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Advanced Auditing

Notes 3. See that the shareholders concerned are paid interest on calls in advance at the rate specified
in the Articles provided the Articles do not permit payment of dividend in respect thereof.

Self Assessment

State whether the following statements are True or False:
8. In view of the utility of auditing, it is essential for every form of business organization to
get its accounts audited.
9. If a company is passing through a financial crisis, it need not get its accounts’ audited for
a few years.

9.5 Issue and Redemption of Preference Shares

Audit procedure to be followed in respect of issue of preference share is as under:
1. Examine whether the Articles of Association authorize for company to issue redeemable
preference shares.
2. Check compliance with relevant legal provisions of the Companies Act, 1956 e.g., Section
80(5A) prohibits any company to issue any preference share which are irredeemable or
redeemable after the expiry of a period of 20 years from the date of the issue.

3. Check whether the terms of redemption or conversion are stated in the balance sheet
together with the earliest date of redemption or conversion.
4. Vouch receipt of moneys on the issue of preference shares.

9.5.1 Redemption of Preference Shares

In case of preference shares redeemed during the year, the audit procedure is as under:

1. Examine whether the redemption is in accordance with the relevant requirements of the
Companies Act, 1956 and the terms of issue.
2. Verify the payment made to preference shareholders on redemption with reference to
bank statement and receipts issued by the shareholders.
3. Confirm that the requirements of Section 80 of the Act as stated below have been complied
with
(i) That the shares redeemed were fully paid up;

(ii) That the shares were redeemed out of profit, otherwise available for distribution as
dividend, or out of proceeds of a fresh issue made for purpose of redemption;
(iii) That the premium, if any, on redemption was provided for either out of the Share
Premium Account or out of divisible profits of the company; and
(iv) That if the shares were redeemed out of profits, otherwise available for dividend, an
amount equal to nominal amount of shares redeemed has been transferred to the
Capital Redemption Reserve Account.

Self Assessment

Fill in the blanks:
10. Examine whether the Articles of Association is in …………………. for company to issue
redeemable preference shares.

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