Verification of assets and liabilities

• Preface
• Verification of Assets: Meaning and Definition
• Verification of Liabilities: Meaning and Definition
• Objectives of Verification
• General Principles of Verification
• Valuation of assets
• Prevailing principles of evaluation
• The position of the auditor in relation to the valuation of assets
• Difference between Certification, Evaluation and Verification
• Practical verification

The balance sheet is a symbol of the economic condition of a business. The reality of this economic situation depends on the veracity of the assets and liabilities shown in the picture. It is the responsibility of the auditor to ascertain the correctness and genuineness of every property and liability shown in the balance sheet so as to ascertain whether the balance sheet is showing the true and fair financial position of the business. The important technique used by the auditor to ascertain the correctness of assets and liabilities is technical verification.

Verification of properties means to find out the veracity of the properties, that is, the valuation of the property is correct, the right and ownership of the property is with the institution, the property exists, is in the possession of the institution and whether there is any charge on it or not. The definitions of verification are as follows: “Verification of properties shall be construed as an inquiry by which the auditor may inquire as to the value, ownership, title, existence and acquisition of properties and any charge thereon.” -Spicer & Pangler “Verification of assets is a method by which the auditor certifies the correctness of the right side of the position statement, and it has three clear objectives to be understood.

• (a) Verification of the existence of assets
• (b) Valuation of assets
• (c) The right to have them. -Lancastar

Verification of liabilities means to include the following things in the investigation of liabilities –

• All the liabilities have been clearly shown in the liability side of the balance sheet.
• All liabilities are shown at true and fair price.
• All the responsibilities are related to the organization.
• All obligations are true and authorized.
• Doubtful liabilities are shown separately in the balance sheet.

“In verification of liabilities, he (the auditor) should see that all liabilities have been included at reasonable amounts and that no liabilities have been waived.” -J. R . bottleboy

The main purposes of verification are as follows:

1. Balance sheet to be true and proper:- All the assets and liabilities shown in the document are true and proper or not, the auditor has to submit a report in this regard. Therefore, through verification, the auditor ascertains the correctness of the balance sheet.
2. Valuation being correct:- The main purpose of verification is to find out whether the valuation of assets and liabilities has been done in accordance with the principles and legislation of accounting, whether the valuation has been correct or not.
3. Detection of existence: – Whether the properties shown in the balance sheet are physically present with the institution or not, the verification is done.
4. Proprietary and Proprietary Verification: – One of the purposes of verification is to find out. That the papers related to the properties are in the name of the institution and the institution has full title on them.
5. Acquisition and investigation of lien:- The properties shown in the balance sheet are with the institution i.e. in acquisition. No other party has a lien on it. If so, to what extent? All these are detected under verification.
6. Verification of Charges:- The purpose of verification is also to find out whether a loan has been taken by keeping any property as mortgage.
7. Check of mathematical correctness:- All the assets and liabilities are shown in the balance sheet mathematically correct and correct.
8. Investigation of fraud and irregularities:- By verification, the auditor is to find out whether there has been any fraud and irregularity in relation to any property and liability.
9. Assets less or more than reality Check:- No assets and liabilities of the organization have been concealed nor shown to be more than the facts.
10. Representation in the balance:- All the properties and liabilities have been correctly represented in the balance sheet according to the rules of the organization and according to the act in sequence.

1. Existence – The existence of a property can be checked by physical examination. If the acquisition is with someone else, the existence can be checked by taking a certificate.
2. Ownership and Title – Ownership can be checked by the available ownership deed and whether the organization has full title on it or not can be checked.
3. Valuation – The value of assets has been shown to be true and fair according to the general principles of accounting.
4. Mortgage or charge – In respect of any loan taken by the institution, if the property is mortgaged, then it can be checked by mortgage.
5. Nirupam in the Balance Sheet – Property and liabilities are correctly and properly represented in the balance sheet.

Evaluation is one of the various principles of verification, it is a part of verification itself. The literal meaning of valuation is to mark or measure the value, that is, at what value should a particular property be shown in the balance sheet? In this way, whether the assets are shown in the balance sheet at true and fair value or not so that the balance sheet can show the true and proper economic condition of the business, it is called valuation. The following values ​​may be used while valuing various assets.

