Company Audit Bcom Notes
Company Audit Bcom Notes:- In this post, I am giving you the notes of Bcom 3rd Year auditing, which is going to be very useful in your examination and you should share this post to all friends and all your groups so that your friends also read this post. Could. Company Audit Bcom Notes
The audit of a limited company is different to the audit of sole proprietary concerns and partnership firms. A company has its separate legal entity and is governed by the Companies Act 1956, (amended time to time by the Central Government). There are various provisions in the company law which the auditor has to study for the conduct of audit of the accounts of a company. The necessary preparation which an auditor has to do before commencing the audit is important.
Before commencing the actual audit work of a limited company, the auditor should consider the following matters:
(1) Ensuring whether his appointment is in order: Before commencing the audit of a limited company, the auditor should ensure whether his appointment is made according to the section of 224 to 225 of the companies Act. If he is appointed in place of a retiring auditor, he should enquire whether due notice was given to the retiring auditor or not.
(2) Inspection of Statutory Books and Documents: The auditor should obtain a certified list of all the books in use together with the important documents. He must study all these books and documents in order to acquaint himself with the company and his activities. He should study the following documents:
(A) Memorandum of Association: It is an important document which describes the objects and extent of powers of a public limited company. The auditor has following duties in relation there to:
(i) He should study the ‘Object Clause’ of the memorandum and see that the company is carrying on work in accordance with this clause. If transactions have been entered into by the company which are not within the scope of the corapany’s objects, the auditor should bring this fact to the notice of the shareholders.
(ii) He should see that the issue of the share capital is within the authorised capital and according to the Companies Act. In case the authorised capital has been increased, he should get a copy of the resolution.
(iii) He should examine and note down the Provisions of the Memorandum of Association which relate to the accounts of the company and liability of the members.
(iv) He can also find out who the signatories to the Memorandum are and whether they have taken up the shares as undertaken by them while signing the Memorandum.
(B) Articles of Association: The Articles of Association should be thoroughly examined by the auditor and he should pay special attention to the following points:
(i) The regulation as to the issue of capital and its sub-division; payment of underwriting commission and brokerage on share.
(ii) To note the amount of minimum subscription.
(iii) To note the rules relating to allotment and calls, forfeiture and reissue of shares.
(iv) To know rules regarding transfer and transmission of shares.
(v) To know about payment of underwriting commission and brokerage on shares.
(vi) To know the dates on which a call can be made and the amounts thereof; he has to know the rate of interest to be charged on calls in arrears and interest to be paid on calls paid in advance.
(vii) To note number, qualifications, powers, duties and remuneration of directors.
(viii) To examine the borrowing powers of the company.
(ix) To know the rules relating to appointment, removal, rights. duties and remuneration of the various officers of the company.
(x) To note provisions regarding meeting of shareholders and directors, voting rights, accounts and audit.
(xi) To note rules relating to the preparation and maintenance of accounts.
(xii) Rules regarding dividends and reserves.
(C) Prospectus: A prospectus is an invitation to the public to subscribe to the shares or debentures of the company. The auditor should examine the prospectus of the company to know the details regarding:
(i) Names, addresses, remuneration and qualification shares of directors and other statutory officers.
(ii) The amount of capital to be issued, the different classes of shares to which it relates and the mode of payment.
(iii) Details about the underwriting of shares and amount payable as underwriting commission.
(iv) The actual or estimated amount of preliminary expenses.
(v) Amount of minimum subscription.
(vi) Contracts entered into with vendors and agreements with the third parties.
(vii) Particulars of all materials contracts which have been within two years of the date of the issue of prospectus.
Books and Registers: Section 209 of the Companies Act required that every company shall keep at its registered office proper books of accounts, with respect to:
(i) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place.
(ii) all sales and purchases of goods by the company.
(iii) the assets and liabilities of the company, and
(iv) material, labour and other cost related accounts for any class of companies engaged in production, processing or mining activities.
