Sunday, 25 September 2011

Discuss that procedure which should be adopted by the auditor to verify the share capital or As an auditor how will you verify the share capital of newly established firm

Auditor will take the following steps while checking the share capital issued in a newly established firm :

1. Checking Of Authorized Capital :-
To find but the authorized capital, legal documents should be checked by the auditor. He should also see the classes of shares into which the capital is divided. He should also examine that issued capital does not exceed the authorized capital.

2. Checking Of Application Letter :-
Auditor should check the application letter with the share application and allotment book.

3. Checking Of Minutes :-
Auditor should also check the minutes of the board of directors meetings to see that all the allotments of shares are made accordingly.

4. Checking Of Various Things :-
Auditor has to check the various other things like underwriting commission, minimum subscription and brokerage with shares. For this purpose he will compare the provision of articles with similar statements in the prospectus.

5. Checking Of Cash Receipts :-
Auditor should check the cash received on application. He should compare it with the allotments shown on the cash book. Then he should compare the application and allotment book.

6. Comparison Of Pass Book :-
Auditor should compare the cash receipts with the cash book. He should also compare the cash book with the bank pass book that both are same.

7. Register Of Member Checking :-
Auditor should verify the posting of entries into the register of members from the application and allotment book.

8. Checking Of Contract :-
Auditor should check the company's contract with the vendors in regard to the fully paid shares. He should also check that facts are disclosed in the prospectus.

9. Checking Of Balance :-
Share ledger balance should be also checked by the auditor that its total agrees with total amount of share issued.

10. Vouching Of Journal Entries :-
Auditor should vouch the entries relating to share and also check the postings.

11. Receipts On Call Checking :-
Auditor should check the amount received on calls with receipt book, cash book and bank pass book.

12. Checking Of Paid Commission :-
If commission is paid then auditor should also check that it paid according the rules and legal requirement.

13. Checking Of Cash :-
Where the shares have been issued for cash, auditor should check that money has not been used before the issue of allotment letter.

14. Vouching Of Repayment :-
Auditor should vouch the refunded money. Auditor should see that if shares were not allotted then proper entries about refused money are made in the cash book, application and allotment book.

15. Checking Of Preparation :-
Auditor should check that balance sheet has been drawn according the companies act. It is prepared from the "F".

16. Verification Of Correction :-
The auditor should also verify that amount shown on the balance sheet is correct.


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