What does mean by outstanding assets and outstanding liabilities?
An expenditure which have been incurred during the year but the benefit of which will be enjoyed during the next year is called an outstanding asset. Outstanding assets can be of three types: Prepaid, Expenses, Income receivable and deferred revenue expenditure. The expenses which have become due for payment and should have been paid during the current year but have not been actually paid are called ‘outstanding liabilities’.
If outstanding liabilities are not charged to Profit and Loss Account, the final account will not show the correct amount of profit or loss and the balance sheet will also not depict the true financial position. Thus, it is the duty of the auditor to verify all the items of the outstanding liabilities.
The duties of the auditor in relation to outstanding liabilities are:
Experience of the auditor can be the main guide in such circumstances. Ascertaining all outstanding liabilities is a bit difficult task for the auditor. He can find these liabilities by inspecting the payment side of the cash book of a few months after the close of the financial year.
The auditor can ask some responsible officer to furnish a certificate stating that no expense relating to the current year remains unpaid and the expenses which have not been paid have been properly accounted for. Thus, it is the duty of the auditor to verify all the items of the outstanding liabilities. The auditor should himself scrutinize various nominal accounts like wages and salaries, rent, interest, discount, taxes etc and compare them with the figures of the last year.