The following is the list of books and registers required to be maintained by the incorporated companies:
(i) Register of Members, (ii) Index of members, (iii) Register and Index of Debentureholders, (iv) Register of Mortgage and Charges, (v) Register of Investments, (vi) Register of contracts with companies and firms in which the directors are interested (vii) Register of Directors, Managing Director, Manager and Secretary, (viii) Register of Loans.
(3) Inspection of Contracts: The auditor should examine all the contracts which have been made by the company with vendors or other parties relating to the purchase of property and payment of commission and of preliminary expenses with the promoters. He should see that all these contracts have been properly recorded. If any statement to this effect has been made in the prospectus, the auditor should see that the statement is correct and not misleading.
(4) Study of Previous Year’s Balance Sheet and Auditor’s Report: The auditor should inspect the previous year’s Balance Sheet to verify the opening balances of the current year.
The last audit report is inspected by the auditor mainly for two purposes:
(i) To formulate a rough idea about the company and its working.
(ii) To see whether the recommendations made therein have been carried out or not.
(5) Study of the Internal Control System in Operation: The study and evaluation of the internal control system in operation is important because it serves as a basis for reliance thereon. It helps the auditor in determining the extent of the tests to which auditing procedures can be restricted.
Company Audit Bcom Notes
Transfer of Shares
Shares of a public limited company may be transferred in the manner prescribed in the Articles of the company and subject to the restrictions contained in the Articles. Though the audit of share transfer is not compulsory, the auditor is frequently employed by the Board of Directors to perform this work at a special fee or remuneration. The object of such an audit are:
(i) To check and prevent errors and fraud.
(ii) To check the improper issue of duplicate share certificate.
(iii) To ensure the correctness of all share certificates.
Company Audit Bcom Notes
Transfer of Shares and Auditor’s Duties
The auditor’s duties in connection with the share transfer audit may be discussed as follows:
(1) Examination of Articles: He should examine the Articles of Association to find out the procedure to be followed in case of transfer of shares.
(2) To scrutinise the Transfer Forms: He should scrutinise the transfer application forms and see that they are properly filled up and stamped. The instrument must be executed both by transfer or and transferee. It must be dated, signed and properly witnessed.
(3) To verify the transferor’s Signature: The auditor should verify and examine the signature of the transferor from their specimen signatures.
(4) Notice of Transfer: He should ascertain by making enquiries that the proper notices were sent to the transferors and the company did not receive any objections from them against such transfers. In case the shares were held by joint-holders, a proper notice must be sent to each of them and the objection, if any, raised any one of them against such transfers should be considered before registration.
(5) To check the Share Transfer Journal: Entries made in the Share Transfer Journal and particularly the names and addresses of the transferor and the transferee, the number and class of shares transferred and the number of the share transfer should be checked.
(6) To examine the amount of Transfer Fees: The auditor should vouch the transfer fee with the Cash Book or Book Statement. He should also compare this amount with the number of transfers lodged to ascertain whether the same are duly accounted for.
(7) Inadequacy of consideration: In case the consideration for any transfer was prima facie inadequate, the auditor should see that the company had made enquiries to find out reasons. However, such inquiry need not be made if the transfer form bears the seal of the Collector of Stamps.
(8) Cancellation of share certificate of the transferor: After examining the share transfer form, the auditor should see whether the transferor’s share certificate is duly cancelled so that it may not be presented in support of another transfer.
(9) Letter of indemnity, etc.: In case shares have been issued in the absence of share certificates, the auditor should verify the letter of indemnity and other documents on the basis of which the transfer has been registered.
(10) Examination of Board’s Resolution: The auditor should inspect the Directors Minute Book to verify whether all the transfers have been duly approved or authorised by the Board.
(11) Rejection of Transfers: Where the right to transfer the shares is regulated by the Articles, the auditor should ascertain that the provisions have been complied with if any transfer is rejected. He should also see that a notice of refused as required u/s 111 (1) and (2), is sent within 2 months to the transferor and the transferee.
(12) To check the entries in Register of members: On the basis of Share Transfer Journal, the auditor should ascertain or see that the entries as to the names of transferor and transferee and the distinctive numbers of shares transferred, have been made in the Register of members.
Company Audit Bcom Notes