CA Inter Audit Chapter 5 Notes: Audit of Items of FS by Shubham Keswani Sir

The notes deal with the audit of balance sheet items, beginning with share capital. The auditor's steps are listed one by one: tallying period-end authorised, issued and paid-up capital with the previous year's audited financial statements, getting confirmation from the company secretary when there is no change, checking that paid-up capital stays within authorised capital as per the MOA, and examining board and shareholder resolutions for any increase or decrease. For a fresh issue, the notes cover return of allotment, minimum subscription, minimum application money, a separate bank account and underwriting commission under Section 40. They also mention forms such as SH-7, PAS-3 and FC-GPR for FDI, and checking fees and stamp duty paid to the MCA. Separate headings explain the securities premium account and its five permitted uses, issue of shares at a discount under Section 53 with its exception and penalty, sweat equity shares under Section 54, and reduction of capital under Section 66.

A few points from the opening pages come up often in questions. Securities premium can be used only for fully paid bonus shares, buyback under Section 68, writing off preliminary expenses, premium payable on redemption of preference shares or debentures, and writing off expenses, commission or discount on an issue of shares or debentures. The auditor checks that premium received is moved to a securities premium account and used only for these purposes. Under Section 53, shares cannot be issued at a discount except sweat equity shares, and such an issue is void. The exception is shares issued to creditors when debt is converted under a statutory resolution plan or an RBI debt restructuring scheme. The penalty is the amount raised or ₹5 lakh, whichever is less, plus a refund with interest at 12% p.a. For sweat equity, remember the special resolution, what the resolution must state, and the SEBI or prescribed rules depending on listing status.

Use the notes as a summary layer over the ICAI study material rather than a replacement for it. First read a topic in the study material, then use these pages to fix the audit procedures in point form. The red key words help when you write answers, because examiners look for terms like minimum subscription, return of allotment and statutory resolution plan. Give extra time to topics tagged with an exam attempt, such as shares at a discount [May'24] and sweat equity [Nov'22], and to items marked from MTPs. After each topic, try the matching RTP, MTP or past paper question without looking, then compare your answer with the procedure list in the notes. In the final days before the exam, revise only the headings, the section numbers (40, 53, 54, 66, 68) and the penalty figures, so that you can recall the full procedure from a short cue.

These notes are written for CA Inter students preparing for the Auditing and Ethics paper, especially the chapter on audit of items of financial statements. They fit students who already know the basics of the Companies Act from law and accounts and now need the auditor's side: what to verify, which documents to examine and which compliances to check. Because the content is point-wise and tagged with RTP, MTP and past exam references, it works well for a second or third revision when time is short. Students who follow CA Shubham Keswani Sir's audit classes will find the layout familiar, and others can still use it as a standalone revision aid. Check your attempt's applicable ICAI study material and any announcements for changes in law, since these notes are a summary and the study material remains the main reference.

• Audit of share capital
• Authorised issued and paid-up capital
• Fresh issue compliances under Section 40
• Securities premium account and its application
• Issue of shares at discount – Section 53
• Penalty for issue at discount
• Sweat equity shares – Section 54
• Reduction of share capital – Section 66
• Forms SH-7 PAS-3 and FC-GPR
• Buyback under Section 68

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