You are on page 1of 11

Valuation of

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
• Obtaining a certificate from a
responsible officer for all outstanding

• 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
– 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
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
• 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
• 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
• 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
Appointment by Central
• 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.