t-5 AUDIT OF ASSETS .

1J · /
•
Book Debts (Accoun
ts Receivable)
h
Sundry debtors represent t e amo
unt recovera
d mentioned procedure s ou
·
bl.e from the customers m respect Of
h Id b
e appliect
rendering services or for sale of go~,ds. The ~:b;~rs" after receiving a schedule or list of
for verification of book debts or sundry
debtors.
1./ Confirmation of Balances d h 1 tters of confirmation of balances ·by the
t/ The auditor should arrange to sen t e of confirmation is f01warded to his office
[~P;
client as per client'~ records and see th ~t t~e 20 days of year ending dat~ under the
;n.
directly. Usually this should -be sent wi th
supervision of the audit staff. After the rep ts rece
ived the same should be talhed with the
·i any be reconciled.
balance shown in the debtors' ledger and differences, I '
i
v·
Scrutiny of Ledgers
. . h
·.
h Id carry out a thorough scrutiny of the
After the said procedure ts earned out, e s ou btors is very large, test check
debtors' individual acco~nts. ~erever _number lo~ de the audit should focus h~
technique can be apphed. While scruumzmg the e ger, d
. attention on discount, returns, cash received, rebates allowed, goods retume etc.
Steps in Scrutiny
I. Check the opening balances.
2. Check posting
3. Check casting
4. Mark bills against receipts
s. Check closing balances
3. /verification of the Position ot:Jtebtors
/ On ascertaining the balances of the debtors as genuine and correct, the auditor has to
verify the debtors to find out bad or doubtful debts and to make a provision for the same.
If the debts are bad and irrecoverable or doubtful and they are not provided for
properly, then the financial statements do not provide a "True and Fair" view. Hence
appropriate provision is to be made by considering the age ·of the debtors, scrutiny of
payments received, subsequent management opinion and any other information like
financial position of debtors etc.
4~ Compliance of Legal Requirements
1 After ascertaining the position -of bad or doubtful debts, he should see that the legal
.

requirements of schedule III of the Companies Act, 2013, are duly complied with. For this
purpose the debtors are to be classified as :
a) Outstanding for a period of more than six months; and
b) Other debts.
 . fee hniques : Verification
1
i
11
;ver and abo:'e these requirements, debts considered as good and which are fully
llre d, debts whichf are unsecured but considered good ' debts due from the officers,
f cors, managers o company etc. are also to be disclosed separately.
d,recl)isclosure of Hire Purchase Debtors
l,.vifthe customers have purchased the goods on hire-purchase basis and some of the
i)SCa1ments are not due, the same is not to be shown as debtors, instead they are to be
,lJOWfl as "stock out on hire-purchase" at cost.

6 Disclosure of Customers who have Purchased Goods on Approval Basis

> iikewise, if the goods are sold on sale or approval basis, such customer cannot be
,hown as debtors unless they have agreed to purchase the same before the date of the
balance sheet.
1,;riisclosure of Credit Balances on Debto~ Account
/ Further, whenever there are credit balances in debtors' accounts, the same should not
be deducted from other debtors' debit balance. Such credit balance is to be shown on the
!ability side separately.
s. Confirm Ownership
/ Examine debtors ledger with relevant sales documents and correspondence with
debtors. Also letter of confirmation will be useful to verify ownership.
9, Verification of Encumbrances
/ Enquire whether there is any dispute regarding any balance included in debtors.
Similarly debtors may be subject to charge ~th a bank. The auditor should verify the
document regarding any dispute and agreement regarding a charge by a bank.
10. Cut Off Transactions
The auditor should ascertain that there are no unrecorded debtors. For this purpose
he has to examine the cut off transactions.
He should examine the cut off procedures to ensure separation of transactions of the
current year from the next year. Sales of the current year should be separated from sales of
the next year.
He should ensure that sales bills are prepared for goods despatched. No sales bills are
raised unless the goods are actually·despatched and sold during the accounting year.
11. Provision for Bad and Doubtful Debts .
- The auditor should examine the debtor's ledger and determine the provision for ba?
and doubtful debts. The auditor should ensure that the provision for bad & doubtful debt 1s
adequate.
12, Events After Year End .
Th d" h ld check collection from debtors in the next year to decide whether
e au ttor s
th e year end balancesou are go od or not · .If debtor has become insolvent, after the date of
Balance Sheet, such debt should be provt~ed for.
 1s. Valua~ion of Stock/ Inventory
Inventones normally constitutes .a significant portion of the total assets, particularly in
· the case of manufacturing and trading entities.
The valuation of stock involves two stages :
1. Physical stock taking.
2. Valuation of each item of (inventory) stock.
This is the first stage in the process of valuation of stock. The term 'stock taking' refers
to actual verification and counting, measuring or weighing of all the items of stock on hand
on the date on which the.final accounts are prepared.
I