1. Cost Value – The value obtained by adding the cost of installation and commissioning expenses to the purchase price of a property is the cost price.
2. Market Value – The price that can be obtained by selling the property in the market on the date of the balance sheet (the prevailing market value of that day) is called the market value.
3. Book Value – The value at which the property is shown in the books is called book value.
4. Receivable or realizable value – The value that can actually be realized by selling the property in the market on the day of the balance sheet is called realizable and realizable value.
5. Replacement Value – The net cost incurred on replacing the old asset and replacing it with the new asset is called replacement value.
6. Utility and Current Status Value – The value left after deducting the amount of depreciation according to its use from the cost value of the asset is called utility or current condition value.

Valuation of various assets should be done according to their nature. Some of the prevailing principles of valuation are as follows :-

1. Fixed Assets – In business, some assets are kept permanently for running the business. These assets are called fixed assets. These assets are kept for the purpose of earning income in the business and not for sale. Some examples of these are land and building, machinery, furniture etc. These assets are valued at utility or current condition value. Depreciation is written off every year from the value of these assets as per the provisions of the Indian Companies Act 1956. Land is such a property in which there is no wear and tear. Hence it is valued at cost price.
2. Movable Assets – Such assets, which change form during production or which can be easily converted into cash, come under the category of movable assets such as raw material, semi-finished goods, finished goods, debtors, bills receivable, short-term investment, bank Cash in hand, cash in hand etc. Raw material and semi-finished goods are valued at cost price, manufactured goods are valued at cost or market value, whichever is less. Bills receivable and debtors are valued at book value and accounting for bad and doubtful debts is deducted from this.
3. Destructible Assets – Such assets which get eroded along with use are called dilapidated assets such as food and oil wells. These are only a type of fixed assets. These are valued by deducting depreciation (corresponding to wastage) from the cost price.
4. Invisible Assets – Such properties which do not have any physical form and cannot be seen such as reputation, patent, copyright and trade marks etc. Invisible assets should be valued at par with fixed assets as per the Indian Companies Act.
5. Artificial Assets – In fact these are not assets but debit balances of expenses and losses, which have not yet been written off from profit and loss account. Being debit balance, they are shown on the asset side. Examples of these are initial expenses, debit balance of profit and loss account or discount on issue of debentures, excessive advertising and development expenses etc. These are valued at book value and every year the amount written off is reduced.

The position of the auditor in relation to the valuation of properties can be understood as follows:-

1. The auditor is not an appraiser: – The auditor is not a person with special technical qualifications in relation to valuation. The management of the organization has accurate and complete information regarding the assets. Therefore, the first responsibility of evaluation lies with them. The auditor’s duty is to check the valuation. For this he can take advice or help of expert appraiser.
2. Checking the propriety of valuation: – It is the duty of the auditor to check whether the valuation has been done correctly and properly, as well as whether the valuation is in accordance with accounting principles and legal requirements. According to the circumstances, the auditor can adopt various methods for checking the propriety.
3. Taking accessible evidence :- The auditor can use any readily available evidence for evaluation.
4. Taking advice of experts:- The auditor can take advice and help of technical experts if any technical feature comes up during the verification of valuation of properties.
5. To follow the rules of valuation: – According to the nature of the properties, whether the prevailing principles of valuation have been followed or not, should be checked by the auditor.
6. Certificate from the responsible officers: – If necessary, the auditor should take a certificate from the responsible officers regarding the evaluation.
7. Irregularity check:- If there has been any fraud or irregularity in the valuation of the properties, the auditor should also check this.
8. Compliance of the Companies Act:- The auditor should also see that the provisions of the Companies Act have been fully complied with.
9. Giving a clear report:- If the auditor has doubts about the valuation of any property, it should be clearly mentioned in his report.
10. Decisions of judges :- The auditor should also keep in mind the decisions given by various judges in this regard. The following two judgments are important in this context:
    1. Kingston Cotton Mills Case, 1886 – In this case the auditor was not held guilty because in the absence of suspicious circumstances, if the auditor accepts the certificate of any responsible officer of the company, he is guilty of negligence. Not guilty. It is not his duty to do the actual calculation of the stock.
    2. McKinson & Robins Case 1941 – The conclusion of this case is that the auditor cannot be held liable if he obtains a certificate from the person responsible or, after questioning them, satisfies himself. But at the time of checking the stock (counting, measuring, weighing etc.) the auditor should be present himself or he should check himself.

