Verification means the inspection of assets appearing in financial statements, whether the assets are according to legislation or not. Verification of assets and liabilities are done to confirm the following − Show
Objectives of VerificationFollowing are the objectives of Verification −
Vouching and VerificationBoth are considered to be same thing but there are lots of difference between vouching and verification. Vouching relates to confirmation of the correctness and authenticity of accounting entries as appeared in the books of accounts whereas verification confirms the existence, ownership and valuation of assets as appears in the balance sheet. The Auditor’s duty is not only vouching the entries appearing in the books because vouching cannot prove the existence of the related asset or liabilities at the balance sheet date. Verification of LiabilitiesFollowing are the objectives of verification of liabilities −
Confirmation and VerificationLet us now understand what confirmation and verification is. ConfirmationAuditor requires confirmation from third party and management about any fact or figure. Few of the examples in which the Auditor requires confirmations are as follows −
VerificationVerification means inspection of assets by the Auditor and it includes identification, weighing and counting of assets. Following items require physical verification −
Thus, confirmation and verification are altogether different processes of audit and both are equally important too. Valuation of Assets and LiabilitiesValuation means estimation of various assets and liabilities. It is the duty of Auditor to confirm that assets and liabilities are appearing in the balance sheet exhibiting their proper and correct value. In the absence of proper valuation of assets and liabilities, they will exhibit either overvalued or under-valued. It is therefore required for an Auditor to exercise reasonable care and skill to analyze the basis of valuation from technical experts and satisfy himself that assets shown in Balance-sheet are properly valued accordance with the generally accepted conventions and accounting principles. Components of ValuationMethods of valuation of assets are as hereunder −
Basis of ValuationAuditor should ensure that the basis of valuation is correct and reliable. He should keep in mind the process of valuation which is as follows −
Fixed asset is valued at cost price less depreciation and current assets should be valued at cost or market price whichever is less. Vouching, Verification and ValuationIn vouching, accounting entries are checked with the bona-fide vouchers.
Verification and Valuation of CopyrightWe will now discuss the verification and valuation of Copyright − CopyrightCopyright provides legal protection and legal rights to an author by which the publication of his work by another is prohibited. Copyright remains with the author for lifetime and even 50 years after his death. Verification of Copyright
Valuation of CopyrightCopyrights lose their value over a passage of time; hence the value of copyright is not stable. In case where the sale of publication is very low or nil, value of copyright should be written off. Value of copyright in the Balance-sheet will be shown as cost less the value written off. Verification and Valuation of Fixed AssetsWe will discuss the verification and the valuation of different fixed assets − Verification of Freehold Land and Building
Verification of Mortgage Property
Valuation of Building
Verification of Freehold Land
Verification of Building under Construction
Verification of Leasehold PropertyThere should be separate accounting for freehold and leasehold property. Leasehold property is acquired for fix duration on lease. The Auditor should consider the following −
Verification and Valuation of Current AssetsWe will now discuss the verification and valuation of a few important current assets, cash and bank balance and sundry debtors. Cash-in-handCash-in-hand is verified by actual counting of cash. Cash-in-hand should be verified at the close of the business or on the date of the balance sheet. Counting of cash must be done in the presence of cashier. If physically verification of cash is not feasible for an Auditor due to branch located abroad or in remote area, the Auditor should ask the cashier to deposit all his Cash-in-hand in bank account on the last date. It is the primary duty of an Auditor to verify the cash-in-hand and in case of non verification, the Auditor will be held responsible for breach of his duty. If there is heavy cash balance in hand at any time, the Auditor should immediately inform the management beforehand. If the cashier is made accountable for payment to employees or others, the Auditor should carefully verify the same. Cash at BankThe Auditor needs to consider the following points for verification of cash at bank −
Sundry DebtorsThe Auditor is concerned with obtaining sufficient audit evidence to corroborate the management’s assertion regarding the following −
The verification process of the debtors involves the following − Examination of Records
Direct Confirmation Procedure
Steps for Verification
Steps for Valuation
Verification and Valuation of Fictitious AssetsWe will now discuss the verification and valuation of the following fictitious assets − Preliminary ExpensesPreliminary expenses are incurred at the time of formation and commencement of company. These expenses are of capital nature and include stamp duties, registration fees, cost of printing, legal costs, etc. These expenses are shown in the balance sheet. These expenses are written off during a span of time of 3 to 10 years. The Auditor should verify that un-written amount is shown in the balance sheet. Discount on Issue of Shares/DebenturesThe Auditor should see that the discount on issue of shares/debenture should be written off as early as possible and the balance amount should be shown in the balance sheet. Verification and Valuation of LiabilitiesLet us now understand the verification and valuation of liabilities − Trade CreditorsAuditor should take the following important steps for the verification and valuation of Trade Creditors −
LoansThe Auditor should verify the following important points for verification and valuation of Loans −
CapitalCapital of a partnership firm can be verified through partnership deed, Bank book, cash book, etc. Capital of a company can be verified through following − First Audit
Subsequent AuditThe Auditor should consider the following points for subsequent audits −
Which of the following procedures is least likely to be completed before the balance sheet date quizlet?Search for unrecorded liabilities. Because a significant portion of the search for unrecorded liabilities deals with transactions recorded after year-end, it is least likely to be completed before the balance sheet date.
What procedures do auditors perform to identify subsequent events?However the following procedures are typical of a subsequent events review: Enquiring into management's procedures/systems for the identification of subsequent events; Inspection of minutes of members' and directors' meetings; Reviewing accounting records including budgets, forecasts and interim information.
What are subsequent audit procedures?Audit Procedure – Subsequent Events. Current status of items that were accounted for on the basis of estimates or inconclusive data.. Any events occurred or likely to occur which will require change in the existing accounting policies.. What are the auditor's responsibility for subsequent events?The auditor should perform procedures designed to obtain sufficient appropriate audit evidence that all events up to the date of the auditor's report that may require adjustment of, or disclosure in, the financial statements have been identified.
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