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Audit: duties of an auditor

Abhishek Kumar (student) (371 Points)

04 January 2014

what are duties of a auditor in case of provision for depreciation?

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Sanket (!..Live to Give..!) (16427 Points)
Replied 04 January 2014

Apart from fixed assets in respect of which depreciation must be provided, it also has to be provided on semipermanent assets, e.g., patents, trade marks etc. Since the auditor is not in a position to estimate the working life of a majority of them, for fixing the deprecation of these items, he has to rely on the opinion of persons who have a technical knowledge of such assets. He must, however, satisfy himself that an honest attempt has been made to estimate the working life of each asset, that the total provision for depreciation is adequate and that the method adopted for determining that amount to be written off is properly disclosed in the Profit and Loss Account and the Balance Sheet.

In part III of Schedule VI of the Companies Act, it is provided that any amount written off as depreciation is to be regarded as a provision, but that any amount so written off, which is in excess of the amount, to which in the opinion of the directors is reasonably necessary for the purpose, to be regarded as a ‘reserve’. The amount should be shown as a reserve under the head ‘Reserve and Surplus’ on the liabilities side of the Balance Sheet. It is the duty of the auditor to ensure that the above provisions are being followed in maintaining depreciation accounting.