Audit of shares issued for consideration other than cash
Shares may also be issued for consideration other than cash. Vendors, promoters, underwriters, etc.may be allotted shares instead of making payments to them. The audit procedure followed in this regard involves examining the contract, board of director’s resolution, checking the journal entries and examining the prospectus.
Shares issued for consideration other than cash may arise where a company issues shares to vendors of business against purchase consideration; or to promoter’s who have borne preliminary expenses, or to underwriters against settlement of under-writing commission, etc.
1. Examination of Contracts:
Copy of contracts entered into with vendors, promoters, underwriters, etc. should be examined by the auditor to ensure that the allotment is made as per the agreements. The amount of purchase consideration for the vendors, nature and amount of consideration for the promoters, remuneration to underwriters would be mentioned in their respective agreements.
2. Examination of Prospectus:
He should examine the Prospectus to ensure that conditions lay down such as details of the amount payable to the vendors, promoters, and underwriters and the mode of payment.
3. Verify Directors Minute Book:
The auditor should examine the Minutes of the Board of Directors to ensure that the allotment is authorized by the Board.
4. Verify Entries in Books:
The auditor should see that the journal entry is in order. He should verify Share capital account as shown in the ledger to ascertain that share allotments are posted in the ledger accounts.
e. Compliance with Legal Provisions
The auditor should verify the return filed with the Registrar of Companies to ensure that return is filed in accordance with the provisions of the Act.