An auditor has to report that the balance sheet represents the true and fair state of affairs of the business. He can make such a report only if he verifies not only the assets but also the liabilities shown in the balance sheet. Hence the need for verification of liabilities is as important as the verification of assets to form an opinion as to the truth and fairness of the financial statements.

Meaning of verification of liabilities is the process by which the auditor satisfies himself that all the liabilities of the business are included in the balance sheet, that the amounts of the liabilities are correctly determined in accordance with the principles of accountancy and they are properly classified and disclosed.

Verification of liabilities includes the following:-

  1. Comparing the ledger accounts of liabilities with the balance sheet and satisfying that all the liabilities in the ledger are included in the balance sheet.
  2. Ensuring that all the liabilities of the business are disclosed in the balance sheet.
  3. Ascertaining that the recorded liabilities appearing in the balance sheet are actually outstanding or payable, and are not fictitious.
  4. Ensuring that the recorded liabilities have been incurred for the legitimate operations of the business.
  5. Ensuring that all the liabilities are properly valued in accordance with the general accepted accounting principles.
  6. Ensuring that there is a proper classification of the liabilities.
  7. The auditor should also study the effect and actions of internal control and internal audit in respect of liabilities .

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