company accounts and auditing practices

646 Pages·2013·4.22 MB·English

STUDY MATERIAL
EXECUTIVE PROGRAMME
COMPANY ACCOUNTS
AND
AUDITING PRACTICES
MODULE II
PAPER 5
ICSI House, 22, Institutional Area, Lodi Road, New Delhi 110 003
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© THE INSTITUTE OF COMPANY SECRETARIES OF INDIA
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EXECUTIVE PROGRAMME – COMPANY ACCOUNTS AND
AUDITING PRACTICES
Finance and accounting have assumed much importance in today’s competitive world of business wherein corporate
organisations have to show the true and fair view of their financial position. Thus, the application of accounting in
the business sector has become an indispensable factor. Company Secretary has to provide the complete and
accurate information about the financial operations of the company to management for decision making. This
emphasizes that the books of account are to be maintained accurately, up-to-date and as per the norms.
The subject ‘Company Accounts and Auditing Practices’ is very important for the students. In the course of his
work, a Company Secretary is expected to have the working knowledge of Company Accounts. He should also
have the working knowledge of auditing concepts such as verification, vouching, and internal control. This will
help a company secretary in carrying out his duties in a more professionalized manner. The entire paper has
been discussed in fourteen study lessons. In starting nine study lessons we have discussed about the Share
Capital, Debentures, Final Accounts of Companies, Corporate Restructuring, Consolidation of Accounts, Valuation
of Shares and Intangible Assets, Liquidation of Company, Corporate Financial Reporting and Accounting
Standards. At last five lessons, we have discussed about Auditing Concepts, types of Company Audit, Internal
Control and its Review, Audit engagement and documentation.
In this study every efforts has been made to give a comprehensive coverage of all the topics relevant to the
subject. In all study lessons the requisite theoretical framework for understanding the practical problems in the
subject has been explained and wherever necessary practical illustrations have been given to facilitate better
understanding. At the end of each study lesson a brief about the lesson have been given under the caption
‘Lesson Round Up’ as well a good blend of theoretical and practical questions have been given under the
caption ‘Self Test Questions’ for the practice of students to test their knowledge. In fact, this being a practical
paper, students need to have good theoretical knowledge and practice to attain the requisite proficiency and
confidence.
This study material has been published to aid the students in preparing for the Company Accounts and Auditing
Practices paper of the CS Executive Programme. It is part of the education kit and takes the students step by
step through each phase of preparation stressing key concepts, pointers and procedures. Company Secretaryship
being a professional course, the examination standards are set very high, with emphasis on knowledge of
concepts, applications, procedures and case laws, for which sole reliance on the contents of this study material
may not be enough.
Therefore, in order to supplement the information/contents given in the study material, students are advised to
refer to the Suggested Readings mentioned in the study material, Student Company Secretary, Business Dailies
and Journals.
In the event of any doubt, students may write to the Directorate of Academics and Professional Development in
the Institute for clarification at [email protected].
Although due care has been taken in publishing this study material yet the possibility of errors, omissions and/
or discrepancies cannot be ruled out. This publication is released with an understanding that the Institute shall
not be responsible for any errors, omissions and/or discrepancies or any action taken in that behalf.
Should there be any discrepancy, error or omission noted in the study material, the Institute shall be obliged if
the same are brought to its notice for issue of corrigendum in the ‘Student Company Secretary’.
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SYLLABUS
MODULE 3 – PAPER 5: COMPANY ACCOUNTS AND AUDITING PRACTICES
Level of Knowledge: Advance Knowledge
Objective: To acquire knowledge and understanding of the concepts, principles and practices of company
accounts and auditing in accordance with statutory requirements.
