BANKING COMPANY.) The auditors' certificate and report on a bank's balance sheet is usually in a form similar to the following : " We beg to report to the shareholders that we have examined the books and accounts of the X. & Y. Banking Company, Limited, at December 31, 19 .. , along with the securities representing the investments of the bank or held against loans, the bills discounted, and the cash balances at the head office and at several of the branch offices. We have obtained all the informa tion and explanations which we have required, and, in our opinion, the foregoing balance sheet is properly drawn up so as to exhibit a true and correct view of the state of the bank's affairs, according to the best of our information and the explanations given to us, and as shown by the books of the company." In considering a customer's balance sheet, a banker should scrutinise each individual item, and not be satisfied merely by ascer taining the difference between the total of the assets and the total of the liabilities. As to liabilities, it may be taken for granted that the customer will have to meet all he has shown to the full extent, but there may be items on that side of the sheet which have been omitted or forgotten, and there may be also contingent liabilities, as. for example, in respect of any guarantees he may have given, which will not appear on his balance sheet. Such contingent liabilities should be revealed to the banker, as it is necessary that they be taken into account in obtaining a correct estimate of a person's position. If bills have been discounted for the customer. his liability for any which may be dishonoured should not be over looked. The natural tendency is to minimise liabilities and to swell assets.
In considering the assets, the item " book debts " calls for inquiry. Is the money owing by reliable parties ? Are the debtors few and the individual amounts large. or is the total spread over a large number of persons ? If any portion is bad or doubtful the banker will not regard it as an asset. Has any provision been made for bad and doubtful debts ? As to the value of the " stock," as shown in the balance sheet, it should be ascertained if it is taken at cost price or at the present market price.
The nature of the stock must not be for gotten, because certain articles do not improve by keeping, or they may go out of fashion and have practically no value. A farm stock should be put down in a balance sheet at what it will sell at present, not at what the farmer anticipates it will produce two or three months ahead. It does not necessarily follow that all the sheep on a farm belong to the farmer who owns or rents the farm, nor that the stock in a shop always belongs to the shopkeeper. It is necessary to bear in mind that the value of the stock of a going concern is, as a rule, very different from that which prevails when the business comes to an end and the stock is sold by auction.
If the customer owns property it is desir able to ascertain the nature of the property and also whether the value in the balance sheet is a fair one. If there arc any mort gages upon the property the amounts must, of course, be deducted, but as margins frequent ly disappear when the property is realised to repay the mortgagee, it is not wise, as a rule, to rely upon an asset of that description.
If the value of any shares is included, the present price should be ascertained, and a note made of any liability on the shares.
If the statement shows the existence of private loans, particulars should be furnished of the security which is held.
Each balance sheet must be separately studied in connestion with the peculiarities of each trade. but. as a rule. the amount of book debts and stock as shown in a balance sheet requires a considerable allowance to be made in order to arrive at what may be regarded as the approximate sum which would be obtained if the debts were suddenly called in or the stock realised under the hammer. After allowing a liberal margin for that object. the banker should notice if the customer is in such a sound position that all his current liabilities could be cleared off, without requiring any amount which may be entered as the value of the premises in which his business is conducted. Machinery and similar assets should I e regularly written clown to provide for depreciation.