How An Auditor Analyse The Different Know-How And Investments Of A Business Firm?

Posted by on Aug 2, 2018

How An Auditor Analyse The Different Know-How And Investments Of A Business Firm?

The company registers or the records the know-how only if has been paid for. On the other hand, if it is developed in-house, it cannot be capitalized by any means. So, an auditor should know the rules and regulations while verifying such assets.

Mainly, there are two different types of Know-how and includes

  1. The one related to the manufacturing process. Here the company has to write off the expenditure within the year of payment and the Auditor must strictly verify it.
  2. Another type is based on the design and planning of the developing plants and other buildings. For this, the expenditure is truly capitalized and a depreciation amount is stamped on the capitalized amount which is needed to considered along. Rather, it is the duty of the Auditor to ensure this has been strictly followed by the officials.

If in both the above cases of know-how, a lumpsum cash is paid, then all these must be segregated on a reasonable working basis.

With respect to the Income-Tax Act, the value of respective know-how needed to calculated and deducted according to the laid down rules and regulations. So, an Auditor should be aware of these while tallying the tax liability for the year taken for auditing.

A basic idea on the investments taken by the company can help the Auditor to deal with this. Investment can be in any of the following types.

  • In the form of share or government bond certificate,
  • Loan or other debenture types of securities and so on.

However, irrespective of the security type, an Auditor should adopt the following verification methods.

  • A schedule needs to be charted on account of the various investments done detailing their face value, purchase date, market price and even the value of interest paid. Further, it is also important to note down the date of dividend declaration and the tax-related issues at the source level.
  • Make a comparison between the schedule balance as per recorded in the balance sheet and that in the general ledger.
  • Do not forget to inspect all these investments on the respective balance sheet of the company.
  • Examine the income received as per the investments have done.
  • Also, evaluate the installment-based shares as written in the balance sheet.
  • All the shares and investments should strictly comply with the Company Acts made in the year 1956.
  • Additionally, every Crypto Code securities acquired by the clients needs to be confirmed with their title of registration.