Digitized by the Internet Archive in 2008 with funding from IVIicrosoft Corporation http://www.archive.org/details/auditorstheirdutOOpixlrich AUDITORS. AUDITORS: THEIR DUTIES AND RESPONSIBILITIES UNDEE THE COMPANIES ACTS AND OTHER ACTS OF PARLIAMENT. FRANCIS W. PIXLEY, OF THE MIDDLE TEMPLE, BARRISTER- AT-LAAV, A FELLOW OF THE INSTITUTE OF CUARTERKD ACCOUNTANTS IN EXGLAXD AND WALES. EIGHTH EDITION. u r: Jonboir : IlENEY GOOD & SON, 12, Moorgate Street, E.C. 1901. >qO\ PREFACE To THE Eighth Edition. This Edition has been rendered necessciry owing' to the passing t)f the Companies Act, 1900, the Friendly Societies Act, 1896, and other Acts of ininor importance. When the First Edition of this work was published, exactly twenty years ago, it was intended more for the student than the })ractitioner, Ijut its favourable reception by the pro- fession, and the frequent references made to it by Her Majesty's Judges, have established its recognition by Members of the Bar and the practising Members of the Institute of Chartered Accountants to such an extent that an attempt has lately been made to induce students to believe that it has become a book less suited to their requirements. This has never been the intention of the Author, and, with the object of increasing the usefulness of the work for those preparing for the Intermediate and Final Examinations of the Institute of Chartered Accountants, he has in this Edition divided the work, placing that portion referring to the duties of District Auditors and Auditors of Municipal Accounts in a separate volume. F. W. P. London, :11th Januari/^ 1901. CONTENTS. CHAPTER I. INTRODUCTORY. Antiquity of the Office of Auditor— Auditors of the Crown— History of Statutory Law relating to Joint Stock Companies— Building and other Societies — General Management of Companies in hands of the Directors— Periodical Meetings of the Shareholders— Statement of Accounts laid before these Meetings— Accounts pre^-iously audited by Eepresentative of the Shareholders —Known as the Auditor — Position of Auditor as regards Directors — To what extent Auditors Agents of the Shareholders — Eesponsibility in connection with issue of Prospectus — Eesponsibility under the Companies (Winding-up) Act, 1890— Auditor as Officer of a Company — Auditors of Accounts of Universities and Colleges — Of Boards of Conservators— Of Judicial Trustees— Of Charities— Of Merchants — Of Executors and Trustees— Of Landed Proprietors and Private Persons — Auditor appointed Administrator . . . 1—23 CHAPTER 11. APPOINTMENT AND REMUNERATION OF AUDITORS. Audit of Accounts of Companies registered under Companies Act, 1862, made compulsory by Companies Act, 1900 — Appointment under Companies Act, 1879 — Under Companies Act, 1900 — Under Companies Clauses Consolidation Act, 1845 — By Board of Trade- Audit of Accounts of Life Assurance Companies not compulsory — Ajipointment of Auditors under Building Societies Acts — Under i'riendly Societies Act, 1896— Under Industrial and Provident Societies Act, 1893 — Auditors occasionally aj^pointed to guard special interests — Opinion of Counsel on the appointment of firms as Auditors — Eemiuieration of Auditors of Companies — Decision of Court — Scale of Eemuneration of Public Auditors — ^Eemuneration of Private Auditors of Firms and Individuals — Of Executors and Trustees 2-i — 38 yjjj CoNTI'.NTS, ("llAn'KK III. •niK lAW HKI.ATlXli TO AUDITUKS AND THE BOOKS AND ACCOUNTS OF JOINT STOCK COMPANIES, BUILDING SOCIETIES, FKIENDLY S«»CIKTIES. INDUSTRIAL AND PKOVIDENT SOCIETIES, AND SAVINGS HANKS. PAGE The Companies Act, 1862— The Companies Act, 1867— The Companies Act, 1879— The Conii)anios Act. 1880— The Companies Act, 1900— The' tympanies (Colonial Eegistcr.s) Act, 1883— The Companies (Wiutlin--iii.) Alt, 1890 The Mortgage Dobentuie Act, I860— Thi- Mort^nig." Dcl.cntuie (Amendment) Act, INTO -The Companies Clauses Consolidation Act, 1845— The Companies Clauses Act, 1863 —The Companies Clauses Act, 1869— The Ilailways Construction l-'acilitirs Act, 1864— The Railway Comjianies Securities Act, 1866 —The Railway Companies Act, 1867— The Railway Companies (Scotland) Act. 1867— The Regulation of Railways Act, 1868— Th.' Railway and Canal Traffic Act, 1888— The Regulation of Railways Act. 1S89— The Gasworks Clauses Act, 1847— The (lasworks Claust-s Act, 1871— The Waterworks Clauses Act, 1847 — The Metritiudis "Water Act, 1852 — The Metropolis Water Act, 1871— The Electric Lighting (Clauses) Act, 1899 — The Stannaries Act. 1869— The Stannaries Act, 1887— The Life Assurance ("|( lAL TinSTELS. EXECUTORS, ETC. The CnivorBities ami College Estates Act, 1858— The Universities and ( 'm!1.-.. I-:«UiteH Amendment Act, 1880— The Universities and College liM.il.h Act, 1H98-Tlie Universities of Oxford and Cambridge Art. 1N77 Tlie County Courts Act. 1888— The Shcrifl's Act, 1887— The Judieial TruH(«.8 Act. 1896 -The Intestates' Estates Act, 1890 -The Apportionment Act. 1870-Tho Tru.stee Act, 1893— The Coh.nial Stock Act, 1900 The Larceny Act. 1861— The Falsification uf Acoouiitu Act, 1876 I'jij 215 CONTENTS. ix CHAPTER V. THE PREPARATION OF THE ACCOUNTS OF A COMPANY FOR THE PURPOSE OF AUDIT. PAOF. Duty of the Directors and not the Auditors to jDrepare the ^Iccounts — Auditors not liable to Directors— Form of Accounts to be submitted—Preliminary preparations— Stock-in-Trade— Investments — Trial Balance — Difference between Trial Balance and Balance Sheet — Danger of relying on a Cash Account only — Emplopnent of professional Accountants in preparation of Statements- Depreciation — • Special or unusual Expenditure — Mortgaged Property — Accounts to be passed at Special Board Meeting — To be afterwards submitted to Auditors — Issue of Accounts to Shareholders 216—230 CHAPTER VI. ON THE BOOKS TO BE EXAMINED BY THE AUDITOR. Auditors should be jirovided with a list of Books — Auditors should understand Book-keeping — Books submitted to Auditors of Public Companies— Of Trustee Savings Banks — Of Executors and Trustees 231—243 CHAPTER VII. FORMS OF ACCOUNT SUB:MITTED TO AUDITORS. Variety in Foims of Accounts published by Public Companies- Forms of Accounts published by Limited Liability Companies — By Life Assvu-ance Companies — By Railway Comj^anies— By Gas and Water Companies — Profit and Loss (or Revenue) Account and Balance Sheet usually issued alone when Fomis of Account not prescribed — Difference between Revenue Account and Cash Account — Balance Sheet— Forms of Accounts of Building Societies — Of Friendly Societies — Of Industrial and Provident Societies — Forms required by the Ho.spital Sunday and Hospital Saturday Funds — Accounts of Executors and Trustees imder a Will . . 244 — 252 X CONTENTS. CHAPTER VIII. NATURE AND I'HINCIPLES OF AN AUDIT. PAGE Xuturo of an effective Audit- Enor.s of Omission En-ors of Com- mission Errors of Priuciple A List of the Books cf Assistance to tho Auditor— Auditor should be provided with the Regulations-- No jiiirt of an Auditor's duty to give advice— Investigation of the Capital Account of a Company -Prospectus— Application for Shares I.etteis of Allotment -Share Certificates— Entries in the Books ctf the jiurticulars of the Purchase —Examination of the Cash Book -Of the Vouchers— I )ocumonts should be arranged for the luspectiou of the Auditor -Beconciliation of the Balances of the Cufih Book and Bankers' Pass Book— Examination of the Subsidiary Bsul to pay l)ividunils out of Capital — Income side of the Uovoiiuc Aicount Salrs -l'r»>miums— Shares in other Com- punicH luterest on Investments Transfer Fees -Traffic and other KiMeipt*i Exchange Premiums on Shares -Stock in hand at end u( tlju Periml -Bulauue of tho ilevonue Account .... 268 298 CONTENTS. Xi CHAPTER X. THE BALANCE SHEET— DEBIT SIDE. PAGE Explanation of the Balance Sheet — Not necessarily a Statement of Assets and Liabilities — A Full and Fair Balance Sheet — Li;il)ilities— ' Capital — Shares Issued at a Discount — Shares Issued as Fully Paid — Audit of Capital Account — Debentures — Mortgaj^es — Liability on Bills Eeceivable Discounted— Sundry Creditors — Interest Out- standing — Aanounts due on Current and Deposit Accounts — Claims Admitted but not Paid — Eeserve — Eeserve Fund — Sinking Fund — Balance of Eevenue Account (Surplus) ...... 299 — 314 CHAPTER XL THE BALANCE SHEET— CREDIT SIDE. Credit Side of Balance Sheet frequently improperly called Assets Side — Division xinder Four Headings — Government Seciu-ities — Shares and Debentm-es in Joint Stock Companies — Investments should stand in Names of the Trustees — Freehold and Leasehold Property — Mortgages — Loans — Debtors — BiUs Eeceivable on hand — Agents' Balances — Company's own Shares — Interest on Investments due and accrued — Cash — Stock-in-Trade — "Works in Progress — OflBce Furniture — Pui'chase of Business, &c. — Sinking Fimd for same — Expenditure on Development of Mine — Piu-chases on Hiring Agreements — Preliminary Expenses — Spreading Expenditure over a term of years — Balance of Eevenue Account (Deficiency) — Balance Sheet should be so explicit as to be imderstood by every ' Shareholder 315—330 CHAPTER XII. SPECIAL POINTS FOE CONSIDERATION IX VARIOUS CLASSES OF AUDITS. Banks — Colonial Banks — Savings Banks — Discount Houses — Insurance Companies — Building Societies — Judicial Trustees — Solicitors — Stockbrokers — Single Ship Companies — ^Mines, Collieries, &c. — Co-operative Stores — Landed Estates — Executors and Trustees- Newspapers — Theatres — Clubs — Schools and Colleges . . . 