measurement Test Papers 387 65 Under straight line method, depreciation is calculated on (a) Written down value (b) Scrap value (c) Original cost (d) None of the three 66 Which of the following is not a transaction? (a) Goods are purchased on cash basis for A1,000 (b) Salaries paid for the month of May, 2006 (c) Land is purchased for A10 lacs (d) An employee dismissed from the job 67 Unintentional omission or commission of amounts and accounts in the process of recording transactions are known as (a) Frauds (b) Misinterpretation (c) Errors (d) None of the above 68 “Treating a revenue expense as a capital expenditure” is an example of (a) Compensating errors (b) Errors of principle (c) Errors of omission (d) Errors of commission 69 Narrations are given at the end of (a) Final accounts (b) Trial balance (c) Each ledger account (d) Each journal entry 70 Interest on capital paid to the sole-proprietor from business is debited to (a) Interest account (b) Bank account (c) Capital account (d) Not to be shown books 388 FP-FA&A PART B 71 Balance sheet audit is also known as: (a) Continues Audit (b) Annual Audit (c) Internal Audit (d) Financial Audit 72 Audit programme is prepared by: (a) The auditor (b) The client (c) The audit assistants (d) The auditor and his audit assistants 73 Accounts Maintenance is the function of: (a) Auditor (b) Accountant (c) Auditor Staff (d) Practicing Professionals 74 Independent auditing can be best described as a: (a) Subset of accounting (b) Professional activity that attests to the fair presentation of financial statements (c) Professional activity that measures and communicates financial accounting data (d) Regulatory activity that prevents the issuance of improper financial information 75 Of the following which is the least persuasive type of audit evidence: (a) Bank statements obtained from the clients; (b) Documents obtained by the auditor from third party directly; (c) Carbon copies of sales invoices inspected by auditor; (d) Computations made by the auditor 76 The main object of an audit is: (a) Expression of opinion (b) Detection and prevention of fraud and error (c) Both (1) & (2) (d) Depends on the type of audit Test Papers 389 77 The working papers which auditor prepares for financial statements audit are: (a) Evidence for audit conclusions (b) Owned by the client (c) Owned by the auditor (d) Retained in auditor’s office until a change in auditors 78 The board of directors shall appoint first auditor of a company: (a) Within one month of completion of capital subscription stage of the company (b) Within one month of the promotion of the company (c) Within one month of the commencement of the business of the company (d) Within one month of incorporation of the company 79 Which of the following is not an analytical procedure: (a) Tracing of purchases recorded in the purchase book to purchase invoices; (b) Comparing aggregate wages paid to number of employees; (c) Comparing the actual costs with standard costs; (d) All of them are analytical procedure 80 Secretarial audit is conducted by: (a) Chartered Accountant in Practice (b) Lawyer (c) Internal auditor (d) Company Secretary in Practice 81 Which term defines internal audit with clarity: (a) Internal audit is an evaluation and analysis of the business operation conducted by the internal audit staff (b) Internal audit is an evaluation and analysis of the financial statements conducted by the internal audit staff (c) Internal audit is an evaluation and analysis of the financial statements only conducted by the external agency (d) Internal audit is an evaluation and analysis of operation of business conducted by external audit staff only 82 When auditor does not have any reservation, objection regarding the information under audit then he issues an: (a) Qualified opinion (b) Adverse opinion (c) Unqualified opinion 390 FP-FA&A (d) Negative opinion 83 Which of the following best describes the primary purpose of audit programme preparation: (a) To detect errors or fraud (b) To comply with GAAP (c) To gather sufficient appropriate evidence (d) To assess audit risk 84 The auditor’s permanent working paper file should not normally, include: (a) Extracts from client’s bank statements (b) Past years’ financial statements (c) Attorney’s letters (d) Debt agreements 85 Time, extent and _ of audit depend upon effectiveness of internal control: (a) Nature (b) Periodicity (c) Relevance (d) Format 86 Auditor has to give