Dividend and Interest & Accounts and Audit
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Transcript of Dividend and Interest & Accounts and Audit
Dividend and Interest&
Accounts and Audit
ByGroup S2
Dividends
• The portion of profits set aside by a company and declared as liable to be distributed among the shareholders
Right to Dividend
• Right of company to distribute profits to shareholders
• Shareholders cannot insist the company to pay• Once declared, it has to be paid
Rules for Payment of Dividend• Dividends declared at the General Meeting
a.) Shareholders at meeting may reduce but cannot increase the rate of dividend
b.) Boards recommendation for distribution• Sources of payment of dividend
a.) Current profits b.) Accumulated profits of previous years
• Dividends –not to be paid out of share capital Directors to be made liable in such a case
Rules for Payment of Dividend• Profits for dividends – after depreciation and after
providing loses for previous FYs• Profits to R&S - a certain percentage of profits
transferred to R&S not exceeding 10%• Dividends can be paid according to a.) Paid up capital on each share b.) or, on book value of shares, generally the case
c.) in cash (by cheques), or direct credit into the bank through the mandate of shareholder
• Interim Dividends between two General Meeting
Rules for Payment of Dividend• Period of Payment must be 30 days, except: a.) there is dispute about rights to receive dividend b.) operation of law prevails c.) adjusted for any outstanding due by shareholder• Every Director knowingly a party to non payment in 30 days is
liable• Once declared cannot be revoked• Unpaid Dividends transferred to an unpaid dividend account
in bank, else pay a 12% interest p.a.• Claimed within 3 years from the date of transfer• Transfer of unpaid dividend to Investor Education and
Protection Fund if unclaimed for more than 7 years
Interim Dividend
• Interim dividends declared between two annual General Meetings
• Company should have earned substantial profits and good prospects
• Legally enforceable debt from the date of declaration
Payment of Dividend of Capital Profits
• Profits from sale of fixed assets not regular business• Not to be done, except: a.) surplus has been realized
b.) surplus remains after valuation of whole of assets and liabilitiesc.) Articles permit such distribution
Payment of Interest of Capital• Interest cannot be paid out of capital raised, except
when money is raised through shares for expenses like construction the company can pay interest to such capital and charge it to it’s the capital:a) Articles of company authorize such a paymentb) Rate shall not exceed 4 p.a. or central govt. may
specifyc) A competent person may inquire into the matter
from the government’s side
Accounts
• Book of Accounts to be kept by the company with respect to the following
1. All receipt and disbursements of money and the matters in respect of which these have taken place
2. All sales and purchases of goods by the company3. The asset and liability of the company4. In case of companies engaged in production, processing,
manufacturing or mining activities, such particular related to utilization of material, labor or other costs as may be prescribed by the central government
Legal Provision About Books Of Account
1. Location of the books2. Preservation of books3. Responsibility for keeping the books4. System of maintenance of account5. Penalty for non-compliance6. Inspection of books of account7. Power of inspector
Annual Accounts And Balance Sheet
1. Report to annual general meeting2. Period of accounts3. Profit and loss account to give a true and fair view4. Authentication of balance sheet and profit and loss account5. Annexure6. Director’s Report7. Compliance with accounting standards8. Circulation of accounts9. Filing of account with registrar
Statutory Books1. Register of investment not held in the name of company2. Register of fixed deposit3. Register of charges4. Register of members5. Index of members where the number of members exceed 506. Register and index of debenture holders where the number
of debentures exceed 507. Register of foreign members and debenture holders8. Register of contract in which Director are interested9. Register of Director, Managers and Secretary10. Register of Directors, shareholdings11. Register of investment in shares and debentures of
companies in the same group
Statistical Books• Share application and allotment book• Share calls book• Register of share warrants• Register of share certificates• Register of lost share certificates• Register of transfer certificates• Agenda book• Register of documents sealed• Registers of power of attorney• Register of probates• Register of directors• Shareholder’s dividend book
Annual Return1. The Annual Return must contain2. Details of registration3. Address of registered office of the company4. Capital structure of the company5. Particulars of directors/manager/secretary6. Details of share transfer7. Percentage holding of venture capital funds, mutual funds,
banks etc.8. Transfer of unpaid dividend to investor education and
protection fund in form no.1 under companies
Audit of Company Accounts
Under Companies Act 1956-
• Compulsory appointment of auditor for examination of company affairs
• Reporting to shareholders
Appointment of Auditors[Sections 224,224A and 225]
First Auditors[Section 224(5)]:• Appointment by board of directors within a
month of incorporation.• Office held till first annual general meeting
conclusion.• May be removed before the expiry of their term.• Appointment made by General Meeting by
passing ordinary resolution provided notice of proposed nomination given fourteen days prior.
