The main objectives of the share transfer audit are as below:
1. Checking or preventing clerical errors.
2. Preventing the improper issue of duplicate share certificates or certified transfers.
3. Enabling the dealing of securities in stock exchanges as per the stock exchange rules and regulations.
Auditor’s Duty / Guidelines regarding Share transfer audit
While auditing the transfer of shares, the auditor should give consideration to the following aspects:
1. The auditor should examine the Articles of Association of the company to find out the procedure to be followed in case of share transfer and see whether they have been duly followed.
2. Every instrument of transfer shall be in the prescribed form and duly stamped and executed and signed by both the transferor and transferee is delivered to the company along with the share certificate. The auditor should see whether these have been duly fulfilled.
3. Auditor should verify the signature of the transferor by comparing it with the specimen signatures on application forms or from the earlier transfer deeds. This step is important because in case a forged transfer is registered, the company will be liable to the true owner.
4. If the shares are in the joint names of two or more persons, he should see whether they all signed in the transfer deed.
5. He should see whether the company has created any charge on shares transferred.
6. The auditor should inspect the Directors Minute Book to verify whether all the transfers have been duly authorized by the Board.
7. He should vouch the entries passed relating to share transfer in Journal proper.
8. He should examine the Share Transfer Journal, and should ascertain that the entries as to the names of transferor and transferee and the distinctive numbers of shares transferred, have been made in the Register of members.
9. He should see whether share transfer fees have been collected and the same have been transferred to the Profit & Loss Account.
10. He should examine the share transfer form, and see whether the transferor’s share certificate is duly cancelled so that it may not be presented in support of another transfer. If the transfer relates to only a part of the shares from out of those mentioned in the share certificate, the auditor should see that correct Balance Certificates have been issued to the transferors.
11. Auditor should make sure that the duplicate certificates, in particular, are issued with the consent of Board of Directors. The fact has to be entered in the duplicate certificate that it is so issued.
12. He should confirm that if the registration of the transfers has been refused, due notices are issued to both parties within 2 months which is essential as per section 111 of the Companies Act.
13. When the transfer of shares are registered on the death or insolvency of shareholders, the auditor should see if the provisions of the Articles have been duly followed and that for transmissions on death to any executor, the following documents have to be examined:
Succession Certificate granted by the Court.
Certificate issued by the Controller of Estate Duty to ensure the Estate Duty has been paid.
Request from the executor that the shares be entered in his name.
Order of the Court of Insolvency.
Minutes book, regarding the resolution of Board of Directors for approving the transmission.