Page 161 - DCOM509_ADVANCED_AUDITING

Advanced Auditing

Notes 3. Refer to Board of Directors’ Minutes Book and check whether the resolution was passed by
the directors for allotment of shares to vendors, underwriters, promoters, etc. Check the
journal entries concerning the issue of shares for consideration other than cash.
Verify that a copy of the contract as required by Section 75(9)(b) of the Act has been filed with the
Registrar of Companies within one month of the date of allotment and, in the absence thereof,
a memorandum in writing stating particulars of the contract has been filed.

9.3.3 Shares Issued at a Premium

Where a company has issued shares at a premium, whether for cash or otherwise, Section 78 of
the Act prescribes that a sum equal to the amount of the premium ‘collected should be transferred
to the Share Premium Account. As per Section 78 of the Act the auditor must also ensure that the
amount of premium is utilized only for the specific purposes such as (a) issuing fully-paid bonus
shares, to members of the company; (b) writing off the preliminary expenses or the commission
paid or discount allowed on any issue of shares or debentures of the company, or (c) providing
for the premium payable on the redemption of any redeemable preference shares or any
debentures of the company.

9.3.4 Shares Issued at a Discount

A company may issue shares at a discount as per the following conditions specified in section 79
of the Act:
1. The issue should be authorized by an ordinary resolution of the company and sanctioned
by the Company Law Board.
2. The maximum rate of discount should not exceed 10% unless the Company Law Board is
of opinion that a higher rate of discount may be allowed under the special circumstances
of the case.

3. The shares must be issued within two months of the sanction by the Company Law Board
but not earlier than one year after the date of commencement of business.
4. The shares should be of a class already issued by the company.

It is the duty of the auditor to confirm that all the aforementioned conditions had been complied
with by the company at the time the allotment was made. Normally, it is advisable to write-off
the amount of such discount over a period 5 to 10 years.

!
Caution The amount of discount, until written off, should be shown separately in the
Balance Sheet under the head “Miscellaneous Expenditure not written off”.
Self Assessment

Fill in the blanks:
6. The auditor should confirm that the …………………………… issued by the Securities and
Exchange Board of India (SEBI) had been duly followed.

7. The auditor must verify that the amount of the ……………….. allotted do not exceed the
authorized or nominal capital of the company.

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