Verification & Valuation

1. Verification & Valuation C. P. Mansoor S. Ahmed M. Com, PGDBA

2. It is a documentary evidence supporting the transaction in the Books of Accounts. Voucher What is a VOUCHER? C. P. Mansoor S. Ahmed [Master M Ahmed]

3. Verification of Transaction in the books of accounts with their respective documents like Invoice, counterfoils of vouchers etc., • Intelligent Observation made with a Critical Bent of Mind, Common Sense. • Invoice, CF of vouchers: EVIDENCE! VOUCHING What do you mean by VOUCHING? C. P. Mansoor S. Ahmed [Master M Ahmed]

4. External & Internal Evidence • Cash in Hand • Challan / delivery notes • Receipts from suppliers etc., EVIDENCE What do you mean by EVIDENCE? C. P. Mansoor S. Ahmed [Master M Ahmed]

5. Reliability of EVIDENCE? • Independent External Sources • Internal Sources Better in case of Sound Internal Control Practice. • Evidence through Auditor’s Personal Knowledge than indirect sources • Written Documents more reliable than oral documents • Different Sources & Different Nature – Consistence ensures Higher Assurance Standards C. P. Mansoor S. Ahmed [Master M Ahmed]

6. Existence • Rights & Obligations • Occurrence • Completeness • Valuation • Measurement • Presentation & Disclosure Importance What is the Importance of EVIDENCE? C. P. Mansoor S. Ahmed [Master M Ahmed]

7. Verification • Enquiry – Value, Ownership, Existence & Possession • Opinion – True and Fair C. P. Mansoor S. Ahmed [Master M Ahmed]

8. Valuation • It is a part of VERIFICATION! • Evaluation of Values specified on the Balance Sheet. • GAAP – Generally Accepted Accounting Principles • Certificates from competent Professionals C. P. Mansoor S. Ahmed [Master M Ahmed]

9. Valuation - Why • Original Cost of Assets • Expected Life of the Asset • Wear & Tear of the Assets • Break-up value of Assets • Assets becoming obsolete C. P. Mansoor S. Ahmed [Master M Ahmed]

10. Differences Between Verification Valuation • Examining the ownership • Application of Accounting Principles • Exhibition of Figures & Values • Time Value of Asset adopting Accounting Principles C. P. Mansoor S. Ahmed [Master M Ahmed]

11. Difference Between Confirmation Verification • Techniques • Facts and Balances • Competent Parties • Inspection of Tangible Assets • Weighing C. P. Mansoor S. Ahmed [Master M Ahmed]

12. General Principles with regards to Types of Assets C. P. Mansoor S. Ahmed [Master M Ahmed]

13. Fixed Assets • Fixed in Nature • Earning Income • Going Concern Basis • Land :– Cost Price (Purchase Price + Registration Fees + Legal Charges + …) • Plant & Machinery :– Cost Price (Cost of Purchases – Depreciation written off) C. P. Mansoor S. Ahmed [Master M Ahmed]

14. Floating or Current Assets • Temporary in Nature • Resale or Subsequent Conversion • Original Price or Lower • Higher Price – Anticipated Profit C. P. Mansoor S. Ahmed [Master M Ahmed]

15. Wasting Assets • Fixed in Nature • Depleting Gradually • Process of Working or Extraction • Metal, Granites, Mines, Oil well etc., • Original Cost - Depreciation C. P. Mansoor S. Ahmed [Master M Ahmed]

16. Intangible Assets • Fixed in Nature • Income produce ability • Cannot be touched or felt • Valued at Cost Price C. P. Mansoor S. Ahmed [Master M Ahmed]

17. Fictitious Assets • Capital in Nature • Capitalization of Assets • Benefits in future years • Preliminary Expenses, Discount on Issue of Shares, Discount on Issue of Debentures, Development Expenses etc., • Recorded at Actual Cost even while written off C. P. Mansoor S. Ahmed [Master M Ahmed]

18. General Principles • Focus is on the Balance Sheet of the Company • Balance Sheet – True & Fair view of Assets and Liabilities • Certain Critical Aspects have to be Examined • Assets /Liabilities – ‘Ownership’ • Exhibit – Face of Balance Sheet correct figure under appropriate heading • Physical Verification • Every Asset or Liability – Correctly Valued “Valuation” • Cash & Bills Receivable personally examined • Negotiable in Character – Assets in one Sitting C. P. Mansoor S. Ahmed [Master M Ahmed]

