Question

Compare the auditors’ approach to the verification of liabilities with their approach to the verification of assets. Include in your answer a discussion of the difference between the effect of liabilities and assets on the overall earnings of a companies’ financial statements and how that impacts the auditors’ legal liability.

Answer 1

Auditors approach to verification's of asset is much more sceptical and judgemental than verification of liabilities because auditors are more focused at finding out the overall assets held by the firm and verification of the same because it would help them to get an idea about the financial strength as well as the solvency of the firm.

Most companies tends to manipulate their books of account, through depiction of fraudulent asset which generally do not exist in the real, and they put them on to their books of accounts in order to get more loans and in order to show that they are strong and their balance sheet front .

An auditor would not just be verifying through the physical presence but he will also look for gathering a lot of cross verification methods and information in order to get confirmed about the existence of various assets that are claimed to be held by the firm.

generally firm does not overstate their liabilities because it would not help them on the positive side as it would sent wrong signals into the market about the financial strength so auditor should be highly sceptical about finding out the Assets of the company whether they are held in real or not.

assets and liabilities impact the earning of the company to a large extent but asset have a long term role to play in the overall strength of balance sheet of the company and auditors liabilities regarding verification of both is highly independent and responsible.