331 — 3-lG xu CONTKXTS. CHAPTEK XIII. IHOFITS UF A COMPANY AVAILABLE FOR DIVIDEND. rAOF, 11,.. i>u.ct..is. not tho Auditor, rocomuiend payment of Dividends— I )rtiiuti..n of ProHt Four Systems of Account for .Vscertainment of IVoiitw of .1 Company Th- Sinjrle A<-count System— The Double Account System Tho Third System The Fourth System— Luuited Divid.-ndsof Gas and Wat.-r Companies Arrears of Dividend- Income on Yearly and Half-yearly lionds- General Remarks. . 347—368 CHAPTER XIV. FUKTHEK KE.MAKKS ON THE DUTIES AND KESPONSIBILITIES OF AUDITORS. Auditors should be trained for their duties— Fallacy of insisting on a Share (iualification -Liability of Auditor for assenting to improper payment of dividends— Definition of Auditor's Duties by Couit of ApiKjul Lialjility of Auditor for Calls in winding vip— Auditor should 1m' able to suggest improvements in mode of keeping the iKKiks -An efficient audit should embrace all the transactions of the Company — Auditor may rely on the opinion of an Expert — Necessity for providing against bad debts — Inspection of the gecuiities— Audit of a Company having branches — Power of Auditor to employ a professional Accountant — Directors of a Comjtany and not the Auditor are its Managers .... 369 — 386 CHAPTER XV. THE AFDITOK'S CERTIFICATE AND REPORT. Cpiiifieato re(iuirfd by Companies Act, 1900, prior to Statutory Meeting of Now Companies — Rcjujrt and Certilicate affixed to Balance Shoot the conclusion of Auditor's Duties— Simjjle Form of Certifi- cuto — Cfrtilicuto suitalilc to Comi)anios Act, 1862— ^To Companies Act. IH'U Int«'rpn'tation of "As shown by the Books" — Eeport in addition to Ccrtilicato Certificates putting Shareholders on Inquiry Danger of such Certificates — Misfeasance — Eeport proHcriUsl by Companies Act, 1900— Auditor's Position when Accounts incorrect .Vuditor's Certificate privileged— Certificate of Auilitor of l{ailway Conij.anies Of Building Societies- Of Savings Dunks Uf Friendly Societies 387—401 CONTENTS. Xlll APPENDIX. Balance Sheet i)resciibed bj' Comiianies Act, 1862, Table A— Form of Accounts prescribed by Eegulation of Railways Act, 18(58— Form of Annual Accounts prescribed by Gasworks Clauses Act, 1871 — Form of Annual Accounts prescribed by Life Assurance Companies Act, 1870— Form of Accounts for Building Societies — Form of Accounts for Electric Lighting Companies — Annual Return under the Friendly Societies Act, 1896— Annual Return for a Registered Collecting Society— Annual Return under the Industrial and Provident Societies Act, 1893 — Receipts and Payments Account of a Mining Company — Revenue Account of a Mining Coinpany — Balance Sheet of a Mining Company — Form required to be made annually by every Company registered under the Companies Acts, 1862 to 1900, having a Capital divided into Shares — Form of Statement required to be made twice a year by every Limited Banking or Insurance Company, and every Deposit, Provident, or Benefit Society, registered under the Companies Act, 1862 — Form of Statement prescribed by the Industrial and Provident Societies Act, 1896, for every Society carrying on the Business of Banking — Conditions under which Public Auditors hold their Appointments under the Friendly Societies Acts, and the Industrial and Provident Societies Act, 1876— Table for ascertaining the Amount to be written off a Lease Account annually, in order to exhaust the same at the Expiration of the Lease, also for ascertaining the present value of a Lease — Ledger Account (Pro Forma) of a Lease from Date of Purchase until its Expiration — Model Clauses for Articles of Association -luy— 464 IXDEX 465 TABLE OF CASES. Ambergate Eailway Co. o. Mitchell Anglesea Colliery Co., In re Ashbiu'y v. Watson Aspinall's Case Bainbridge v. Smith Bale V. Cleland Barrow Haematite Steel Co., In re Bass V. Clive Bateman v. Mid-Wales Eailway Co. Bennett, //( re, Jones u. Bennett . Bentinck v. Fenn . Bill V. Darenth Valley Eailway Co. Bishop V. Smyrna & Cassaba Eailway Co. Blackbiun Building Society v. Cunlifie Brooks & Co. Bloxam v. Metropolitan Eailway Co. Blyth V. Fladgate . . \ Bosanquet v. St. John D'El Eey Mining Co., Ltd. Breech-Loading Armoury Co., In re Merchants Co. Bridge water Navigation Co., In re British Gruardian Co, Browne's Case Bm-nes v. Pennell . BuiTy Port, &c., Eailway Co., In re Cambrian Mining Co. Cammell, Ex parte. Cann v. Wilson Carruthers v. Carruther CaiTuthers v. Sheddon Carter's Case Carver, Ex parte . Central De Kaap Gold Mines, //( re Chaddertou and other Local Boards i\ Oldham Corport Chamberlain v. New Worcester Gaslight Co Chennell, In re . Clemow, In re, Yeo i'. Clemow Coal Co-operative Society, In re, Great Northern Eailw Coey V. Loudon & Enniskilleu Eailway Co. Cornwall Minerals Eailway Co., In re Corry v. LondondeiTy, &c., Eailway Co. Coventry & Dixon's Case . Cox V. Edinburgh & District Tramways Co. Credit Co., //i re .... TAGE . Sfi 290 302 59 288 300 32 88 37 74 3, 34 349 88 9o 212 , 353 46 313 74 59 348 101 40 itiou 120, IV Co. Same 46 42 212 38 32 19 46 2:-^2 366 364 206 344 161 95 309 100 74 363 88 XVl TAIJLK I IF CASKS. I>alo r. Martiii ...••• Dtivips' Cu*ie ..•••• IkMihain & Co., lu rt I)eiit r. I-rtiiuloii Tmmways Co. • • • KmiM-r r. Manchfst<>r, Shottiold & Lincolnsliire Eailway Co. l>ro»: lUack & White Publishing Co. Flitcroft's ( 'use .... Foster r. New Trinidad Lake Asphaltc Co. Fniuk Mills Miuiiifi: Co., /ft re ffi'nr^'c Newman & Co., //< re (libson V. Barton .... (ilory l'ai)er Mills, In re, Dunstor's Case. Great AVhcal I'olgooth, In re Goodman v. "NVhitcomb GrilHth, lu re, Carr c. Griffith Griliith v. I'a^ijet .... Guinness r. Land Coriioration of Ireland S7 304 305 43, 45 204 303 285 74 368 359 357 284 277 43 59 19 22 204 28 359 Hallmark's Ca.se .... ILuj^'reaves, Ltd., /ft re Joseph . Harrison v, Cornwall Minerals Eailwaj' Co. Hay's Case .... U<4by'8 Case .... Henry <•. Great Northern Railway Co. Ho^'pin V. Tharsis Sulphur & Copper Co. Hnl-iite r. Slmtt .... Holland v. I )i< ksoii llutton c. ,\iinaii .... Hutton r. West Cork Railway Co. Im]»orial Land Co. of Marseilles, T)i re . 374 75 110 303 354 100 366 385 88 267 91 20 Jiuiiaica Railway Co. v. .Vttornev-Oeneral of Jainaica 365 Keuip, Kx /Htrle Kitip\ London Assurance Corporation . Lawless v, Anglo-EgA^itian Cotton & Oil Co. Lee V. Nenchatel Asphalte Co. Lee V. Young ..... Leeds Estate Building & Investment Co. v. Shepherd Lindsay v. Grladstone .... Litchfield & Sons v. Markus Loch V. Queensland Investment & Land Mortgage Co London & General Bank (No. 1) . London & General Bank(Xo. 2) 56, 259, 2(35, ;301. 320. 3 Lubbock r. British Bunk of South America Lydney & Wigpool Iron Ore Co. v. Bird . Lysaght, In re, Lysaght r. Lysaght I' AGE . 350 . 400 274, 281, 350, 353, 358 . 209 . 371 . 93 . 36 .47, 303 20, 74 30, 347, 368. 372, 374, 391, 393 351, 356 . 329 . 205 Matlock Old Bath Hydropathic Co., Limited, A^^leatcroft's Case Matthews v. Great Northern Eailway Co. Mercantile Trading Comjxmy, In re. Stringer's Case Meredith, In re, Stone r. Meredith .... Metr(i})olitan Coal Consumers' Association r. Scrimgeour Midland Land & Investment Corporation, In re . Munt '•. Shi'ewsbury & Chester Eailway Co. Mutter V. Eastern & Midlands Eailway Co. . 373 100, 120, 365 354, 379 . 205 63, 286 . 354 . 118 . 88 National Permanent Mutual Benefit Building Society, In re Nelson r. Anglo-American Land Mortgage Agency Co. New Travellers' Chambers, In re. Newton v. Debenture -holders, &c., of Anglo-Australian, &c., Co. Nicholson /•. Ehodesia Trading Co. .... Nicol's Case ....... 206 44 72 306 48 18 Oakbank Oil Co. v. Crum. Ottley V. Gilbey ..... Oxford Benefit Building &- Investment Society, /// re 366 243 367 Page & Bishop v. Eastern & Midlands Eailway Co. Peruvian Guano Co., Kemp, Ex parte Portal v. Emmens Portsmouth Banking Co.'s, Helby's, and other Cases Potter V. Potter, Potter, in the Goods of . Price V. Great Western Eailway Co. Pi'ince, In re, Godwin r. Prince . Pulbrook r. Eichmond Consolidated Co. . Pyle Works, In re ... . 355 86, 87 . 51 . 23 . 89 . 344 . 59 . 306 Eailway Time Tables Publishing Co. , In re Eance's Case, In re County Marine Insurance Co. Eegina c. Mariquita Co. . Eegina r. Senior ..... Eowe /•. Wood ..... . 303 . 224 . 46 . 66 W 111 TABLK OF CASKS. Sampnyo r. Gould .....■• 206 St'vcru & Wye & Sovoin Bridge Railway Co., In re 308 Smith's Case ...... 44 Siiackman r. Evans ....•• IS, 375 Statham i-. Brighton Marino Palace & Pier Co. . io;3 303 .Stooli' 1'. Sutton Gas Co. ...... . 52, 93, 383 Stringer's Case ....... 354, 379 Studdert v. Grosvenor ...... 