Page 166 - DCOM509_ADVANCED_AUDITING

Unit 9: Audit of Limited Companies

9.7.1 Issue of Share Warrants Notes

A public company limited by shares may convert its fully-paid up shares into share warrant if
the following conditions are satisfied:

1. The shares are fully paid up.
2. The Articles authorize the issue of share warrants.
3. Prior approval of the Central Government has been obtained.

4. The share warrants are issued under the common seal of the company.
A share warrant entitles the bearer to the shares specified therein, and it may be transferred
merely by delivery of possession. The company may provide for payment of the future dividends
on the share warrants, by attaching coupons for the dividend with the warrant itself. Dividend
is then payable to the bearer of the coupon. Every-share warrant, in fact, is a negotiable instrument.

!
Caution Examine the Articles to ensure that the issue of share warrant is duly authorized
therein.

Self Assessment

State whether the following statements are True or False:
14. A public company limited by shares may convert its fully-paid up shares into share
warrant.
15. A share warrant entitles the bearer to the shares specified therein, and it may be transferred
merely by delivery of possession.

9.8 Share Transfer Audit

Normally, audit of transfer of share is beyond the scope of independent financial audit. But, it is
quite common that an auditor may be given a specific assignment to audit the transfer of shares
to ensure that such transfers are being carried out properly. The audit procedure to be followed
is as under:

1. Ascertain and evaluate internal control system relating to share transfers with particular
reference to segregation of duties, maintenance of records, etc.

2. Ascertain whether notices were sent in every case to the transferors and, in case of joint-
holders, to each of the holders and the objections, if any, raised by them were taken into
consideration before the transfers were registered.
3. Verify that in case of partly paid shares, where the application for registration was made
by the transferor, a notice has been sent to the transferee and the transfer registered only
if the transferee does, not make any objection within two weeks from service of notice on
him.
4. Scrutinize transfer deeds to ensure the following:

(a) It is in the prescribed form.

LOVELY PROFESSIONAL UNIVERSITY 161