AUDITITING

VERIFICATION AND VALUATION

OF
CURRENT ASSET
 -PRESENTED BY-
NAME ROLL NO
• SWATI GALA 212
• AARTI CHAMANKAR 205
• HEMALI NANDU 223
• SHILPA KULAYE 218
• SONAL RAMSINGH 247
• APARNA DEOGHARE 210
• KUNAL TAYAL 251
• HARDIKA VAYANTA 254
 INTRODUCTION
• Verification is a process by which an auditor
satisfies himself about the accuracy of the
assets and liabilities appearing in the balance
sheet by inspection by the documentary
evidence available.
• Verification means providing the truth or
confirmation of the assets and liabilities
appearing in the balance sheet.
 AUDITOR’S DUTIES
• They exist
• They belong to the client
• They are in the possession of the client or person
authorised by him
• They are not subject to undisclosed encumbrances
or lien
• They are stated in the balance sheet at proper
amounts in accounts with sound accounting
principles and
• They are recorded in the account
 INVENTORIES / STOCK
• The raw materials, work-in-process
goods and completely finished goods that are
considered to be the portion of a business's
assets which are ready or will be ready for sale.
Inventory represents one of the
most important assets that most businesses
possess, because the turnover of
inventory represents one of the primary
sources of revenue generation and subsequent
earnings for the company's
shareholders/owners.
 Verification of stock can be done by
adopting the following procedure:
OBTAINING
APPLYING
ATTENDING
EXAMINATION
PHYSICAL STOCK
ANALYTICAL REVIEW
DIRECT
OF RECORDS
TAKING
PROCEDURES
PROGRAM
CONFIRMATIONS

V
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 AUDITOR’S DUTIES
• Proper Valuation
• Test check calculation
• Proper provision
• Consistency
• Signed by responsible officer
• Stock with others
• Comparison with previous year
• Cut off transactions
• Disclosure
• Report under CARO, 2003
 DEBTORS
• Debtors are people or other firms who
owe money to the firm. This will usually
happen where the firm has sold goods
with a period of credit. The firm sells
the good or service but allows the
purchaser a period of credit to pay -
usually a month. During this month the
purchaser owes the firm the money and
is therefore a debtor.
Verification of debtors can be done by
employing following procedures:
INTERNAL CONTROLS

EXAMINATION OF RECORDS

DIRECT CONFIRMATION FROM DEBTORS

ANALYTICAL REVIEW PROCEDURES

OBSERVING DISCLOSURE REQUIREMENTS

 While scrutinizing debtors ledger,
auditor should check the following:
1. Realisation from debtors as per the credit policy of the concern.
2. Long overdue balances so as to ascertain the possibility of
fictitious sales being recorded.
3. Accounting of allowances and discounts and relevant
correspondence.
4. Proper authorization and relevant correspondence for writing off
any debts as irrecoverable.
5. If payments are been received but balance is continuously
increasing, auditor should ascertain the reasons.
6. Where cheques received from debtors have been repeatedly
dishonoured.
7. Whether any debt is under dispute.
8. In case of debts in foreign currency, auditor should ensure that
they have been properly converted into Indian rupees
 CASH IN HAND
Cash In Hand Includes The Following
CASH BALANCE IN HAND