285 Swansea Vale Eailway Co. v. Budd .... 93 Taylor r. Brewer ...... 33 Teacher r. Calder ....... . 23 Treasure, /;/ r*, Wild /•. Stanham. .... 344 Trovor v. Whitworth ...... 322 Tmquand r. Marshall ...... 376 Twigg's Estate, In v, Twigg /•. Black .... 203 Twycross r. Grant. ...... 62 ■^'erncr v. General & Commercial Investment Trust, Ld. 348, 352, 353, 356, 359, 363 Webb /•• James ...... Webb V. Shropshire Railways Co. Webber, In n-, Gribble v. Webber Wedgwood Coal Co., /rt re .... Welton, Ex parte ...... Western Counties Steam Bakeries & Milling Co., In re . Wheatcrot't's Case ..... Wickersheim's Case ..... Wilmcr V. McXamara & Co., Ltd. Wincham Sliijjbuilding, Boiler & Salt Co., Hallmark's Case Wood r. (Jdessa Waterworks Co. .... W(jo(l i\ Woodhouse & Rawson United . . 206 103, 303 . 345 . 74 . 303 . 74 . 373 42, 233 281, 360 . 374 . 48 INDEX OF THE STATUTES. PAGE PAGE 8 Vict. c. 16 .. 86 40 .t 41 Vict. c. 48 ... 190 • 10 Vict. c. 15 .. 119 42 & 43 Vict. c. 76 ... 55 lO&ll Vict. c. 17 .. 123 43 Vict. c. 19 ... 57 15 & 16 Vict. c. 84 .. 125 43 & 44 Vict. c. 46 ... 182 21 &22 Alct. c. 44 .. 179 46 & 47 Vict. c. .30 ... 69 24 & 2.5 Vict. c. 96 .. 213 50 & 51 Vict. c. 43 ... 1.33 25 & 26 Vict. c. 89 .. 40 50 & 51 Vict. c. 55 ... 198 26 & 27 Vict. c. 87 .. 165 51 & 52 Vict. c. 25 ... 117 26 & 27 Vict. c. 118 .. 96 51 & 52 Vict. c. 43 ... 197 27 & 28 Vict. c. 121 .. 104 52 & 53 Vict. c. 57 ... 118 28 & 29 Vict. c. 78 .. 76 53 & 54 Vict. c. 29 . . 202 29 k 30 Vict. c. 108 .. 107 53 & 54 Vict. c. 63 ... 71 30 & 31 Vict. c. 126 .. 112 54 & 55 Vict. c. 21 ... 174 30 & 31 Vict. c. 127 .. 109 56 & 57 Vict. c. .39 ... 1.59 .30 & 31 Vict. c. 131 .. 54 56 & 57 Vict. c. 53 ... 206 31 & 32 Vict. c. 119 .. 113 57 Vict. c. 8 ... 165 32 & 33 Vict. c. 19 .. 131 57 & 58 Vict. c. 47 ... 142 32 & 33 Vict. c. 48 .. 102 .59 & 60 Vict. c. 25 ... .. 149 33 & U Vict. c. 20 .. 82 59 & 60 Vict. c. 26 ... . . 157 33 .t 34 Vict. c. 35 .. 203 59 & 60 Vict. c. .35 ... 199 33 & 34 Vict. c. 61 .. 135 61 & 62 Vict. c. 15 ... 157 34 & 35 Vict. c. 41 .. 122 61 & 62 Vict. c. .55 ... 183 34 & 35 Vict. c. 113 .. 125 62 & 63 Vict. c. 19 . . 128 37 & 38 Vict. c. 42 .. 139 63 & 64 Vict. c. 48 ... 59 38 & 39 Vict. c. 24 .. 214 63 & 64 Vict. c. 62 ... 212 / AUDITORS: DUTIES AND EESPONSIBILITIES. CHAPTER I. INTRODUCTORY. Antiquity of the Office of Auditor — Auditors of the Crown — History of Statutory Law rehiting to Joint Stock Companies— Buikling and other Societies — General Management of Companies in hands of the Directors — Periodical Meetings of the Shareholders — Statement of Accounts laid befoi-e these Meetings — Accounts previously audited by Eepresentative of the Shareholders — Known as the Auditor — Position of Auditor as regards Directors — To what extent Auditors Agents of the Shareholders— Responsibility in connection wdth issue of Pro- spectus — Eesponsibility under the Companies (Winding-up) Act, 1890 — Auditor as Officer of a Company — Auditors of Accounts of Universities and Colleges — Of Boards of Conservators — Of Judicial Trustees — Of Charities — Of Merchants — Of Executors and Trustees — Of Landed Pro- prietors and Private Persons — Auditor appointed Administrator. The office of Auditor is one of high antiquity, and the Antiquity of date of its origin is difficult, if not impossible, to arrive at. '^^^'^'*°^''^- It has certainly existed for six centuries, as in 1299 there is mention of an Auditor of the Accounts of the Cor- poration of the City of London. In Langiand's " Vision of Piers Ploughman," published in 1377, we lind the following line, " Of my reue to take Al that myne auditour, or elles my stuwarde ConseiMetli me by her acounte," and in Paston's " Letters," 6ol, IL, 388, in 1469, " Send downe to some awdyter, to take acomptys of Dawbney's byllys." In 1557, " Ord. Hospitalls," B. l\., />., occurs, "There shall also be chosen Auditors generall of the Accomptys." Shakespeare, in Shakespeare. B AIDITOKS. Timon of Athens, puts into tlie mouth of Flavins the steward : " If you suspect uiy liusbandry or falsehood, Call me before the exactest Auditors, And set me on the jiroof." TIk' iirst record of Auditors in DubUn is in the year \A'y2, and it Avould ahnost seem that the powers of the Au.h'tor of tliose days even exceeded the powers of the r.ocal (iovernment Auditors of the present time. The snr- charov of these Auditors has to be sued for in the ordinary way ; while we read that in 1599, upon the Auditors of Dublin reporting two citizens {videlicet Master Nicholas Umfrev and ^Master ]^[ichael Pentney) to be indebted to the city in the sum of six score eight pounds, eleven shilhngs, seven pence (cxxviij^ xj'* vij^'), it was ordered " by the authority of this post assembly ... if they do not deliver the said silver pawns accordingly that then the said ^Master Umfrey and Master Pentney shall yield their l)()dies to tlie gaol of Tholsell within this city, and there shall remain to time they do pay and satisfy the said sum of six score eight pounds, eleven shillings, seven pence, or deliver into the Treasury of this city sufficient silver pawns for tlie same sum." MthCfiitmy In Sir Walter of Henley's " Tretyce off Housbandry," AuSors. :i Manuscrii)t of the thirteenth century, which has been printed ])y the Koval Historical Society, occurs the follow- ing sentence in the Chapter " The Office of Seneschal : — "The Auditors ought to be faithful and prudent, knowing their business, and all the points and articles of the account in rents, in outlays, and in returns of the s:ran«2:e and stock and other thiniis belonging thereto. And the accounts ought to be heard at each manor, and then ••ne can know the profit and loss. . . . The Seneschal ought to be joined with the Auditors, not as head or companion of the account, but as subordinate, for he iiiii>t answer to the Auditors on the account for his doings, and for liis conniiandinents and a]>provements done by him on the manors. . . . It is not necessary so to INTRODUCTORY. 3 speak to tJie Auditors about making audit, because of their office, for they ought to be so prudent, and so faitliful, nnd so knowing in their business, tliat they have no need of other teaching about things connected witli the account." Notwithstanding the fact that the word " Auditor " is Etymology. always pronounced with the "i" short, there can be no doubt that it is derived from the Latin " Auditor," the ancient practice being foi* the parties whose accounts were to be audited to attend before the Auditor and vouch them orally, an exam})le of Avhich is given in the paragraph just quoted, the " accounts ought to be heard at each manor." Prior to Queen Elizabeth's reign, the Accounts of the Auditors of Crown were examined by Auditors sj^ecially constituted *^^^ ^i'o^'»- for the purpose, or by the Auditors of the Land Kevenue ; or at times by the Auditor of the Exchequer, which office, the most ancient of all offices of control, was established in L314, and continued until 1834, when it was abolished, and a new Department created, termed the Exchequer Office, or the Office of Comptroller-General of the Exchequer. In 1559, the second year of the reign of Queen Auditors of Elizabeth, two Auditors of the Imprests were first ^ ™p»^^ s. appointed. They continued in existence until the year 1785, when they were abolished, and their revised duties were taken up by the Office for auditing the PubHc Accounts. The Auditors of the Imprests were paid by fees chargeable on the accounts they examined. These Avere at established rates, but y\QVQ sometimes increased by the Lord High Treasurer, on a memorial from the Auditors that the accounts were more voluminous than they had formerly been, or by a voluntary grant from the Lord High Treasurer, " for the pains " which the Auditors had been at in making up particular accounts. The Accounts of the Treasurer of the Navy appear to Nuvai Ac- have occasioned the first memorial from the Auditors for an increased allowance ; this was in KioO. The two Auditors of the Imprests, as originally appointed, had b2 4 AUDITORS. no \)n\\rv to cull upon parties to render Accounts, l)nt were (le})endent on tlie Treasury for obtaining them. In Kit!) tlie Auditors were empowered by the Com- mittee of Public Revenue, sitting at Westminster, to call before' tliem all such persons as had received any moneys ii]»oii Imprest or otherwise, to pass their accounts acfordinii- to tlie usual course of the Exchequer. The same Committee abolished fees, and the two Auditors were alKjwed a hxed salary of £500 a year each " for themselves and their clerks, including all charges for liouse rent, pens, ink, paper, parchment, and all other incident expenses." Auditors un- AYitli the Restoration of Cliarles II., the two Auditors II. returned to the former system of payment by fees and dependence on the Treasury, a practice which remained in force till the aboliticm of their duties in 1785. In 1783, owing to the increase in the Accounts, the Principals each obtained upw^ards of £16,000. The retired allowance to each Auditor on the abolition of the office was £7,000 a year. Each Auditor had his Deputy and staff of six or seven clerks. As an example of the scale of remuneration to the Auditors of the Im])rests, the Account of the Chief Cashier of the P>ank of England may be quoted, for the Audit of which £100 was allowed for every million of Capital Stock managed by that Company. The fees paid for auditing tlie Bank Account for the year 1784 exceeded £20,000. KirMt Audit I Ti),' lirst attempt bv the House of Commons to of (i^ovmi- cstalilisli a control over the grants of Parliament, and to check the api)roi)riation of supplies, was made in 1(367, wlien it was detei-iiiined by tlie House that the mcmey voted for the Dutch War should be applierl oiihj io the pitrposis (>/ III,' War. Conunissioners for tliis purpose were appoint.