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Concept and Meaning of Verification
Verification means proving the correctness. One of the main work's of auditor is verification of assets and liabilities. Verification is the act of assuring the correctness of value of assets and liabilities, title and their existence in the organization. An auditor should be satisfied himself about the actual existence of assets and liabilities appearing in the balance sheet is correct. If balance sheet incorporates the incorrect assets, both profit and loss account and balance sheet do not present true and fair views.
Thus, verification means to confirm the truth or accuracy and to substantiate. It is a process by which the auditor satisfies himself not only about the actual existence, possession, ownership and the basis of valuation but also ensures that the assets are free from any charge. While verifying the assets, an auditor should consider the following points:
- Ensuring the existence of assets.
- Acquiring the assets for business.
- Ensuring the proper valuation of assets.
- Ensuring that the assets are free from any charge.
Question for Verification and Valuation of Assets and Liabilities - Auditing & Secretarial PracticeTry yourself: What is the main purpose of verification in auditing?View Solution
Concept And Meaning Of Valuation
Valuation is the act of determining the value of assets and critical examination of these values on the basis of normally accepted accounting standard. Valuation of assets is to be made by the authorized officer and the duty of auditor is to see whether they have been properly valued or not. For ensuring the proper valuation, auditor should obtain the certificates of professionals, approved values and other competent persons. Auditor can rely upon the valuation of concerned officer but it must be clearly stated in the report because an auditor is not a technical person.
An auditor should consider the following points regarding the assets while making valuation off assets:
- Original cost
- Expected working life
- Wear and tear
- Scrap value
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| 1. What is the meaning of verification of assets and liabilities in auditing? |  |
Ans. Verification of assets and liabilities refers to the process of examining the existence, ownership, and valuation of assets and liabilities reported in the financial statements. It involves verifying whether the assets and liabilities are valid and accurately represented in the financial statements.
| 2. What are the methods used for valuation of assets and liabilities during auditing? | |
Ans. The methods used for valuation of assets and liabilities during auditing are:
1. Cost Method - It involves valuing the assets and liabilities based on their original cost.
2. Market Value Method - It involves valuing the assets and liabilities based on their market value.
3. Income Method - It involves valuing the assets and liabilities based on their income-generating capacity.
4. Replacement Cost Method - It involves valuing the assets and liabilities based on the cost of replacing them.
| 3. What is the importance of verifying assets and liabilities during auditing? | |
Ans. The importance of verifying assets and liabilities during auditing are:
1. It helps to ensure that the financial statements are accurate and reliable.
2. It helps to prevent fraud and errors in the financial statements.
3. It helps to identify any misstatements or omissions in the financial statements.
4. It helps to provide assurance to stakeholders that the financial statements are a true and fair representation of the company's financial position.
| 4. What are the consequences of not verifying assets and liabilities during auditing? | |
Ans. The consequences of not verifying assets and liabilities during auditing are:
1. Inaccurate financial statements may mislead investors and other stakeholders.
2. Potential legal and financial liabilities may arise due to inaccurate financial statements.
3. The company's reputation may be affected, leading to a loss of trust and confidence among stakeholders.
4. The company may face regulatory actions and sanctions for non-compliance with auditing standards.
| 5. What is the role of auditors in verifying assets and liabilities during auditing? | |
Ans. The role of auditors in verifying assets and liabilities during auditing are:
1. The auditors are responsible for planning and performing the audit to obtain reasonable assurance that the financial statements are free from material misstatement.
2. The auditors use various audit procedures to verify the existence, ownership, and valuation of assets and liabilities.
3. The auditors provide an opinion on the financial statements based on their audit findings.
4. The auditors may also provide recommendations for improving the company's internal controls and financial reporting processes.
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