The following is the difference between certification, valuation and verification: –

1. Meaning – “In certification, the books of initial accounts are checked with the help of certifiers. In valuation, the fairness of the value of the properties shown in the balance sheet is checked and under verification.” The ownership, existence, rights, valuation and existence of the properties are checked.”
2. Subject matter :- Certification is done of entries, accounts and balances etc. in the books of preliminary accounts. Whereas valuation and verification is done of the assets or liabilities of the balance sheet.
3. By whom :- Certification is usually done by the audit clerk of the auditor. Evaluation is done by managers, operators, partners and experts. The verification is done by the auditor himself or by the senior assistants.
4. Time :- In current audit the certification continues throughout the year whereas in periodical audit it is done at the end of the year. Valuation and verification of assets like cash, securities, bills and stocks etc. is done on the day of balance sheet whereas valuation and verification of other properties is done after the end of the year as per convenience.
5. Achievement of proof:- Original and secondary rectifiers are available in certification. Valuation largely depends on the evaluation of the managers. Verification is based on evidence and information other than the validators.
6. Relationship:- Certification is the basis of evaluation and verification, whereas evaluation is an important element of verification itself.

1. Verification of assets: – Verification of various types of properties shown in the balance sheet of any organization can be done in the following way:
   1. Goodwill :-
      1. Meaning – Goodwill is an invisible asset and like other assets it also affects the business. Helps in earning income. The profit that comes from a good name and reputation of the business is fame. From the point of view of accounting, if said, “the ability to earn more profit than usual is the name of fame.” The nature of fame is like a ‘fair weather friend’. If the income of the business increases, then its value also increases. But if there is a loss in the business then it will disappear immediately.
      2. Valuation – Appraisal of goodwill is required when there is an organizational change in the structure of an organization such as change of sole business into partnership firm, joining of new partner, departure of old partner, change in profit sharing ratio, change in business To be sold, taken over by the government, etc. Goodwill is always valued at cost. Unlike other assets, it does not need to be appraised every year.
      3. Verification – If the business is purchased and the purchase consideration has been paid for in excess of the net assets, then this excess value is the value of the goodwill purchased. The goodwill purchased can be verified on the basis of purchase agreement. It is shown in the books at cost price and it would be appropriate that while the business is making profit, it should be written off little by little. Another type of reputation in the organization may be the advertised reputation. If the organization runs a special advertising campaign to increase its sales, then this advertising expenditure is shown in the property side of the balance sheet, it is called advertised reputation. The advertised reputation is actually an artificial asset, it should be written off little by little every year. If there are some rules or bye-laws in relation to goodwill in the institution, then the auditor should keep them in mind while doing the verification.
   2. Freehold property-Such property which is in the name of the businessman and in respect of which the full right to buy, sell or other use is reserved with the businessman, is called proprietary property. Land and buildings are examples of this. This will be verified as follows.
      1. Ownership – The auditor should check the sale deed to see that the property is in the name of the dealer and the dealer has good title over it.
      2. Existence – To check the existence or existence, the auditor should do physical verification of the property to see where the property is, what is it being used for, and what is its condition?
      3. Mortgage – If the property is mortgaged, it should be checked by mortgage letter and the auditor should also see that the related debt has been shown in the balance sheet. If there is no mortgage, a certificate should be taken from the dealer.
      4. Variation – If the property is bought, sold or constructed during the year, it should be verified by purchase deed, sale deed and capital expenditure on construction. Revenue Expenses The cost of repairs to the property are income expenses and should be written off from the profit and loss account.
      5. Valuation – Valuation of land is done at cost value whereas building is valued after deducting depreciation from cost. If a new property has been constructed, the verification can be done by obtaining a certificate from the responsible officer regarding capital expenditure.
      6. Representation in the Balance Sheet – The auditor should also see that the property is shown at the correct place and in the proper title as per the law.
   3. Leasehold property: – Lease property is the property in which the right of use of the property is given for a certain time. At the end of time the property goes back to the original owner or the lease can be renewed. This can be verified as follows:
      1. Ownership – Ownership can be verified by lease deed, the auditor should see whether the terms of the lease are being fully complied with.
      2. Existence – Existence must be checked by physical inspection.
      3. Mortgage – The charge on the property should be checked from the mortgage letter. The auditor should see whether the lease has the right to mortgage the property.
      4. Valuation – The value of such property keeps on depreciating over time, so the property should be written off during the period of the lease itself.
      5. Representation in the Balance Sheet – The assets in the balance sheet should be shown along with the fixed assets.
   4. Plant and Machinery :-
      1. Ownership – For checking the ownership, the auditor should see the copy of invoice, receipt and order received from the vendors. ,
      2. Existence – The auditor himself should check by physical inspection whether the plant and machinery is actually in existence or not, whether it is being used for unauthorized use.
      3. Income expenses – After the commissioning of plant and machinery, the expenses of repair, renovation etc. are included in the revenue expenditure, they should be written off by taking them in the profit and loss account.
      4. Changes – The auditor should check if the plant and machinery sold or purchased or expanded during the relevant year have been properly entered in the books of account.
      5. Valuation – Plant and machinery are shown in the books at depreciated value. If the plant has been constructed, then a certificate should be taken from the concerned engineer, it can also be checked from the plant register.
      6. Representation in the Balance Sheet- The plant has been properly represented in the balance sheet.
   5. Furniture Fixtures & Fittings :-
      1. Ownership – Ownership should be checked from the invoice and receipt etc. received from the seller.
      2. Existence – Sometimes property like furniture is used for personal purposes. Therefore, the auditor should see by test check whether the property is present in business or not.
      3. Revenue Expenses – The auditor should check that the expenses incurred on repairs have been taken to profit and loss account.
      4. Variation – Proper accounting of properties bought and sold should be done like other fixed assets.
      5. Mortgage or Charges – If the loan has been given by taking these properties as mortgage, then the loan covenant should be scrutinized.
      6. Valuation – From the property register, the auditor should check whether any obsolete and obsolete property has not been shown in the books and proper depreciation has been deducted on these properties.
      7. Representation in the Balance Sheet – Property is shown in the balance sheet.
   6. Motor Vehicles :-
      1. Ownership – The auditor should check the ownership of this property by looking at the documents like license, registry and receipt.
      2. Existence – The auditor should check by physical inspection. In case of fraud, it should be clearly mentioned in the report.
      3. Income Expenses – Expenses for raising license fee, insurance premium, road tax, repairs are income in nature and should be written off from profit and loss account.
      4. Change – If a new property has been purchased, the license should be checked from the Registry Cashmemo. If the property is sold, the auditor should see that the consent account has been closed.
      5. Mortgage – The mortgage should be verified from the letter of mortgage and loan covenant.
      6. Valuation – Such properties tend to depreciate rapidly, so appropriate depreciation should be deducted.
      7. Representation in the Balance Sheet – The motor vehicle should be shown in the balance sheet along with other fixed assets.
   7. Patent: – When a person or organization invents an article and after getting it registered with the government and gets a monopoly to sell that article, then this right is called patent. This right can also be sold to another person, the verification of the patent can be done in the following way,
      1. Ownership – ownership can be checked by the registration certificate, if it has been purchased then it should be checked with the covenant.
      2. Income and Capital Expenses – The fee for renewal of the patent is an income expense. The expenditure incurred in the laboratory for the invention is the capital expenditure.
      3. List of Patents – After getting the list of patents, the auditor should check the date of receipt of registration number and remaining period etc.
      4. Valuation – The patent should be written off within the period prescribed by the statute.
      5. Representation in the Balance Sheet – The patent is properly shown in the balance sheet. The auditor should check.
   8. Copyright: – The monopoly to present a copy of a work is called copyright. Examples of this are the right to publish an unpublished book, to print, to translate or to record music, to make a film, etc.
      1. Ownership – The ownership of the published books can be checked by looking at the name of the organization as publisher. If it has been signed then it can be checked by looking at the written proof.
      2. Evaluation – The copyright should be evaluated on the basis of revaluation method. The certificate of adjectives can also be seen to check its evaluation.
      3. List – The auditor should check the author’s name, contract value and other conditions etc. on the basis of the list of works.
