Verification of financial statements;

              Bulletin H A S K I N S & S E L LS 49
'Verification of Financial Statements'
THE Federal Reserve Board has ap­proved
a document which will be issued
presently in pamphlet form under the
title, "Verification of Financial State­ments."
The document supersedes one called
"Approved Methods for the Preparation
of Balance Sheet Statements," which con­tained
"General Instructions for a Balance
Sheet Audit of a Manufacturing or a Mer­chandising
Concern."
The old document contained much valu­able
audit procedure which often failed of
attention and use because it was over­shadowed
by glaring major inconsistencies.
The expression "balance sheet audit" was
an unhappy one, and led to misunder­standing
and controversy. The stated
scope of such procedure limited the work of
verification to the assets and liabilities.
The instructions relating to the profit and
loss accounts provided for little more than
the preparation of a profit and loss state­ment,
without verification. There was no
authoritative source from which one could
discover what was meant by "an examina­tion
of the essential features of the ac­counting."
In spite of the fact that the
profit and loss accounts were not required
to be verified the auditor who signed the
form of certificate suggested was asked to
say that he had audited the accounts for a
"period."
The new document eliminates some of
the inconsistencies, makes clearer than
formerly what is intended, and leaves no
doubt about certain things. The scope of
the work indicated in the present instruc­tions
covers, "a verification of the assets
and liabilities of a business enterprise at a
given date, a verification of the profit and
loss account for the period under review,
and, incidentally, an examination of the
accounting system for the purpose of ascer­taining
the effectiveness of the internal
check."
It is of the essence in this type of audit,
for, with verification as its basis, such it
must be called, that the "extent of the veri­fication
will be determined by the condi­tions
in each concern. In some cases the
auditor may find it necessary to verify a
substantial portion or all of the trans­actions
recorded upon the books. In