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Lesson#35
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VERIFICATION OF EQUITY
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VERIFICATION OF EQUITY
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 owners’ equity the auditor verifies following
aspects:
Share capital is
properly classified and described in the accounts
Movement in share
capital is properly authorized and correctly presented
Reserves are properly
classified and presented
Movements in reserves
are properly authorized
Verification Methods
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 shareholders’ 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 Board’s meeting.
2. Check movements do not contravene statutory restrictions and
articles of association.
3. Ensure disclosure of movements and related tax treatment. |
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