Meaning of Verification
Verification is a technique of auditing in which the auditor
certifies the assets and liabilities as shown in the Balance Sheet by actual
checking or any other technique, Assets ' means that, on the date of the
Balance Sheet, such assets were present in the organization , the ownership of
these assets were with the organization , they have been valued properly, they
are free of any change on them, etc.
The owner or owners of an organization need to know whether
the profit or loss as shown by the books is correct or not, and also whether
the assets and liabilities ( as described in the Balance Sheet ) are present in
the organization or not.
Therefore, an auditor's job does not get over with vouching
because from the vouchers the auditor can only determine that the aforesaid
assets should be with the organization but he cannot determine whether such
assets are present in the organization on the date of the Balance Sheet, or
that the organization has a right on them.
It is possible that
an asset is actually purchased, the relevant voucher for purchase is available
but it can also happen that such asset has been sold before the Balance Sheet
date, or has been stolen or has been deposited as a security and an
inappropriate investment is made for the same.
Therefore, on the basis of a voucher, an auditor cannot
determine that on the date of the Balance Sheet an asset is actually present in
the organization . This information can be obtained by verification.
Definitions Various experts have defined verification in the
following ways :
( 1 ) According to Spicer and Pegler, " The
verification of assets implies an inquiry into the value, ownership, and title,
existence and possession, the presence of any change on the assets.
( 2 ) According to Joseph Lancaster, " The verification
of assets is a process by which the auditor substantiates the accuracy of the
right - hand side of the balance sheet and must be considered as having three
distinct objects :
( a ) the
verification of the existence of assets,
( b ) the valuation
of assets, and
( c ) the authority for their acquisitions "
( 3 ) According to J.R. Batliboi, " The duty of an
auditor in verifying the assets is two-fold. He must satisfy himself that they
really existed at the date of the balance sheet and were free from any change
and that they have been properly valued In verifying the liabilities he has to
see that all liabilities have been inserted at their proper figures and that no
liability has been omitted. " On the basis of the above definitions the
following conclusions can be drawn in relation to verification :
( i ) The assets were actually present in the organization
on the date of the Balance Sheet
( ii ) The right and ownership of the assets was with the
organization
( iii ) The assets were acquired after due authorization for
the purpose of carrying on the business
( iv ) No charge
exists on the assets and, if any charge does exist, the same is mentioned in
the Balance Sheet and that other than this no charge exists on the date of the
Balance Sheet
( v ) The assets have been correctly valued keeping into
mind their physical conditions
( vi ) The values of
the assets mentioned in the Balance Sheet are correct.
( vii ) All liabilities are shown at their amounts and all liabilities have been included.
Objectives of
Verification
Checking of Arithmetical Accuracy
Verification aims at determining the arithmetic accuracy of
the accounts relating to assets and liabilities.
To Ascertain the Existence
One of the main objectives of verification is to ascertain
that, at the date of the Balance Sheet, an asset is actually present in the
organization or not because it is possible that on the date of the Balance
Sheet such assets may not be actually present.
Ownership and Title
The objective of verification is to determine that the
assets, as shown in the Balance Sheet, belong to the organization and the
organization has the absolute right to use them
Knowledge of Fraud and Irregularity
Verification is also
essential to determine that no fraud or irregularity has occurred in relation
to the assets and liabilities of the organization
Proper Valuation
Verification is also necessary to determine whether the
assets and liabilities have been correctly valued as per the principles of
bookkeeping and accounting or not and the valuation technique is the same as
the previous year.
True and Fair view of Balance Sheet
The objective of valuation is to certify that the Balance
Sheet gives a true and fair view of the financial position. The auditor has to
clearly state in his report that the Balance Sheet gives a true and fair view
of the financial position of the business and this he can determine only with
the help of verification.
Real Position of Assets and Liabilities
Verification is also
used to find out whether the assets are true of any charge or mortgage or not
and all assets and liabilities have been disclosed in the Balance Sheet and no
assets or liabilities have been concealed. In this way, the assets and
liabilities not belonging to the organization are not included in the Balance
Sheet.
Also Check: Routine Checking
Importance and Advantages of Verification
Normally, it is believed that vouching is the basis for
auditing, but by vouching only the fact that a set can be purchased is
established. On the other hand, verification includes the existence of the
asset ad the right of ownership of the organization is established. Apart from
this, the authority and possibility for various assets are also verified.
( 2 ) Any fraud and embezzlement of assets can be found out.
( 3 ) In case the assets have been over-valued in the past,
the same can be found out by verification.
( 4 ) The correct value of work-in-progress and closing
stock can be determined.
( 5 ) Assurance for receipt of payment can be obtained by
the creditors.
Proper verification of the business of the organization
encourages the investors to invest money in it.