(1) The auditor should examine the Articles of Association to ascertain that the issue of Bonus shares is duly authorized. If Table A has been adopted, the provisions in Regulations 96 and 97 should be carefully examined.
It is to be noted that Bonus Shares can only be issued out of the premium received on issue of shares (section 78), heavy accumulated reserves, undistributed profits, capital redemption fund (section 80), etc., if such an issue is permitted by Articles.
(2) He should inspect the Minute Book of Shareholders for the resolution declaring the bonus and also the Director’s Minute Book to examine the resolution under which profits have been appropriated for being applied in payment of shares to be issued and allotted as Bonus Shares in due proportions.
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(3) He should ensure that sanction of Controller of Capital Issues has been obtained.
(4) It should be further seen that the necessary copy of the resolution has been filed with the Registrar and he should examine the receipt from filing the fee paid.
(5) He should check the Allotment Book, Share Register and Reserve Account to ensure that proper entries have been made wherever necessary and the allotments are regular.
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(6) If to increase the Share Capital, alterations are effected in the Memorandum and Articles of Association, it should be seen that the requirements of law in this respect have been duly complied with.
(7) He should vouch the entries passed in connection with the issue of Bonus Shares.
(8) Lastly, he should examine the Balance Sheet of the company to note the change made by the issue of shares.