For this purpose, generally the business is closed. The stock on hand is actually
counted, weighed or measured and noted in the sheet with the description of the items
and their quantities. Then the rate is noted against each ~tern in another column, and the
value of the various items extended to the cqlumn.
204 ,,.,,.,,. Auditing (S. Y.B. Com.) (Sflll.-fi;

In valuing the stock the following methods are generally followed :

1 t
· CoS price or l whichever is lower
2. Market price 1
but always following a consistent basis as already mentioned (care being taken to exclude
any obsolete or unsalable ones to provide against losses).
IMPORTANCE OF STOCK V:ALUATION
Verification and Valuation of inventory is imponant due to the following :
1. Proper Valuation of assets
Balance sheet is prepared at the end of_the year to know the financial status of the
business. Stock at the end of the year lying in the warehouse is an imponant asset. If it •
valued properly the Balance sheet will show true position of the business.
2. Disclosure of correct profit
Profit or loss is disclosed by preparation of P & L Ne . p & L Ne is prepared on the
basis of expenses, losses, incomes and gains. Gross profit is calculated on the basis of sales
and cost of goods sold. Stock at the end of the year is brought into account at proper value ·
to show correct profit for the year and the next-year because it is carried forward as
opening stock for the next year. Proper valuation of stock show.:; nrniit nr lnc:c: rnt-rPrtlv.
 - - - - - - - - - -- - -- - £ -

l~UDIT OF LIABILITIES
~ uidance Note on Audit of Liabilities
Meaning
Liabilities are the fin__grtdaLobligations of companies other than own Funds. It includes
loans, trade cred!!._ors, outstanding exR,eJ1ses etc.
Features
Liabilities are represented by documentary evidence which originates mostly from
third panies in their dealings with the organization.
Aspects to be covered
The auditor should obtain sufficient- evidence to satisfy himself that all liabilities are
recorded at fair and reasonable amount.
Internal control evaluation
The auditor should study and evaluate the system of internal control to decide the
nature, timing and extent of the audit procedures. ·
Verification :
The liabilities should be verified by carrying out the following procedure.
a) exami~ ! l ~ds, ·
b) direct co~ o11r-,
'
c) examination of disclosure,
- - --·- ---..,
d) analytical review-pr_ocedure,
' .
e) managem~_res.entauon,
a) Examination of Records
Loans 8 bon-owings
The auditor should satisfy himself about :
i) Loans are within the borrowing powers
ii) Validity and accuracy of loans
iii) terms of loan agreement
iv) Directives of RBI and other authorities about deposits.
v) Outstanding amount in the case of hire purchase
J iting Techniques : Verification
j
221

creditors
i) Adequacy of cutoff procedure
ii) Validity, accuracy and completeness
iii) Unusual payments
iv) Material liabilities outstanding at the Balance Sheet date.
DireCt Conformation
i) Verification of balances by direct confirmation.
ii) Consent of the entity for direct confirmation.
iii) Fonn of confirmation
iv) Confinnation on a certain date.
Disclosure
Proper disclosure in the financial statements as per the statutory requirements.
Analytical Review Procedure
Analytical procedure may be followed to obtain necessary evidence :
i) Comparison of closing balances with that of previous year.
ii) Comparison of relationship between current year's creditor balances and the
purchases with that of previous year.
iii) Comparison of closing balances, with budgeted figures.
iv) Comparison of current year's aging schedule with that of previous year
v) Comparison of ratios relating to liabilities with similar ratios for other firms.
vi) Comparison of ratios with Industry norm.
Management Representation
The auditor should obtain from the management a written statement that all known
liabilities have been recorded in the books and they are properly disclosed. However, it
does not relieve the auditor from the responsibility of performing audit procedures to
obtain sufficient audit evidence to form his opinion about the financial statements.
Documentation
The auditor should maintain adequate working papers, audit files, confirmations
received, management representation regarding the liabilities.
 (March 2017) /
16.~nsecured Loans Borrowed
' / The auditor should verify the loans a; dncler :
1. Internal Control
The auditor should reviewed the system of internal control regarding acceptance of
lo an and the persons authorised to sign the loan agreement.
2. Power to Borrow
The auditor should see that proper procedure is followed in accepting loans. The
provisions of section 18 5 and 186 of the companies act 2013 are complied with. He should
see that loan sanctioned by the board is within the limit. Similarly, loans beyond a certain
limit is sanctioned by the shareholders in the general meeting.
3, Confirmation
The auditor should see that confirmation letter from the lenders is verified.
4, Reconciliation
The auditor should reconcile the loan account with the register of charges.
5, Disclosure Vide Schedule III
i) Loans should be classified as long term loans and short term loans.
ii) Long term loans classified as
a) Bonds I debentures
b) Terms loans from banks/ others
c) Deferred payment liabilities.
226 ,,.,,.,,. Auditing (S. Y.B.Com ) (.'"
· ->elll,- fl')