      4. Representation in the balance sheet – The work of ownership should be shown in the balance sheet along with the fixed assets.
   9. Trade Mark: – Every manufacturing institution gives a special name or mark to the goods manufactured by itself and gets it registered with the government so that that mark or name cannot be used by other businessmen. This is what is called a trade mark.
      1. Ownership – Its ownership should be checked by looking at the government’s certificate or agreement in case of transfer.
      2. Income Expenditure – The fee paid for its renewal is income past expense.
      3. Valuation – The valuation of a trade mark is done by the revaluation method.
      4. Representation in the Balance Sheet – Such assets should be shown separately as permanent assets.
   10. Patterns, Designs and Drawings :- Small forms of objects are called samples, if these samples are made on paper then they are called graphs. And if there are small forms of clothes, then they are called parirupas.
       1. Valuation – If their value is less then they should be written off from profit and loss account but if the value is high then depreciation should be written off every year by capitalization. Their age is not much, so they should be written off soon.
       2. Representations in the Balance Sheet – These are shown on the property side of the balance sheet until they are completely written off.
   11. Livestock : –
       1. Existence – Livestock is used in dairy business etc. The auditor should check the existence by physical inspection and by looking at the purchase price, age, name etc. of the animals from the animal register. Income expenditure is the expenditure on animal feed and disease.
       2. Evaluation – The animals should be evaluated by the revaluation method. If some animals have become incapacitated, their value should be removed from the books.
   12. Retail Tools : –
       1. Existence – The auditor should conduct physical examination of the tools on the basis of the list.
       2. Ownership – The ownership should be verified on the basis of invoices and cash memos received from the seller.
       3. Evaluation – The tools should be evaluated on the basis of revaluation method. Engineer’s certificate can be taken regarding their cost.
   13. Stores and Spare Parts: –
       1. Ownership and existence – the auditor should obtain a list of these and conduct a physical examination of the tools. A certificate can be obtained from the competent authority to verify the ownership.
       2. Valuation – The proper method of valuing such properties is the revaluation method. In this regard, the auditor should see whether section 227(4A) of the Companies Act has been complied with.
   14. Assets Acquired on Hire – Purchase Agreement: – Such a purchase of property which is paid in installments and all installments before the last installment are considered as rent. Ownership goes to the buyer.
       1. Conditions of the contract – After the last installment, the auditor should check the property’s covenant and see what is the cash value and hire purchase price of the property.What will happen if the installment amount, duration and non-payment? The auditor should also see whether the terms of the contract are being fully complied with.
       2. Existence – Existence should be checked by physical test.
       3. Income Expenses – Interest and depreciation are income expenses in respect of this property.
       4. Conversion – If any property is returned to the seller, the balance should be transferred to profit and loss account.
       5. Valuation – The auditor should check whether depreciation has been deducted on the full cash value of the property.
       6. Representation in the Balance Sheet – In the Balance Sheet, the property is not shown at cash value, but the installments which have been paid are shown as the value of the asset and depreciation is deducted from it.
   15. Investments: – Investment can be made in shares, debentures, securities or bonds. These investments can be short term or long term.
       1. Ownership – The auditor should check the list of securities to verify the ownership. The list should contain the details of the name of the security, date, face value, cost price and market value on the day of the balance sheet.
       2. Existence – The auditor should examine the appropriation to see that the appropriation is physically with the company. He should see the actual proof of title documents of each security and also see that the securities are in the possession of trustworthy persons. (City Equitable Fire Insurance Company Limited Case 1924)
       3. Mortgage – If a loan is taken by way of mortgage of securities, the auditor should see that it is shown in the balance sheet.
       4. Change – If some securities have been bought and sold during the year, it should be checked with the purchase note or sale note of the broker.
       5. Earned Income – Income from interest or dividend on investment is income receipt. It is taken to profit and loss account. Income earned but not received should also be included.
       6. Valuation – If the appropriations are kept as fixed assets, they are valued at cost value. If the appropriations are held as current assets, they will be valued at cost or market value, whichever is less.
       7. Representation in the Balance Sheet – The auditor should see that the securities are shown separately in the balance sheet and the market value is also shown.
   16. Debtors :-