-d jjy - An Act for taking the Accompts " ; and this may ])e considered as the first establishment of a i'arli:imeiitary Audit, or, in other words, of an Audit to a certain extent iu(h'peii(lent of the Government. inent V INTRODUCTORY. 5 111 1785, on the abolition of the office of Auditors t)f the Imprests, its revised duties were taken up by the Office for Auditino- PubUc Accounts, Various other officials for the auditing of the Accounts of Government Departments were from time to time appointed. The iirst step was taken towards the estabUshment of a system of Account, based upon more practical principles, on the occasion of the revision of the Xa^"al Accounts in 1832, when the books in which the details of the Naval expenditure are recorded were recast on a connected })lan on the principle of Double Entry. From a Treasury Minute, dated 16th June, 18-18, it public appears there were about 350 Public Accountants ^^'^'^°'"'^''"*'- rendering Accounts to the Commissioners of Audit, and the Treasury complained of the delay, in many cases, in presenting these Accounts. The following sentence is worth recording, as being applicable to all audits : — " My Lords do not understand on what grounds so much delay can have occurred in rendering these Accounts, it being the first duty of an Accountant to submit for audit, in a regular and punctual manner, his Account of the expenditure of the public money entrusted to him ; and if this rule is not strictly enforced, the great advantage of an audit is lost, and it becomes impossible to exercise by means of it an efi'ectual check over the public expendi- ture." On the 28th June, 1866, the Exchequer and xVudit Exchequer Departments Act (1866) received the Koyal Assent, which cepartmeut consolidated the previously independent Offices of the ^i-eateci. Comptroller- General of the Exchequer and of the Com- missioners of Audit, and placed them under an Officer, entitled the ''Comptroller-General of the Receipt and Issue of Her Majesty's Exchequer and Auditor-General oi Public Accounts " (29 & 30 Vict., cap. 39). The Comptroller and Auditor- General is the guardian of the public purse, and in the exercise of this control his functions are broadly dual. (1.) As Comptroller of the Exchequer, it is his duty to ^ 6 ACDITOKS. see that all ].ul)lic moneys payable to tlie Exchecper aiv (lulv ivceived and accounted for. On the other liand. no issues of money from the Exchequer can ])c' made without his order, which is granted to the Treasury for the suppHes voted In' the House of Conuiious. (l^) As Auditor-General it is his duty, as succinctly defined by the Exchequer and Audit Departments Act, •• to ascertain, first, whether the payments which the Accounting Department has charged to the grant are supported b}- vouchers or proofs of ])ayment, and, second, whether the money expended lias been applied to the purpose or purposes for which such grant was intended to provide." A general su})ervision is reserved to the Treasur}', which Jias the power to require the Comptroller and Auditor- General to ascertain that the expenditure has been sup- })orted by their authority, and to report to them any expendi- ture which has been incurred without such authority. The right of ap])eal to the Treasury is also secured to any Accountant who may be dissatisfied with any disallowance wjiich has been made in his Accounts by the Comptroller and Auditor-General. On the completion of the examina- tion of the Accounts for the financial year, the Comptroller reports to the House of Connnons on each of the Accounts submitted to him, and his criticisms are considered by certain memljcrs of the House who constitute the Public Accounts Connuittee. With tile duties of the Officials of Her Majesty's E.\cli(M|iiL'r and Audit Department this work, however, is not conceriK'd ; like those of other servants of the Crown, the duties ai-c i)iv>(iibed by Acts of Parliament and by Rules, and Kugulations issued from time to tune by the Auihoritics. It IS cvid.jnL I'n.m the above remarks that the term " ruhhc Arcouiitant" was formerly applied to those Govern- ment olHcials wJio had to account to the Treasury for the inanncr in wJiich they had expended [)ul)lic' revenue INTRODUCTORY. 7 entrusted to tlieiii. Towards the close of the last century, however, mercantile men and others wlio were unahle, either by themselves or their clerks, to keep their books of account, or even, if the books were properly kept, to prepare statements from them, found it to their advantage to seek the aid of expert bt)ok -keepers, who Avere able to devote to this some of their leisure time. In this way arose the growth and development of professional account- ^ ancy, the practising members of which were styled Public Accountants. The leading members practising in Scotland were Chartered successful in obtaining grants of Royal Charters, those '^'''''''''*''''*'" practising in Edinburgh receiving one in 1854, followed by Glasgow in 1855, and Aberdeen in 1867, the members of which Societies, incorporated by these Charters, have since been known as " Chartered Accountants." No similar steps appear to have been taken in England until, in 1870, an Institute of practising professional Accountants was formed, which Institute was successful in obtaining a Royal Charter in May, 1880. Since that date the shareholders of Public Companies have gradually ceased te) appcjint, from their body. Auditors of their Accounts, and have replaced the amateur Auditor by the Chartered or Professional Accountant. The vast sums of money embarked in Joint Stock \ enterprise in Great Britain has caused the position of those/ who audit the Accounts of such enterprises to assume) great importance, and the responsibility attached to the \ post of Auditor of a Public Company is, consequent!}', exceedingly heavy. Since the 2nd day of November, 1862, the day on which increase or the Comjjanies Act, 1862, came into operation, there has compauiea been a marked increase in the number of Associations November formed for enabling persons of all classes, trades, and i^^^. denominations to combine together for the pui'pose of carrying on to their mutual advantage a single trade or any enterprise for the development of which the 8 AUDITORS. jc.iiit-stock ])rinciple, as amended l)y the new Act, ortt'ivd increased facilities. For a considerable time previons to the passing of tliis Act these Associations had been in existence, but until 1S44 they were subject to the law Avhich governed oi-dii)ar\- partnerships of two or three persons, and the Promoters of Railway and other Companies had the ciitiiv cliargc of their undertakings, made contracts with landowners and others, and issued prospectuses, on the faith of which subscripticms were received and certificates of shares issued without interference or control on the ]»art of the Legislatiu'e. .inint stock The first Joint Stock Companies Act (called the Joint i;"(rirtnitioii Stock Companies Registration Act) was pas.sed in 18-44, .\ct, iNii. .jj^j -^ i-emained in force until 1856, when it was repealed, except \vith regard to Insurance Companies, for Avhich Companies it remained in force until the Companies Act, 180:^, came into operation. Tlie first Act of Parliament making limited liabiHty attainable by Joint Stock Companies was passed in 1855, Ijut this was not brought forward as an independent measure, and was, in fact, merely a graft on the Act of 1844. .ioi:it Stock In 1856, however, Mr. Robert Lowe (afterwards Lord aX^iS.'' Sherbrooke), who was at that time the A^ice- President of the Board of Trade, brought into the House of Conmions the Joint Stock Companies Act, 1856, which rci)c:ilc(l tlic pi-cvious Acts referred to, and reduced their provisions into a practical system. In 1857 and 1858 iour additional Acts were passed, and in order to ctm- solidiite tlie Acts relating to Joint Stock Companies Lord Clielmsfor.l bi-..iiglit a fresh one hi twice in 1859, but 't 'I'd n(.t |):tss, neither was Lord Campbell more V*':"'::"''-^ ^"'•'•'■-^<""' •" l''^6(l. in 1861>, however, the Act now Act, 18(>2. ... , . , ,,. ' ' 111 lorce {-J.) .V i>(i \ ict., c. 8i)) was passed, which has gi\('n so great an inii)etus to Joint Stock enterprise. No j)rovision, Jiowever, was made in this Act for the audit of Accounts, although a schedule Avas attached, INTRODUCTORY. 