d) Deposits
e) Loans and advances from related parties
0
f) Long term maturities of finance lease obligations.
g) Other loans and advances.
be disclosed under• 'other
iii) Current maturities of long term borrowings should
1:
current liabilities' . · al
6. Report Under CARO 2016
Under CARO 2016, the auditor has to report whether :
i) Loans have been taken from the parties listed in the register maintained under th
section 189 of the Companies Act, 2013.
ii) Payment of principal and interest is regular.
iii) Reasonable steps are taken by the company for recovery of principal and interest lie
in case the over due amount for more than 90 days. pr
iv) Loans have been applied for the purpose for which loans have been taken. 13
v) Default in repayment of dues is made.
rr
2:f, Auditing (Sy It. Co,,,
J rs,,,,
d) Deposits 1I')

e) Loans and advances from related panies

t) Long term maturities of finance lease obligations.
g) Other loans and advances.
iii) Current maturities of long term borrowings should be disclosed under ,
current liabilities'. ' 0 ther
6. Report Under CARO 2016
Under CARO 2016, the auditor has to repon whether :
i) Loa~s have been taken from the panies listed in the register maintained und
secuon 189 of the Companies Act, 2013. er
ii) Payment of principal and interest is regular.
iii) Reasonable steps are taken by the company for recovery of principal and inte
.
m case the over due amount for more than 90 days.
iv) Loans have been applied for the purpose for which loans have been taken.
v) Default in repayment of dues is made.
Q. 42. How would you verify Loans?
I 6 · Debentures d
. Powers f
Examine the provisions regarding the powers of the company to issue debentures as
contained in Memorandum and Articles of Association.
2. Terms of Debentures
Examine the terms of debenture issue as contained in Trust Deed and ensure that the
same have been properly complied with.
3, Verify cash
Verify cash received on this account with the help of cash book entries.
4, Interest
Verify whether the interest on debentures is paid properly at regular intervals. Ensure
that it is shown under 'Finance Cost'.
s. Evidence
Confirm redemption of debentures on the basis of Minutes of Board of· Directors,
Counterfoils of the cheque books, Bank Pass Book and Cash Book, returned debentures
certificates etc.
6. Collateral Security
Issue of debentures as a collateral security should be disclosed in the balance sheet
properly.
7. Proper disclosure
Confirm whether the debentures are secured or unsecured and see that the same is
disclosed properly. Ensure that it is 'disclosed under Long Term Borrowing. Debentures
redeemable during the year is disclosed under 'Short Term Borrowing' as per schedule Ill
of the Companies Act, 2013.
8. Reporting under CARO 2016 on Default
The auditor has to report under CARO 2016, whether the company has defaulted
repayment of dues to Debenture holders. The period and the amount of default should be
reported.

\
 'Ill
Jiting Techniques : Verification
227
soard Resolution
· The auditor should see that there 1s
. a proper b d
debentures. oar resolution passed regarding issue
), Lintits on borrowings
The auditor should check the lim·t b .
ioofCompanies Act, 2013 In case t~eolnl_ _o~ro_wik ngs including debentures as per section
. · mlt 1s 11 ely to be cro d h h .
lllua general meetmg can pass an ord· . . sse , t e s areholders m the
1
I, Sanction of SEBI mary resolution to mcrease the limit.

