Learning Materials For Accounting, Management , Finance And Economics.

Wednesday, February 22, 2012

Importance Of Verification And Valuation Of Assets And Liabilities

Assets and liabilities are very important aspects of business. Balance sheet is prepared on the basis of them and an auditor should prove the true and fairness of information provided by balance sheet. So it is very important for an auditor. Its importance can be highlighted as follows:

1. To Show The Actual Financial Position

Balance sheet is prepared to show the actual financial position of a business. If proper valuation is not made, such balance sheet does not provide true and fair information. So, to provide information about the real financial position, verification and valuation of assets are essential.

2. To Know The Real Position Of Profit And Loss

Depreciation and other expenses on assets will be incorrect if proper valuation of assets is not made. So, to calculate the actual amount of profit and loss, proper valuation of assets and liabilities is necessary.

3. To Increase Goodwill

Proper valuation gives fair information about profitability and financial position of a business.So, people can get information which creates positive attitude towards company. Positive attitude of public increases goodwill.

4. To Assure Shareholders

Valuation and verification provide actual information about assets and liabilities to the shareholders which assure the safety of their investment.

5 Easy For Sale

At the time of sale of the company, it can be sold at the price which is enlisted in the balance sheet, but the assets whose valuation is not made need valuation before selling the company.

6. Easy To Get Loan

Company discloses the balance sheet proved by auditor for public knowledge which increases the trust of the company. Financial institutes provide loan easily to such companies.

7. Easy To Get Compensation

Whenever the loss occurs due to any incident, insurance company provides compensation on the basis of valuation of assets. So, the company can easily get compensation.