       1. List of Debtors – The auditor should obtain a certified list of debtors from the employer. The list should be signed by the responsible officers.
       2. Correspondence – The auditor should check the balances of the accounts after reconciling the accounts of the debtors with the list. In case of doubt, the auditor may correspond with the debtors and ascertain whether the balance in their names is correct even according to their books.
       3. Bad Debts and Discounts – The auditor should first of all know about the bad debt process and see that the bad debts have been accounted for only after obtaining the approval of the responsible officer. The rules regarding exemption should also be seen by the auditor and should check whether the exemption is approved by the responsible officer or not.
       4. Bad and Doubtful Debts Organisations – Planning for bad and doubtful debts should be adequate.
       5. Checking of sureties – If some loans are given on the basis of security, the auditor should check those sureties.
       6. Representation in Balance Sheet – Debtors are generally shown under current assets. If the entity is a company in the form of a company, then according to the Indian Companies Act, the debtors have to be shown under the following heads,
          1. Debts which are fully secured and deemed to be receivable.
          2. Debts on which there is no security other than the personal security of the debtors and which are deemed to be receivable.
          3. Debts considered doubtful or unrecoverable.
       7. Important Cases – In the following cases the auditor was found guilty of negligence in verification and breach of duty –
          1. London and General Bank Case, 1895.
          2. Arthur E. Green and Company Vs. The Central Advance and Discount Corporation Ltd.
   17. Stock: – Stock includes three types of goods, raw materials, semi-finished goods and finished goods. There are several ways to find the cost price of a stock first come first go method ( F.I.F.O ) , second come first go method ( L.I.F.O ) average cost method , actual cost method , standard costing . Method and Adjusted Selling Price Method: Stocks are generally valued at cost or market value, whichever is lower. After finding the cost and market value of the stock, one of the following two methods is adopted.
       1. Unit Method – In this method, the lesser of the cost and market value of each item is taken, and then the sum is applied.
       2. Collective method – In this method the cost and market value of all the goods are taken separately. The value of the stock which is less of the sum is considered to be the value of the stock.
       3. The generally accepted rules of valuation of different types of stock are as follows:-
       4. Raw Material – Raw material is valued at cost price provided the market price has not fallen drastically.
       5. Semi-finished goods – Valuation of semi-finished goods is done at factory cost.
       6. Manufactured Goods – The manufactured goods are valued at cost or market value, whichever is less.
       7. Goods sent on consignment – This type of goods is valued by adding appropriate freight tax and other expenses to the purchase price.
       8. Goods sent on choice – This is assessed by adding the cost of shipping the goods to the customer.
       9. Verification of stock – The auditor should take care of the following things for verification of the stock :-
          1. The auditor has to physically inspect the stock and list the stock. should match. If there is a huge difference, its reasons should be investigated.
          2. Proper method should be selected for stock counting.
          3. The auditor should see that only stock owned by the business is included.
          4. The auditor should obtain a certificate from the responsible officer regarding the evaluation.
          5. Goods received on invoice should not be included in stock.
          6. Goods sent on invoice but unsold should be included in stock.
          7. Goods that have been purchased but not received till the day of the balance sheet are shown under the heading Goods en route.
          8. A separate list of obsolete and obsolete goods is prepared and should be written off.
          9. Any type of charge on stock should be checked
          10. In the balance sheet, three types of stock i.e. raw material, semi-finished goods and goods have been shown separately.
       10. Status of Auditor :-
           1. Ancient Ideology – Under the ancient ideology, the auditor’s duty has not been fixed for physical calculation and valuation of stock. He may trust the trusted employee of the employer , but gradually this view has changed as shown in the following cases :
              1. Kingston Cotton Mills Case (1898 ) – In this case Judge Lindley ruled that the stock price It is not the duty of the auditor to make calculations. In the absence of suspicious circumstances, he can rely on the certificate of a trusted employee of the company regarding the calculation and valuation of the stock.
              2. The Irish Woolen Company v. Tyson et al. (1900) – In this case it was held that it was not the duty of the auditor to calculate the stock, but that it was his duty to check the calculation of the stock in his office and that the inquiry should be done with sufficient care. needed .
              3. West Minster Road Construction and Engineering Company Case (1982) – In this case it was decided that it was not his duty to value semi-finished goods. but if the auditor had used all the necessary proofs, he could have caught the overvaluation of the semi-finished goods, so he would be held guilty.
