Methods Of Business Capital Verification Conducted By The Auditor

Methods Of Business Capital Verification Conducted By The Auditor

The share capital of a business company definitely needs to be checked so that the Auditor can report about the genuineness of the balance sheet.

While considering the capital terms for the first year of the company, the Auditor should

  • Read and understand the Articles of Association and the Memorandum of Association.
  • Go through the Receipt or cash book, Executive Minute book and the various passbook for knowing
  1. The actual count of the standing shares,
  2. The classification of the shares and the total amount received from the whole categories,
  3. The pending cash that is needed to be submitted from the shareholders.
  • If in case, any of the shares are allotted to the third parties like the vendors, then the Auditor should definitely check with the agreement terms that the company is having with the vendors.
  • Further, the shares issued at the premium rate should be credited to an individual account and the Auditor must take note of this.
  • It is also advisable to evaluate the allotment and call cash of the company along with all the forfeiture and share reissues if any occurred over the defined period.
  • In addition, these provisions should comply with the Companies Act and so, the Auditor should note this too.

For the following years of the company working,

  • The share capital amount should be maintained the same as that in the previous year unless a fresh order has been taken to consideration and also, all the legal provision in relevant to this change should be fulfilled.
  • In a similar way, any step taken towards reducing the share capital amount should be done under the provisions specified in the corresponding section of the Company Act.
  • Apart from this, any type of bonus remuneration if granted by the company should be taken for verifying by the Auditor and he must ensure that proper step was taken to pass the resolution prior to implementing the bonus scheme. Along with this, make sure the capitalization entries were orderly registered and correctly passed.
  • A Full review should be done on the right shares issued by the business organization. For verifying this, he must refer the bank book of records and other bank statements. Also, collect all the invoices with respect to these statements issued. This kind of share system must be done with the right concern from the authorities and the Auditor should confirm this.