Process of Verification and Valuation of Investments in a Company.
A company may utilize its surplus resources in investments. The major task of the auditor is to verify the existence of such investments and to ensure that they are shown in the Balance Sheet at the correct value.
The process of verification and valuation of investments include the following consideration by the auditor. The company should maintain a schedule of investments showing the name of the investments, date of acquisition of securities, their face value, cost price, book value, paid up value, market value, rate of interest, tax deductions etc at the date of the balance sheet. The lists of investments should be tallied with the Investment Account.
He should examine the authority and related procedure for making purchase of such investments. Every sale and purchase of investments should be sanctioned by a competent authority.
The payment of purchase price of investments should be examined with the help of related Receipts and Investments Account. The value of the investments at the date of purchase can be obtained from the share market.
The examination of value or cost of investment can be examined with the letters in the name of the broker and the allotment papers of shares and debentures.
The auditor should study the Article 372 of the Company Act and ensure that the sanctions imposed under the Articles are being followed or not.
He should see that the investment do not disobey the Article 49 of the Companies Act, i.e. every investment should be in the name of the company and it should be duly proposed by the organizer’s committee.
All investments made by the company and included in the Balance Sheet are actually in the name of the company. Funds used in the investment are in conformity with the provisions of the Memorandum and Articles of Association of the company.
He should ensure that the investments actually exist with the firm or the company, If investments have been given away as security, the certificate regarding this should be obtained by the other party Investments with fixed nature should be shown at cost price and current investments at cost or market price, whichever is less.
Proper vouching is done for entries in the cash book or bank pass book in respect of securities sold during the year. Total amount of investments shown in the Balance Sheet consisting of different types of securities are properly disclosed the financial statements.