• If Board fails to appoint, company may appoint at the General Meeting.
• Company shall inform the auditor within 7 days of appointment.
• Auditor shall inform the Registrar within 30 days whether he accepts or not.
Appointment of Auditors[Sections 224,224A and 225]
SUBSEQUENT AUDITORS:• Appointed by shareholders every year at Annual
General Meeting by passing ordinary resolution.• Shall hold office till conclusion of next annual
General Meeting.• Before appointment, company must obtain
certificate stating that the appointment will be within limits specified in Sec 224(1B), from the auditor.
Appointment of Auditors[Sections 224,224A and 225]
Reappointment Of Retiring Auditors [Section 224(2)]:Retiring auditors automatically reappointment except
in cases as-• If not qualified for reappointment• If he is unwilling• If resolution is passed appointing somebody else
and proving expressly against his appointment.• By reasons of incapacity, death or disqualification of
the person.
Appointment of Auditors[Sections 224,224A and 225]
Causal Vacancy[Section 224(6)]:• Arising due to death, insolvency, insanity or
disqualification of auditor- can be filled by Board Of Directors.
• Caused by resignation- shall be filled by company in General Meeting.
Appointment of Auditors[Sections 224,224A and 225]
Appointment By Special Resolution[Section 224(A)]: When 25% or more wealth is held by singly or in
combination with the following-• Public financial institution or Govt. company or
Central Govt. or State Govt.• Any financial or other institution established by any
state act. State Govt hold 51% or more of the subscribed share capital.
• Nationalized bank or general insurance company.
Appointment of Auditors[Sections 224,224A and 225]
Appointment By Central Government[Section 224(3), (4)]:
When no auditors appointed at annual General Meeting- the Central Govt will make the appointment.
Company failed to appoint by passing special resolution as per Section 224-A(1).
Appointment of Auditors[Sections 224,224A and 225]
Appointment of auditors of Govt companies: Made by the Central Government on advice of
CAG [Section 619(B).
Appointment of Auditors[Sections 224,224A and 225]
Qualifications of Auditors
• Charted Accountant, within the meaning of Charted Accountants Act 1949.
• Only practicing CA can be appointed auditor of a company.
Disqualifications of Auditors
Following cannot be appointed as auditors:• A body corporate• An officer or employee of a company• A partner or an employee of the company• A person carrying securities which carry voting
rights• A person indebted to the company for an
amount exceeding 1000
Remuneration of Auditors
• If appointed by Board Of Directors- fixed by the Board.
• If appointed by the Central Government- fixed by Central Government
• All other cases- fixed by company, in General Meeting
Removal of Auditors
• First auditors appointed by the Board- may be removed by company in General Meeting.
• Subsequent auditors, appointed by General Meeting- may be removed before expiry of term by the company in General Meeting after prior approval of Central Government.
Rights of Auditors
• Right of access to book of accounts• Right to obtain information and explanations• Right to introspect branch accounts• Right to receive notice of and to attend
General Meeting
Rights of Auditors
• Right to recover remuneration for auditing the accounts of a company
• Right to make representation and be heard when asked to vacate office
• Right to seek expert opinion• Right to indemnity
Duties of an Auditor
Statutory Duties• To make a report to the members• To enquire into certain matters• To certify the statutory report• To certify the profits and loss, assets, liabilities
and rate of dividends
Duties of an Auditor
Statutory Duties• To assist the Inspector in investigation• To make report to the Central Government• To make a report in case of members’
voluntary winding up• Duty in case of prospectus
Duties of an Auditor
General Duties• To acquaint himself with his duties• To exercise reasonable care and skill• To check the accuracy of accounts• To report to the shareholders
Liabilities of Auditors
Civil Liability• Liability for negligence• Liability for misfeasanceCriminal Liability• Failure to make a report to the shareholders• Manipulates books, papers or securities with an
intention to defraud or becomes a party thereto• Makes any false statement in any report or
document prepared by him
Special Audit
• The affairs of any company are not being managed in accordance with sound business principles or prudent commercial practices
• The company is being managed in a manner which is likely to cause serious injury or damage to the interest of the trade, industry or business
• The financial position of the company is such as to endanger its solvency
Cost Audit
• Applicable to companies engaged in production, processing, manufacturing or mining
• Particulars regarding utilization of material, labour, and other items of cost
• Cost auditor appointed by the Board of Directors with the approval of the govt.
• Report sent to govt. and a copy sent to the company