The visit of auditor is made on the basis of agreement or relationship deed in collaboration company and auditor should perform work for the shake of all partners. A partner who does not take any part in the business is recognized as a sleeping partner. He invests his capital, he is eligible for profits, his liability is unlimited etc.
1. No extreme reserve is created or over-depreciation is provided as it’ll decrease the amount of income to be distributed to the partners. 2. Capital expenditure is not charged to the revenue account as it shall have the same effect on the divisible profit. 3. The energetic companions do not withdraw more income due to revenue or capital than that which is allowed by the partnership agreement. 4. The energetic partners do not enjoy speculative transactions which do not form part of the normal business. An auditor is appointed with a retiring partner to see that the resources and liabilities are properly respected and that his accounts is correctly prepared to show the total amount credited to him.
1. The auditor should read especially the provisions associated with the pension of a partner carefully. 2. Auditor should see that such procedures are properly completed. 3. Assets and liabilities are properly and properly valued. 5. After taking into consideration the above factors, the auditor should see what amount is because of the retiring partner.
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6. The total amount so due to a partner, sometimes, is payable at once, or by installments in subsequent years. The auditor should see that the conditions of the original agreement related to the repayment of money credited to a retiring partner are properly carried out. If the total amount is usually to be paid by installments, he should see that it is used in the Loan Account and that the interest credited to such loans is duly credited to the retiring partner’s Loan Account.
The type of action by the auditor in such a case would be the same as regarding auditor appointed on behalf of a retiring partner. The deceased partner might have passed away during the course of the financial or and, therefore, the relevant question of the computation of the profit or loss up to the date of loss of life arises. For this, the auditor should make reference to the conditions of the agreement.
Again the question of processing goodwill of the company may arise. Goodwill item may not exist in the books of account. He will have to refer to the agreement where usually a provision is made that goodwill is to be calculated on the basis of the average profits of the prior several years.
Auditor should see that it’s computed correctly that no capital costs is charged to the revenue account as this task will reduce the net profit and consequently the share of the deceased partner may also be reduced. The auditor should also see that right amounts are billed to revenue accounts so that the interest of the deceased partner is not sacrificed.
Finally, the auditor should see that the account of the deceased partner is properly debited and credited and thus uncover what amount is due to such partner. The auditor also needs to find out from the Partnership Agreement concerning how the amount due to the representative of the deceased partner is to be paid and recommend the representative appropriately. Sometimes an outgoing partner may leave his money to the business in the word that certain interest will be billed on that amount.
To know the security of his investment, he could appoint an auditor on the basis of contract. An auditor should conduct the audit considering the interest of his client and business. 1. Auditor should receive instruction from the client in written form. 2. The auditor should check if the income and reduction are computed or not properly.
3. Depreciation on assets is deducted or not. 4. Amount of sketching attracted by the companions is at the limit of agreement or not. 5. Whether the capital expenditure is shown as income vice-versa or expenditure or not. 6. If the transactions of the company are performed with a personal interest or not.