its opinion whether the financial statement depicts: (a) True and Correct View (b) Fair and Correct View (c) True and Fair View (d) True and Exact View 87 Auditor has to report to: (a) Management (b) Owners (c) Government (d) Appointing authority 88 Which type of audit is conducted by the internal audit staff: (a) Cost Audit (b) Secretarial Audit (c) Internal Audit (d) Tax Audit 89 Which of the following factors is most important in determining the appropriations of audit evidence: Test Papers 391 (a) The reliability of audit evidence and its relevance in meeting the audit objective (b) The objectivity and integrity of the auditor (c) The quantity of audit evidence (d) The independence of the source of evidence 90 In comparison to the independent auditor, an internal auditor is more likely to be concerned with: (a) Cost accounting system (b) Internal control system (c) Legal compliance (d) Accounting system 91 A statutory auditor has a right of access at all times to: (a) Books and accounts of a company (b) Books, accounts and documents of the company (c) Books, accounts and vouchers of the company (d) Notices and documents of the company 92 Whether the management can restrict the scope of work of external auditor: (a) Yes (b) No (c) In some cases (d) If shareholders permit 93 Every auditor appointed under section 224(1), must intimate to the registrar within _ days of the receipt of intimation of appointment from the company (a) 15 (b) 21 (c) 30 (d) 18 94 One of the following is not an advantage of audit: (a) It provides satisfaction for owner (b) It helps in getting loans (c) It reduces cost burden (d) It detects errors and frauds 95 The authority to remove the first auditor before the expiry of the term is with: (a) The shareholder in a general meeting (b) The shareholders in the first annual general meeting 392 FP-FA&A (c) The board of directors (d) The central Government 96 The retiring auditor does not have a right to: (a) To make written representations (b) Get his representations circulated (c) Be heard at the meeting (d) Speak as a member of the company 97 Who out of the following cannot be appointed as a statutory auditor of the company: (a) Erstwhile director (b) Internal auditor (c) Relative of a director (d) only (2) and (3) 98 The auditor has a right to: (a) Obtain information and explanation (b) Obtain information and explanations from the employees and officers (c) Obtain information and explanation necessary for the purpose of audit (d) Both (2) and (3) 99 The date on auditor‘s report should not be: (a) the date of AGM (b) later than the date on which the accounts are approved in board’s meet (c) earlier than the date on which the accounts are approved by the management (d) both (1) and (2) 100 What are the analytical procedures: (a) substantive tests designed to assess control risk (b) substantive tests designed to evaluate the validity of management’s representation letter (c) substantive tests designed to study relationships between financial and non-financial information (d) all the above Test Papers 393 ANSWERS Part A Part B (d) 38 (b) 71 (d) (b) 39 (c) 72 (a) (b) 40 (d) (c) 41 (c) (c) 42 (b) (c) 43 (b) 75 (c) (d) 44 (a) 76 (d) (a) 45 (a) 77 (c) (c) 46 (c) 78 (d) 10 (b) 47 (c) 11 (c) 48 (b) 12 (c) 49 (a) 13 (a) 50 (b) 81 (a) 14 (b) 51 (a) 82 (c) 15 (a) 52 (b) 83 (d) 16 (b) 53 (d) 17 (d) 54 (c) 18 (a) 55 (c) 19 (c) 56 (d) 86 (c) 20 (b) 57 (d) 87 (d) 21 (b) 58 (d) 88 (c) 22 (d) 59 (b) 89 (a) 23 (a) 60 (d) 24 (a) 61 (c) 25 (c) 62 (c) 26 (a) 63 (a) 92 (b) 27 (c) 64 (b) 93 (c) 28 (d) 65 (c) 94 (c) 29 (a) 66 (d) 30 (b) 67 (c) 31 (c) 68 (b) 32 (d) 69 (d) 97 (b) 33 (a) 70 (a) 98 (d) 73 (b) 74 (b) 79 (a) 80 (d) 84 (a) 85 (a) 90 (b) 91 (c) 95 (a) 96 (d) 34 (c) 99 (c) 35 (a) 100 (c) 36 (b) 37 (c) 394 FP-FA&A * *OMR Sheet in the examination may be different from this specimen ... understanding of the basic aspects of accounting, auditing concepts and their principles PART A: FUNDAMENTALS OF ACCOUNTING (70 MARKS) Theoretical Framework – Meaning and Scope of Accounting; Accounting. .. Stages of Accounting – Branches of Accounting – Functions of Accounting – Advantages of Accounting by Kautilya However, it has developed with the – Limitations of Accounting passage of time to... position of the business is ascertained on the basis of accounting reports SYSTEMS OF ACCOUNTING Basically there are two systems of accounting: Cash System of Accounting: It is a system in which accounting