19. VERIFICATION & VALUATION OUTSTANDING ASSETS OUTSTANDING LIABILITIES • Income Receivable • Prepaid Expenses • Deferred Revenue Expenditure • Unearned Income • Unpaid Expenses • Contingencies C. P. Mansoor S. Ahmed [Master M Ahmed]

20. Accrual Concept • Expectancy • Rent, Dividends etc., OUTSTANDINGASSETS Income Receivable C. P. Mansoor S. Ahmed [Master M Ahmed]

21. Partly Current / Future • Overloading Current Revenue • Method of Treatment • On the Basis of Time • On the Basis of Revenue • On the Basis of Inventory OUTSTANDINGASSETS PREPAID EXPENSES C. P. Mansoor S. Ahmed [Master M Ahmed]

22. “Non recurring expenditure which are expected to be of financial benefit to several accounting periods of indeterminate total length.” – Prof. Arnold Johnson. • Heavy Expenditure – advantage • Advertisement Campaign • Development Expenditure on Mines & Plantation • Experimental Expenditure • Research Expenditure, Etc., Advertising Preliminary Expenses Alterations & Heavy Repairs to Plant etc., OUTSTANDINGASSETS DEFERRED REVENUE EXPENDITURE C. P. Mansoor S. Ahmed [Master M Ahmed]

23. OUTSTANDING LIABILITIES Unearned Income C. P. Mansoor S. Ahmed [Master M Ahmed]

24. Purchases – Creditors • Rents Rates & Taxes • Wages & Salaries • Audit Fees • Freight & Carriage • Travelers & Agents Commission • General Commission • Interest Payable Outstanding Liabilities Unpaid Expenses C. P. Mansoor S. Ahmed [Master M Ahmed]

25. “Contingent Liabilities may be defined as potential obligation which may in future develop into actual liabilities or may dissolve without necessitating any outlay.” OUTSTANDING LIABILITIES CONTINGENCIES C. P. Mansoor S. Ahmed [Master M Ahmed]

26. Valuation of Assets during Inflationary Period? • Value of stock is not sufficient to value meet the cost of replacing the same quantity of stock • The depreciation charges based on historical cost of the fixed assets will not provide sufficient amount required to meet the cost of replacing the same asset. If required • If depreciation is provided on the historical cost of the assets and similarly if the stock in trade is valued accordingly, the profits shown by the profit and loss account will not reflect an increase or decrease in terms of purchasing power of the money. C. P. Mansoor S. Ahmed [Master M Ahmed]

27. Suggestions • The replacement cost method of dealing with the fixed assets should be followed i.e. the fixed assets should be valued at replacement cost • The fixed assets should be written up according to the market price of the assets prevailing on the balance sheet date. • The stock-in-trade should be valued at the market price and depreciation should be provided on the value of the stock so arrived. • The index method of adjusting the accounts to reflect the changes in the purchasing power of money should be followed. C. P. Mansoor S. Ahmed [Master M Ahmed]

28. General Principles with regards to Types of LIABILITIES C. P. Mansoor S. Ahmed [Master M Ahmed]

29. Share Capital • Liability or Not Liability • Memorandum of Association • Articles of Association • Cash Book • Pass Book / Bank Statement • Minute Books • Authorized Capital • Subscribed Capital • Issued Capital • Called up Capital • Paid up Capital C. P. Mansoor S. Ahmed [Master M Ahmed]

30. Reserve Funds & Account • Articles of Association C. P. Mansoor S. Ahmed [Master M Ahmed]

31. Debentures & Mortgage C. P. Mansoor S. Ahmed [Master M Ahmed]

32. Trade Creditors C. P. Mansoor S. Ahmed [Master M Ahmed]

33. Bills Payable C. P. Mansoor S. Ahmed [Master M Ahmed]

34. Loans • Memorandum of Association • Articles of Association • Agreement / Contract • Amount • Interest Paid/Payable • Details on charged Assets C. P. Mansoor S. Ahmed [Master M Ahmed]