Auditing liabilities;

              54 HASKINS & SELLS July
Auditing Liabilities
FOR some years text books on auditing
emphasized the procedure incident to
beginning an audit. That there was such a
thing as ending an audit seemed to have
been entirely overlooked.
In similar manner the tendency seems
always to stress the verification of assets.
Volumes have been written on the subject.
Instructions galore have detailed the pro­cedure.
But the important matter of
auditing liabilities has received relatively
little attention. We, therefore, reproduce
certain suggestions which have been used
and found helpful in covering the principal
items under this head.
All liabilities may be divided into three
main classifications, and those subdivided
further as follows:
1. DIRECT OR SPECIFIC:
(a) Notes payable discounted at banks
(b) Notes payable sold through brokers
(c) Notes payable to individuals for
loans
(d) Notes payable and acceptances to
trade creditors
All of the above may be again classified as:
Notes secured by collateral
Notes unsecured
(e) Accounts payable—trade creditors
(f) Accounts payable—miscellaneous
(g) Consignments (in)
(h) Unclaimed wages
(i) Unclaimed dividends
(j) Deposits or prepayments on account
(k) Judgments
(l) Contracts
(m) Mortgages
(n) Bonds
2. CONTINGENT:
(a) Notes receivable discounted
(b) Acceptances
(c) Endorsements (accommodation
notes)
(d) Guarantees
(e) Unfulfilled contracts
(f) The minute book
3. ACCRUING:
(a) Pay roll
(b) Taxes
(c) Interest
(d) Rent
(e) Gas, electricity, water, heat, etc.
(f) Freight
(g) Commissions
(h) Traveling expenses
(i) Legal expenses (litigation in process)
(j) Damages
(k) Dues and miscellaneous accruals
(l) Audit fees
(m) Liability insurance
DIRECT OR SPECIFIC:
(a) Notes payable discounted at banks:
There is greater possibility of deliberate
deception being practised in connection
with notes payable than in almost any
other liability, and the greatest vigilance is
necessary to be sure all are accounted for.
Those payable at banks if at the regular
banks of deposit are readily verified by
certificate; the danger lies in the possible
use of other banks and the use of the re­sulting
funds without entry on the books.
(b) Notes payable sold through brokers:
The verification of these transactions is
usually difficult owing to the inability to
trace the paper further than to the brokers.
However, the minutes should be examined