Auditing and EthicsQuestion 5674 of 212
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2. While conducting an audit against provision of funds, the statutory auditors, M/s Rama & Associates must check

Options

Athat each item of expenditure is covered by a sanction either general or special of a competent authority.
Bthat the expenditure incurred has been on the purpose for which the grant and appropriation has been provided and the amount of such expenditure does not exceed the appropriation made.
Cthat the expenditure conforms to the relevant provision of the constitution and of the laws and rules made thereunder.
Dthat the expenditure is in accordance with the financial rules, regulations and orders issued by the competent authority. (2 Marks)
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Correct Answer

✅ Option B — that the expenditure incurred has been on the purpose for which the grant and appropriation has been provided and the amount of such expenditure does not exceed the appropriation made.

All Options:

  • Athat each item of expenditure is covered by a sanction either general or special of a competent authority.
  • Bthat the expenditure incurred has been on the purpose for which the grant and appropriation has been provided and the amount of such expenditure does not exceed the appropriation made. ✓
  • Cthat the expenditure conforms to the relevant provision of the constitution and of the laws and rules made thereunder.
  • Dthat the expenditure is in accordance with the financial rules, regulations and orders issued by the competent authority. (2 Marks)

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Detailed Solution & Explanation

Correct Answer: Option **B**

Explanation:
In the audit of government companies and departments (such as H Ltd. by M/s Rama & Associates), the audit of expenditure is categorized into different types.

**Audit against Provision of Funds** requires the auditor to verify:
1. That the expenditure incurred has been on the purpose for which the grant and appropriation has been provided.
2. That the amount of such expenditure does not exceed the appropriation/budget limits sanctioned by the legislature.

Let's distinguish the other options:
- **Option A** represents the **Audit of Sanctions**, where the auditor checks that each item of expenditure is covered by a valid sanction of a competent authority.
- **Option C** and **Option D** represent the **Audit against Rules and Orders**, which verifies that the expenditure complies with the Constitution, laws, and official financial rules/regulations.

Therefore, checking that the expenditure aligns with the purpose of the grant and does not exceed the appropriation is the primary check under the Audit against Provision of Funds.

Hence, **Option B** is the correct answer.

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