The document outlines an audit of shareholders' equity accounts with the objectives to determine: (1) the propriety of charges and credits to the accounts; (2) proper presentation on the balance sheet; and (3) compliance with legal requirements. It describes management assertions, audit objectives, and audit procedures related to existence, completeness, rights and obligations, valuation and allocation, and presentation and disclosure of shareholders' equity accounts. Finally, it provides details on internal control measures that should be established regarding the issuance of share certificates and accounting for share transactions.
The document outlines an audit of shareholders' equity accounts with the objectives to determine: (1) the propriety of charges and credits to the accounts; (2) proper presentation on the balance sheet; and (3) compliance with legal requirements. It describes management assertions, audit objectives, and audit procedures related to existence, completeness, rights and obligations, valuation and allocation, and presentation and disclosure of shareholders' equity accounts. Finally, it provides details on internal control measures that should be established regarding the issuance of share certificates and accounting for share transactions.
The document outlines an audit of shareholders' equity accounts with the objectives to determine: (1) the propriety of charges and credits to the accounts; (2) proper presentation on the balance sheet; and (3) compliance with legal requirements. It describes management assertions, audit objectives, and audit procedures related to existence, completeness, rights and obligations, valuation and allocation, and presentation and disclosure of shareholders' equity accounts. Finally, it provides details on internal control measures that should be established regarding the issuance of share certificates and accounting for share transactions.
The document outlines an audit of shareholders' equity accounts with the objectives to determine: (1) the propriety of charges and credits to the accounts; (2) proper presentation on the balance sheet; and (3) compliance with legal requirements. It describes management assertions, audit objectives, and audit procedures related to existence, completeness, rights and obligations, valuation and allocation, and presentation and disclosure of shareholders' equity accounts. Finally, it provides details on internal control measures that should be established regarding the issuance of share certificates and accounting for share transactions.
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AUDIT OF SHAREHOLDERS' EQUITY
In examining shareholders' equity accounts, the accounts aim to determine:
(a.) the propriety of the charges and credits to the accounts (b.) the propriety of presentation of the accounts on the balance sheet, and (c.) client's compliance with the relevant legal requirement. Management Assertions, Audit Objectives and Audit Procedures EXISTENCE OR OCCURRENCE A. To determine the validity of recorded shareholders' equity balances and whether the transactions actually occurred 1. Obtain schedule of shareholders' equity accounts and reconcile to the general ledger balances. 2. Review authorizations and terms of share issue 3. Confirm shares outstanding with registrar on share and transfer agent 4. Inspect share certificate books 5. Inspect certificates of shares held in treasury COMPLETENESS B. To determine whether recorded shareholders' equity accounts reflect all data that should be recorded 6. Perform analytical review procedures RIGHTS AND OBLIGATION C. To determine whether the entity has the authority to execute the shareholders' equity transactions, e.g., whether share capital was legally issued and shareholders have a legal claim on corporate assets at the balance sheet date. 7. Review articles of incorporation and by-laws 8. Make Inquiries of legal counsel VALUATION AND ALLOCATION D. To determine whether the shareholders' equity balances are shown in the proper statement amounts in accordance with PAS/PFRS 9. Vouch share capital entries, dividend entries and entries to retained earnings PRESENTATION AND DISCLOSURE E. To determine that the shareholders' equity accounts are properly presented in the balance sheet 10. Review minutes of board directors' and shareholders' meetings for share options and dividend restrictions 11. Evaluate financial statement presentation and disclosure for shareholders' equity accounts INTERNAL CONTROL MEASURES A. Internal control measures regarding the issuance of share certificates and proper accounting for transfers and registration of shares should be established. One of these measures is the appointment of a share or transfer agent or an independent registrar. B. Share certificates should be serially prenumbered by the printer and that the authority for signing and issuing the certificates be designated by the board of directors C. As individual certificates are issued, corresponding records of the certificates should be prepared containing the name and address of the shareholders and the number of shares issued to each D. Cancelled certificates should be mutilated and any necessary documentary stamps should be attached to the cancelled certificates. E. Entries for share issuances and transfers should be made by a person who does not have authority to sign and issue certificates.
*Excludes Retained earnings, treasury shares are not deducted
Retained Earnings Stock dividend => 20% - charged to RE at par or stated value Stock dividend < 20% - charged to RE at FV or par or stated value, whichever is higher. Property dividend - charged to RE at fair value on the date of declaration, at year-end and the date of settlement. The property to be distributed is measured at year end, at the lower between carrying amount or fair value less cost to distribute. On the date of settlement, the difference between the dividend payable and the carrying amount of the property is gain or loss on distribution of property dividend. Items affecting unappropriated retained earnings include: 1. Prior period errors 2. Net income or loss 3. Dividends declared or paid 4. Changes in accounting policy 5. Realization of revaluation surplus and appropriated retained earnings Share options Fair value of share options on the date of grant is recognized as total compensation The total compensation is allocated over the vesting period. If the share options vest immediately, the total compensation is recognized immediately. Intrinsic value of the share options is measured at every year-end until the date of settlement Share appreciation rights -The liability for the compensation is equal to the excess of the market price of the share over a predetermined price. Such liability is measured at every year-end until the date of settlement. Book value per preference and ordinary share Preference share equity equals preference shares outstanding plus liquidation premium and preference dividends in arrears. If cumulative, all dividends in arrears are paid. If noncumulative, only current year dividend is paid Ordinary share equity equals total shareholders' equity minus preference share equity Basic earnings per share (BEPS) Net income minus annual preference dividend divided by average ordinary shares outs. If cumulative, the annual preference dividend is deducted from net income regardless of declaration If noncumulative, the annual preference dividend is deducted only when declared Diluted earnings per shares (DEPS) Adjusted net income divided by ordinary shares outstanding plus potential ordinary shares Potential ordinary shares: Ordinary shares into which preference shares are convertible Ordinary shares into which bonds are convertible Ordinary shares covered by share options minus assumed treasury shares. The number of assumed treasury shares is equal to the proceeds from the assumed exercise of share options divided by the average market price of the share The option price must be lower than the average market price, otherwise, the share options are "anti-dilutive" and therefore ignored. The adjusted net income is equal to the net income per book plus interest expense on bonds, net of tax the annual preference dividend is no longer deducted from net income. The share options do not affect net income