VERIFICATION OF ASSETS

SPECIAL POINTS IN AUDIT OF SHARE CAPITAL

In case of share capital issued by the company following points merit considerat
ion of the auditor:
1. Authorization of the issue
Auditor should check the minutes of the meeting of the board of directors to che
ck the authorization of the terms of the issue of share capital.
2. Vouching share applications
Auditor should test check the share application forms and vouches their respecti
ve entries in the cashbook.
3. Legal requirement
It should be checked that the legal requirements as laid down by the companies a
ct, sebi and other regulatory bodies are met.
4. Compilation requirements
Auditor should check that various compilation requirement of various statements
with the registrar of companies are met with.
5. While doing the audit of share capital auditor should vouch the followin
g carefully:
Memorandum of association
Articles of association
Minutes of the directors meetings
Prospectus
Share application form
Letters of allotment
Letters of refund
Share registers
Cashbook
Ledger accounts.
ISSUE OF SHARES AT A PREMIUM
When a company issues its share at a premium, auditor should take care of the fo
llowing points:
He should check the prospectus.
He should check the articles of association.
He should check the minutes of the meetings of the board of directors.
All the above should authorize the issue of shares at a premium.
The receipt of premium should be vouched with the respective entries in the book
s of accounts.
It should be vouched that the share premium account should be used for the autho
rized purposes only.
Reserves
• Obtain a moment schedule of each type of reserves & agree the closing balances o
f schedule with the balance sheet.
• Opening balance of each reserve should be check
• Auditor should study the case law and comply with guide lines.
• Note undisclosed secret reserves
Debenture
Loans
There are many reasons why people get loans. Perhaps they want to enjoy a once-i
n-a-lifetime opportunity that will never come their way again. Or perhaps they n
eed to fix up the house to get it ready to sell. Or perhaps they need to make a
financial decision to consolidate their debts in order to reduce their monthly p
ayments and lengthen the term to pay back their loans. Whatever the reason many
people are looking to loans to help them reach their financial goals.
There is nothing wrong with using loans to reach your financial goals. In fact,
a loan can be an excellent tool to add to your financial portfolio because it ca
n help you leverage your current position. But which loan is the right loan for
you?
There are basically two kinds of loans. Unsecured loans and secured loans are th
e two kinds of loans that you have available.
Secured loans are loans in which you offer the lending institution some kind of
guarantee that they will receive payment for the loan. The example of a guarante
e might be some assets that you have, like your house or your car or stock certi
ficates. Although you don't have to turn them over to the lending institution in
order to get the loan, having them in your possession assures the lending insti
tution that if you are to default on your payment they would have something to s
eize and sell to recover their losses.
On the other hand, an unsecured loan is a loan in which you simply use your cred
it rating to help you borrow money from the lending institution. People who do n
ot have assets or do not want to provide assets as a guarantee may prefer this t
ype of loan as an alternative.
So which one is the better loan? While every case is different, you should consi
der what is important to you. For many people getting a good deal on a loan mean
s getting a low interest rate, a high amount of available loan, and a long repay
ment period.
If that describes you then you probably want to go with a secured loan. Why? It'
s simple. Lending institutions determine the amounts they're willing to lend, th
e interest rates they will be lending at, and how soon they want the money back
based on the amount of risk they are taking to give up the money. While a person
with a good credit rating may not be a big risk, the risk is still greater than
with the person who has some assets to back up the loan if they are unable to p
ay with money.
So it may be the right one for you. A secured loan is the right option for many
people because it provides a greater amount of available lending cash, a lower i
nterest rate, and a longer term to repay.
There are three types of unsecured loans.
• First there is a personal unsecured loan, meaning a loan that you individually a
re responsible for the repayment of.
• Second is an unsecured business loan which leaves the business responsible for t
he repayment.
• Finally there is an unsecured business loan with a personal guarantee. With the
latter, although the borrower is the business, you as an individual will be the
payer of last resort if the business defaults on the loan
Unclaimed Dividends:
These are the un paid dividend for longer period of time.the auditor should obta
in all the record of dividend and check it properly .if there is any unpaid amou
nt see the authorization by the relevant claim of the articles of association an
d obtain a copy the directors exercising the power of forfeiture under the artic
les.
Liabilities:
The auditor should obtain the creditor and other amounts payables record to veri
fy the segregation in to goods ,expenses ,acceptances & other finances with the
financial records (ledgers ,Balance sheet etc)
Steps follow by an auditor to ascertain all liabilities have been accounted in t
he book
• Obtain liability certificate
• Glance the invoices record in the book against good received
• Check the file of invoices ,petty cash ,vouchers ,payment of vouchers & ensure
that adequate control is exercised
• Enquire the special claims lodged against the company
• Check the provision for leave , retirement of the staff
• Compare liability schedule with previous period & examine the fluctuation
• Compare statements received from creditors with the balances shown on the accoun
ts and investigate differences
The auditor should also verify bills payable, provision for taxation and propose
d dividends.
Unexpired Discounts:
Incase of banks or financing companies whose business is to discount bills of ex
change on a large scale. Check that proportionate discounts on such bills should
be transferred from the credit of discount account and then should be appeared
as a liability representing discounts received during the current year but attri
butable to the next year.
Contingent Liabilities:
A contingent liability is a liability which is contingent with the happening or
not happening of an event. People do record contingent liabilities in the books
of accounts. A reference is made to them by way of footnotes to the balance shee
t. If it a loss is likely to arise on account of contingent liability becoming a
n actual liability, proper reserve should provided in accounts. Several types of
contingent liabilities are:
Bills receivable discounted but not matured
Uncalled capital on investments
Law suits
Arrears of cumulative dividends
Pending labor disputes