Audit of PSUs

Question 1

Bahubali & Co., a CA. firm was appointed by C&AG to conduct comprehensive audit of Brahmi
Ltd., a public sector undertaking. C&AG advised Bahubali & Co. to cover areas such as investment
decisions, project formulation, organisational effectiveness, capacity utilisation, management of
equipment, plant and machinery, production performance, use of materials, productivity of labour,
idle capacity, costs and prices, materials management, sales and credit control, budgetary and
internal control systems, etc. Discuss stating the issues examined in comprehensive audit.

OR
The Comptroller and Auditor General of India has appointed a chartered accountant firm to conduct
the comprehensive audit of Tram Company Limited (a listed government company) which is
handling the Metro project of the metropolitan city for the period ending 31-03-2021. The work to
be conducted under Project ‘D’ handled by the Tram Company Limited was of laying down railway
line of 124 kilometers. [The chartered accountant firm reviewed the internal audit report and
observed the shortcoming reported about the performance of Project ‘D’ regarding the
understatement of the Current liabilities and Capital work in progress by t 95.39 crore.] Explain
some of the matters to be undertaken by the chartered accountant firm while conducting the
comprehensive audit of Tram Company Limited.

Answer 1

Some of the issues examined in comprehensive audit are -

OR

A CA Firm has been appointed to conduct comprehensive audit of Tram Company Limited, which
is a listed Govt Company handling the Metro project. CA firm has observed the shortcomings as
stated in internal audit report regarding understatement of Current liabilities and CWIP by t 95.39
crore.
Matters to be undertaken by the CA Firm while conducting the comprehensive audit of Tram
Company Limited are:

1. How does the overall capital cost of the project compare with the approved planned costs? Were there any substantial increases and, if so, what are these and whether there is evidence of extravagance or unnecessary expenditure?
2. Have the accepted production or operational outputs been achieved? Has there been under utilization of installed capacity or shortfall in performance and, if so, what has caused it?
3. Has the planned rate of return been achieved?
4. Are the systems of project formulation and execution sound? Are there inadequacies? What has been the effect on the gestation period and capital cost?
5. Are cost control measures adequate and are there inefficiencies, wastages in RM consumption, etc.?
6. Are the purchase policies adequate? Or have they led to piling up of inventory resulting in redundancy in stores and spares?
7. Does the enterprise have R&D programmes? What has been the performance in adopting new processes, technologies, improving profits and in reducing costs through technological progress?
8. If the enterprise has an adequate system of repairs and maintenance?
9. Are procedures effective and economical?
10. Is there any poor or insufficient or inefficient project planning?