Guidelines for Auditors in Verification of Debentures
The Companies (Amendment) Act 2000, has introduced various provisions to safeguard the interest of the debenture holders. The amendment requires the company to create redemption reserve and security. It also compels the company to create a debenture Trust deed and appoint the debenture trustees. The Act also spells out the duties of the debenture trustees. Their requirements are in addition to the restrictions imposed by SEBI on issue of debentures.
The debenture trustees shall apply due care and diligence in administering the debentures trust.
The directors may issue debentures by exercising their power — as authorized by the Memorandum and Articles of Association. The terms of the issue of the securities are printed on the debenture bond. The charges are registered with the Registrar of Companies.
The balances shown in the ledger account are to be verified with Register of Debentures maintained for different classes of debentures.
The restrictions imposed by the Companies Act and the borrowing powers of the directors as prescribed by the Memorandum of Association and Articles of Association and the resolutions of the shareholders relating to issue of debentures may be examined by the auditor.
The auditor may ensure that the company has complied with all the legal requirements relating to issue of debentures.
The copies of the debenture documents may be examined to ascertain the terms of repayment and the details of assets offered as security.
The auditor shall ensure that the following information is submitted to the Registrar of Companies:
- Details of assets on which the charge is created.
- Details of commission or discount paid on issue of debentures.
- Details about the satisfaction (in whole or in part) of any charge relating to the property of the company.