Guidelines for Auditors in verification of Loans and Bills Payable

Guidelines for auditors in verification of Bills Payable

It is the duty of the auditor to ensure that the bills that are paid are duly cancelled and only the bills that are outstanding at the closing of the accounting year are shown in the balance sheet.

1. The payments made against the bills are to be vouched.

2. The Bills payable book is to be verified as to its correctness of recording.

3. The schedule of Bills payable is to be verified with the closing balances in the Bills Payable Accounts.

4. The bills may be confirmed with the parties who have accepted the bills.

5. If any charge is created on the assets as security for Bills payable, the same is to be disclosed in the balance sheet.

Guidelines for auditors in verification of Loans

1. The terms of a loan can be studied from the loan agreement. It should be ensured that the terms of loan relating to interest, repayment, security etc., are duly complied with and any change in the terms are duly authorized.

2. The balance at the closing of the year may be confirmed by obtaining a statement from the loan creditors.

3. The auditor shall ensure that the amount borrowed and the terms of agreement are in agreement with stipulations laid down. In the case of company, the auditor may examine the Memorandum of Association and Articles of Association, the relevant provision of Companies Act, 1956, and the Minutes of the meeting to examine the rights of the borrowing authority and to report as per on the proper utilization of such borrowings.

The auditor should also ensure that the borrowings do not exceed the limits specified by the Companies Act. (i.e., aggregate of Paid up Capital and the free reserves.)

4. In the case of partnership firms, the auditor may examine the partnership deed to find out the restrictions on the borrowing powers of the partners.

5. If the loan is secured, the documents creating the charge on the asset is to be verified. In the case of companies, the auditor should also ensure that the charge on the asset is registered with Registrar of Companies and the particulars of charge is disclosed in the Balance sheet.

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