VALUE OF STOCK

Nelson Evening Mail, Volume LXXI, 16 December 1937, Page 11

VALUE OF STOCK

AUDITOR'S DUTILS An editorial article in the current issue of the New Zealand “Accountants’ Journal” emphasises the importance of carefid valuation of stock-in-trade. “While the courts have held that it.- is' not the business of an auditor to actually take stock or to [lose as a valuer, and, although he is entitled, in the absence of suspicious circumstances, to place reliance upon the statements or certificates or responsible ollicial in respect to the existence and value of stock, it is generally accepted nowadays that it is his duty to apply checks or tests so that lie may be satisfied that this asset has not been overstated,” the writer states. “The checking of extensions and additions and the comparison of some of the prices with recent invoices or with current rates i:i current trade papers are safeguards adopted by most auditors, while it is also customary to see if the rate of gross profit compares favourably with those of past years. Auv serious tliicLuatioiis would necessarily call lon an explanation.

“It is advisable also for the auditor to ascertain by comparing the sales and goods outward hooks that all stock included as sales in the last few days of the trading period were despatched in the old' year and have not been included in stock. Similarly, the first invoice file of the new period should be examined to see if any invoices of the old period arc included. The goods inward hook should also tie perused for the last few days of the old period to make sure that the invoices for such goods have ben debited to purchases. “The auditor should be oil the alert, too,, where abnormal profits arc disclosed. It nmv happen tbat the manager receives a bonus on the net returns and consequently is tempted to inflate stock to boost bis own share of the profits. Ur there may lie a move afoot to bolster up the business m order to effect a sale or to dispose of it to a public company. I'or this reason care should be taken to see that all goods received into stock have ben charged up.

“Probably the most valuable asset which an auditm possesses is the wealth o*l bis general experience. it is surprising bow rmieli information and knowledge lie acquires ill the course of his daily duties. The cultivation of a stoic of gcneial knowledge is a valuable adjunct and after a time an experienced auditor can almost tell by intuition whether there lias been any 'monkeying with the figures whether it be stock or other assets. He should of course fully acquaint himself with the technical terms and conditions ot any business where

he is called upon to audit the accounts in order that he will not be caught napping when lie comes to verily the asset known as stock-in-trade. If in doubt, too, he should no. hesitate to approach in confidence some other member of the profession who perhaps has had greater experience in that particular line of busi-