Auditor’s duty in examining forfeiture of shares

Forfeiture of Shares | Auditor’s Duty

The auditor’s duty regarding forfeiture of shares is as follows.

1. Examination of Articles of the Company: The auditor should examine the Articles of the company to see whether it contains provisions authorizing the Board of Directors to forfeit the shares.

2. Examination of Outstanding calls: He should verify the amount of calls outstanding on the shares forfeited with the help of the Share Register and Schedule of calls-in-arrears.

3. Examining Minutes: He should examine the Minutes of the Board of Directors and ensure that the resolution authorizing the forfeiture has been duly passed and the procedure prescribed by the Articles has been followed.

4. Examining books of account: He should check the entries passed in the books of accounts to confirm that the premium, if any, received on issue of shares, has not been transferred to the Forfeited Shares Account.

5. He should ensure that the amount received by way of forfeiture is credited to the Forfeited Shares Account and shown as such in the Balance Sheet of the company until it is written off.

6. After the shares are forfeited, a shareholder ceases to be a member of the company in respect of shares forfeited. The auditor should ensure that the necessary entries have been made in the Register of Members as required.

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