Verification of Current Assets

Sundry Debtors –

For verifying sundry debtors, the auditors should do the following:

1. Carry out tests to verify that satisfactory internal control is in place over credit sales,
i.e., pricing, billing, credit terms, up-to-date entries in the debtors ledger, collections and
follow up procedures.

2. Obtain a list of sundry debtors and test the agreement of the balances by reference to
the individual balances in the debtors ledger and compare the aggregate with the
balance in the control account in the general ledger.

3. Test some ledger accounts by checking postings for sales, payments received or
credit notes issued, also if any debit note was raised for adjustments in price, satisfy that
the same was correctly issued and posted in the ledger.

4. Confirm a sample of debtors by direct circularisation and investigate cases of

unconfirmed balances or balances showing differences.

5. Test that the cut-off procedure has been properly followed by examining the dates of
the sale invoices of the period to the accounting date to satisfy that sales relating to
subsequent accounting period have not been included in the period under audit or its
converse. By testing invoices against goods outwards records and stock records, verify
that goods are not included both in sales as well as in stock. In case goods sold and
invoiced are still in stock after the cut off date, ascertain the reasons and satisfy that
such goods are not included in the closing stock.

6. Check reasonableness of provision for bad and doubtful debts.

7. Trace any post balance sheet events which may affect the debtors’ balances as on
balance sheet date by requiring a provision or a write off.

8. Investigate into overdue accounts and the prospect of their realisability, taking into
account the nature of the balance and the party concerned,
Cash in Hand and Bank Balances -For verifying cash and bank balances the auditor should
adopt the following procedure

Cash in Hand

1. Attend year-end cash count, if possible. If not, count cash on any other day close to the date of the
year-end and work it backward or forward to the date of the balance sheet and see whether the
balance so found agrees with the balance in the cash book. He should see that there is no
unauthorized IOU to cover up the cash shortage.

2. Make surprise cash count on any day and compare the same with the balance of that day as per the
cash book.

3. In case of outstation branches or offices, obtain certificate from the officer in charge of such
branches/offices in respect of cash on the closing date unless physical verifications at such places
could be organized. In this regard thoroughly examine the internal control on cash in hand at such
places. It may be a requirement of internal control procedure to bank all cash in hand on the year
closing day, possibly leaving a small amount to defray petty expenses.

4. Test the accuracy of cash book totals, balancing and carry-forwar5 etc.

5. Examine the internal control over cash transactions and see that in general cash in hand is not
abnormally high; rather it is consistent with the nature and scale of the entity’s business.

Bank Balances

1. Check entries from cash book to bank statements, and compare the bank balances with the
corresponding cash book balances or bank account balances, if separately maintained.

2. Check the bank reconciliation statement and ascertain how outstanding entries have been cleared
both at the beginning and at the end of the year.

3. While checking balances at the year-end, note down the last number of cheque drawn and see at
time of audit that no further cheques have been issued.

4. Obtain directly bank confirmation letter stating the balance in the account as on the year-end date
and see whether any charge or similar other restrictions exist in making use of the balance amount.

5.In respect of fixed deposits with the bank, vouch such deposits with bank advice and verify such
deposit accounts with the certificates from the bank. See that the interest has been received or
accrued as per the terms of the certificate.
Long Term Loans
In general the audit procedure followed in verification of the sundry debtors are also applicable to
loans, which briefly are as under:

1. Verify the balances of the loans.

2. Examine the loan agreement with the borrower in regard to term and conditions of loans, ie.,
security offered, interest rate, repay ment instalments, penalties for delays in repayments, etc.

3. Verify the authority of the persons who had sanctioned loans. In th. case of a partnership firm,
such persons should be partners. Similarly trustees in the case of trust and the directors in the case
of; company should ordinarily be authorised persons unless there ha been specific authorization in
favour of some officer,

4. Check the receipt or similar other document wherein the borrowe had acknowledged receipt of the
loan.

Bills Receivables
For verifying bill receivables (BRs), an auditor proceed on the following basis:

1. Obtain a list of the BRs from the client and check the total of the the control account in the ledger.

2. Trace entries in the sales ledger (Sundry Debtors’ Ledger) against which BR’s were raised and see
that the same cover the amounts due and properly linked.

3. At the close of the year physically examine all the BRs in hand and cross check the same with BR
Register and ensure that these instruments are properly executed and stamped. Specially look for any
dishonored bill or unpresented bill in the lot.

4. In case the BRs have been lodged with the bank for collection, obtain certificate from the bank
confirming their current position.

5. Check the entries in the cash book with regard to proceeds of BRs on maturity dates. Satisfy that
proper provision has been made in regard to amounts of dishonoured bills/or bills renewed.

6. Check compliance with regard to presentation of this item as per Schedule VI in case of a
company audit.

7. In regard to bills discounted from the bank at the year-end, obtain a certificate from the bank
regarding bills discounted and see that aggregate amount of discounted bills is shown as a contingent
liability.

8. In case BRs have been received for transactions other than sales, e.g, against an advance; see that
the arrangement has been properly documented and authorised.