Learn the essential steps for auditors to verify land and building assets in financial statements. Ensure accuracy and reliability with a systematic approach.
How Auditor Should Verify LAND AND BUILDING
The auditor should verify the leasehold land and building in following ways –
PHYSICAL EXISTENCE
The auditor may examine the physical existence of assets. He must check the registration number of leasehold land and building with the assets registers and purchase documents.
CORRECT VALUATION
The auditor should examine the lease deed to arrive the correct value.
VALID OWNERSHIP
The auditor must verify that leasehold land and building is registered in the name of business. For this purpose he may check the lease deeds. He should also see the period of lease.
SUFFERING FROM CHARGE
The auditor should obtain the certificate from management, that the asset is not under any charge.
DEPRECIATION
The auditor should see that leasehold land and building is properly depreciated.
AUTHORIZATION
The auditor must examine that lease agreements are properly authorized or not.
DISCLOSURE
The auditor can verify that leasehold land and building is disclosed according to the requirements of companies ordinance 1984. In Balance Sheet leasehold land and building is written under the head of Fixed Assets.
Challenges Faced by Auditors:
- One of the main challenges auditors face when verifying land and building assets is the lack of documentation. In some cases, organizations may not have proper records or title deeds for their properties.
- Another challenge is the valuation of properties, especially in rapidly changing real estate markets. Auditors need to exercise professional judgment and consider market factors when verifying the valuation of land and buildings.
Conclusion:
In conclusion, the verification of land and building assets is a crucial aspect of the audit process. Auditors should follow a systematic approach, reviewing ownership documents, conducting physical inspections, and testing valuations and depreciation. By taking these steps, auditors can ensure the accuracy and reliability of land and building assets in an organization’s financial statements.