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CA Intermediate · Auditing and Ethics · Special Features of Audit of Different Type of Entities

CA Nisha is auditing Kaveri Government Hospital Society, a government-funded body that receives grants. In addition to the financial statements, the Comptroller and Auditor-General has asked the auditor to also comment on whether the funds were used economically and for the purposes sanctioned. Which kind of audit is being sought?

This is a propriety audit. It examines whether expenditure of public funds was wise, economical and in the public interest, rather than only legal and arithmetically correct. Cost audit, tax audit and internal audit serve different purposes and do not address this request.

  1. ACost audit under the cost records rules
  2. BPropriety audit, assessing whether expenditure was wise, economical and in the public interestCorrect
  3. CInternal audit limited to cash verification
  4. DTax audit under income-tax law

Explanation

Propriety audit goes beyond legality and arithmetic to assess whether spending was prudent, economical and in public interest, and is typical of government audit. Cost audit examines cost records, tax audit examines tax compliances, and internal audit is a management function, so none matches the CAG's request.

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