Page 157 - CA Inter Audit PARAM

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premium on issue of shares should not be considered in computation of net profit. The same need to
be complied with for the purpose of managerial remuneration. The auditor should have qualified the
audit report and qualified the amount by which the profit stands inflated.

Author’s Note
This is a master answer you can write the relevant aspect of the master answer as per what the
question is asking.

QNA B/S (Share Capital, Reduction of Share Capital) Old Course – (N20M)
AIFS.16 Bhaskar CNO - AIFS-P1.060

BNP Ltd has reduced its Share Capital to a greater extent in the year for which you are conducting the audit.

State how will you proceed for verifying the reduction of Capital.
➢ For verifying reduction of capital, the auditor needs to undertake the following procedures:
Verify that the Articles of Association authorizes reduction of capital;1
Verify that the meeting of the shareholder held to pass the special resolution was properly
convened and that the proposal was circularized in advance among all the shareholders; 2
Examine the order of the Tribunal confirming the reduction and verify that a copy of the order and
the minutes have been registered and filed with the Registrar of Companies; 3
Verify that the Memorandum of Association of the company has been suitably amended. 4
Verify the adjustment made in the members’ accounts in the Register of Members and confirm
that either the paid-up amount shown on the old share certificates have been altered or new
certificates have been issued in lieu of the old, and the old ones have been cancelled; 5
Vouch the accounting entries recorded to reduce the capital and to write down the assets by
reference to the resolution of shareholders and other documentary evidence; also check whether
the requirements of Schedule III, Part I, have been complied with; 6
Inspect the Registrar’s Certificate as regards to reduction of capital; 9
Confirm that the words “and reduced”, if required by the order of the Tribunal, have been added
to the name of the company in the Balance Sheet. 8
Confirm whether the revaluation of assets has been properly disclosed in the Balance Sheet; 7

QNO BS (Sweat Equity Shares)- Old Course – (N19M/N22E)
AIFS.17 Bhaskar CNO - AIFS-P1.060
S& Co., Chartered Accountants, are appointed as the auditors of ABC Ltd. CA S, the engagement partner,
has come across the following while verifying equity share capital of the company:
(i) Some shares are issued as sweat equity shares to the employees.

What is the meaning of sweat equity shares?
OR
What audit points are to be borne in mind in case of issue of Sweat Equity Shares by a limited company?
➢ Issue of Sweat Equity Shares:
Sec 54
According to section 54 of the Companies Act, 2013, the employees may be compensated in the
form of ‘Sweat Equity Shares”.

Meaning
“Sweat Equity Shares” means equity shares issued by the company to employees or directors at a
discount or for consideration other than cash for providing know-how or making available right
in the nature of intellectual property rights or value additions, by whatever name called.

Verification by Auditor
The auditor needs to verify that the Sweat Equity Shares issued by the company are of a class of
shares already issued and following conditions have been complied with:
• the issue is authorized by a special resolution passed by the company;
• the resolution specifies the number of shares, the current market price, consideration, if
any, and the class or classes of directors or employees to whom such equity shares are to be
issued;

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