       11. Modern ideology – There have been many important changes in the ancient ideology over time. As a result, more tact and caution is being expected from the auditor in relation to the inventory. The position of the auditor in this regard is as follows:
       12. Case of Mackesson and Robins (1941) – This case has led to a significant change in the ancient ideology. It is the duty of the auditor to make actual calculations and checks of the stock as per its decision.
           1. Details of Institute of Chartered Accountants No. 2 England
           2. Indian company legislation and guide circulated by the Research Committee of the Institute of Chartered Accountants
           3. Statement issued by the Indian Institute of Accountants
           4. Under section 227(4A) etc., the position of the auditor in relation to the stock has been directed.
   18. Bills Receivables :-
       1. Checking the List of Bills Receivable – The auditor should get a list of all the bills receivable from the employer. All bills receivable should be physically examined and reconciled with the accounts receivable ledger. The auditor should see that all the bills are properly written and stamped. As far as possible, the auditor should examine the bills on the date of the balance sheet or as soon as possible thereafter.
       2. Bills discounted – The bills discounted from the bank should be checked from the pass book and cash book. If a bill has been paid before the maturity date, it should be checked from the cash book. Bills discounted before the period, which have not become due till the date of balance sheet, should be shown as doubtful liability.
       3. Undernourished bills – dishonored bills should not be shown in the balance sheet. If the dishonor is due to the poor financial condition of the accept-or, the auditor should see whether adequate planning has been made to make up for the loss.
   19. Cash in hand :-
       1. Cash matching the balance of the same with the ball – for this the auditor should be present on the day of the balance and check it himself. If you are unable to be present on this day, then you should come as soon as possible and match the balance of the cash book with the galley. Reconciliation of cash balances should be done at least once during the year.
       2. Verification of retail cash – The auditor should also carefully verify the retail cash. In the case of London Oil Storage Company v Sewer Haslock & Co., the auditor had to pay damages for not being able to detect embezzlement committed by retail cashiers.
       3. Comparison with previous year – Last year’s cash balance should be compared with this year’s cash. If there is a large difference, the reasons should be investigated.
       4. Checking the Cash Same – The auditor should also check the transactions recorded in the cash book.
   20. Cash at Bank: –
       1. Checking the cash book – Verification of the bank column of the cash book should be done by matching the pass book, check book and deposit slip.
       2. Certificate from the bank – If the institution has (a) accounts in several banks (b) multiple accounts in one bank, then a certificate should be obtained about the balance in all the accounts on the day of the balance sheet.
       3. Bank Reconciliation Details – If the cash book balance does not match with the pass book balance, the auditor should reconcile the bank reconciliation details.
   21. Cash in transit: –
       1. Checking the details sent by the branches – On the day of the letter, such cash which was sent by the branches to the head office, but has not reached, such cash is called cash on the way. This should be checked with the details sent by the branches.
       2. Verification of transactions for the next year – The amount which was due on the last day of the year should be received in the next few days, so the auditor should check it.
   22. Income Accrued but not Received :-
       1. Received list – The auditor should get the list of earned but not received income.
       2. Reconciliation with relevant proofs – The auditor should reconcile this type of income on the basis of available proofs.
       3. Correspondence – The auditor should do correspondence with the concerned institution and ask whether he has not paid the amount.
       4. Checking the income not written in the books – Such income should be checked by the auditor on the basis of his vision, cleverness and experience and should get the certificate from the responsible officers.
2. Verification of Liabilities :-
   1. Creditors-
      1. The auditor should obtain the list of creditors from the employer and reconcile this list with the order book, invoice, purchase account and goods arrival book.
      2. The balances in the accounts of the creditors should be checked from the statement of accounts received from them.
      3. Accounts which have been closed on payment sometime before the date of balance sheet should be carefully examined by the auditor.
      4. Correspondence can be done with the concerned creditors if required.
   2. Bills Payable
      1. The auditor should obtain a list of bills payable.
      2. The list should be compared with the accounts payable and bills payable book.
      3. Bills paid can be checked from the returned bills and cash book.
      4. If the bill is renewed and interest and maintenance expenses have been paid, it should be checked from the profit and loss account.