The auditor should see that necessa . . th

1e company before issue of debentures. ry permission of e SEBI has been obtained by
2. Issue of prospectus
, The auditor ha~ to see t~at in case debentures are offered privately, the statement in
.u of pro~p~ctus 1s filed with the Registrar of Companies. In case of public offer the
rospectus 1s issued.
J. Charge
The auditor should verify the charge and its registration with the Registrar of
ompanies.
4, Sinking fund
See that a sinking fund has been created if it is one of the terms of issue of debentures
1d the transfer from Profit and Loss Account is made each year as per SEBI guidelines.
5. Redemption of Debentures
As per Companies Act 2013 it is necessary to create Debenture Redemption Reserve
. least 25% of the amount raised before redemption commences.
Similarly the DRR is to be invested at least 15% of the amount to be redeemed during
le year ending 31 st day of March, ne~ year.
The auditor should ensure compliance of these provisions.
6. Debenture Trustee
Act makes appointment of Debenn:1re_Trustee compulsory only when prospectus
· 1·s 2013
d h soo persons for Subscnption of Debentures.
, sue to more t ~iy~
;EBI Guidelines . .
ld ee that guideJmes .
issued . respect of issue
by SEBI m . of debentures
The auditor shou s
re complied with. "bl debenture having conversion . penod. more than 36 months 1s . not
1. Fully convert! e conversion is made optional.
pe rrnissible un1ess nvertible debentures or partly convertible
. debentures credit
2. In case of nond-~o ating agencies is to be obtained before issue if the maturity
. from ere It r
rau~g d 18 months.
penod exc~e s f debentures with maturity period abov:e 18 months appointment
3. In case of i55ueruostee or creation of Debenture Redemption Reserve each year is a
- ' ~Phenture t
212 IP"IP"IP" A11ditl111: (S l'.11 Cu111 ) IV41111
• IVJ

&. Adequate provision .

Mk h usual outstanding, e.g. last ....,110
a e sure that provision has been made for all t e · nth• 8
salary, wages, rent interest on loans, interest on Debentures etc.
1, Correspondence
Examine the c01Tespondence, minutes books etc.
8. Service Contract
made by the company and see that all outstanding
Vetify the service contracts
expenses have been provided for.
9. Disclosure • d in the balance sheet under •
See that outstanding expenses have been disc1ose · Other
current liabilities" as per Schedule Ill.
Q. 38. How would you verify 011tsta11di11g Expe11.fes?

Accounts Payable X
l&,2 Bills Payable (
1. Internal Control
The Auditor should study and review the internal control system for acceptance and
payment of Bills payable.
2. Statement of Bills Payable .
Obtain a detailed statement of bills payable which are outsta nd ing on the balance
sheet date. Check opening balances from the Balance sheet.
3, Scrutiny
Compare the outstanding bills with the bills payable book.
4, Verification
Verify payment against bills on the basis of cash book entries after the date of Balance
Sheet.
5, Test check posting
Test check posting from bills payable book to bills payable account in the ledger.
&. Confirmation
Obtain confirmation from the drawers or holders of the bills irrespective of the
amount due on them and compare them with bills payable book.
7. Disclosure of Charge
See that the charge created on any assets is properly disclosed. Verify the Register of
charges, Board resolution: document creating charge etc.
8. Dishonour
See the entries regarding dishonour of bills on due dates.
9, Disclosure in Balance sheet
See that B.P. is disclosed under current liabilities 'Trade Payables' as per schedule lll.
IQ. 39. How would you verify Bills Payable?
1&.3 Creditors [Trade Payables]
\
1
Verification of creditors should be undertaken by auditor keeping in mind the
\jollowing aspects :
I. Internal Controls
Following aspects of internal control should be reviewed :
i) Outstanding and payments reconciliation done regularly.
ii) Schedule of creditors is prepared.