9 wliicli was applicable to Companies registerew existing constitute, as regards mines, what is known as the Cost Book principle. This system allows any number of persons to be partners or shareholders in a Mine, the shares are usually ill num))er .')12, or multiples of these numbers up to over r).0OO, and a sliai-choldei' may hold one or any greater nmiilier, wiiich he can dispose of Avithout the consent of his brother siiareholders. Should he so desire, he can at any time determine liis liability by relinquishing his >hare and paying sncli proportion of any debts then existing np to that dale, the amount being ascertained })y valuers. The Acts of I'arliameiit now in force relating to these Companies are The Stannaries Act, 1869 (32 & 33 Vict., c. P.)). and 'I'he Stannaries Act, 1887 (50 v^ ')! Met., INTRODUCTORY. 11 c. 43), the sections of which referring to the Accounts and Audit thereof will be found in Chapter TIL The hrst Building Society was founded in 1801), and BuUdiug was followed by many others. Previously to 18o6, how- '"^^^*^^^- ever, no special legislation existed for them, and they were considered ordinary Joint Stock Companies. About this time a proposition was made by the Chancellor of the Exchequer to charge a duty on shares in Joint Stock Companies which were transferable. This alarmed the Building Societies, who protested so successfully against the proposed duty being applied to them that an Act was passed for their regulation, and although this Act was described by the Royal Commissioners as " one of the worst drawn which yet remain in the Statute-book," it remained in force for nearly forty years. In 1874 the Building Societies Act, 1874 (o7 & 38 Met., c. 42), was passed, under which most of the Building Societies now in existence are incorporated ; but as it does not affect Societies registered under the Act of 1836 unless they beccnne incorporated under the new Act, the pro- visions of the Act of 1874 do not apply to all Building Societies. The Act of 1836 is, however, by the Building Societies Act, 1894 (57 & 58 Vict., c. 47), repealed fi'om the 25th August, 1896, as to Societies certified there- under after 1856. The Act of 1894 prescribed that a Form of Accounts should be prepared by the Chief Registrar of Friendly Societies for use by Building Societies, and contain certain information ; it also enacted that one of the Auditors of each Society shall be a person who publicly carries on the business of an Accountant. In the Reports of the Chief Registrar of Friendly Societies for the year ending 31st December, 1894, presented to Parliament, that official states that a number of questions have been addressed to him as to who fulfils this requirement of the Act. In the opinion of the Registrar, a person who publicly carries on the business of an Accountant is one "' who could, if required, under Section 12 AUDITORS. •2\ of the Act, append to his signature as Auditor a state- ment that lie is a person who })nblicly carries on, at some specilied place, the Ijiisiness o\' an Accountant, and would 1k' subject to the penalty provided by Section 22 of the Act if the statement should be proved to be false," and I'unhcr. he adds, " It would seem that the turning point of tlie definition in the Act lies in the word ' publicly,' and, therefore, that many men who possess excellent credentials as Accountants in private employ, or in positions where the public cannot come to them and give their accountancy work to, are not within it. To put the matter in familiar terms, the essential part of the qualification is a brass plate or other public notiii cation that the business of an Accountant is carried on." savin-.s On the 11th July, LSI 7, was passed an Act for the *"" "■ ])urpose of encouraging the establishment of Banks for Savings in Ireland, and on the following day a similar Act was passed for the encouragement of Savings Banks in England, which Act was amended in the following year. Savings Banks were lirst legally recognised in Scotland in 1819 by the Act 59 Geo. III., c. 62. The Act 1 Geo. IV., c. (S3, altered the procedure of dealing with the funds of Savings Banks as an investment witli the Commissioners for the Reduction of the National Debt at the Bank of England, and prescribed that receipts bearing interest at od. per cent, per diem Avere to be given lor moneys invested. Under the Acts 5 Geo. I\'.,c. 62, and 9 Geo. IX., c. 92, the state of the law relative to Trustee Sa\ings Jxmks Ixigan to assume its present form, and the former of these Acts of l^n-li;iuient was the earliest Statute deahno- Avith Haiik- ill b(.tli England and Ireland. Act. .f 1x14. Several Acts were passed in the reign of William I \'., and an Act was passed in 18-14 which, amongst other amendments of the law, prescribed that Auditors were to be :ii)p(.iiiLeivino; certain powers to this Committee, also prescribed that, if in the opinion of the Committee the rules of a Savings Bank are insufficient f ir the purpose of maintaining an efficient 14 AUDITORS. Li mi till Compajjii's. Directors. Members. audit, tlie I'.ank sliall uitli all convenient speed make such additional rules a^^ may, in the opinicm of the Committee, be iv(iuired for the purpose. 'IMie majority of Ctmipanies now in existence are registered under the Act of 1862 ; and these Associations, known generally under the name of Limited Companies Cdrhouuli the Act of 1862 provides for the incorporation imd manag-ement of unUmited Companies), have invaded almost every department of commerce and trade, and tlie capittil embarked in these undertakings is enormous. All classes of persons who have either inherited or accjuired means, even the artizan who out of his wages has saved a few pounds, is interested more or less in the management and welfare of these Associations, and every person holding a share is consequently a partner in each one in which he is a shareholder. As, however, it would be impossible for each of the |>artners in these undertakings, as well as in those ("oiii})anies registered under other Acts of Parliament, and in Building, Friendly, and other Societies, to have a Noice in the general management of the business, in the same manner as have the partners in a private firm, it is the practice to delegate this power to a few (varying according to the size and the nature of the business of the Company or Society) of their number, now generally styled Directors, who undertake the superintendence and the administration of the affairs of the Company or Society on behalf of themselves and of their co-partners. The l)ir(!ctors have periodically to meet the general l)o(ly of Members for the ])urp()se of accounting to them the m:inner in which they have fuliilled their ther> whn allowed their names to appear on the pros- pect nse> ..1 iK-w Conipanies as Auditors incurred any INTRODUCTORY. 19 liability by reason of untrue statements in the prospectus. Section 3, Subsection 1, of this Act, however, throws responsibility on persons who have authorised the issue of a prospectus, and consequently, as Chartered Accountants are frequently in the course of their practice brought into connection with the prospectus of an intended company, it was suggested that their professional employment might bring them within the category of persons who have authorised the issue of a prospectus. The Council of the Institute of Chartered Accountants, deeming the matter of the greatest importance, submitted a very full case to Counsel, who gave their opinion that a Chartered Accountant can only be liable under the Directors' Liability Act, 1890, if he so conducts himself as to become a promoter, or to autliorise the issue of a prospectus or notice inviting subscriptions. Counsel also gave as their opinion that a Chartered Accountant does not authorise the issue of a prospectus or notice within the meaning of the Act by merely permitting his name to be mentioned in the prospectus or notice as Auditor ; or by merel}^ permitting- a professional report made by him to be referred to in it ; or by merely preparing or advising upon it, or assisting in its preparation professionally. Under the Companies (Winding-up) Act. 1890 (53 & 54 Companies Vict., c. 63), it is prescribed by Section 10 that where in Actri890."^ the course of a winding-up of a Company it appears that {inter alias) any past or present Director, Manager, Liquida- tor, or other Officer has been guilty of any misfeasance, the Court may examine into his conduct, and compel him to repay any moneys otherwise misapplied, or for which he has become liable or accountable, together with interest, or to contribute such sums of money to the assets of the Com- pany by way of compensation in respect of misapplication or misfeasance. In Carter'' s Case ^ 31 Ch. D. 496, a Solicitor was held not to be an officer under Section 165 of the Companies Act, 1862. In re Great Wheal Pohjooth, 49 L.T. (N.S.) 20, is to the same effect. The same has been held of a c2 20 AUDITORS. Auditor as ( ifJicir of n Company, Auditors of Universities and CJolk'ges. liaiikcr in In re Jm/'cn'/tl Land Company of Marseilles^ \..