Audit of shares issued for consideration other than cash
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.
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
1. Examination of Contracts:
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:
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:
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:
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
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.