Samta Tools Pvt. Ltd. manufactures precision cutting tools. You are auditing the company for FY 2024-25. The company employs about 450 workers. The…

Samta Tools Pvt. Ltd. manufactures precision cutting tools. You are auditing the company for FY 2024-25. The company employs about 450 workers. The auditor performs trend analysis on salary expense for the past three years: Particulars 2022-23 2023-24 2024-25 Number of Employees 430 440 450 Salary Expense (₹ crore) 18.0 19.2 27.5 Overtime Hours 8,000 7,500 8,200 Observations by Auditor (i) Salary expense increased by 43.2% in 2024–25 (from 19.2 to 27.5 crore). (ii) Number of employees increased by only 2.3% (from 440 to 450). (iii) Overtime hours increased only marginally (9%). (iv) HR records show no major revision in pay scales. (v) Increase is not supported by production records. The auditor suspects: Possible payments to fictitious employees,Incorrect accounting classification (e.g., bonuses, labour subcontracting recorded as salaries), orUnauthorized salary revisions. Trend analysis is applied to identify this unusual, unexplained fluctuation. During payroll verification, the auditor identifies several salary payments that cannot be matched to any employee in the master employee list. HR confirms that these employee IDs do not belong to any current or former employee and may have been generated due to a payroll system error. This raises concerns about the occurrence of certain salary expenses, as some payments appear to be made to non-existent or fictitious employees. However, based on checks of attendance records, appointment files, and authorized HR approvals, the auditor verifies that all genuine employee benefit expenses relating to actual personnel have been recorded and no legitimate salary transactions have been omitted. The issue therefore relates to possible overstatement and not to completeness. Based on above, answer the following MCQs (1-5):