Audit Procedure | Audit of Shares Issued for Consideration Other than Cash

Audit of Shares issued for Consideration other than Cash

Shares may be issued for consideration other than cash under the following circumstances:

1. Issue of Shares to Vendors:

Sometimes, for the business taken over by it the company allots shares for the payment of purchase price to the vendors from whom the business was taken over. The audit procedure in case of such issue is as follows:

1. The auditor should examine the contract entered into by the company with the vendor in order to know the exact amount of the purchase consideration.

2. He should examine the Prospectus to find out as to what is the mode of payment of the purchase consideration and see whether shares have been allotted at a premium or discount. If so he should see whether the necessary legal formalities have been duly complied with.

3. The resolution passed by the directors by authorizing the allotment of shares to vendors, should be confirmed from the Minute Book.

4. The contract entered into with the vendor should be filed with the Registrar of Companies within 30 days from the date of allotment. He should see whether it is registered so.

5. If shares have been allotted to the nominees of the vendor, the auditor should see whether proper authority is given to them in vendor’s favor.

2. Issue of Shares to Underwriters, etc.

The company may allot shares to the underwriters, promoters or any other special service rendering agencies by way of payment of their remuneration or for any expenses, incurred by them. The audit procedure to be followed in such a case is as follows:

1. The auditor should examine the contract with the underwriters in order to have knowledge of the terms and conditions given in the contract.

2. He should examine the Prospectus to verify whether it gives right for the payment of commission in the form of shares.

3. He should examine the Director’s Minute Books to confirm whether issue of shares to underwriters has been authorized by the Directors.

4. He has to examine the Articles of Association and confirm the amount of the underwriting commission. He should also examine the procedure to be followed for its payment.

3. Issue of Shares to the Promoters:

The vouching of issue of shares to promoters is described below:

1. The auditor should examine the contract entered into with the promoters in order to know the number of shares to be allotted as well as the terms and conditions of the allotment.

2. Directors’ Minutes allotting the shares should be examined in order to see whether the allotment is authorized by the directors by passing the necessary resolution in their meeting.

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