Disclosure in the Final Accounts : The object of audit ultimately is that the statements of account prepared from books of account which have been checked should present a true and fair picture of the financial position of the entity. This particular objective should be kept in view while checking the grouping of accounts. The auditor must see that not only items of a like nature be grouped together but also the description of each account truly reflects the nature of the amounts accumulated therein. Unless this is verified, the classification of income and expenditure and that of assets and liabilities would be misleading.
For example if director’s fee and salaries to staff have been added together or advances to directors have been covered up by being amalgamated with book debts, the nature of these payments would be obscured. Fundamentally, care should be taken to ensure that no material fact is suppressed or stated in a manner that it may mislead any one. If it is found that owing to costing or managerial requirements, certain items of expenditure or receipts have not been classified by the company in the way as would meet the requirements of the Companies Act, 1956 the client’s staff at the end of the year should be required to re-classify them.
Nevertheless such a re-classification of expenditure should be checked by the assistant of the auditor to confirm that it has been correctly made and that no item requiring re-classification has been left out. In the case of a company, Schedule IV to the Companies Act, 1956 has laid down requirements in regard to the disclosure.