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Unit 9: Audit of Limited Companies

9.4 Audit of Calls Notes

In this regard, the auditor should also examine compliance with the provisions of the Articles of
Association, and inspect Director’s Minute Book, to ensure that the resolution states the time and
place of payment, and see that the calls were made on a uniform basis as regard’s all shares
falling under the same, class. Then he may proceed at audit the calls in arrears and calls in
advance.

9.4.1 Calls in Arrears

The sum of money still due from shareholders on account of calls made by the company is
known as, calls-in-arrears. Audit procedure in this regard is as under:
1. Verify calls-in-arrears from the share register.
2. Verify the interest adjustment in case the Articles provide for a charge of interest on calls-
in-arrears.
3. See that the amount of calls in arrears is properly shown on the liabilities side of the
Balance sheet by deducting it from the amount of called-up capital.

!
Caution Ensure that the amount of calls due from directors should be separately shown in
the Balance sheet.

9.4.2 Calls in Advance

A company may, if so authorized by its Articles of Association, accept from any member the
whole or a part of the amount uncalled on any shares held by him as calls inadvance.

Did u know? The amount so received cannot be treated as part of the capital for purposes of
.
any voting rights.
But according to Section 93 of the Act, a company may, if so authorized by its Articles, pay
dividend in proportion to the amount paid up each share where a larger amount is paid up on
some shares than on others.
Where the company does not exercise its right under Section 93, the shareholders have paid calls
in advance shall be entitled to receive interest at the rate prescribed in the Articles of Association.
Such interest is chargeable against profits but in case profits are not available for the purpose, it
can be paid out of capital.

Example: In the case of winding up, repayment of calls in advance along with interest
accrued thereon, will take precedence over return of capital.
Audit procedure in respect of calls in advance can be summarized as under:
1. Check the amount of calls in advance with entries in the Share Register and the Cash Book.

2. Ensure that calls in advance are shown separately in the Balance Sheet, and not shown as
part of capital.

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