General Principles

Verification of assets is an important audit process : convention its scope has been limited to inspection of assets, where it is practicable, and collection of information about them on an examination of documentary and other evidence so as to confirm :

  1.  that the assets were in existence on the date of the balance sheet ;
  2.  that the assets had been acquired for the purpose of the business and under a proper authority ;
  3.  that the right of ownership of the assets vested in or belonged to the undertaking ;
  4.  that they were free from any lien or charge not disclosed in the balance sheet ;
  5. that they had been correctly valued having regard to their physical condition ; and
  6.  that their values are correctly disclosed in the balance sheet.

Verification of assets is primarily the responsibility of the management since the proprietor or the officials of the entity are expected to have a much greater intimate knowledge of the assets of the business as regards location, condition, etc. than that which an outsider might be able to acquire on their inspection. They alone thus are competent to determine the values at which these should be included in the Balance Sheet. The auditor’s function in the circumstances is limited only to an appraisal of the evidence, their inspection and reporting on matters affecting their valuation, existence and title, observed in the course of such an examination. Principally, the auditor is required to verify the original cost of assets and to confirm, as far as practicable, that such a valuation is fair and reasonable. As regards the manner in which the original cost should be ascertained, there are well defined modes of valuation which he is expected to follow. Assets are valued either on a ‘going concern’ or a ‘break-up value’ basis. The first mentioned basis considered appropriate when the concern is working and the second, when it has closed down and is being wound-up. AS – 1 mentions that “Going Concern” is one of the fundamental accounting assumptions to be followed in preparation and presentation of financial statements. In case of nonobservance, the fact that “Going Concern” assumption has not been followed is to be specified. If considered necessary, the auditor can also obtain the assistance of expert valuer. He must further ensure that the Balance Sheet discloses the basis on which different assets have been valued.

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