PEARSONaee
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`Education
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`S. K. BASU
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`IPR2022-00976
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`IPR2022-00976
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`Copyright © 2006 Dorling Kindersley (India) Pvt. Ltd.
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`This book is sold subject to the condition that it shall not, by way oftrade or otherwise, be lent, resold,
`hired out, or otherwise circulated without the publisher’s prior written consent in any form ofbinding or
`coverother than that in which it is published and without a similar condition including this condition being
`imposed on the subsequent purchaser and without limiting the rights under copyright reserved above, no
`part of this publication may be reproduced, stored in or introduced into a retrieval system,or transmitted in
`any form or by any means(electronic, mechanical, photocopying, recording or otherwise), without the prior
`written permission of both the copyright owner and the above-mentioned publisher of this book.
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`ISBN 81-7758-178-3
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`First Impression, 2006
`Second Impression, 2007
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`Published by Dorling Kindersley (India) Pvt. Ltd., licensees of Pearson Education in South Asia.
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`Head Office: 482, F.I.E., Patparganj, Delhi 110 092, India.
`Registered Office: 14 Local Shopping Centre, Panchsheel Park, New Delhi 110 017, India.
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`Laser typeset by Bharati Composers, Delhi.
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`Printed in India by Baba Barkha Nath Printers.
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`IPR2022-00976
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`IPR2022-00976
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`Model Questions and Answers
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`A. SHORT AND PRACTICAL QUESTIONS
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`Q.1. Define the term ‘audit’.
`Answer: The word‘audit’ is derived from the Latin word ‘audire’, which means, “to hear”. In
`olden times, wheneverthe owners of a business suspected fraud, they appointed certain persons to
`check the accounts. Such persons sent for the accountant and ‘heard’ whatthey had to say in
`connection with the accounts.
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`Thedictionary meaningof auditis official examinationof accounts. Obviously, the person who
`examines the accounts must be a person who knows whatto examine, how to examine and to whom
`his examination report and observations are to be submitted.In brief, it can be said that auditing is
`the process by which competent independentindividuals collect and evaluate evidence to form an
`opinion and communicate his opinion to the person interested through his audit report.
`Montgomery,a leading American accountant, defines auditing as: “Auditing is a systematic ex-
`amination of the books and records of a business or other organisations, in order to check or verify
`and to report uponresults thereof.”
`The ICAIhas defined auditing in its AAS-1 as:”An audit is the independent examination offi-
`nancial information of any entity, whether profit oriented or not and irrespectiveofits size or legal
`form, when such an examination is conducted with a view to express an opinion thereon.”
`From the abovedefinitions, it is seen that an auditor has not only to see the arithmetical accu-
`racy of the books of accountsbut has to go further and find out whetherthe transactions entered in
`the booksof original entry are correct or not. It is possible to perform this function by inspecting,
`comparing, checking, reviewing, scrutinising the vouchers supporting the transactions in the books
`of accounts and examining the correspondence, minute books of the shareholders’ and directors’
`meeting, Memorandum of Association and Articles of Associations, etc.
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`Q. 2. State the social objective of auditing.
`Answer: Auditisa social science which hascertain social objectives. It should make contributions
`towardsthe fulfilment of social purposes. Auditing work, to be effectively performed, have to
`function for the following.
`1. Protection of shareholders interest:
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`Auditors are the representatives of the shareholders. Naturally, it is the duty of an auditor to see
`whethertheinterest of the shareholders are protected or not. The shareholders’ intérest can be pro-
`tected by ensuring stable solvency, profitability and efficiency position of the company form of or-
`ganisation.
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