J
r
feC hf1'
' verification
·qJJes ·

01
entsof accounts are ob .
1·O 5ciidtereconciliation.
tl .
' roval of ad1ustments in cred·
tamed from the .
ft'rt
credttors fl' m
or confinnation. review
-
p.pP . . itors Ne b .
~') ere ditor s control Ne m the led ger rec Y . senior officer.
.,,.y of 1,egerIdAccounts
,1•..-11....- onc,Jed with balan ces .,n creditors ledger

uditor shoU take creditor Led .

j)l' :ger serutinY includes following as ger Account and scruumze
. . .It
;Y' _,,.a Balances . p· pects [things to b through various
. . • trst thing 10 e venfied] ,
0 snould • obtain last years
• • audited accounts and are
check m opemng . balances. The auditor
.. p.,.nt'II &om original books t . atch the balances with it
u) undertake sevouching
b ks c to verify wh ethoerCred1ton
prope Accounts
. ·. An Auditor
.. should
i e. pure a oo , ash books B'll r entnes are passed . . .
~riginal hbooks, he should ensu:e t s payable books etc. After ct onginal books,
osted to creditors ledger. The autdh_at entries from oriainal booeksckiang postmgtlm
· · · h ltorsh Id re correc y
c0mmlSSlon: 1.e. e should check that co ou check and rule out any error of
P
on correct side. rrect amount is posted in correct account

The auditor •need not check 1000¾ 0 postings

. H 4
,nonths posnngs or he can select high val~ e can select a sample, say, 3 to
check that all entnes are posted · e amounts to check. Auditor should
no entries are altered. m sequence of dates. He should also check that

iii) Checkin& Totals of Accounts : Checkin t. . .

auditor should check totals of the led ger accounts
g caS mg is a very 1mponant aspect. The
iV) Checkin& Payment
each Against Bill Raised
a ·. Through
.
should check bill against
corresponding debit amount He i ledger account, the auditor
yrnent 1.e. Every credit amount has
against bills/payments Through· th' s oul_d also . check debit/credit notes raised
· 1s exercise auditor can find out :
a) wrong posting of and bill or payment.
b) bills agair:ist whi~h part payments are made, he can investigate as to why
payment 1s pendmg.
c) any bills against which advance payment is made since long time, he can
mvesugate as to statuS of the work against which advance is paid.
d) Payment not made for a,long time against age old bills, he can investigate as to
why payment of such bill is kept pending._
v) Closing Ba)ance to be Checked : Toe Auditor should check the closing
balance, as to what it comprises. He should check whether all pending bills totals
upto fonn closing balance of creditors account. Any old bills pending or part
payments outstanding is indication of any contingent liabilities etc.
Sometimes, creditors account may give debit balance. This debit balance may be
for some capital asset. On the other hand, these may be due to wrong postings
etc. To rule out such issues, the auditor should obtain balance confirmation from

vi) concerned parties.Ba)ance and Groupings : The auditor should check the closing
Checking Trial
balances of creditors with grouping< and trial balances. He should run a "Creditors
Trial Balance" and check all parties are genuine creditors i.e. no account in nature
of
Heloan etc. check
should included
thatinthe
creditors.
personal balances of creditors tallies with creditors trial
balances. All debit balances in creditors accoun1S are _shown under "Long term
loans and Advances" and are not netted off against credit balances.
 ... • • Auditing (S Y.B.Com-1 rs~m- / VI
224 .. 11.. . ·1

vii) Balance Confirmation : The auditor should obtain confi~atio~ from~ndivictua1