PARTA: COMPANYACCOUNTS (70 MARKS)
1. Share Capital
– Issue of Shares: at Par, at Premium, at Discount, on Conversion and for consideration other than
Cash; Forfeiture and Re-issue of Shares, Buyback of Shares, Redemption and Conversion of Preference
Shares, Bonus Shares, Rights Issue, ESOPs, ESPS, Sweat Equity Shares
– Alteration of Share Capital
– Underwriting of Shares
2. Debentures
– Issue of Debentures: at Par, at Premium, at Discount and for consideration other than Cash
– Accounting Treatment and Procedures
– Redemption of Debentures
– Conversion of Debentures into Shares
3. Final Accounts of Companies
– Conceptual Framework, Preparation and Presentation of Financial Statements, Schedule VI,
Interpretation and Scrutiny of Balance sheet
– Treatment of Profit Prior to Incorporation, Preoperative and Preliminary Expenses
– Preparation of Final Accounts under Company Law
4. Corporate Restructuring
– Concept and Accounting Treatment as per AS
– Methods of Amalgamations Accounting
– The Pooling of Interests Method
– The Purchase Method
– Consideration
– Treatment of Reserves, Goodwill and Pre-Acquisition & Post-Acquisition Profit
– Accounting in the books of Transferor and Transferee
– Merger and De-merger
– Acquisition of Business
– Internal Reconstruction
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5. Consolidation of Accounts
– Holding and Subsidiary Companies - Accounting Treatment, Disclosures and Consolidation of Accounts
6. Valuation of Shares and Intangible Assets
– Valuation of Shares, Methods of Valuation, Price Earning Multiple Valuation, Discounted Cash Flow
(DCF) Method
– Valuation of Intangibles: Brand, Goodwill and IPRs
7. Liquidation of Company
– Preparation of Statement of Affairs including Deficiency /Surplus Account
8. Corporate Financial Reporting
– Various Requirements of Corporate Reporting
– Value Added Statements: Economic Value Added (EVA), Market Value Added, Shareholders’ Value
Added
9. Accounting Standards
– Relevance and Significance
– National and International Accounting Standards and Authorities
– Adoption, Convergence and Interpretation of International Financial Reporting Standards (IFRS) and
Accounting Standards in India
PART B:AUDITING PRACTICES (30 MARKS)
10. Auditing Concepts
– Nature, Scope and Significance of Auditing
– Basic Principles Governing an Audit
– Overview of Auditing and Assurance Standards- National and International
11. Types of Company Audit
– Statutory Audit
– Internal Audit
– Branch Audit
– Joint Audit
– Special Audit
– CAG Audit
12. Internal Audit
– Forms of Audit - Propriety Audit, Compliance Audit and Efficiency Audit
– Nature, Scope and Techniques of Internal Audit; Functions and Responsibilities of Internal Auditors;
Organisational Status of Internal Auditing Function, Internal Audit vis-à-vis Statutory Audit
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13. Internal Control
– Nature, Scope And Elements
– Internal Control distinguished from Internal Check and Internal Audit
– Techniques of Internal Control System, Flow Charts, Internal Control Questionnaires
– Steps for Internal Control and Audit Evaluation
– Audit Testing – Need For Sampling and Various Approaches to Statistical Sampling
– Inter-Firm and Intra-Firm Comparisons – Ratio And Trend Analysis; Audit In Depth
14. Review of Internal Control
– Review of Purchasing Operations
– Review of Efficacy of Management Information System
– Review of Selling and Distribution Policies and Programmes
– Review of Manufacturing Operations
– Review of Personnel Policies
– Appraisal of Management Decisions
15. Audit Engagement and Documentation
– Audit Procedures: Audit Plan , Audit Programme, Vouching and Verification
– Documentation: Audit Working Papers and Files
– Sampling, Test Checking, Techniques of Test Checks
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LIST OF RECOMMENDED BOOKS
PAPER 5: COMPANY ACCOUNTS AND AUDITING PRACTICES
READINGS
1. M.C. Shukla, T.S. Grewal : Advanced Accounts Vol. II; S. Chand & Company Ltd., 7361, Ram Nagar,
& S.C. Gupta New Delhi-110 055.
2. R.L. Gupta & : Company Accounts; Sultan Chand & Sons,23, Daryaganj, New Delhi-
M. Radhaswamy 110 002.
3. S.P. Jain & K. L. Narang : Advanced Accountancy-Vol.II; Kalyani Publishers, 23, Daryaganj,
New Delhi - 110 002.
4. S. N. Maheshwari & : Advance Accounting Vol. II; Vikas Publishing House (Pvt.) Ltd., A-22,
S.K. Maheshwari Sector 4, Noida – 201 301.
