|
|
| AUDITING AND ITS REQUIREMENTS
|
By Max Teichmann, CPA
Reprinted from Business and the Public Accountant, June 1901
What is an auditor? What qualifications must he possess? And what are his duties? An auditor is an impartial judge of the equities of the entries recorded on books
submitted to him. He must be a master of details, a thorough accountant,
conversant with all the systems of bookkeeping in use, have a knowledge of the
laws of co-partnerships, corporations, trust estates and commercial usage, be
sufficiently acquainted with values of all kinds or understand how to ascertain
values, in order that he may judge as to the correctness of the entries covering the
assets and expenditures for the period of his audit.
The question has often been asked, how far an auditor should inquire into the
work of his predecessor, and what circumstances might affect his decision upon
this point. There is such a thing as professional courtesy. In the absence of
instructions to the contrary, and unless an examination should develop the
incorrectness of a predecessor's work, the auditor should accept the balances as
given him.
An auditor should be provided with his personal stamp, with which to mark every
voucher examined in such a place where it could not be erased without defacing the
writing of the voucher, so as to protect himself from duplicate vouchers. When
checks are drawn to the order of the creditor, endorsed by him and payment made
through the regular channels, they may be treated as vouchers. All canceled checks
should also be marked by the auditor. To protect himself from fraudulent
bank-books or balances, the auditor should request the bank to certify to the
amount of balance on hand. The most important items -- as regards the balance
sheet -- an auditor has to certify to are, that the assets and all the liabilities are
included, that the capital stated is correct, that the assets are properly stated in
regard to cost and value, and that any doubtful assets are properly noted. Those as
regards the profit and loss account are, that it contains the proper charges against
earnings due, whether paid or not; that improper charges should be eradicated, and
that the earnings are correct and a proper division of profit is made.
Of a corporation the minute books, stock certificate book, stock ledger, cash book,
ledger, journal, and all original books containing records or entries bearing on the
period under view should be examined by the auditor.
The minute book of a corporation is of importance to the auditor as it shows the
actual transactions of the corporation at its foundation, and from it is made all
entries bearing on the issuance of capital stock, bonds, and the larger transactions
of the corporation.
Partnership papers are of use to the auditor, as upon them depend entirely the
correctness of the opening of the books and the distribution of the profit or loss as
shown by the profit and loss account.
In auditing a bank and a trust company which includes banking in its business it is
of first importance that all cash should be counted at once. Carefully scrutinize all
cash memoranda in teller's drawers, counted as cash. Verify balances in hands of
correspondents by reports obtained from them to the auditor personally. The pass
books of depositors should be called in and the deposit verified. The minute book
of the directors should show the discounts allowed, and should be checked with
the discount book of the bank.
Discount papers should be scrutinized, loans on collaterals carefully examined,
listed and checked, and values of collaterals ascertained. The certificate book
should show the balance of stock outstanding in accordance with the stock ledger.
Individual depositors' ledger should be balanced to see that they agree with the
general ledger. Investments of all descriptions should be examined and traced, as to
their value, from the day they came into their possession.
The expense account should be analyzed, cashier's checks and due bills, and
certificates of deposits outstanding should be verified from the separate books.
In trust companies, examination of all securities held in trust should be very
thorough, covering all legal papers necessary and compared with the trust ledger.
During the progress of the detailed examination, as above, compare the result of
your examination with the statement of the bank, or trust company, and in case of
difference, investigate at once.
After having completed an audit the auditor should make as detailed a report of his
findings as possible and also include in the same criticisms, suggestions and
recommendations and deliver his report in proper form, sealed and signed.
In conclusion, I may add, that an auditor should — in case of court testimony —
confine himself only to the facts, without advancing any theories or opinions, and
he will be successful.
|
|
|
|