creditors. He should also obtain intercompany balance con rmauons w ere there
are transaction between group companies. . .
·· ·)As . Am b Written Off : Auditor should scruuruze ledger
vm certain ounts to e . . ccount and ask the com
account and trace out old balances standing m the a Pany
to write off them to credit of profit & loss account.
3, Analytical Review
It includes the following:
i) Comparison of opening balances with closing balances.
ii) Comparison of creditors for current year and previous year.
iii) Comparison of actual closing balances with budgeted balances.
iv) Comparison of schedule of creditors of current year with previous year. ·
v) Comparison of ratios of creditors for current year with last year or with industry
standard.
4, Summary
The auditor should check the summary and grouping of balances of creditors ledger.
The auditor should see that loan is not grouped with creditors. Debit balances are shown
on assets side separately. Individual balances of creditors ledger tally with creditors control
Ne in the general ledger.
s. Reporting Requirements
The reporting requirements of section 143 of the Companies Act, 2013 are complied
with. The auditor has to see that purchases are not mere book entries. In case of transfer
from one Ne to other Ne consent of both the parties is obtained.
&. Cut Off Transactions
The auditor has to check up the cut off transactions. He should ensure that no
creditors are omitted from the books accounts. Purchases bills are. recorded for goods
actually received till the last day of the accounting year.
7. Disclosure Vide Schedule III
i) Creditors are first classified as (a) Trade Payables and (b) Other Payables.
ii) Trade payables are further classified as (a) Non-Current and (b) Current.
iii) Acceptances should be disclosed as part of trade payables.
8. Management Certificate
. .!~e auditor should obtain a written certificate from the management that all known
liab1lmes are recorded in the books.
9. Working Papers
The auditors should keep working papers in the audit file s h · lude
confi t' • d . uc papers me
rma 10ns r~ce1ve , undelivered letters received back mana t rtificate,
schedule of creditors etc. · gemen ce
\ Q. 40. How would you verify creditors? J
I &.4 Secured Loans
Loan taken from Banks [Secured against.security]
1. Internal control verification
An auditor should undertake study of the internal . .
company to accept such loans. He should check with ~ontr~ m_~elation tQ powers of the
amou~ts and terms and check whether loan t e au onues about fix~~on of loan
authonzed properly. agreements are properly signed and
 ,; t verification of balances b . .. ... ,•ce Sheet ct
1y
f I:J consent of the entity fo Y. d1rect confi ate
·
ii) f orrn of confirmation r direct confirm~ation.
ct iii) • ation
confirmauon on a cen . ·
jv) a1n date
e ~os"re ·
f proper disclosure
•
in the fin .
anc1a1
j .,rical Review Procedure staternents
•'r as Per th
ll""rnalytical
{". procedure
. may b ,
e ,ollow e statutory requirem
. c 0 mpanson of closing b • ect to obt . ems.
1) • a1ances • ain nece
ii) companson . of relationshi With that of Pre .ssary evidence :
purchases wtth that of pr between cu vtous Year.
. evious ye rrent Yea ,
'ii) companson of closing bai ar. rs creditor b 1
' . ances Wi h a ances and h
iV) companson of current ye , '. t budgeted fl te
. ar s aging gures
v) companson of ratios relat' . schedule With ·
· Ing to habT • that of p ··
vi) Companson of ratios With I l 1t1es With sim'J revious year
yaJ!agement Representation ndustry norm. I ar ratios for other firms.

The auditor should obtain fr om them

1

i3 bilities have been recorded in th anagemem a wri

;oes not relieve the auditor from e books and they are P tten stat~mem that all known
'.btain sufficient audit evidence to fi the ~esponsibility of pe:perlr disclosed. However it
,.... ,mentation orm his opinion about th fionnm_g audit procedures ,to
011'-- . e nanc1al statements.
Toe auditor should maintain adequate w ki
:eceived, management representation rega rd'mg or the ng
r bT1papers,
· audit files , confi1nnattons
.
Q. 37. What are the provisions of Guida ta mes. ·
nee Note on Aud' Oif .
16,t/ Outstancling Expenses ' it Liabilities?
1
1. List of outstanding expe4
Obtain the list of outstanding expenses 1 .fl
2, Material Variances . c ass1 ed by nature of expenses.

Compare current year's outstanding expenses . h th .

enquire into the material variations if any. \\'.]t at of the previous year and
3, Estimates of outstanding expenses
Verify carefully the estimates of outstanding expenses.
4, Documentary evidence
Examine the documentary evidence supporting the outstanding expenses.
For example light bills, telephone bills, rent receipt, loan agreement etc.
s. Payment of outstanding expenses
See that the usual outstanding expenses are paid off by the time of audit.
The Auditor should see that outstanding expenses on the date·of Balance sheet are
Paid during the next year. He should ensure that provision is not excessive or inadequate.
222 lt'lf"'lt' Auditin;: IS. YB.Com.) (Sem,-HJ

