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Chapter: 12th Auditing : Chapter 10 : Company Audit

Audit of Shares issued for Cash

Shares issued for cash can be done in three stages.

Audit of Shares issued for Cash

Shares issued for cash can be done in three stages as: (a) Application Stage, where applications were received along with application money; (b) Allotment Stage, where allotment takes place and allotment money is received subject to the receipt of minimum subscription; (c) Calls stage, where calls are made on shares and the amount due is received.


 

a. APPLICATION STAGE

a)        The auditor should check the original share application. He should check the entries in Application and Allotment Book.

b)       He should vouch the application money received with Application and Allotment Book and the corresponding entries in cash book. He should ensure that application money received was deposited in a scheduled bank until the certificate of commencement of business is obtained. He should verify whether application money received is not less than 5% of the nominal value of shares issued.

c)        He should vouch the money refunded to unsuccessful applicants with Application and Allotment Book, copies of letters of regret and bank book.

d)       He should check the total columns of Application and Allotment Book and see that proper journal entries have been passed in the books.

b. ALLOTMENT STAGE

a)        The auditor should see that allotment begins only after the receipt of minimum subscription.

b)       He should examine the Directors’ Minute Book to see that all the allotments have been approved by the Board.

c)        He should compare the copies of Letters of Allotment and Letters of Regret with entries made in the Application and Allotment Book.

d)       He should check the amount received on allotment, by comparing Application and Allotment Book with Cash Book.

e)        He should check the postings in Share Register of the amount received on application and allotment.

f)         He should see that the relevant RBI and FEMA requirements, in case of allotment to non-residents.

g)        He should see that appropriate journal entry debiting Share Allotment and crediting Share Capital Account has been duly made.

c. CALL STAGE

a)        The auditor should examine the board of director’s resolution in the Directors’ Minute Book for making calls.

b)       He should verify the amount received with the counterfoil of receipts.

c)        He should compare the total amount due on calls with the amount collected and entered in the cash book. He should trace out the figures of call-in-arrears by comparing the ‘Schedule of Calls in Arrears’ with Application and Allotment Book, and check the accuracy of the amount.

d)       He should see that appropriate journal entry debiting Calls Account and crediting Share Capital Account has been duly made.

 

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