I. Obtain or prepare a lead schedule of shareholders‘ equity.
(a) Trace last year’s balances with last year’s working papers.
(b) Check arithmetical accuracy of the schedule.
(c) Trace totals of the schedule to general ledger and balance sheet. (Existence, Obligations completeness, Valuation)

2. Test details of transactions.
(a) Check that the issued capital IS within the authorized capital of the company.
(b) In case of first issue of shares, ensure that:
Allotment of shares offered to the public for subscription, has been made only after the amount stated in the prospectus as the minimum amount which in the opinion of the directors must be raised by the issue of share capital has been subscribed, and the full amount thereof has been paid to and received in cash by the company. All money received from applicants for issue of shares are deposited and kept in a separate bank account in a scheduled bank until certificate of commencement has been obtained. Vouch share issue expenses such as prospectus, printing and postage, professional fee, to invoices and cash book.
(c) Where capital is increased by the issue of further shares, check that:
Such shares are offered to the members in proportion to the existing shares held by each member. Determine that the offer of new shares is accompanied a circular duly signed by the directors or an officer o: company authorized by them in this behalf if prescribed form containing material information about affairs of the company, latest statements of the account and setting forth necessity for further capital.

Trace cash received to bank book

(d) In case of issuance of shares for consideration other than cash to determine that:

• Articles of Association permit issuance of bonus share.
• Bonus shares are issued out of free reserves built out of profits or out of share premium.
• Ensure that surplus on revaluation is not used to issue bonus shares.
• Bonus issue is approved by board of directors. Examine contract with the vendors.
• Check validity of services billed.
• Study board of directors minutes.
• Check disclosure in prospectus.
• If shares are issued in exchange of fixed assets, the valuation of fixed assets and the amount of equity created by receipt of fixed assets should be verified.
• Ensure that shares issued for consideration other than cash have been separately disclosed.

(e) If shares have been issued outside Pakistan, ensure that appropriate approvals have been obtained (section 62-A) (f) Check that the company has taken a decision within 10 days of the closure of subscription list as to what applications have been accepted or are successful and the money has been refunded in the case of the UN accepted or unsuccessful applications within lO days of the date of such decision.
(g) Trace refunds made with bank statement.
(h) Inspect returns of the allotment field with the Registrar.
(i) Ensure that within 90 days after allotment of shares, and with 45 days after the application for the registration of the transfer of any shares, the company has ready for delivery the certificates for all shares.

j ) If shares are issued at a premium, determine that a sum equal to the aggregate amount or the value of premium on those shares is transferred to share premium account.
(k) Check that the share premium account is not utilized to pay off dividends
(1) Where the company has issued shares at a discount ensure that: the issue of shares at discount is authorized by resolution passed in general meeting of the company and is sanctioned by the SECP.
The resolution has specified the maximum rate of discount, not exceeding 10% or a higher rate fixed by the Commission, at which shares are issued. Not less than one year has elapsed since the date on which the company was entitled to commence the business The shares issued at discount have been issued within 60 days after the date on which the issue is sanctioned. Every balance sheet issued by the company subsequent to the issue of shares contains particulars of discount allowed on the issue of shares or so much of the discount as has not been written off at the date of the issue of the balance sheet date.

3. Agree issued capital with register of members.

4. Account for all share certificates.

5. Perform analytical procedures Return on capital Earnings per share

6. Inspect financial statements to check that shareholders’ equin accounts have been classified and described in accordance with International Accounting Standards and comply with statutor; requirements.


1. Select sales invoices and test for validity and accuracy:
(a) Check selling price from price list
(b) Compare units billed to customers with dispatch notes
(c) Check arithmetical accuracy
(d) Verify account classification
(Occurrence, classification, accuracy)

2. Trace sales invoices to sales day book(Accuracy)

3. For selected periods, re compute totals  of sales day book. (Accuracy)

4. Check posting from sales day book to general ledger sales account. (Accuracy)

5. Select dispatch notes issued during last week of accounting year and verify that sales invoices have been recorded in the same accounting period. (Cut-off, completeness)

6. Select sales invoices issued during last week of accounting year and first week of subsequent year and match with dispatch notes. {Cut-off). Determine that appropriate policy has been used for revenue recognition. (Cut-off, occurrence) Carry out analytical procedures:

(a) Obtain or prepare a quantitative reconciliation setting out opening inventory, purchases, closing inventory and sales.
(b) Review month-to-month tabulation of sales and inquire for unusual fluctuations.
(c) Compute anticipated sales by multiplying number of units sold withstandard selling prices. .  (Completeness and accuracy)
Inspect financial statements to verify that appropriate disclosures havebeen made including related party transactions and accounting policy  for revenue recognition.

Posted on November 3, 2015 in Verification (Substantive Procedures)

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