6. Adequate provision
Make sure that provision has been made for all the usual outstanding, e.g. last month's
salary, wages. rent interest on loans, interest on Debentures etc.
7. Correspondence
Examine the correspondence, minutes books etc.
8. Service Contract
Verify the service contracts made by the company and see that all outstanding
expenses have been provided for.
9. Disclosure
See that outstanding expenses have been disclosed in the balance sheet under, "other
current liabilities" as per Schedule III.
Q. 38. How would you verify Outstanding Expenses?
Accounts Payable f
16.2 Bills Payable
I. Internal Control
The Auditor should study and review the internal control system for acceptance and
payment of Bills payable.
2. Statement of Bills Payable
Obtain a detailed statement of bills payable which are outstanding on the balance
sheet date. Check opening balances from the Balance sheet.
3. Scrutiny
Compare the outstanding bills with the bills payable book.
4. Verification
Verify payment against bills on the basis of cash book entries after the date of Balance
Sheet.
s. Test check posting
Test check posting from bills payable book to bills payable account in the ledger.
6. Confirmation
Obtain confirmation from the drawers or holders of the bills irrespective of the
._, n-, . ~11n t rl11 0 nn th P m ;i n ti rnmn::irr> thr>m urith hillr .... -. ..~i. 1 _ L- _._
l ;"c
rechrriques: Verification ,,.,,.,,. } JI

V,erification of Assets and Liabilities

b•q
Bula of Valuatton Document.a to be verified
freehold Land Original Cost Title Deed o r Conveyance
I· freehOld Building Cost less a) Title DeecV Conveyance
)· depreciation b) Property Register
c) Agreement
1.,ea sehOld Land and. a) Lease agreement
J· auilding b) Assignment of lease
c) Property Register
t and Machineiy a) Plant Register
!'Ian
A· b) Schedule of Plant and Machineiy
c) Evidence gathered in course of vouching.
or ears and vehicles a) Registration certificate
t,1ot

' b)
c)
Insurance certificate
Tax Token
d) Certified Schedule
furniture and Fixtures Certified Schedule
b- patents and trade marks a) Letter Patent
7. b) Assignment
c) Schedule of patents
d) Last Renewal Certificate
Copy rights a) Evidence of authorship
8. b) Assignment
uve Stock a) Livestock Register
9,
b) Certified Invention
c) Certificate from high official
Asset purchased under a) Hire Purchase agreement
10.
hire purchase b) Certified Schedule
Cost a) Broker's contract notes
JI. investment
b) Share Certificates, Debentures, bonds
c) Allotment Letters
d) Letters of rights
e) Bonus share offer
12. Goodwill Cost or below a) Agreement
b) Correspondence
13. Loans and Advances a) Valuer's certificate
b) Loan agreements
c) Confirmation Certificate
d) Title deeds
e) Certificate of mortgage
t) Insurance policies
g) Assigned documents of title
14, Creditors a) Schedule of Creditors
b) Creditor's Statement of accounts
IS. Bills Payable a) Bills Payable book
b) Statement of accounts
16.
Deposits a) Advertisement filed with RBI
b) Counterfoils of deposit receipts
17. Ca .
Pita! and Reserves a) MIA
b) NA
c) Prospectus
d) Letters of right
e) Bonus offer
t) Director's and Share-holder's Resolutions.
g) Annual Return

b
232 Auditing (S. YB.Com.) (Sem-/Yj

18. Debentures, bonds etc. a) MIA

b) NA
c) .Prospectus
d) Director's Resolution
e) Debenture Trust Deed
t) Mortgage deed
g) List of Debenture-holders
h) Lender's Certificates
i) Register of Charges
17. OBJECTIVE QUESTIONS
I. State with reasons whether following statements are true or false :
1. Verification is wider in scope than vouching.
2. Valuation is no part of auditor's duty.
3. In order to verify fixed assets he should observe the physical verification done by
the management.
4. Vouching subsequent collection.of.debtors provides evidence as to their valuation.
s. In order to verify cash the auditor should physically count the cash at the close of
the year.
6. Inspection report supports entries in sales book and purchase return book.
7. The auditor should confirm that the asset is legally owned by the co.
8. Verification avoids manipulation of accounts.
9. Fixed assets should be shown as market value.
10. Internally generated goodwill is recognised by AS 10.
11. Machinery should be valued at cost less depreciation.
12. As per AS 26 ten ye.ar is considered as useful life for patents.
13. AS 14 deals with accounting for investment.
14. Stock taking involves actual verification and counting.
15. There is no need of Board verification for issue of debentures.
16. Dividend must be paid within 30 days from the date of declaration of divideo<l.
17. Vouching includes verification.
I 8. Verification protects against misuse of assets.
19. Auditor has no responsibility to report.
20 . Valuation of assets helps to know correct financial position.