THE AUDIT OF EQUITY

The auditor will usually carry out the following

substantive procedures on share capital:

The auditor should

check the nominal
If new shares were
value of shares
issued during the
issued during the
year, check that
year, by reading the
cash received for
supporting
them has been Check that the
documentation, and
Where local law properly recorded in amount reported as
should ensure terms
requires that the main ledger. issued share capital
of issue were
companies should properly complied agrees with the
have an authorised with. amount recorded in
share capital, the the register of
auditor should members/
check that the total shareholders, if the
authorised capital in company has such
the draft financial a register. (In some
statements is countries there is a
consistent with the legal requirement to
company’s maintain a register
constitution. of members).
SHARE
CAPITAL
 THE AUDIT OF EQUITY

The auditor will usually carry out the following

substantive procedures on reserves:

Obtain an analysis of
Check the dividend movements on all Check the accuracy of
calculations and reserves during the these movements by
check that the total period. checking supporting
dividends paid are documentation.
consistent with
the amount of issued
share capital at the
relevant date.

RESERVES
Confirm that Ensure that any specific
dividends have legal requirements
been deducted relating to reserves have
only from those been complied with.
reserves that are (For example, check that
legally distributable the entity has not
(usually the Check the breached legal
accumulated profits authorisation for restrictions on use of
reserve/retained the amount of the share premium
earnings). dividends paid. account.)
 THE AUDIT OF
THE AUDIT OF EQUITY STATUTORY BOOKS

Most countries require companies to maintain certain books or

records containing defined information, in addition to their normal
accounting records. The nature of these ‘statutory books’ varies from
country to country, but they may include the following:

Minutes of board meetings and minutes of general meetings of the

company.

Register of members/shareholders.

Register of directors and their interests in the shares and loan capital of
the company.

Register of charges on the company’s assets.

Copies of directors’ service contracts and details of directors’

remuneration packages. (Audit work on this area can be included in
payroll testing procedures. The auditor should confirm that national
company law disclosure requirements are complied with.)

The auditor should confirm that the required statutory records are maintained
by the client company and are up-to-date.