11. Schedules of notes and investments should also be prepared.—Schedules should be prepared for the benefit of the auditor, showing the notes receivable and payable, together with the names of the obligors, the due dates and amounts and the rate of interest. A separate schedule of all bonds as well as stocks owned should also be prepared for the auditor. This saves him the trouble of making his own list, and he can check the actual notes receivable, or stocks or bonds owned, against the list prepared by the client. The verification of outstanding notes payable would have to be made either by communication with the holders, or if the notes have been discounted at the client's bank, the statement furnished by the bank would probably disclose the outstanding discounted notes. All monthly statements from creditors should be preserved, so that the auditor can check them against the amounts appearing in the client's purchase ledger.
12. Bank checks and vouchers to be arranged also. —All paid bank checks should be arranged in order as requested by the auditor, together with whatever vouchers he may have decided to check. With ref erence to the vouchers, some trouble may be expe rienced where the practice of the concern is to file them alphabetically, altho they have been entered in the purchase journal or voucher register chrono logically. These vouchers should be arranged for the auditor in chronological order.
13. The auditor's responsibility for the inventory. —The auditor's responsibility for the inventory de pends upon the contract which he has made with his clients. In any event, the client should preserve the original inventory sheets for the inspection of the auditor, so that the latter may make whatever veri fication he may desire as to valuation, quantity and as to the accuracy of extensions and footings.
14. The auditor %till request a bank certificate.— If it is not the custom of the client to deposit cash daily, the cash received on the terminating date of the audit period should be deposited, and the pass book balanced. In some cases it may be advisable to have the auditor balance the cash on the evening of the last day of the period. The auditor may take the pass book to the bank to be balanced himself, or lie may request his client to instruct his bank to certify direct to the auditor the balance on hand at the clos ing date. In addition, the auditor will request in formation from the bank to him direct, as to the de tails of any loans outstanding or acceptances for the account of the client.
15. Special points to be noted in the audit of part nerships.—The auditor should be furnished with a
copy of the articles of copartnership. He will prob ably make a copy of the essential provisions in it if a verified copy of the articles is not given to him for permanent filing with his papers. Inasmuch as the articles of copartnership regulate the rights and duties of the partners to each other, it is extremely important that the audit be made in the light of any special clauses in the partnership agreement.
In numerous cases the advice of the auditor will be sought in drawing up the articles of copart nership, for the reason that he will be able to aid the attorney in having the necessary clauses dealing with the accounting properly expressed, so as to give effect to the intentions of the partners themselves. Many lawyers are wholly unfamiliar with accounting prac tice and procedure. A large number of the disputes that arise in partnership affairs might have been avoided if an • accountant had been consulted in the drawing up of the agreement. Even where disputes have arisen, an accountant is very often called in as an arbitrator, and his services frequently help to pre vent litigation, serious dispute or dissolution of the firm.
16. Procedure in the audit of first audits the auditor will not only inspect the ar ticles of incorporation but also the by-laws of the organization, for the purpose of seeing that the ac counts reflect the intention of the incorporators and stockholders. He will always inspect the minute books to see that proper entries giving effect to the resolutions of stockholders, board of directors or ex ecutive committee have been made, and note that no entries have been made in the books of account im properly, or unsupported by a of the board. The stock ledgers and stock certificate books will also be examined by him to verify the capital stock out standing.
17. Communication with the debtors as to the va lidity of outstanding balances.—The only sure way in which the auditor may test the validity of the out standing accounts receivable, and bills receivable, is by communication with the debtors. Business men sometimes oppose this practice, altho the reader will probably realize that the opposition is in most cases unreasonable. The padding of accounts receivable, and the use of fictitious bills receivable, are sometimes employed to conceal dishonesty and fraud. It is usually wise to take the additional precaution of com municating with the debtors for the purpose of verify ing assets.