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Monday, 26 September 2011

How would you verify the following items, 1. Work in progress 2. Commission on shares 3. Underwriting commission 4. Contingent liabilities

VERIFICATION OF CAPITAL WORK IN PROGRESS :-
Auditor should take the following steps while verifying it :

1. Auditor should verify the valuation of work with invoices job cards and work orders.

2. He should check the basis of charging the labour and over heads.

3. He should obtain the progress report from the work incharge or engineer.

4. He should also verify the subsequent installation and completion with the certificate of architect.


VERIFICATION OF COMMISSION ON SHARES :-
Following steps should be taken by the auditor while verifying it :

1. Auditor should examine that legal requirement were compiled if the commission was paid from the capital money.

2. Legal documents of (MSA) should be examined by the auditor carefully to know about any restriction in this regard.

3. He should check die underwriting agreements.

4. He should vouch the amount of commission with the underwriters receipt.

5. Auditor should also examine the minutes of the directors.

6. If commission was given in the shape of shares auditor should see that contract was filed with the register or not.

7. Auditor should also check that amount of commission should be shown as a separate item on the balance sheet.


VERIFICATION OF UNDERWRITING COMMISSION :-
It can be verified by the auditor kept in view the following topics :

1. Auditor should verify the terms of understanding commission from the prospectus articles of association and the agreement with the underwriters.

2. He should check that paid commission is shown separately on the balance sheet.

3. Auditor should check the calculation of amount and receipts of commission paid.

4. If shares are allotted in the shape of commission then auditor should verify the relevant entries.

5. He should examine that commission of the underwriters should remain within the limits laid down by the controller of capital issues.


VERIFICATION OF CONTINGENT LIABILITIES :-
The above liabilities can be verified by the auditor keeping in view the following points :

1. Auditor should see that unknown and known such liabilities are brought into account on the dale of balance sheet.

2. He should verify that such liabilities are shown on the balance sheet have of fool notes.

3. Auditor should obtain certificate from the responsible officer that all known liabilities been taken into account.

4. He should also check that sufficiently reserve has been allocated for such liability which is likely to result in a loss being sustained.

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