\{. 10 Eq. 2I)y Chartered Accountants. 'I'hc I niversity of Cambridge is, however, behind the sister Univ.TNity in this respect, as the Accounts of the INTKODUCTOKY. 21 University Chest and of its Colleges are still audited by amateurs. By the Salmon Fishery Act, 1865 (28 & 29 Vict., Audit of c. 121, s. 29), an account of the receipts and disbursements conservators, of every Board of Conservators, in such form and with such particulars as may be required by the Court of Quarter Sessions that appoints the Board, or any case of a Joint Board by the Court of (Quarter Sessions of the Audit County, shall be laid annually before such Courts of Quarter Sessions as aforesaid, and the Justices assembled at such Courts may disallow any item that they consider to be illegal. By the Judicial Trustees Act, 1896 (59 & 60 Vict., c. 35, Audit of s. 17), the Accounts of every Trust of which a Judicial judicial Trustee has been appointed are required to be audited, trustees. and a report thereon made to the Court by the prescribed persons, and by the rules made under this Act the person to audit these Accounts shall be an Officer of the Court, but the Court, if it considers that the Accounts are likely to involve questions of difficulty, may refer them to a professional Accountant for report. Notwithstanding" the defalcations which occur from time ^^"^o!"?*^ °* . ~ Chanties. to time of Charitable Funds, no law has yet been passed to compel all such institutions seeking subscriptions from the public to submit their Accounts to professional Auditors, but the Boards of Management of the Hospital Sunday and Hospital Saturday Funds will not make any awards to those Institutions who do not present their Accounts in a certain form duly certified by a professional Auditor. At present there is no legal obligation on merchants and Auditors of others trading either alone or in co-partnership with others Merchant. to submit their Accounts periodically to Auditors ; the practice, however, of doing so voluntarily is becoming very general. The certificate of a professional Auditor is useful in many ways. In addition to the great moral effect the periodical visit of a professional Auditor has on the cashier y and other members of the staff, disputes as to Income Tax, adjustments of Accounts between partners, especially PartiKTs. '22 AUDITORS. whore oiR' or more leaves the inanagement of affairs to other partners, negotiation of loans from Bankers and others, are all more easily arranged. In the event of the death of a partner, or the dissolution of the partnership, either by consent or by effluxion of time, the fiict of the Accounts having been periodically audited is of the greatest assistance in the settlement between the various parties interested. Every partner lias a right to have accurate Accounts x^ kept and to have free access to them. — Boire r. Woo'l, 2 Jac. & W. 558 ; Goodman v. Whitcomb, 3 V. & B. 36. Auditors on It is a couunou occurreuce for persons to advance uKJuey Sifcping to otliers ill l)iisiness, taking either a fixed rate of interest or a share of the profits, or both, without taking any part in the management of the business. In these cases it is most important, more especially on behalf of the sleeping- partner, that the Accounts be periodically audited. It is fi'e(|uently arranged, under these circumstances, that the Accounts as certified by the Auditor shall be binding on all i)arties. When this is the case, the Auditor should be made aware of the fact, otherwise a new Account may have to be taken. In a case decided by the House of Lords, taken on ai)i)eal Iroiii a judgment by the First Division of the Court of Session, Scotland, the appellant had advanced £15,000 to the respondent, to be used in the business of the respondent for fi\-e years. In return hr the advance, the a])pellant was to receive interest and 37| per cent, of the profits of tlu! res])oiident\s business. The contract stipulated that tiiere should })e an annual audit of the respondent's business by a firm of (Miartercd Accountants, and that their Certi- ficate; ;is i(. the profits should be bindhig on both parties, l-'or lour years the respondent's books were audited by a iNciiilH-r of tlic finii of Chartered Accountants. Sub- sc(|uciilly the :ip|H'll;iiit raised this action against the res|)oii(leii( li.r ;i ,1 iidici;,] Account, on the ground that the MiKhts had not been in terms of the agreement, in respect iliui the Aii^^ enacts that the sections in the Companies Clauses >liureli<)Kurs. ' i • i i • Consolidation Act, 1S45, which makes it necessary f(»i- an Auditor to hold at least one share, shall not apply, and consequently their Auditors need not be share- holders. i;uar.i oi The Regulation of Railways Act, 1868, also enacts a r/ofut""' ^^^^^ ^^^^ Board of Trade may, upon application made in Auditors of pursuaiice of a resolution passed at a meeting of the Coinpaiiies. Directors, or at a General Meeting of the Company, appoint an Auditor in addition to the Auditors of such Company, and it shall not be necessary for any such Auditor to be a shareholder in the Company. Auditor Under the ^letropolis Waterworks Act, 1871, an % Boanfof ^^^^^btor is appointed by, and is removable by, the Board Trade under of Trade (Local Government Board), whose duty it is to Mcti-opoli.s Tii n 1 r^ ' • 1 ic Watenvorks aiidit the Accouiits 01 the Companies once m every nali- ^ ' ' ' year. This Auditor, who is usually known as the Govern- ment Auditor, performs his duties independently of the Auditors appointed by the shareholders. Under (ho In the Fomi of Provisional Order under the Electric LigSig liighting Acts of 1882 and 1888, issued by the Board of Acts. Trade in November, 1892, for Undertakers, being a Company or Person, the Annual Statement of Accounts liave to be examined and audited by an Auditor appointed by the Board of Trade. This Auditor also performs his duties independently of the Auditors appointed by the shareholders. These Auditors are appointed, not in the interests of the shareholders, but to protect the consumers of water and electric light respectively, and the question having arisen as to whether the shareholders of an Electric Ligliting ('()in])any could appoint the Official Auditor as the AiuHtor of the Comi)any, the Board of Trade, in a letter dated 18th December, 1895, addressed to the Institute of (^liartered Accountants, stated that they held it to be outside the [)rovince of this Auditor to act as APPOINTMENT AND REMUNERATION OF AUDITORS. 29 Auditor on behalf of the shareholders, as the audit con- ducted by this Auditor is of a different character to that of a shareholders' audit, and has in view different objects. The Life Assurance Companies Act, 1870, which enacts Life that the Accounts of all Life Assurance Companies shall companies be deposited amiually with the Board of Trade, does ^^^' ^^'^^' i ^ "^ ' does not not provide that such Accounts shall be submitted to provide for any Auditors. This was certainly a grave omission. Accounts. and Avill no doubt be rectiiied in a future Act, as there is n(j class of Company which so imperatively demands a strict investigation of its Accounts. It is true that nearly all Life Insurance Companies have Auditors, but their names show that their qualiiication for these important appointments is less considered than the fact of their being men of position and influence. They are usually elected by the shareholders, or, in the case of a '' Mutual '' Company, by the assured at the Annual Meetings. All Life Assurance Associations or Companies registered under the Companies Act, 1(S62, come under the provisions of the Companies Act, 1900, as regards audit. The Building Societies Act, 1874 (37 & 38 Vict., c. 42), Auditors of contains a clause requiring that the rules of every society societies. established under the Act shall set forth the manner of appointing, remunerating, and removing its Auditors, and Section 3 of the Building Societies Act, 1894 (57 & 58 Vict., c. 47), enacts that one of these Auditors shall be a person who publicly carries on the business of an Accountant. In the majority of Building Societies one Auditor is usually appointed by the Directors, and two other Auditors are selected at each Annual Meeting out of the body of the members. The Friendly Societies Act, 1896 (59 & 60 Vict., c. 25), Auditors of enacts that every registered Society and Branch shall once sodeties. at least in every year submit its Accounts for audit, either to one of the Public Auditors referred to below, or to two or more Auditors appointed by the Society or Branch ; 30 AUDITORS. ])ut it (Iocs not lay doun any rule as to their mode of election, beyond