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Tuesday, 15 November 2011

Discuss those points which should be kept in view at the time of investigation

INVESTIGATION ON BEHALF OF TH PURCHASER OF THE RUNNING BUSINESS:-
The purchaser of the business wants to know the real position of the business. Keeping in view the business condition he has to decide whether he should purchase the business on that price or not ?
So the investigator should pay special attention on the following points :

1. Cause Of Selling :-
The investigator should pay special attention to this point that why the seller wants to sell the business? He should see that it is a genuine case of sale.

2. Examine The Trend Of Business :-
Investigator should examine carefully the trend of business whether it is going on the road of prosperity or not. In this regard he should compare expenses revenue and profit of the previous years.

3. Checking Of Liabilities :-
Investigator should verify that liabilities of the business are properly valued. It should be compared the figures shown and decide that it is correct or not.

4. Value Of Assets :-
Investigator should check that the assets have been properly valued and sufficient depreciation has been provided on these assets.

5. Verify The Goodwill :-
Investigator should also check that good will of the business that is properly valued or not? He should also examine that sufficient provisions have been made for doubtful debts or not?

6. Checking Of Auditors Report :-
Investigator should also examine the auditors report if it is previously audited.

7. Verify The Profits :-
Investigator should verify the profits of previous years which might have been inflated by inflation of closing stock.

8. Competition Situation :-
He should also check the competition situation which the concerned firm is facing in the market.

9. Examine The Capital :-
Investigator should examine that working capital of the business is sufficient or not?

10. Proper Vouching :-
Investigator should check that capital, expenditure, and revenue is properly vouched or not ? He also pay proper attention to the deferred revenue and expenditure.

11. Examination Of Machinery :-
Investigator should check the condition of machinery. Whether it is new, old or replaceable.


INVESTIGATION ON BEHALF OF THE INCOMING PARTNER :-
When the investigator makes an investigation he should pay proper attention to the following points :

1. Examine The Cause :-
Investigator should try to know the cause that why the new partner is to be taken into the business?

2. Study The Documents :-
Investigator should study all the partnership deeds to know that they have no adverse effect on the interest of his client.

3. Examine The Financial Position :-
He should examine the financial position of business proprietor or partners who wish to take his client as a partner.

4. Case Of Deceased Partner :-
In the above case, he should examine that his client possesses the skill and experience of the old partner. If not then it may suffer a loss.

5. Reasonable Profit :-
Investigator should also check that the share of profit is reasonable or not.

6. Use Of Client Capital :-
Investigator should also check that for which purpose the capital of his client will be used. It will he used for paying the liabilities or for the working capital.

7. Consideration Of Salary :-
The investigator should consider the salary of a retired person while computing the future profit.

8. Examine The Good Will :-
He should examine the good will of his client which is to be paid is reasonable or not.

9. Any Partner Facing Crises :-
Investigator should report to his client if he finds that any partner of the business is facing the financial crises.

10. Checking Of Incomplete Contracts :-
He should examine that incomplete contracts which will also be transferred to the reconstituted firm will be a liability or loss.


INVESTIGATION ON BEHALF OF LENDER OF MONEY :-
Generally banks require complete and detailed informations about the borrower's. The lender of money wants complete satisfaction of repayment. So investigation is made on the behalf of the lender.
Investigator should pay special attention to the following points :

1. Reason For Loan :-
Investigator should know the real cause that why the borrower is demanding the additional loan for the business.

2. Use Of Loan :-
Investigator should also examine that for which purpose loan will be used. It should be used properly for that object for which it is demanded.

3. Character Of The Borrower :-
Investigator should also investigate about the character of the borrower. If borrower is honest, efficient and a man of character then he will repay the loan in time.

4. Examine The Security :-
He should also examine the securities offered against loan. Are these sufficient or not?

5. Loans Against General Assets :-
If the loans are to be advanced against the general assets of the company then he should examine the net value of the assets.

6. Description Of Property :-
Investigator should give full description about the real property, plant, building and decoration.

7. A List Of Investment :-
He should give the list of all the investment shown in the books which market value.

8. Earning Capacity :-
Investigator should check the earning capacity of the borrowers. He should verify the profit and loss accounts of the past several years. If earning capacity is better then repaying capacity will also be better.

9. Reputation Of The Firm :-
Investigator should examine the reputation of repayment of loan in the past if any party has refused to advance the loan then what were the reasons.


INVESTIGATION ON BEHALF OF THE CLIENT WHO WANTS TO PURCHASE THE SHARES:-
PRIVATE LIMITED COMPANY :
Following rules should be adopted by the investigator in case of private limited company :

1. The shares will be valued at the break up value.

2. The difference should be calculated between book value of the assets and liabilities of the company.

3. From the breaks value discount of 15% will be allowed.

4. If dividend have not been declared by the company early years then discount may be increased upto 25%.

PUBLIC LIMITED COMPANY :-
1. Investigator should find out the purchasing and selling price of the share in the past.

2. He may calculate the value of shares on the basis of the average profits in the previous years.

3. He may calculate the value of shares on the basis of the net assets of the company and may guide his client to purchase the shares.

INVESTIGATOR OF FRAUD SUSPECTED :-
Fraud has generally three kinds :

1. By Misappropriating Cash :
It is usually committed by the employees.

2. By Misappropriating Goods :
It is also committed by the employees.

3. By Manipulating The Accounts :
It is generally committed by the proprietors.


In case of fraud suspection investigator should keep in view the following points :

1. Checking The System Of Accounting :-
Investigator should study the system of accountancy and internal check which is followed in the business.

2. Confirm The Balance :-
Investigator should confirm the balances by writing letters to the creditors with the permission of his client.

3. Check The cash Sales :-
Investigator should compare the cash sales and sales of goods. He should detect if any sale is omitted from the book.

4. Checking Of Payment System :-
He should check the salaries and wages payment system. There is a chance that payments have been made to the fictitious employees. He should also check the signs and endorses of cheques.

5. Examine The Petty Cash :-
He should check the petty cash transactions very carefully. Also check the vouchers if possible.

6. Verify The Discount :-
Investigator should also verify the rules regarding the discounts allowed and paid.

7. Examine The Profit And Loss :-
He should examine the profit and loss account transactions by using his skill and experience.

8. Point Out The Fraud :-
He should indicate the amount of fraud and the person who committed the fraud.

9. Suggestions :-
Investigator should also suggest the ways and means to protect the business from fraud.

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