If he does not proceed in an effective way while verifying the assets and liabilities, he will be held liable for negligence. In the decision of McKesson & Robins case (1939), it was held that the auditor must physically inspect some of the assets. He should, therefore, examine the documents of title, e.g., shares, debentures, securities, negotiable instruments, etc.
, to ensure that the assets existed on the closing day of the financial year. On the analysis, it can be held that in verification it becomes the primary duty of the auditor to satisfy him in regard to the existence, ownership and value of the assets. So, also for liabilities, he has to check the nature and extent of their amount due on the day of the Balance Sheet. Assets like cash, bills receivable, investments, etc., should be inspected by the auditor by examining them personally on the day of Balance Sheet. If personal inspection is not possible, he should try to reach thereafter as soon as possible.
If he visits the business some time after the close of business on the day of the Balance Sheet, he should check the transactions thoroughly which have been made during this day and the date of his visit. It is also equally necessary that the assets which are of easily negotiable in character or easily exchangeable should be verified by him very cautiously, e.g., in verifying securities, he should try to check them in one sitting, if possible, and if it is not possible, he should note down their number, date etc. in his note book. At least, he should have the securities in his possession till they are completely verified by him. If some of them are pledged or sent to some bank, etc.
, for inspection, a certificate to that should be obtained from the institution concerned.