Auditor’s Duties with Regard to Depreciation

Auditor’s Duties with Regard to Depreciation

An auditor is not a valuer to determine the value of assets held by the company. He has to depend on the suggestions and advice given by professional experts in determining the value and estimated life of the asset. However, the following are the duties of an auditor in this regard.

1. Verify Depreciation Rates: The auditor should ensure that depreciation has been provided as per the rates prescribed by the Companies Act.

2. Disclosure in Financial Statement: He should ascertain that adequate depreciation is charged and properly disclosed in the Profit and Loss Account and Balance Sheet.

3. Compliance with Accounting Principles: He should ensure that relevant accounting principles have been followed while providing for depreciation.

4. Depreciation  on  Purchase  or  Sale: When assets are purchased or sold during the  year,  auditor  should  ensure  that depreciation is charged on pro-rata basis taking into account the date of purchase or sale and the accounting period.

5. Certification from Experts: In case the depreciation charged is more than the rates prescribed, he should examine whether same are based on professional and technical advice.

6. Consistency: Where difference rates are used for different assets, the same should be consistently applied over the years.

7. Change in Method of Depreciation: In case of a change in the method of  accounting  for  depreciation  it  is recalculated from the date on which asset came into use and deficiency, if any, has been charged to Profit and Loss Account.

8. Adequacy  of  Capital  Employed: Auditor should check whether the capital employed in the assets is being kept intact.

9. Revaluation of Assets: In case of revaluation of asset during the year he should ensure that depreciation is charged on revalued amounts.

10. Procedure of Computation: He should ensure that the procedure for calculating depreciation complies with the provisions of Companies Act and Income tax Act.