Verification of dividend

         VERIFICATION OF DIVIDEND

·         Auditor should examine the Memorandum and Articles of Association of the Company to determine the  rights of different classes of shareholders to whom dividend has been paid.

·         He should ensure that dividends can only be distributed out of profits. The capital of the shareholders can not be used for he purpose of payment of dividends.

·         He should ascertain whether profits earmarked for the purpose of dividend have been computed in accordance with the requirements of section 205 of the Companies Act.

·         He should ascertain whether the rate of dividend has been recommended properly in a meeting of the Board of Directors.

·         He should inspect the shareholders minute book to verify the amount of dividend declared and confirm that the amount does not exceed the amount recommended by the directors.

·         He should see that profits appropriated for payment of divided are after transfer to reserves an amount in accordance with the rules framed by the Central Government.

·         He should examine the list of shareholders as drawn from the Registrar of Shareholders and see that the total amount of dividend payable companies with the Dividend Account.

·         If a separate bank account is opened for payment of dividends, he should check the transfer of total amount of dividends payable from the Dividends Account.

·         He should verify the amount of unclaimed dividend with the Dividend Account, bank Pass Book and dividend warrants as have been returned undelivered.

·         He should see that where the dividend is declared, distributed or paid by a domestic company (not a foreign company), the tax on distributed profit at the rate of 10% is paid with in 14 days from the date of declaration, distribution or payment of dividend whichever is earliest. [Section 115(0) of the Income Tax Act, 1961]

·         The auditor should see that the dividend which remains unpaid or unclaimed within 30 days of the declaration of the dividend, such unpaid or unclaimed dividend has been transferred to a special bank account entitled “Unpaid Dividend Account of _________ Company Limited / Company Pvt. Limited”. The transfer must be made within 7 days from the date of expiry of 30 days. Such an account is to be opened only in a Scheduled Bank.

·         If any dividend remains unpaid or unclaimed for a period of seven years from the date of transfer, the amount standing to the credit of the special bank account has to be transferred by the company to the fund called Investor Education and Protection Fund.