Learn about the objectives of verification of assets and liabilities in financial accounting to ensure accuracy, detect fraud, assess risk, comply with regulations, and provide assurance to stakeholders. Verifying assets and liabilities also helps in assessing the financial risk associated with the company. By confirming the existence and valuation of assets, auditors can analyze the company’s liquidity, solvency, and overall financial health. This information is vital for investors and creditors who rely on the financial statements to make informed decisions
Objectives of Verification of Assets and Liabilities
TRUE AND FAIR
The purpose of verification is to verify whether the balance sheet shows a true and fair view of assets and liabilities.
CERTIFY OWNERSHIP
The verification is a tool to certify the ownership. , The vouchers, invoices, receipts etc. provide solid basis to certify that assets are owned by business.
SURETY OF EXISTENCE
Another purpose of verification is to ascertain the existence of assets. Sometimes the assets have been destroyed or sold but books and papers represent the existence of assets. So by verification we can check the actual possession of assets.
DETECTION OF FRAUD
Another purpose of verification is to detect the fraud. If assets have been stolen or misused, the auditor can detect such frauds.
FREE FROM CHARGE
The purpose of verification is to see that asset is free from charge. Business assets may be pledged for borrowing money. In this case lender have charge over assets. The freehold, leasehold and mortgage property can be stated in the Balance Sheet.
ARITHMETICAL ACCURACY
Another purpose of verification is to see that arithmetical accuracy in keeping the books of accounts. The auditor should check the figures of posting, totals, addition, depreciation etc.
INTERNAL CONTROL
The purpose of verification is to check that internal control is effective or not. Effective internal control shows
DEPRECIATION PLANS
The purpose of verification is to check the plans adopted for depreciation. The life of all assets and liabilities are not same, so depreciation should be charged as regard to their nature and according to the rules of accounting.
ASSETS AND LIABILITIES
The purpose of verification is to check the valuation of assets and liabilities. Management makes the process of valuation. The auditor can check that the process of valuation is true or not as regard to the accounting rules.
CHECKING OF EVALUATION METHOD
The purpose of verification is to check the methods of evaluation. For the purpose of evaluation of different recorded items, the compliance and substantive tests are applied.
These objectives highlight the importance of asset and liability verification as a means to maintain financial integrity and support sound business decisions.