stating they shall be appointed as the rules of each particular Society or Branch provide. The Treasury may from time to time appoint Public Auditors for the purposes of this Act, but it is optional with the Societies whether they employ any of these Pubhc Auditors, or choose others to fill the appointments. AiicUtoi^of The Industrial and Provident Societies Act, 1893 (56 andSovScnt & 57 A^ict., c. 39), prescribes that the Accounts of all Societies. Societies registered under this Act shall once at least in every year be submitted for audit, either to one of the Public Auditors, or to two or more persons appointed as the rules of the Society provide, and the regulations respecting the Auditors are almost identical ^dth those of the Friendly Societies Act. Although many Chartered Accountants and others have been appointed by the Treasury Public Auditors under these Acts, the Societies have not hitherto taken advantage of these apjDointments, and seem to prefer Auditors chosen out of their members. Auditors In a fcw Companies, Auditors are appointed to look appohit"5i\^o ^^^^^^ ^'^® interests of a particular class or section of guard special thosc couccmed in their welfare. interests. t^ • For instance, some Assurance Companies have Auditors for the Assured as well as for the Assurers or shareholders. Occasionally the Debenture Holders of a Company have their own Auditor, as have also the Preference Share- holders. Many Companies, principally financial, have been formed with •' Founders' Shares," the holders of which are entitled to a proportion of the profits after the other shareholders have received a mininuun dividend. In all these cases tlicir s])('(:ially appointed Auditors have to ascertain their clients receive their full privileges, and that the reserves for dejn-eciation, for loss on realisation of debts, and the general reserve, are not undulv hioh. The appointment of such Auditors is usually made at meetings u\' the holders of the shares or debentures, or the APPOINTMENT AND REMUNERATION OF AUDITORS. 31 Assured, as the case may be, specially summoned for the purpose of making the appointment, or at the Annual Meetino's, when the other Auditors are elected. These cases are, however, exceptional ; in nearly all Companies the Auditors are the representatives of the general body of the shareholders, and it is their duty to require the Accounts presented to them for signature to be prepared in the interests of all the parties concerned. The question having arisen as to whether the appoint- Appointment ment of a hrm of Chartered Accountants by name was Auditors.' in compliance with the Companies Act, 1862, First Schedule, usually known as Table A, the following case was submitted in May, 1882, by the Solicitors of the Institute of Chartered Accountants in England and Wales for the opinion of Counsel. Case. The Articles of Association scheduled to the Companies Case for x\ct, 1862, Table A, Clause 83, provide as follows : — Counsel. " Once at the least in every year the Accounts of the Company shall be examined and the correctness of the Balance Sheet ascertained by one or more Auditor or Auditors." Clause 84. " The first Auditors shall be appointed by the Directors. Subsequent Auditors shall be appointed by the Company in General Meeting." Substantially for the present purpose these clauses have been adopted in the Articles of Association of the great majority of Companies established since the passing of the Act. Last year a question was raised before the Directors of a large Company whether the appointment of a firm of Accountants consisting of four persons, not severally named in the title of the firm, was a legal appointment in conformity with the clauses above mentioned, and this year the same question has again been raised. Counsel will please advise on the following questions, viz. : — 1. If a resolution be passed appointing ' Smithy Jones 32 AUDITORS. and Co.' Auditors of a Company, would that resolution be a legal appointment of an Auditor witliin the meaning of the Act ? 2. Would such resolution naming the firm of ' Smith, Jones & Co.' include Robinson and Brown, they being members of the above firm ? Opinion. Couiisei'd On the points submitted to me I am of opinion — opmion. J Yqq "Yhe name or style under which a firm carries on business is merely a conventional name applicable to those persons only who are members of the firm on each occasion when the name is used. If, therefore, one person. Smith, is tradino' under the firm of "Smith, Jones and Co.," he will be one Auditor within the meaning of Clause 83, Table A, of the Act of 1862. If two persons. Smith and Jones, are carrying on business under that style, they will be '' more Auditors " within the meaning of the clause. 2. Such resolution as referred to would include Robinson and Brown, if they were members of the firm at the time the resolution was passed. It could always be shown in evidence that they were at that time partners in the firm of " Smith, Jones and Co." — Carruthers v. Sheddon, 6 Taunt. 15 ; Bass v. Clire, 4 M. & S. 13. R. B. FiNLAY, Q.C. Arthur L. Ashton. Heinuuem- The remuneration of the first Auditors of a new Auditor- Comj)any registered under the Act of 1862 is, by Section undorActof .j.j ,,,• ,1,'^ Companies Act, 1900, where the Auditors have }x3en apj)(jinted before the Statutory Meeting, fixed by the Dircjctors, that t)f Auditors ap])ointed subsequently by the Sliarcliolders in (Jeneral Meeting. When a Company is registered witli special Articles of Association, a clause is usually inserted tcj the same effect. The remuneration of APPOINTMENT AND REMUNERATION OF AUDITORS. 33 Auditors of Banking Companies appointed under the Act of 1879 has to be lixed by the General Meeting appointing them. Section 91 of the Companies Clauses Consolidation Act, Under 1845, provides that the remuneration of the Auditors cuuises"*^^ shall, unless otherwise provided by the special Act of ^^^'^'Jg J? *^^*^^^ Parliament, be settled by a General Meeting of the Company, and it has been decided that Auditors appointed under this section cannot recover any other remuneration than that iixed upon at a (General Meeting of the Company. — Page and Bishop v. Eastern and Midlands Railway Co. ,'LC. & E. 280. In this case the Plaintiffs had been appointed Auditors Action by in terms of a resolution of shareholders of 5th October, additional 1878, at a remuneration of five guineas each per annum, lemunenitiou Xothing was said definitely as to the character of the work to be done, and for some time the Plaintiffs only audited the Capital Account of the Company. When required to audit the Revenue Account also they declined to do so without an order from the Directors directing them to audit both the Capital and Revenue Accounts, and the Directors thereupon passed a resolution to this effect. The Plaintiffs audited the Revenue Account and claimed to be paid in respect of it an additional fee to the five guineas payable under the resolution of the 7th October, 1878. This the Directors refused to agree to. Counsel for the Plaintiffs relied on Bill v. The Darenth Argument of Valley Railway Company^ 26 L.J. Ex. 81, to show that a resolution at a General Meeting was not necessary to entitle the Plaintiffs to maintain an Action. Counsel for the Defendants contended the case was distinguishable, as there the Directors had power to appoint a Secretary, and the fixing of his remuneration was incidental to the appointment, but that the choice of Auditors was expressly confined by Section 91 to a General Meeting of the Company. — Taylor v. Brewer, I M. & S, 290, cited, D 34 AUDITORS. Decision of Court in favour of Di'fendauts. Remunera- tion usually uj^eed witli Directors. Scale of charges of Chartered Accountant.- Fees of Public Auditors*. (ii'()v 2s. First Class Clerks (if not) ... £1 Us. (k1. Otlier Clerks £1 Is. Exclusive of disbursements. Tlie fees jjiiyable to Public Auditors appointed by the Treasui-y foi- aucHtiiig the accounts of Friendly Societies and specially authorised Societies granting Friendly Society benefits are — £ s. d. For Societies consisting of not more than 100 meml^ers ... ... ... ...1 1 Q APPOINTMENT AND REMUNERATION OF AUDITORS. 35 For Societies with over 100 members, but not exceeding 500 members, in respect of each 100 members or part thereof ... ... ... ... 1 1 For Societies consistino- of over 500 members, in respect (^f the hrst 500 members ... ... ... ... 5 5 with an additional 10s. 6d. in respect of each additional 100 members or part thereof. Xo fee, however, to exceed £55 10s. unless by special arrangement. The scale of fees payable to Public x\uditors for auditing the accounts of all other Societies registered under the Friendly Societies Act, viz.. Cattle Insurance Societies, Benevolent Societies, Working Men's Clubs, specially authorised Societies (except such as grant Friendly Society benefits), is as follows : — £ s. d. For Societies whose total gross receipts do not exceed =£2,000 per annum 110 For Societies whose total gross receipts exceed £2,000, but do not exceed £10,000 per annum, in respect of each £2,000 or fraction thereof ... 