Audit on Behalf of a Retiring Partner
An auditor is appointed by a retiring partner to see that the assets and liabilities are properly valued and that his account is correctly prepared to show the amount due to him. This basically means that even though such a person is not a partner he has represented himself as such, and so he becomes partner by estoppel or partner by holding out. The auditor so appointed must pay attention to the following points:
- The auditor should read them carefully especially the provisions relating to the retirement of a partner.
- The auditor should see that such provisions are properly carried out.
- Assets and liabilities are properly and correctly valued.
- After taking into consideration the above points, the auditor should see what amount is due to the retiring partner.
Outstanding assets, especially goodwill and liabilities, are brought into account and they are correctly valued so that the amount of profit or loss arrived at on the date of retirement is correct and, therefore, the amount due to the retiring partner is correct. If a person holds out to another that he is a partner of the firm, either by his words, actions or conduct then such a partner cannot deny that he is not a partner.
The amount so due to a partner, sometimes, is payable at once, or by installments in subsequent years. The auditor should see that the terms of the original agreement related to the repayment of money due to a retiring partner are properly carried out. This partner will only share the profits of the firm, he will not be liable for any liabilities. If the amount is to be paid by installments, he should see that it is transferred to the Loan Account and that the interest due to such loans is duly credited to the retiring partner’s Loan Account.