1. VALUATION AND
VERIFICATION OF ASSETS
AND LIABILITIES
Dr.M.PREMANANTHAM
Asst. Prof. of Commerce(CA)
VivekanandaCollege
TiruvedakamWest – 625234
Madurai

2. VALUATION
 Testing the exact value of an asset.
 Not valued properly– not reveal true and
fair view of financial position
 Under and over valuation – lead to
dangerous and serious consequences

3. VERIFICATION
 Proving the Truth or Confirmation
 Important part of auditing - proves
correctness of assets and liabilities

4. VALUATION
AND
VERIFICATION OF
ASSETS

5. Fixed Assets
- acquired for continuous and permanent use in
business
 Plant and Machinery:
* expenses incurred should be debited to Machinery
A/c.
* should see whether properly depreciation
* additions, sale, disposal, written off been approved
by Board of Directors
*physically inspect periodically

6.  Furniture
* verify this with help of invoices
* proper depreciation is provided and shown in
Balance Sheet
* expenses on purchase should be debited to
furniture account
* repairs should be debited to revenue account
* piece of furniture purchased – entry made in
Furniture Stock Register

7.  Properties
 Freehold Properties – owned by client
* Should be shown in separate account
* Examine the title deeds relating to property
* If it purchased – broker’s or auctioneer’s account be
examined
* If it built – builder’s and Architect’s certificates be
examined

8.  Leasehold Property
properties acquired under contract for specified
* Examine lease deed to find value and duration
* Lease has been registered and conditions – payment
of lease rent, insurance duly compiled
* If property sub-let, agreement with tenant be
examined
* Lease rent paid annually be debited to revenue
account
*Particulars of such property recorded in fixed assets
register of company

9. Intangible Assets
 Patent Rights and Trade Mark:
* certificates granting should examined
* examine the assignment deeds and have been
registered
* examine the receipt for payment of fee for renewal
 Copyright
* lifetime of copyright – lifetime of author and fifty
years after his death
* points given in Patent Rights and Trade Mark also
considered

10.  Goodwill
- value depends upon earning capacity of the
business
* If shown in books of accounts
*should see goodwill is never appreciated
* writing down of goodwill is not compulsory
* can be written off within reasonable period out of
current profits or reserves

11. Current Assets
 Cash in Hand
*Visit the premises at close of financial period and
count all balances of cash
*If not, may visit on subsequent day and verify cash
balance upto date
* In outstation branches, obtain certificates from
respective branch managers
* cash balance with those branches at the end year

12.  Cash at Bank
* ascertain whether bank reconciliation
statements prepared
* compare such statement with entries in cash
*verify fixed deposit with bank by examining
deposit receipt or certificate from banker

13.  Valuation of different kinds of Goods in Stock
Raw Materials
* valued at cost price but reasonable expenses
* added to the cost of goods
Semi – Manufactured Goods
*Valued at cost price of the raw materials used
*Proportionate amount of wages, manufacturing
expenses

14. Finished Goods
* should be valued like the semi-manufactured goods
* goods should not be valued at a higher price than
the market price
Valuation of different kinds of Goods in Stock

15.  Verification of different kinds of Goods in Stock
 Raw Materials
should obtain a list regarding items, quantity and
value certified by storekeeper
*Compare the total ledger account
*If system for minimum, maximum and ordering
level of stock – enquire properly implemented
* compare value of raw materials of current year with
previous year

16. Semi – Manufactured Goods
* obtain a list showing items, quantity and value
certified by factory manager
* check monthly progress report of production
* verify closing quantity of semi finished goods with
counting sheet

17. Finished Goods
*obtain list certified by storekeeper and factory
manager – check with stock ledger
*Finished goods with the production reports
* despatch of finished goods be checked with stock
ledger and copy of challans
* compare book balance with counting sheets

18. VERIFICATION
OF LIABILITIES

19. Capital
check Cash, Pass book and Director’s minute book
 find out the number of shares
 verify the additions and alterations of capital by
reference to Companies Act.

20. Reserve Fund
 see the reserve fund is properly stated in the
Balance Sheet
Creditors
 obtain list of creditors and compare same with
purchase ledger
 examine Purchase book, Invoices, Goods Inward
Outward books, Bills Payable book and Cash book
 ensure that goods purchased been entered in the
books of accounts

21. Bills Payable
 obtain schedule of bills and compare with Bills Payable
Book and Account
 bills paid should vouched with entries in cash book
 see the bills paid between date of Balance Sheet and date
of audit – duly written in books
Outstanding Expenses
 examine the vouchers, demand notes, ledger accounts, etc.,
- ascertain the amount debited current year
 find out outstanding expenses properly recorded in final
accounts

22. Loans and Advances
 agreement and correspondence regarding loan be referred
 mortgage of property – indicated in Balance Sheet
 borrower is company – mortgage been registered and
entered in Register of Mortgage
 confirmation letter should obtained – party who advanced
the loan
Bank Overdraft
 same procedure as for the Loans and Advances
 examine Bank Pass book and statement of Mortgaged
Assets

23. Vouching and Verification
Vouching
• testing the truth of entries
• to find out the
correctness of entries
• properly authorised,
recorded and are
supported by
documentary evidence
Verification
• proving the correctness of
assets and liabilities
• to find out the correctness of
transactions
• all the assets are properly
valued

24. RESERVES
 Reserve is a part of the profits set aside to meet the
known or unknown contingencies.
CLASSIFICATION OF RESERVES
 General Reserve
 Sepecific Reserve or Provision
 Capital Reserve
 Sinking Fund
 Reserve Fund
 Secret Reserve

25. Liabilities of an Auditor
In the case of a sole trading concern and partnership, the
liabilities of an auditor depends upon the terms of agreement between
the auditor and his client.
The liability of an auditor may be divided as:
i) Liability for negligence under the Law of Agency
ii) Liability under the statue: It may be under
a) The Companies Act, 1956
b) The Indian Penal Code
Liability for Misfeasance
An auditor is liable for Misfeasance under Sec.543 of the
Companies Act in addition to the liability for negligence under the
Law of Agency. The term misfeasance means breach of trust or
breach of duty

26. Liability under the statute
 Under the Companies Act, 1956
As regards the liability under this head, the liability of an
auditor can be divided as:
1.Civil Liability
2.Criminal liability
1.Civil Liability
section 227 (3) of the Companies Act imposes certain
duties to be performed by the auditor.

27. 2.Criminal liability
According to section 628 of the Companies Act,1956, if
an auditor, in any return, report, certificate, balance sheet,
prospectus statement or other document required by or for the
purposes of any of the provisions of the act.
 Under the Indian Penal Code
Under section 197, if an auditor issues or signs any
certificate which by law is admissible in evidence, knowing or
believing that such certificate is false in any material point.
 Liabilities of an Auditor to Third Parties
An auditor can be held for damages to third parties if
they suffered any loss by relying upon any Balance sheet or
any statement signed by him.

28. References
1. B.N.Tandon., “Practical Auditing” S.Chand Publisher,
New Delhi.
2. D.D.Sharma., “Auditing”, Sathiya Bhavan, New Delhi
3. S.M. Sundaram, Auditing, Sri Meenakshi Publishers,
Karaikudi.