Page 165 - DCOM509_ADVANCED_AUDITING

Advanced Auditing

Notes 9.6.2 Reduction of Share Capital

Section 100 of the Act deals with the reduction of share capital and you know that it lays down
quite a cumbersome procedure to be followed for the purpose. Its audit therefore has to be
conducted very carefully which may involve the following:
1. Verify Shareholders’ Minutes book that the necessary special resolution has been passed.

2. Confirm that the Articles of Association authorize reduction of share capital.
3. Examine the order of the Court confirming the reduction and ensure that copies of the
court order and the relevant minutes have been filed with the Registrar of Companies.

4. Inspect the Registrar’s Certificate in this regard.
5. Vouch the journal entries recorded to reduce the capital and to write down the assets by
reference to the resolution of shareholders and other documentary evidence, and also
ensure that the requirements of Part I of Schedule VI, to the Act have been complied with.

6. Confirm that the reduction in value of assets has been properly disclosed in the Balance
Sheet.
7. Verify the adjustment made in the members’ accounts in the Register of Members and
confirm that either the paid up amount shown on the old share certificates have been duly
altered or new certificates have been issued after cancelling the old ones.
8. Confirm that the words “and reduced”, if required by the order of the Court, have been
added to the name of the company in the Balance Sheet.
9. Verify that the Memorandum of Association of the company has been suitably altered.

Self Assessment

Fill in the blanks:
12. Alteration of share capital involves …………………….. fully-paid up shares into stock or
vice versa.
13. Auditor should examine the cancelled share certificates and tally the same with the
…………………. of new certificates issued.
9.7 Issue of Share Certificates

Every company, within three months after the allotment and within two months after the
application for registration of the transfer, must have ready for delivery the certificates of all
shares, debentures and the debenture stock, allotted or transferred. Audit procedure in this
regard is as under;

1. Check share certificate certifying that the allottee is the holder of the specified number of
shares in the company.
2. Verify entries in the Register of members with the counterfoils of the share certificates.

3. Ensure that all the books and documents concerning the issue of share certificates are
properly maintained and preserved and certificates surrendered to the company are duly
defaced by the word “cancelled”.

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