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Statement (a): CORRECT
In business entity audits, auditors rely heavily on inter-relationship analysis among financial statement items (e.g., gross profit ratio, current ratio trends) as part of analytical procedures. However, in government and non-business public sector entities, the primary objectives are compliance with budgetary appropriations, legal authority for expenditure, and propriety — not profitability or financial performance. Accordingly, the traditional ratio and trend relationships used in commercial audits lose their relevance or need significant modification.
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Statement (b): CORRECT
NGOs registered under the Companies Act, 2013 (typically as Section 8 companies) are governed by Section 128 of the Companies Act, 2013, which mandates that every company shall maintain books of accounts and other relevant books and papers on the accrual basis and according to the double entry system of accounting. This requirement applies uniformly to all companies including Section 8 (not-for-profit) companies; therefore, such NGOs are not permitted to maintain accounts on cash basis.
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Statement (c): INCORRECT
A sales invoice is internal evidence, not external evidence. Evidence classification under SA 500 (Audit Evidence) depends on origin: external evidence originates from sources outside the entity (e.g., bank confirmations, supplier invoices, direct debtor confirmations). A sales invoice is prepared by the entity itself and merely sent to the customer; it originates internally. Therefore, it constitutes internal evidence. Examples of external evidence include bank statements, confirmation letters from debtors, and purchase invoices received from suppliers.
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Statement (d): INCORRECT
The statement is incorrect on two counts. Under Rule 6(4) of the Companies (Cost Records and Audit) Rules, 2014 framed under Section 148 of the Companies Act, 2013:
- Any casual vacancy in the office of a Cost Auditor (due to resignation, death, or removal) shall be filled by the Board of Directors (not the Annual General Meeting) within 30 days (not 60 days) of occurrence of such vacancy.
- The company shall inform the Central Government in Form CRA-2 within 30 days (not 45 days) of such appointment.
Thus, both the appointing authority (Board, not AGM) and the timelines (30 days in both cases, not 60 and 45 days) stated in the question are incorrect.
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Statement (e): INCORRECT
Under AS 19 (Leases), a lease is classified as a finance lease if it transfers substantially all risks and rewards incidental to ownership. One key indicator is that the lease term covers the major part (generally 75% or more) of the economic/useful life of the leased asset. The statement incorrectly states that the lease term extends to *less than 75%*, which is actually an indicator of an operating lease. For a finance lease, the lease term should extend to 75% or more of the projected useful life — the opposite of what is stated.
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Statement (f): INCORRECT
The description given in the statement corresponds to haphazard sampling, not block sampling. Block sampling involves selecting a block of consecutive or contiguous items (e.g., invoice numbers 501–600). It does involve judgement — specifically in choosing which block or blocks to examine. It does not use random number tables (that is correct), but it does have a structured approach — consecutive selection of items. Haphazard sampling, by contrast, has no structured approach and relies on the auditor's unplanned, non-deliberate selection. Under SA 530 (Audit Sampling), block sampling is acknowledged as less reliable because it may fail to represent the population adequately.
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Statement (g): INCORRECT
In government expenditure audit, there are distinct objectives for each type of audit:
- Audit against provision of funds: Ensures that the total expenditure does not exceed the appropriations/grants voted by the legislature, i.e., money has been duly provided/budgeted for the purpose.
- Audit of sanctions (Regularity audit): Ensures that each item of expenditure is covered by a sanction, either general or special, of the competent authority.
The objective described in the statement — checking for sanction of competent authority — belongs to audit of sanctions, not audit against provision of funds. The statement has incorrectly attributed the objective of one type of audit to another.
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Statement (h): CORRECT
Auditors conduct procedures relating to Internal Controls over Financial Reporting (ICFR) as part of every audit under SA 315. However, the requirement to formally express an opinion on the *effectiveness* of ICFR is an additional, specific obligation — it arises only where such an opinion is mandated, for example under Section 143(3)(i) of the Companies Act, 2013 (for prescribed classes of companies). In such cases, the auditor must specifically design and perform procedures to support that opinion on ICFR effectiveness. The statement correctly captures this distinction.