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Verification and Valuation - Concepts and Differences

Verification

Meaning and Definition


Verification means the procedures normally carried out at the year end, to confirm the

ownership, valuation and existence of items at the balance sheet date. In simple words verification means, ‘proving the truth or conformation.’


“The verification of assets implies an enquiry into the value, ownership and title,

existence and possession, and the presence of any charge on the assets.” - Spicer and Pegler

Valuation

Meaning and Definition


Valuation means to set the exact value of an asset on the basis of its utility. Valuation forms an important part of the everyday audit. It is because the accuracy of the balance sheet depends much upon how correctly the estimation of the value of various assets and liabilities has been made. Both overvaluation and under- valuation of assets and liabilities would exhibit the wrong picture of the financial affairs of a concern. The auditor has to see that the assets and liabilities appearing in the balance sheet have been exhibiting their proper value i.e. neither they have been overvalued or under- valued.


General principles regarding :


Verification :

  1. Confirm that the assets were in existence on the date of the balance sheet.
  2. Ascertain that the assets had been acquired for the purpose of the business and under proper authority.
  3. Confirm that owner ship of the asset rests with the organization.
  4. Ascertain that no charge has been created on the asset.
  5. Ensure that the current book value of the asset is determined after providing correct amount of depreciation for various years.
  6. Ensure that values reflect current physical condition of the asset.
  7. Ensure that disclosures regarding assets are adequate.


Valuation :

  1. The value of a business is defined only at a specific point in time.
  2. The market commands what the proper rate of return for acquirers is. ...
  3. The value of a business may be impacted by underlying net tangible assets. ...
  4. Value is influenced by transferability of future cash flows. ...
  5. Value is impacted by liquidity.
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