Statutory audit of a public company implies the audit of the transactions of the company which are the subject-matter of the report under section 165(4). The auditor, however, has to certify as correct only as much of the Statutory Report as relates to the shares allotted the company, cash received in respect of such shares and other receipts and payments of the company. The auditor, therefore, must:
- examine the internal check with regard to the control over amounts collected; and
- study the Memorandum, Articles of Association and the Prospectus for ascertaining the amount of authorised capital, its composition, terms of issue, particulars of any underwriting contract entered into, the rate of underwriting commission, shares agreed to be issued for consideration other than cash and particulars of important agreements entered into the company. In addition, he should carry out an audit of the issue of shares.
The undermentioned steps are also necessary :
(1) Vouch the payment of the underwriting commission.
(2) Vouch the brokerage paid on issue of shares examining the applications and confirming that they bear the stamps of the brokers or agents to whom brokerage has been paid. Refer to minutes of the Directors authorising the payment of such brokerage. Also see that the provisions of section 76 have not been contravened.
(3) Vouch the payment of Preliminary Expenses and see that the amount paid does not exceed the amount fixed the Articles or the Prospectus.
(4) Vouch all other receipts and payments of the company up to date within seven days of the report; pay special attention to receipts and payments on capital account, e.g., sale proceeds of assets acquired from the vendor of the business, payments made to him, purchase of fixed assets, etc.
(5) Check in detail amounts deposited in the bank and withdrawals thereof with the entries in the Bank Pass Book. Obtain a certificate from the Bank as to the bank balance as at the date upto which the Statutory Report has been prepared.
(6) Verify that the amounts receivable and payable which have been adjusted in the books of account but have been excluded from the balance of receipts and payments.
The statutory audit culminates in the preparation of the Statutory Report. Its main content, with which the audit is concerned, is the Abstract of Receipts and payments made upto a date within 7 days of the report, exhibiting under distinctive heads, receipts of the company from shares, debentures and other sources, payment made and balance left in hand. The Statutory Report is required to be certified the auditors of the company, in so far as the report relates to shares allotted the company, cash received in respect of which the checking of accounts, as per details given above, has been carried out.