How will you vouch and/or verify the following?
a) Personal expenses of directors met the company
b) Preliminary expenses
d) Advances given to suppliers
e) Forfeiture of Shares
Check the articles of association, service contract, minutes of general meeting, etc., to check the authorization for such payment.
Enquire to ensure that personal expenses are not camouflaged in any other revenue items as contemplated under the Companies Act.
Ascertain compliance with disclosure according to requirements of the Companies Act.
Check documentary evidences to examine the payments reimbursed.
It is the expenditure incurred incidental to the creation, formation and floating of a company. It consists of stamp duties, registration fees, legal costs, consultants‟ fees, expenses of printing of memorandum and articles, etc. The following should be checked:
Check Board‟s minutes book containing the resolution approving the expenses claimed promoters as having been spent in formation of the company.
Examine supporting papers and vouchers, contracts, agreements, etc. to support the promoters‟ claims. Also check bills and receipts issued the printer of the memorandum and articles of association, share certificates, etc.
Check receipt for the registration fee paid for registration of the company.
Verify rates of stamp required to be affixed on the memorandum and articles of association.
Ascertain Boards‟ minutes book for the decision to write off the preliminary expenses over a period. The quantum thereof which has not yet been written off for these expenses should be carried forward in the balance sheet under the head miscellaneous expenditure (to the extent not written off or adjusted) over a period of years.
Check that no expenses other than those what constitutes preliminary expenses are booked under this head, e.g. underwriting commission and brokerage paid.
Obtain the schedule containing particulars of the patents owned the client as on the balance sheet date. The particulars should contain the dates of registration of the patents with the related authorities and the dates in respect of the last renewal.
See that the total of the values of the patent rights shown in each list agree with the values shown in the respective ledger accounts.
Examine the cost of patent rights. In case of outright purchase of patent rights, the purchase consideration, legal fees and registration charges should be included in cost. When they are developed within the organization, all costs incurred on their development including legal and registration expenses for registration of the patent should constitute the cost. Capitalized value should be amortized over the life of the patent.
See that the renewal fees in respect of the patent rights have been paid and the same has been treated as a revenue charge.
Examine the valuation of the patent rights. It should be seen that the patent rights have been valued at cost less depreciation attributable to the expired legal life of the patent rights. However, if it is found that the patent rights have already lost substantial part of their commercial value, it would be proper to value it at their residual commercial value, when it is less than the book value for their unexpired legal life. In case the product covered the patent rights does not have any sale value then patents should be shown at nil valuation notwithstanding any residual life. Reference to compliance with the provisions of set standards “Intangible Assets” may also be made.
Obtain schedule of debit balances in creditors‟ account and pay particular attention to the age of the balances. Also, scrutinize the bought ledger.
Enquiry should be made for long unadjusted outstanding and check as to whether any of them would require provisioning.
Examine that the advances have not been shown as deposits in balance sheet.
Confirmation of balances should be obtained and reconciliation be done in case of any discrepancies.
The auditor verifies the forfeiture of shares in following steps:
ascertain that the Articles authorize the Board of Directors to forfeit shares and that the power has been exercised the Board in the best interest of the company;
verify the amount of call or instalment of calls which was outstanding in respect of each of the share forfeited.,
ascertain that the procedure in the Articles has been followed viz., the notice given to the defaulting shareholders warning them that in the event of non-payment, a specified date, of the amount of call already made on the shares standing in their names, together with interest, if any, the shares shall be forfeited, see that the proper resolutions of Directors, first as regards issuance of notice and afterwards in respect of forfeiture of shares; and
verify the entries recorded in the books of account consequent upon forfeiture of shares to confirm that the premium, if any, received on the issue of shares has not been transferred to the Forfeited Shares Account.
Ensure the compliance of Sec. 53(3) of Companies Act 2063