Verification of capital share

Funds raised by issuing shares in return for cash or other

considerations The amount of share capital a company has

can change over time because each time a business sells new

shares to the public in exchange for cash the

amount of share capital will increase Share capital can be

composed of both common and preferred shares Also known as equity

financing

bull Authorized share capital is also referred to at times as registered capital It is the total of the share capital which a limited company is allowed (authorized) to issue It presents the upper boundary for the actually issued share capitalndash Shares authorized = Shares issued +

Shares unissued

bull ISSUED SHARE CAPITAL IS THE TOTAL OF THE SHARE CAPITAL ISSUED (ALLOCATED) TO SHAREHOLDERS THIS MAY BE LESS OR EQUAL TO THE AUTHORISED CAPITALndash SHARES OUTSTANDING ARE THOSE ISSUED

SHARES WHICH ARE NOT TREASURY SHARES THESE ARE ALL THE SHARES HELD BY THE INVESTORS IN THE COMPANY

ndash TREASURY SHARES ARE THOSE ISSUED SHARES WHICH ARE HELD BY THE ISSUING COMPANY ITSELF THE USUAL RESULT OF A BUYBACK

ndash SHARES ISSUED = SHARES OUTSTANDING + TREASURY SHARES

Equity consists of share capital and reserves This part of the balance sheet represents interest of the owners in net assets of the entity To verify the ownersrsquo equity the auditor verifies following aspects 1048707 Share capital is properly classified and described in the accounts 1048707 Movement in share capital is properly authorized and correctly presented 1048707 Reserves are properly classified and presented 1048707 Movements in reserves are properly authorized

Share capital is properly classified and described in the accounts in accordance with the Companies Ordinance 1984

1 Check disclosure using Company Accounts Checklist 2 Agree authorized capital with memorandum of association 3 Agree issued capital with form A or obtain certificate from registrar 4 Obtain list of shareholders

Movement in share capital is properly authorized and correctly shown and described in accordance with the Companies Ordinance 1984

1 Ensure shareholdersrsquo pre-emption rights have been respected 2 Check that directors were authorized to allot shares 3 Ensure proper authorization for share redemption 4 Check authority for share capital reductions 5 Agree all movements to statement in lieu of prospectus board minutes memorandum and articles of association 6 Consider special rules for allotments of public company shares 7 Test allotments with supporting evidence and trace entries in register 8 Test payments with supporting evidence and trace entries in register 9 Check additions to allotment lists and cash records and agree totals to recorded movements 10 Ensure correct treatment of share premiums 11 Vouch issue expenses

Reserves are properly classified and described in the accounts in accordance with the Companies

Ordinance 1984

1 Ensure disclosure complies with Companies Ordinance 1984

2 Ensure whether it is clear which reserves are distributable

Movements in reserves are properly authorized and currently shown and described in accordance

with the Companies Ordinance 1984

1 Check movements to minutes of Boardrsquos meeting 2 Check movements do not contravene statutory restrictions and articles of association 3 Ensure disclosure of movements and related tax treatment

bull A private limited company has two types of share capital acirceurocent Equity share capital acirceurocent Preference share capital EQUITY SHARE CAPITAL This type of share capital is that part of capital that is not a preferential In other words it is the basic kind of capital or an ordinary share capital

bull This part of capital has the following characteristics acirceurocent It carries a preferential right as to the payment of dividend over other type of capital It carries the preferential right as to payment of capital in case of winding up or repayment of capital over the over the other type of capital

SPECIAL POINTS IN AUDIT OF SHARE CAPITAL In case of share capital issued by the company following points merit

consideration of the auditor

bull Auditor should check the minutes of the meeting of the board of directors to check the authorization of the terms of the terms of the issue of share capital

Auditor should test check the share application forms and vouches their respective entries in the cashbook

It should be checked that the legal requirements as laid down by the companies act and other regulatory bodies are met

Auditor should check that various compilation requirement of various statements with the registrar of

companies are met with

While doing the audit of share capital auditor should vouch the following carefully o Memorandum of

association o Articles of association o Minutes of the directors meetings o Prospectus o Share application

form o Letters of allotment o Letters of refund o Share registers o Cashbook o Ledger accounts

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• SPECIAL POINTS IN AUDIT OF SHARE CAPITAL In case of share capit
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