PETTY CASH BALANCE IN HAND

BALANCE OF STAMPS IN HANDS

CASH IN TRANSIT

CASH AT BRANCHES

CASH WITH AGENTS

 Verification of cash balance includes
considering the following points:
• Auditor should obtain a certificate from the concern about
the actual cash balance in hand at the date of balance sheet.
• The auditor should verify the cash in hand by actually counting
it on the close of the business on the date of the balance
sheet.
• In certain cases, if the client is maintaining an unduly large
balance of cash in hand consistently, the auditor should make a
surprise check to ascertain whether the actual cash in hand
agrees with the balances as shown by the books.
• If there are more than one cash balances like for e.g. when
there is cashier, a petty cashier, a branch cashier and
imperest balances, the auditor should check all of them
simultaneously, as far as practicable so that shortage in one
balance is not made good by transfer of amount from others.
• As far as cash in transit is concerned, the auditor should
verify this balance with the help of proper documentary
evidences and correspondence.
• If the cash in hand is not with agreement with the balance
as shown in the books, it should be the duty of the auditor
to call for an explanation.
• Often postage and other stamps are taken with the cash in
the balance sheet. The auditor should confirm the balance
of postage and stamps by physical counting only.
• He should also check the system of making payments and
safety arrangements provided for the protection of the
cash balance.
• In case cash is maintained at the local branches and auditor
is unable to pay visit to the branch, he may ask the branch
manager to deposit the balance of cash in the bank on the
balance sheet date.
 PETTY CASH
• The small amount of cash and coins that
an organization uses for minor
purchases and providing change to
customers. Petty cash is typically used
by merchandising companies or small
stores that are required to make change
for customer purchases
 AUDITOR’S DUTIES
• Petty cash in hand should be verified with petty cash book.
• Verify the balance of petty cash account in general ledger.
• Review internal control system regarding receipts and
utilisation of petty cash.
• Ensure that there no possibilities of misappropriation of
petty cash.
• Ensure that no fictitious payments are recorded.
• Verify the petty cash in hand by actual counting it on the
close of the business on the date of balance sheet.
• Auditor should also carry out surprise visits to clients
place and physically count petty cash balance at regular
intervals during the year.
 CASH IN TRANSIT
(REMITTANCE IN TRANSIT)
It refers to cash/cheque sent by one party but not
received by the other party till year end. In case
of cash in transit, auditor should verify the
following:
– Auditor should verify cash in transit from cash book and
bank statement of subsequent period.
– If this remittance in transit is a transaction between HO
and branch, auditor should obtain reconciliation
statement of HO and branch account.
– Auditor should ensure that entry for remittance in
transit is passed by only one party and is reversed in the
next year.
 CASH AT BANK
• The total amount of money held at the bank by an individual
or company
• The auditor should compare the balances as shown in the
pass book with the balances as shown in the cash book.
• The auditor should prepare a bank reconciliation statement
or should check the statement prepared by the client in
order to ascertain the correct bank balance.
• If bank reconciliation statement includes a large number of
unclear items on the balance sheet date, auditor should
verify that these were subsequently cleared.
• Auditor should note that where a cheque issued for more
than six months before the close of the year is shown in the
bank reconciliation statement, the fact is to be disclosed.
• He should obtain a bank confirmation certificate from the
bank at the close of the year.
• He should also obtain separate certificate for fixed deposit
account, current account and saving bank account from
different banks to confirm total deposits in different
banks.
• Where amounts are deposited in foreign banks under
exchange control regulations, the fact is to be disclosed.
• The auditor should also ensure that the bank balances are
properly disclosed in the balance sheet according to
schedule VI of companies act. Schedule VI requires that
the bank balance should be segregated as follows:
– With scheduled banks
– With others
• Auditor should ensure that the following items are not
included in cash and bank balances:
– Temporary advances.
 LOANS GIVEN
• Its meaning can be defined as:
– Something lent for temporary use.
– A sum of money lent at interest.

