How An Auditor Verify The Fund Reserves Liabilities Associated With A Business Company?

How An Auditor Verify The Fund Reserves Liabilities Associated With A Business Company?

Usually, reserves can be categorized into two different domain which includes the generic and specific type. Examples of specific funds include

  • Sinking Capital,
  • Capital Redemption type of Reserve,
  • And the Reserve Contingencies.

An Auditor’s duty is to

  • Check out if appropriate profit and loss account transfer is properly done to reserves while complying with all the provisions linked with the transfer.
  • Further, he should verify the board’s consent with the plan of relocating the profit to the corresponding reserves.
  • Also, the Auditor should see whether the allocations or exchanges made in the reserve accounts like the additions to and deductions from the earlier year’s balance are decently handled as per the legal terms and conditions.
  • The Auditor also requires to analyze if the use of these reserves occurs in accordance with the law principles.
  • It is also important to note if the reserve utilization is immediately recorded in the balance sheet of the business company that complies to the law policies.

While dealing with the case of loans taken by the company, the Auditor should

  • Recognize the true power of the company to borrow money from others by understanding the Organization’s Memorandum and Articles.
  • Moreover, the bond made in correspondence with the loan should be thoroughly examined by the Auditor.
  • Also, he must verify with every cash receipt on account of the loan issued along with the registered entries in the respective cash book.
  • Further, he must check with the certificate of registration approval given by the Registrar of Companies which recognizes if the loan has been fortified by mortgaging any property.
  • Along with this, the auditor should assure if the interest payment is timely made to the vendors and the Auditor must vouch for the counterfoils of receipts to make sure of this. He can also compare this with the corresponding entries made in the cash book of the company.
  • Additionally, the Auditor should evaluate whether loan repayment is made in a periodic manner as per the agreement and the respective counterfoils of the checkbook, the passbook issued from the banks and the corresponding cash book stating this should be verified.

It would also be an appropriate step to seek for a confirmatory letter from the agent who has sanctioned the loan to the company so that the Auditor can cross check if the interest on the loan is not due and the repayments of loans documented in the record books of account are correct.