Page 153 - DCOM509_ADVANCED_AUDITING

Advanced Auditing

Notes Objectives

After studying this unit, you will be able to:
 Explain the concept of company audit

 Discuss Commencement of Audit
 Describe Audit of Share Capital
 Describe Audit of calls
 Explain Issue and Redemption of Preference Shares

 Explain Issue of Bonus Shares
 Explain Issue of Share Certificates
 Elaborate on Share Transfer Audit
 Discuss Presentation and Disclosure of Share Capital

Introduction

In this unit you will learn that before the commencement of the audit of a company, the auditor
must fulfil certain preliminary steps. Particularly, the auditor must acquaint himself with (i)
articles and’ memorandum of association ‘to ‘verify the constitution and powers under which
the company operates, (ii) system of internal control, and (iii) other relevant provisions of the
Companies Act, 1956 (hereinafter referred to as the Act), affecting financial statements, etc. Then,
you already know the general principles of auditing which are applicable normally to all types
of entities irrespective of their nature, size and form. However, certain specific aspects of such as
audit of share capital transfer of shares, and audit of dividends, depreciation and reserves that
are peculiar to companies etc. were not covered. In this unit, after covering the preliminaries
before commencement of the audits of a company we shall primarily deal with audit of share
capital which is conducted in order to ensure that the share capital has been issued in accordance
with the relevant provisions of the Companies Act, 1956 and properly recorded in the books of
account and duly reflected in the balance sheet of the company.
9.1 The Company Audit

The shareholders of the company are the real owners of the Company. They invest their money
in the company. However the management of the company lies in the hands of the directors.
Generally the shareholders do not have the skills required to understand the financial statements.
Thus audit of account of company has been made compulsory in order to protect the interest of
the shareholders. Audit of accounts ensures that the statements of account are properly drawn
up and they disclose all the requisite information. Auditor must also ensure that the company
has not violated any of the provisions contained in the Companies Act, 1956. Although
compliance with the relevant provisions of the Companies Act, 1956 is the responsibility of the
directors and officers of the company, nevertheless the auditor must make a report to the
shareholders where non compliance results in affecting the accounts materially.

9.1.1 Appointment of Company Auditor

The following are the important considerations regarding the appointment of the company
auditor:

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