AUDITOR’S DUTIES
• Auditor should schedule of loans given by the concern
and trace the entries in loan account.
• Auditor should examine the loan agreement and other
documentary evidence in connection with loans.
• If loan is given against any security, auditor should
physically verify the security. Also relevant
documents should be scrutinised and it should be
ensured that the loan is adequately secured.
• Auditor should ensure that the loan is given under
proper authorization and is permitted by Articles
of Association of the company.
• Auditor should verify the rate of interest and
ensure that interest is recovered regularly.
• Auditor should obtain year end balance
confirmations directly from the concerned parties.
• Auditor should ensure that loans given are properly
disclosed in the balance sheet as per the
requirements of schedule VI of companies act,
1956.
 PREPAID EXPENSES
• A type of asset that arises on a balance sheet as a result
of business making payment. Due to the nature of certain
goods and services, they must be prepaid expenses. For
example, insurance is a prepaid expense, because the
purpose of purchasing insurance is to buy proactive
protection in case something unfortunate happens. Clearly,
no insurance company would sell insurance that covers the
occurrence of an unfortunate event, after the fact, so
insurance expenses must be pre-paid. For goods and
services to be received in the near future. While prepaid
expenses are initially recorded as assets, their value
is expensed over time as the benefit is received onto the
income statement, because unlike conventional expenses,
the business will receive something of value in the near
future.
 AUDITOR’S DUTIES
• The auditor should verify the receipt and the other
documentary evidence for pre-payments made during the
year.
• Prepaid expenses for the last accounting period should
be properly adjusted. The auditor should see the
expenses paid in the last year pertaining to the current
accounting year have been properly changed to revenue.
• The auditor should also check the adjustment made in
the next year, if possible, against the prepaid expenses
made during the year.
• The auditor should check the calculations for
ascertaining the portion of expenses belonging to the
next period by reference to the contract or other
documents.
• In respect of rent, rates and taxes, the
auditor should check the payment voucher
and satisfy that allocation to carry forward
has been made on time basis.
• In respect of insurance premium, the auditor
should also confirm that the carry forward
allocation has been made on the basis of the
terms of policy and the premium paid.
• Prepaid expense is a current asset. The
auditor should assure that it has been shown
separately in the balance sheet.
 GOODS IN TRANSIT
Goods that have departed from the dispatch loading or
shipping but not have arrived at the receipt, offloading
or delivery point. Also called in transit inventory or
stock in transit
• Auditor should check whether the goods in transit are on
sale account or purchase account. In case of sale as it is
buyer’s property, no asset exists in form of stock. If it is on
purchase account, then it must be taken as goods in transit
if it is accounted as purchased goods.
• Auditor should verify goods in transit by reference to
invoice and transporters receipt. Also he should trace this
item in stock book of subsequent period to establish that
they were in transit.
• If goods sent by HO to branch or by branch to HO
may be in transit. In such cases, auditor should
examine outward note of sending unit and confirm
the same with subsequent entries in the stock
book.
• Auditor should obtain certificate from management
stating that there are no undisclosed items of
goods in transit.
 BRANCH TRANSFERS
Branch transfers means transfer of goods from one branch
to another. When such transfers are made they have to be at
cost price as it is just a transfer within the business itself and
not sales.
• VERIFICATION OF INVOICE: Auditor should check
invoices made at the time of such transfers.
• QUANTITY AND RATE: Auditor should also check the
quantity and rate at which such transfer are made.
• PERIODIC RETURNS: Auditor should see that periodic
returns are received from the concerned branches for
the purpose of sales.
• COST PRICE: if the goods are transferred at invoice
price, auditor should see that proper accounting is done
for loads.
 LOOSE TOOLS
• Auditor should obtain physical verification sheet duly
certified by authorised persons of the concern and compare
it with the balance as per books.
• In case of material discrepancies between balance as per
books and balance on physical verification, auditor should
ascertain the reasons and should ensure that such
discrepancies have been properly accounted in the books.
• Auditor should, if possible, observe physical stock taking at
construction site.
• Auditor should ensure that loose tools are valued at cost
(taking into account damage, obsolescence etc.)
• Auditor should ensure that loose tools are disclosed
separately in the balance sheet as an item of current asset.
 CALLS IN ARREARS
Money called up for shares, but not paid at the correct time. The
shares may be forfeited or a special call in arrears account is
established to debit the sums owing
• Auditor should obtain list of calls in arrears and compare it
with share ledger.
• Auditor should verify Articles of Association to ascertain the
provisions regarding interest to be charged on calls in arrears.
• Auditor should ensure that the amounts of calls in arrears are
shown as deduction from account of called-up capital in
balance sheet.
• Auditor should see if any director has not paid the call money.
According to the provisions of section 274 of companies act,
1956 a person cannot be appointed as a director of the
company if he has not paid the call money and the call money is
outstanding for more than six months from the due date.
 WORK IN PROGRESS
Work that has not been completed but
has already incurred a capital investment
from the company.
This is usually recorded as an asset on
the balance sheet. Work in progress
indicates any good that is not considered to
be a final product, but must still be
accounted for because funds have been
invested toward its production.
 AUDITOR’S DUTIES
• Auditor should verify the duly attested cost sheet to
ensure that the work in progress is properly valued.
• Auditor should verify the direct expenses (like
material cost, wages etc.) included in the cost sheet
with reference to the documentary evidence
available.
• Auditor should confirm that allocation of overheads
to work in progress valuation is made on reasonable
basis.
• Auditor should compare cost sheet of current year
with that of previous year and if there are any
material deviations, auditor should investigate the
reasons thereof.
 BILLS RECEIVABLE
Bills receivable is an current asset to the business, when we sell to
any customer if he can`t pay the amount we give him a document
asking him to paying within a specified time.

AUDITOR’S DUTIES
• The auditor should examine the system of internal controls
relating to drawing, acceptance and collection of bills
receivables.
• Auditor should scrutinize the ledger accounts of bills
receivables. He should verify the bill receivable book and
prepare a schedule of all those bill receivable, which have
not yet matured before the date of the preparation of the
balance sheet.
• Auditor should physically verify the bills receivables on the
last date of the accounting year.
• Where the number of bills is large and are kept with the
bankers for collection, the auditor should obtain a detailed
certificate from the bank to ascertain the clear positions
about the bills.
• The auditor should see that the bills are properly drawn,
stamped and duly accepted and are not overdue. In case of
renewals of bills, the auditor should compare the new bill
with the old bill.
• Any contingent liability in respect of the bills that are
discounted or endorsed but remain outstanding at the time
of audit should be shown as a note to the balance sheet.
• The bills which have been dishonoured before the due date
of the balance sheet should not be included in the balance
sheet as ‘bill receivable in hand’.
• Sometimes the bill might have matures and honoured
subsequent to the date of the balance sheet, but prior to
the date of the audit.thr auditor should check whether the
cash received as shown in the cash book of the next year.
• If the bills have been retired before the date of the
balance sheet, the proceeds thereof should be checked by
reference to the cash book.
• For the bills discounted prior to the date of maturity when
the date of maturity is to fall after the date of balance
sheet, the discount on such bills must be apportioned
between periods covered by two separate financial years.
• Auditor should ascertain whether the bills are subject to
any lien, hypothecation, or encumbrances. He should check
the register of charges, loan agreement and other relevant
documents.
 BIBLOGRAPHY
• AUDITING T.Y.BCOM
» L.N.CHOPDE

• AUDITING T.Y.BAF
» VIPUL PRAKASHAN

• GOOGLE.COM
THANK
YOU