NMIMS BBA – B.Com Audit – II Solved Answer Assignment
9
Oct
2024
Audit – II
Q.1 You are a senior auditor of LENA Bank Ltd. Please explain the different types of risk associated in the Indian banking sector. (10 Marks)
SOLUTION
Introduction:
Risk in the banking industry refers to the possibility that the end outcome of an investment, or the return on the asset itself, will be different from anticipated. When discussing risk, we mean the product has a likelihood of being different from the expected or desired one.. Credit, market, operational, liquidity, business, reputational, and systematic chances are some of the most prominent dangers in the banking industry.
Concept and application:
The Reserve Bank of India (RBI) is responsible for establishing the rules, standards, and regulations that govern the banking industry. The following are some examples of distinct categories of risk in the banking industry:
Liquidity Risk
Interest Rate Risk
Market or pricing Risk
Credit or Default Risk
The risk of operations
Let us have an in-depth understanding of each of them.
Conclusion:
The Reserve Bank of India (RBI), the primary regulator of the banking industry, takes several measures to control the risks discussed earlier in this article. The capital adequacy, assets quality management, earnings quality, liquidity, and sensitivity to market risk framework is an example of the framework that may be used to measure the risks associated with a bank by utilizing the bank’s financial statements.
Q.2 You are a director of Meta Pvt Ltd. You have recently crossed the turnover of Rs. 1 crore. You are required to appoint a tax auditor now. Please write down who can audit the accounts under the Income Tax Act to present in the board meeting? (10 Marks)
SOLUTION
Introduction:
An impartial investigation of a company’s financial records, followed by the compilation of a report based on the investigation’s findings, is what is meant by the term “audit.” The examination’s findings and the author’s conclusions need to be included in the report. Therefore, it is either an analysis or a review of the facts. An auditor is an individual who is responsible for carrying out an audit by the various relevant laws.
Concept and application:
In the scenario presented, Meta Private Limited has a turnover higher than one crore and must hire a tax auditor to conduct the tax audit. Therefore, it is of the utmost importance to understand the fundamental qualifications and characteristics that a candidate must have for the auditor position.
To be qualified to act as an auditor by the Companies Act of 2013, a person must first become a member of the Institute of Chartered Accountants of India and then obtain a certificate of practice. The following are some of the attributes that an auditor should have:
Conclusion:
A company may be governed by the norms of several laws that are applicable, and depending on whether or not the audit is appropriate, the company must employ a qualified auditor to ensure that its books of accounts are accurate and have been examined.
Q.3 You are representative of ABC & Co Chartered accountant.
a) Newly elected members of local body in Pune district have approached you to attend the meeting. I. Prepare the list of objectives for the audit of local bodies.? (5 Marks)
SOLUTION
Introduction:
A local body is any institution that exercises its autonomy at the local level. It administrates a somewhat compact region or community, such as a collection of villages, towns, or cities. There are two distinct categories of local bodies in India:
Panchayats establish themselves to administer, plan, and develop rural areas.. You may also hear them referred to as the rural local bodies.
Concept and application:
These organizations hold the authority to levy taxes on a mandatory basis. These abilities can be confined to a narrow area, as with companies, or they can encompass a greater extent.
Financial administration of local bodies covers three basic financial aspects viz.
Budgeting
Expenditure Control
Accounting System
Conclusion:
A comprehensive system of internal financial control should always include an internal audit as one of its components. Auditing is a form of exercising financial control over local governments, and one way to do so is through conducting audits.
b) Rise Pvt Ltd is an emerging company that recently crossed the basic turnover limit for Tax Audit. It would help if you wrote down to Rise Pvt Ltd the reasons for conducting Tax Audits. (5 Marks)
SOLUTION
Introduction:
The auditor examines, checks, reviews, verifies, and inspects records, accounts, and business transactions as part of the audit.. An inspection and verification of an assessee’s books of accounts to determine whether or not they comply with the requirements of the Income Tax law provisions is the procedure that constitutes a tax audit.
Concept and application:
The provisions for a tax audit can be found in Section 44AB of the Income Tax Act, passed in 1961. It specifies the factors that must be considered while conducting an audit of the financial records of various individuals engaged in the business or profession of running a company or providing a service. These types of people are required to have an experienced Chartered Accountant with a certificate of practice to audit the financial records of their businesses.
Conclusion:
In summary, a Chartered Accountant (CA) or a CA firm is responsible for carrying out the audit by the requirements of the Income Tax Act. A single fiscal year allows every individual a maximum of sixty audits.
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