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Valuation of Liabilities and Company Audit

The document discusses the auditor's responsibilities for valuing different types of liabilities on a company's balance sheet. It outlines how the auditor should verify bills payable, outstanding expenses, and contingent liabilities. It also discusses obtaining confirmations from management and examining contracts to assess contingent liabilities. The document provides an overview of the purpose of a company auditor and their appointment under the Companies Act, including that auditors are appointed annually by shareholders.

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Malavika V Kumar
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279 views11 pages

Valuation of Liabilities and Company Audit

The document discusses the auditor's responsibilities for valuing different types of liabilities on a company's balance sheet. It outlines how the auditor should verify bills payable, outstanding expenses, and contingent liabilities. It also discusses obtaining confirmations from management and examining contracts to assess contingent liabilities. The document provides an overview of the purpose of a company auditor and their appointment under the Companies Act, including that auditors are appointed annually by shareholders.

Uploaded by

Malavika V Kumar
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Valuation of

Liabilities
Valuation of Bills payable
• The auditor should obtain the
outstanding obligations on account of
the bills payable.
• Obtaining confirmatory certificate
from the drawers directly.
• Verification of Balance sheet and
Cash book.
• Paid bills are not outstanding bills.
Outstanding Liabilities for
expenses
• Obtaining a certificate from a
responsible officer for all outstanding
liabilities..

• The auditor can verify items of


expenses which constitute
outstanding liabilities.
Contingent Liabilities
• A liability which may or may not arise.
• A negligible contingent liability should be
disclosed by a note in the Balance sheet.
• Examples of Contingent liabilities:
– Liabilities on Bills Receivable discounted and not
matured.
– Liability under a guarantee.
– Liability arising out of litigation in respect of
trademarks, copyrights,etc..
– Liabilities for penalties under Forward Contracts.
Auditor’s duty
• The auditor should inspect the
various contracts entered into by the
company and asses the likelihood of
contingent liabilities arising.
• Obtain a certificate from the
management.
Company Auditor
• Need: A company , an artificial person
created by law having a separate legal
entity distinct from its members.

• The management and control of the affairs


of the company is done by other persons
generally known as directors.
• Shareholders wouldn’t know if their
investments in the company are safe or not.
• The companies usually work with a
large staff and auditing serves a very
useful purpose.

• The companies have to get accounts


audited by a Qualified auditor- Indian
Companies Act,1956.
The auditor of a Limited
company
• Most popular form of business is JSC’s.
• The statute governing companies provides for
compulsory audit of the company accounts.
• Sec 224 to 233, of Indian companies, Act deals
with qualification, disqualification, appointment,
re-appointment ,removal, rights, duties and
report of the auditor.
Appointment of Companies
Auditors
• The appointment of Companies Auditors are
contained in Sec 224 of the Companies Act.
• First Auditor : sec 224(5) appointed by the
board of directors.
• Hold office till the conclusion of the first
AGM.
• On failing to exercise powers by the BOD ,
the company in general meeting can appoint
the first auditor.
• Subsequent Auditors:
• Appointed every year by the shareholders in
annual general meeting.
• Hold office from conclusion of that AGM till the
conclusion of the next AGM.

In case the auditor appointed fails to accept the


appointment , the vacancy can neither be
treated as casual vacancy nor a vacancy by
resignation.
Appointment by Central
Government
• According to Sec 224(3) At an
Annual General Meeting no auditors
are appointed or re-appointed , the
Central Government may appoint a
person to fill the vacancy.
• Failure to give such notice will make
the company and every officer of the
company in default with a fine which
may extend to Rs.5000.

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