Auditing Share Capital, Share Premium and Other Statutory Matters
Auditing Share Capital, Share Premium and Other Statutory Matters
Auditing Share Capital, Share Premium and Other Statutory Matters
To test whether:
• the equity section of the balance sheet is properly described and disclosed
in accordance with accounting standards and legal requirements
(presentation and disclosure).
• the client has complied with the required rules and regulations in the
preparation of financial statements.
Prepare a lead sheet showing equity line items by category (e.g ordinary
share capital, preference share capital, revaluation reserve, non-
distributable reserve, etc).
EQUITY
SHARE CAPITAL
Ensure that any special resolution increasing the authorised share capital
has been registered in the statutory register
Agree the issued share capital, by class of share, with the Register of
Members.
For disposal of shares, ensure that the relevant share certificates are
cancelled.
Valuation
Ensure that the value of the shares issued are correctly taken up in the
financial statements.
Trace the proceeds from the issue of new shares to supporting documents
(e.g. cash receipt documents, bank transfers).
Disclosure
Ensure proper disclosure in the financial statements, as follows:
a) No. of shares authorised.
b) No. of shares issued & fully paid.
c) Par value per share.
d) No. of shares outstanding at the beginning & the end of the period.
When a company issues its share at a premium, the auditor should inspect
the following:
• the prospectus
• the articles of association
•the minutes of the meetings of the board of directors.
All the above should authorize the issue of shares at a premium.
The receipt of premium should be vouched with the respective entries in the
books of accounts
It should be vouched that the share premium account is used for the
authorised purposes only.
Confirm that a proper distinction has been made between distributable and
non‑distributable reserves, and between capital and revenue reserves.
Verify the amount disbursed with the amount authorised by the Board of
Directors.
Ensure that dividends are paid out of profits available for dividends, and in
terms of the Articles of Association.
STATUTORY MATTERS
DIRECTORS, SECRETARIES AND OFFICERS
Agree details of directors, secretaries and other officers with the Register of
Directors and Officers and ensure that this is up‑to‑date.
• if any director has resigned during the year, check whether a letter of
resignation has been received.
• that directors’ emoluments and loans to directors have been dealt with
under the Payroll section and disclosed appropriately in the financial
statements.
Auditing equity and other statutory matters
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AUDITING EQUITY AND OTHER STATUTORY MATTERS
MINUTES AND RESOLUTIONS
Check that:
• minute books have been properly maintained
• a quorum was present at all meetings.
• all matters dealt with by resolution have been agreed to and signed by all
members or directors, whichever is applicable.
•all minutes of meetings and resolutions are approved and are affixed to the
minute book within one month of the date thereof
•no minutes are missing.
Check that minutes of directors’ meetings have been confirmed and signed
by the Chairman.
DIRECTORS’ REPORT
Review the directors' report and ensure that it:
•is not misleading.
•correctly states figures extracted from the financial information.
•complies with the disclosure requirements of the Companies Act.