Auditing and EthicsQuestion 5675 of 212
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3. Which type of the expenditure audit covers the scrutiny of the expenditure incurred on the construction of stockyard by the company which is considered as infructuous and avoidable by CA Rama?

Options

APropriety Audit
BAudit against provision of funds
CAudit of sanctions
DPerformance Audit (2 Marks) Integrated Case Scenario - II M/s AB & Co., Chartered Accountants, have been appointed as the statutory auditors for Financial Year 2024-25 of PQ Ltd., which is a textile company. Mr. X, the engagement partner, assigned the task of auditing the various items of financial statements to the articled clerks. Mr. X explained to the articled clerks that financial statement purports to present something as a whole in addition to its component details. An income statement purports to present "the results of operations," whereas the balance sheet purports to present "financial position." He further clarified that the auditor's opinion is typically directed to these overall representations. However, before formulating and providing an opinion on the overall truthfulness of these statements, the auditor must first examine the truth of various specific assertions that make up each of these statements. By evaluating these individual 36 SUGGESTED ANSWER assertions, the auditor can then form a judgment regarding the financial statement as a whole. To verify the assertions presented in the financial statements, the auditor must perform variety of procedures. Articled clerks looking after different areas seek your advice as regards their different concerns. Based on the above facts, answer the following Q. Nos 4 to 8:
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Correct Answer

✅ Option A — Propriety Audit

All Options:

  • APropriety Audit ✓
  • BAudit against provision of funds
  • CAudit of sanctions
  • DPerformance Audit (2 Marks) Integrated Case Scenario - II M/s AB & Co., Chartered Accountants, have been appointed as the statutory auditors for Financial Year 2024-25 of PQ Ltd., which is a textile company. Mr. X, the engagement partner, assigned the task of auditing the various items of financial statements to the articled clerks. Mr. X explained to the articled clerks that financial statement purports to present something as a whole in addition to its component details. An income statement purports to present "the results of operations," whereas the balance sheet purports to present "financial position." He further clarified that the auditor's opinion is typically directed to these overall representations. However, before formulating and providing an opinion on the overall truthfulness of these statements, the auditor must first examine the truth of various specific assertions that make up each of these statements. By evaluating these individual 36 SUGGESTED ANSWER assertions, the auditor can then form a judgment regarding the financial statement as a whole. To verify the assertions presented in the financial statements, the auditor must perform variety of procedures. Articled clerks looking after different areas seek your advice as regards their different concerns. Based on the above facts, answer the following Q. Nos 4 to 8:

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Detailed Solution & Explanation

Correct Answer: Option **A**

Explanation:
According to the case scenario, the government company H Ltd. constructed a new stockyard for parking metro coaches, but it was not used for its designated purpose. Instead, the company continued to use a rented stockyard, making the construction expenditure wasteful and avoidable (infructuous).

**Propriety Audit** focuses on the "wisdom, faithfulness, and economy" of financial transactions. Unlike compliance audits that check if the transaction is legal or authorized, a propriety audit checks if:
1. The transaction conforms to high standards of public finance and financial ethics.
2. The expenditure is not wasteful, avoidable, or infructuous.
3. No public money is spent for the personal benefit of a specific group/person.

Since the construction of an unused stockyard while paying rent for another stockyard represents a clear waste of resources, evaluating such infructuous and avoidable expenditure falls under **Propriety Audit**.

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

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