Page 160 - DCOM509_ADVANCED_AUDITING

Unit 9: Audit of Limited Companies

4. Vouch amounts refunded to the unsuccessful applicants with copies of Letters of Regret; Notes
5. Check the total columns in the Application and Allotment Sheets and confirm the journal
entries; and

6. Examine that the issue is within the limits authorized by the Memorandum and Articles of
Association.

Allotment Stage

1. Examine Director’s Minutes Book to verify approval of allotments.
2. Compare copies of letters of allotment with entries in the Application and Allotment
Book.
3. Trace entries in the Cash book and the Application and Allotment Sheets for the verification
of amounts collected on allotment.
4. Check totals of amounts payable on allotment and verify the journal entries.
5. Examine whether relevant requirements of Reserve Bank of India have been complied
with in case of allotment to non-residents.
6. Verify that the amount of the shares allotted do not exceed the authorized or nominal
capital of the company.

7. Check that the return of allotment has been filed with the Registrar of Companies.

Calls Stage

1. Examine the Director’s resolution making the call.
2. Vouch amounts received with the counterfoils of receipts.
3. Verify the journal entry, debiting the Call Account and crediting Share Capital with totals
of the amounts due.
4. Compare the application and allotment books with the schedule of calls in arrears showing
the difference between calls due and calls received.

5. Check the calls received in advance either in the cash book or through the journal are
transferred to a separate account.

9.3.2 Shares Issued for Consideration other than Cash

Shares may also be issued for consideration other than cash. Such instances may arise where a
company issues shares to vendors of business against purchase consideration; to promoters who
have borne preliminary expenses, to underwriters against settlement of under-writing
commission, etc. The audit procedure followed in this regard involves the following:
1. Examine the contract under which shares have been allotted for consideration other than
cash. In case of purchase of property or business, the contract will show the amount of
purchase consideration. In case shares have been issued as remuneration to underwriters
for services rendered by them, the auditor should ascertain the terms and conditions of
payment from the contract with them. Where shares have been issued to promoters, the
contract with them should be examined to ascertain the nature of consideration.

2. Examine the prospectus for details as to the amount payable to vendors, underwriters and
promoters, and the mode of payment.

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