      5. The auditor should check the cash book of the following year to see if some bills have been paid during the period between the date of the balance sheet and the audit.
   3. Loans
      1. The auditor should get a list of all the loans of the institution.
      2. The auditor should examine the terms of the loan based on the agreements between the lenders and the employer.
      3. The auditor should see that interest has been taken to profit and loss account as income expense.
      4. The auditor should see which property has been mortgaged for which loan, it should be checked from the mortgage register.
      5. In case of doubt, the facts should be confirmed by correspondence with the lenders.
      6. The auditor should see that the debt is shown along with the liabilities in the balance sheet and security, if any, is also shown together.
   4. Outstanding Liabilities-
      1. Unpaid Liabilities Shown in the Balance Sheet –
         1. The auditor should obtain the list from the dealer and check the list with relevant proofs such as nominal accounts and receipts.
         2. The auditor should see that the adjustment entries relating to unpaid expenses have been corrected.
      2. Unpaid liabilities not shown in the balance sheet –
         1. In this regard, the auditor should take a certificate from the managers that all the unpaid liabilities have been shown in the books.
         2. The auditor should, on the basis of his experience, skill and skill, estimate what responsibilities may go unpaid.
         3. The auditor should also verify by comparing it with the unpaid liabilities of the previous year.
   5. Contingent Liabilities – Doubtful liabilities mean those liabilities which are not liabilities on the day of the balance sheet but which cannot be said with certainty whether they will arise in future or not. That is, such liabilities which are doubtful to happen or not to happen in future are called doubtful liabilities.
      1. Verification of doubtful liabilities shown in the balance sheet – Doubtful liabilities can be of many types. In order to verify these, the auditor may adopt the following procedure –
         1. Discounted but immature bills – Bills receivable which have been discounted from the bank or other persons and whose due date will fall in the next year, will be treated as doubtful liability because on the date of payment Bills can also be dishonored, the bills which will be dishonored, will have to be paid by the businessman himself. Such doubtful liabilities should be checked by the auditor on the basis of cash book and bills receivable and should also see that the sum of all such bills is shown as doubtful liability in the balance sheet.
         2. Arrears of undisclosed dividend on cumulative preference shares – If the company is unable to declare dividend in any year, then the outstanding dividend on its cumulative preference shares keeps on collecting. This outstanding dividend will be paid in future whenever the company has sufficient profit. But it is not certain whether the company will get profits in future or not, so its amount should be compared with the amount shown in the balance sheet.
         3. Liability in respect of unsolicited amount on appropriation – If the businessman has purchased such shares or debentures of any other company on which the full amount has not yet been called, then this unsolicited amount is a doubtful liability because it is definitely But it cannot be said whether this amount will be asked for in the next year or not. The auditor should verify the amount paid on these investments from the cash book, bank receipt and allotment letter and calculate the amount of doubtful liability on the basis of the face value of the investments.
         4. Litigation’s going on in the court in relation to the debts of the business – The lawsuits going on in the court regarding the debts of the business are also doubtful liability because the decision of the case will be in our favor or against, it is not said with certainty can go . This can be verified by the auditor by examining the case file or by obtaining a certificate from a lawyer. The auditor should also check the receipt of remuneration paid to the lawyer.
         5. Liability for surety – If the business entity has given security for the debt of another person or institution, then it is doubtful liability because if the borrower becomes insolvent or for any other reason is unable to repay the loan, then the guarantor The dealer has to pay. The auditor should scrutinize the articles and covenants of the company granting the bail.
            1. Verification of doubtful liabilities not shown in the balance sheet – For this the auditor should do the following:-
               1. Certificate should be obtained from the employer or managers that all doubtful liabilities are shown in the form of footnote in the balance sheet.
               2. Should be compared with the previous year’s balance sheet.
               3. The discounted bills should be checked from the pass book.
               4. Information should be taken from the lawyer for the cases going on in the court.
               5. Investments should be checked to see on which investments the full amount has not yet been demanded.
               6. The auditor should estimate the doubtful liabilities by examining the provisions of the Articles of Limitation and the proceedings of the meetings of the directors and shareholders.