(a) State the duties of an Auditor with regard to payment of dividend. Discuss the audit procedure to be followed by the Auditor in respect of checking of payment of dividend. 6+9=15

(b) Discuss the important points that an Investigator must conside

Question

(a) State the duties of an Auditor with regard to payment of dividend. Discuss the audit procedure to be followed by the Auditor in respect of checking of payment of dividend. 6+9=15

(b) Discuss the important points that an Investigator must consider in the beginning and during the conduct of an Investigation. How should an investigator draft his report? 6+9=15

(c) A by-product 'Beta' is derived in the course of manufacturing a product 'Alpha'. The by-product is further processed for sale. From the following data available from the records, prepare an account showing the cost per kg of product 'Alpha' and the by-product 'Beta'. The quantities produced during the period under consideration were—'Alpha' 100 kg and 'Beta' 50 kg. The selling price of 'Beta' was ₹ 120 per kg on which the profit earned was estimated at 30%: 20

UPSC Answer Check · Accepted Answer

The directive 'discuss' requires a comprehensive, analytical treatment across all three sub-parts. Allocate approximately 30% time/words to part (a) on dividend audit duties and procedures, 30% to part (b) on investigation methodology and report drafting, and 40% to part (c) on the numerical by-product costing problem. Structure with clear sub-headings for each part, ensuring (a) and (b) balance theoretical depth with practical application, while (c) demonstrates step-by-step working with proper cost allocation methodology.
- Part (a): Auditor's duties under Section 123 & 127 of Companies Act 2013 regarding dividend declaration, verification of divisible profits, compliance with depreciation provisions, and audit procedure covering board resolution verification, register of members scrutiny, dividend warrant examination, and unclaimed dividend transfer to IEPF
- Part (b): Pre-investigation considerations including scope definition, terms of reference, document access, and fee structure; during-investigation aspects covering evidence gathering, interview techniques, and documentation; report drafting principles emphasizing clarity, objectivity, findings with evidence, and recommendations
- Part (c): Application of reverse cost method for by-product costing, calculation of estimated profit and cost of Beta (₹120 × 50kg = ₹6,000 sales; 30% profit = ₹1,800; cost = ₹4,200), deduction of by-product net realizable value from joint costs, and apportionment of remaining costs to Alpha to derive per kg cost
- Distinction between statutory audit duties (part a) and investigative audit methodology (part b), highlighting how investigation is broader and more flexible than regular audit
- Numerical accuracy in part (c) including proper treatment of further processing costs for Beta and correct per unit cost computation for both products

Dimension	Weight	Max marks	Excellent	Average	Poor
Demand-directive understanding	18%	9	Demonstrates nuanced understanding that 'discuss' requires critical examination across all three parts: for (a) evaluates why specific dividend audit duties exist under company law; for (b) critically assesses investigation methodology choices; for (c) explains rationale behind reverse costing method selection	Addresses all three parts with basic discussion but treats them descriptively without critical depth; understands 'discuss' as mere elaboration rather than analytical examination	Misinterprets directive as purely descriptive; treats parts unevenly with disproportionate focus on one section; fails to recognize different analytical demands of theoretical (a, b) versus numerical (c) components
Content depth & accuracy	22%	11	Part (a) cites specific Companies Act provisions with precise auditor duties; part (b) distinguishes investigation from audit with professional standards (SA 710); part (c) shows correct reverse cost working with accurate per kg figures (Alpha ₹X/kg, Beta ₹84/kg after processing adjustment)	Covers main content areas but with gaps—e.g., mentions dividend provisions without section numbers, describes investigation steps without professional standard references, or achieves correct final figures in (c) with minor calculation presentation issues	Significant content errors: omits key dividend restrictions (Depreciation, past losses), confuses investigation with statutory audit, or makes fundamental costing errors in (c) such as treating Beta as joint product or incorrect profit calculation
Structure & flow	20%	10	Clear tripartite structure with visible sub-headings; within (a) separates 'duties' from 'procedure'; within (b) distinguishes 'beginning' from 'during' and 'report drafting'; part (c) presents formatted cost statement with clear working notes and final summary	Identifiable structure but with weaker internal organization—e.g., duties and procedure in (a) intermixed; investigation phases in (b) not clearly demarcated; part (c) has correct answer but working not systematically presented	Poorly organized with no clear part demarcation; jumps between topics; part (c) lacks proper cost statement format making verification difficult; excessive or inadequate length allocation relative to marks
Examples / case-law / data	20%	10	Part (a) references landmark cases like Lee v. Neuchatel (depreciation) or Bolton v. Natal (dividend out of capital); part (b) cites SA 710 or ICAI guidance on investigation; part (c) presents complete numerical working with all assumptions stated and verified calculations	Includes some case references or numerical detail but incomplete—e.g., mentions Companies Act without specific sections, describes investigation examples generically, or shows working in (c) with minor arithmetical steps omitted	No case law or statutory references in (a) and (b); part (c) shows only final answer without supporting calculations, or contains calculation errors; relies entirely on textbook generalizations without specific evidence
Conclusion & analytical edge	20%	10	Synthesizes across parts: contrasts statutory audit's limited scope with investigation's flexibility; evaluates dividend audit's investor protection role; in (c) critically assesses appropriateness of reverse cost method versus other by-product costing techniques; ends with forward-looking observation on evolving audit practices	Brief concluding remarks for each part but no genuine synthesis; restates main points without analytical progression; part (c) concludes with per kg costs but no method evaluation	Abrupt ending with no conclusion; or generic conclusion unrelated to specific question content; fails to distinguish between the three distinct scenarios presented in the question parts

(a) State the duties of an Auditor with regard to payment of dividend. Discuss the audit procedure to be followed by the Auditor…

Directive word: Discuss

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