5. Ashok Sehgal & : Advanced Accounting Vol. 2; Taxmann’s,59/32, New Rohtak Road,
Deepak Sehgal New Delhi-110 005.
6. J. R. Monga : Fundamentals of Corporate Accounting; Mayoor Paperbacks, A-95,
Sector 5, Noida-201 301.
7. Goel, Maheshwari Gupta : Corporate Accounting, International Publishers, Daryaganj New Delhi
8. Kamal Gupta, Ashok Arora : Fundamentals of Auditing: Tata McGraw Hill Education Limited
9. Kamal Gupta : Contemporary Auditing: Tata McGraw Hill Education Limited
10. International Financial Taxmann Publication (P) Limited, 59/32, New Rohtak Road, New Delhi-
Reporting Standards 110 005
(IFRS)
11. Dolphy D’Souza : Indian Accounting Standards & GAAPP; Snow White Publications Pvt.
Ltd., Her Mahal, 532, Kalbadevi Road, Mumbai – 400 002.
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ARRANGEMENT OF STUDY LESSONS
PART A
1. Share Capital
2. Debentures
3. Final Accounts of Company
4. Corporate restructuring
5. Consolidation of Accounts
6. Valuation of Shares and Intangible Assets
7. Liquidation of Company
8. Corporate Financial Reporting
9. Accounting Standards
PART B
10. Auditing Concepts
11. Types of Company Audit
12. Internal audit
13. Internal Control
14. Review of Internal control
15. Audit Engagement and Documentation
GLOSSARY
TEST PAPERS
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CONTENTS
PARTA: COMPANYACCOUNTS (70 MARKS)
LESSON 1
SHARE CAPITAL
Shares and Share Capital 2
Preference Shares 2
Equity Shares 2
Share Capital in Company’s Balance Sheet 3
Issue of Shares for Cash 3
Issue of Shares at Par 3
Application Supplimented by Blocked Amount (ASBA) 8
Under & Over -Subscription of Shares 8
Calls-in-Advance 10
Issue of Shares at Premium 17
Issue of Shares at Discount 20
Issue of Shares for Consideration other than Cash 23
Forfeiture of Shares 27
Re-issue of Forfeited Shares 33
Forfeiture and Re-issue of Shares Allotted on Pro-rata Basis in Case of Over-subscription 37
Buy-Back of Shares 44
Difference Between Securities Premium and Share Premium 46
Redemption of Preference Shares 54
Rights Issue 76
Bonus Shares 78
ESOPs, ESPS, Sweat Equity Shares 81
Alteration of Share Capital 84
Underwriting of Shares 84
Underwriting Commission 85
Marked and Unmarked Applications 86
Determining the Liability of Underwriters 86
Accounting Treatment relating to Underwriting of Shares or Debentures 93
LESSON ROUND UP 95
SELF TEST QUESTIONS 96
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Page
LESSON 2
DEBENTURES
Introduction 102
Issue of Debentures 102
Debentures Issued for Cash 102
Issue of Debentures at Par 102
Issue of Debentures at Premium 105
Issue of Debentures at Discount 107
Debentures Issued for Consideration other than Cash 109
Debentures Issued as Collateral Security 110
Terms of Issue of Debentures 112
Interest on Debentures 114
Writing Off the Discount on Issue Of Debentures 117
Loss on Issue of Debentures 120
Redemption of Debentures 124
Mobilisation of Funds for Redemption of Debentures 124
Methods of Redemption of Debentures 125
Protection of the Interest of the Debentureholders 126
Redemption of Debentures Out of Profit 126
Redemption Out of the Proceeds of Fresh Issue of Shares or Debentures 144
Redemption Out of Sale Proceeds of Assets of the Company 144
Purchase of Debentures in the Open Market 148
Interest on Own Debentures 151
Purchase of Debentures before the Specified Date of Payment of Interest
[Cum-interest and Ex-interest Quotations] 153
Conversion of Debentures into Shares 176
LESSON ROUND UP 182
SELF TEST QUESTIONS 183
LESSON 3
FINALACCOUNTS OF COMPANIES
Profit or Loss Prior to Incorporation 188
Methods to Ascertain Profit or Loss Prior to Incorporation 188
Basis of Apportionment of Expenses 188
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