110 Where the gross receipts exceed £10,000 per annum, the fee is to be fixed by private arrangement. The fees for auditino' the accounts of Industrial and Provident Societies are — £ s. d. For Societies whose total sales do uot exceed £2,000 per annum ... ... 1 1 For Societies whose total sales exceed £2,000, but do not exceed £10,000 per annum, in respect of each £2,000, or fraction thereof 1 1 For Societies whose total sales exceed £10,000, but do not exceed £25,000 per annum, in respect of the first £10,000 ... 5 5 D 2 36 AUDITORS. Auditors of Charities. Auditors of Firms, &c. with ail additional 10s. (Jd. in respect of each additional £2,000, or fraction thereof. WJien the sales exceed £25,000 per annum the fee to be fixed by special arrangement. Tlic word " sales " in the case of Societies for the buj^ing and seUing of land to include instalments in repayment of advances. Tlie Auditor may accept audits on terms lower than those of the above scale. The Auditors of the Accounts of Hospitals and Charitaljle Institutions are usually appointed by the Governing Bodies, although the Subscribers would undoubtedly have the right to select their own representa- tive, should they express a wish to do so, at an annual meeting, in the absence of any regulation forming part of the constitution of the Institution, which would, of course, govern the mode of election. The Auditors of the Accounts of a firm are occasionally appointed by the Articles of Partnership, failing that by agreement between the i^artners. A sleeping partner usually makes a condition that the appointment of Auditor shall be vested in him so long as his capital remains in the firm. The fee of an Auditor is usually arranged for the audit of the Accounts of a year's transactions, as contained in the books, and an Auditor in arranging his fee sliould make a contract to this effect. In Lifchjldd cj" Sons r. Mdrkus (reported in The Acconnfdnt^ Vol. XII., p. ()76) the Plaintifls agreed, in December, 1885, to audit the Defendant's books for £50 a year. They completed the audit for the year ending olst Decemlx'r, 1885, in the following March, and claimed tlicii" fee. The Defendant contended that the £50 claimed was for a year's work, and was not due until alter a year th)m the date of the contract. His Honour Judge Coventry ruled that the contract meant ,i:5() lor a year's services, and that the action had been broilijlit too soon. APPOINTMENT AND REMUNERATION OF AUDITORS. 37 The Auditors of the Accounts of a deceased person's Auditors of estate are, as a rule, appointed by the Executors or Accouu°tw!^'^ Trustees, although frequently they may be nominated for the purpose by any person interested, such as one of the beneficiaries. Their fees are the same as for ordinary audits, and when the audit is performed annually a fixed fee is usually arranged. As a rule, these annual fees are paid <3at of the income of the estate, but it will be seen from the following case that, where the audit is performed not so much for the pur[)ose of arriving at the amount to be paid annually to various persons as for the purpose of satisfying the Trustees that the capital is kept intact, the fee is chargeable against the capital, and not against the income of the estate. A partner, on retiring from his firm, left his capital in the business under an agreement with the continuing partners that it should be a debt due from them to him, and bearing interest until repayment. The agreement contained a stipulation that the outgoing partner should have free access to the books at all times, and various pro- visions intended to satisfy the outgoing partner from time to time of the solvency of the business ; upon breach of any one of these provisions he was to be at liberty to call in his capital. The outgoing partner subsequently died, having by his will bequeathed his residuary estate, which included his capital in the business, to a Trustee, upon trusts for one for life and for others in remainder. It was held by the Court of Appeal that the Trustee was at liberty to employ professional Accountants and ^^aluers for an audit and stocktaking once a year, if desired, or oftener if special circumstances so required, and that the expenses of these audits were costs, charges, and expenses incurred by the Trustee in the execution of the trusts of the will for the benefit of the whole estate, and were therefore payable out of capital, and not out of income. — 'In re Bennett^ Jones v. Bennett [1896] 1 Ch. 778. Where a Testator gives power to his Trustees to appoint 38 AUDITORS. a factor to tlie estate, wlio may be one of tliemselve8, but at the same time guards that provision with this further one ; that the other Trustees shall at least once in every year, within one month from the termination of the }'ear, examine and audit the whole of the last year's Accounts, refjuire vouchers, and see that the Accounts had been properly kept, and that the money had been properly received and properly applied, the Trustees ai"e guilty of culpa lata if they fail to call for annual Accounts. — Car rathe rs V. Carruthers [1896] A.C. 659. I COMPANIES, ETC., ACTS. 39 CHAPTER III. THE LAW RELATING TO AUDITORS AND THE BOOKS AND ACCOUNTS OF JOINT STOCK COMPANIES, BUILDING SOCIETIES, FRIENDLY SOCIETIES, INDUSTRIAL AND PROVIDENT SOCIETIEs! AND SAVINGS BANKS. The Companies Act, 1862 — The Companies Act, 1867 — The Companies Act, 1879— The Companies Act, 1880— The Companies Act, 1900— The Companies (Colonial Eegisters) Act, 1883 — The Companies (Winding- up) Act, 1890— The Mortgage Debenture Act, 1865— The Mortgage Debenture (Amendment) Act, 1870— The Companies Ckuses Consolida- tion Act, IS-lo— The Companies Clauses Act, 1863 — The Companies Clauses Act, 1869— The Railways Construction Facilities Act, 1864 — The Eailway Companies Securities Act, 1866 — The Eailway Comimnies Act, 1867— The Railway Companies (Scotland) Act, 1867 — The Regula- tion of Railways Act, 1868 — The Railway and Canal Traffic Act, 1888 — The Regulation of Railways Act, 1889 — The Grasworks Clauses Act, 1847 — The Grasworks Clauses Act, 1871 — The Waterworks Clauses Act, 1847— The Metropolis Water Act, 1852— The Metropolis Water Act, 1871— The Electric Lighting (Clauses) Act, 1899— The Stannaries Act, 1869 — The Stannaries Act, 1887 — The Life Assurance Companies Act, 1870— The Building Societies Act, 1874^The Building Societies Act, 1894 — The Friendly Societies Act, 1896 — The Societies Borrowing Powers Act, 1898 — The Collecting Societies and Industrial Assurance Companies Act, 1896— The Industrial and Provident Societies Act, 1893— The Industrial and Provident Societies Act, 1894— The Trustee Savings Banks Act, 1863 —The Savings Banks Act, 1891. As it is very necessary that every one liolding an Auditor ( )ffice of a public nature should clearly understand his quaintedwlth legal responsibihties, an Auditor should be acquainted i|^^e°/t re-' with the Acts of Parliament under which his a))])oint- bating to , ^ ^ his duties. ment is made. It is, of course, therefore desirable that an Auditor of a Public Company, or of a Building or other Society, should be familiar with all the Acts reo'ulatino" the C-ompany or Society of which he is the Auditor, and special attention should be given to those sections relating to the ap})ointment and duties of the Auditors, and to the Books and Accounts. 40 AUDITORS. When a Comi^iny has been incorporated by Special Act of Parliament, or if registered under the Companies Act, 1(S()2, has Articles of Association, the Auditor should be provided with a copy of the Private Act or tlie Articles of Association, and these should be read in conjunction Avith tlie Pubhc Acts, as explained in the first chapter. The Auditor of a Building Society, or Friendly Society, or an Industrial and Provident Society should also be j)r()vided with a Copy of the Rules of the Society, which must in the same manner be read in conjunction with the Public Act or Acts under which the Society is registered. The present chapter contains the sections of the Public Acts having reference to the appointment and duties of Auditors of Companies and Societies, and the Books and Accounts which have to be examined by them. The Acts of l^arliament from wliich they are taken do not follow in chronological order, but for convenient reference are so arranged that the Acts referring to the same class of Companies and Societies will be found together. The Companies Act, 1862. (25 & 26 Vict, c. 89.) [7th August, 18G2.] Short Till.'. 1. 'I'his Act may be cited for all Purposes as "The Companies Act, 1862." Tlie following Acts are uow iucurporatcd Avitli this Act, fonniug the Companies Acts, 1862 to 1900: — The Coiiipunios Seals Act, 18G4. The ('oiiipiiiii(>.s Act, 1807. The Joint Stock ('ompauios Arrangement Act, 1870. The C'oinpauics Act, 1877. The Companies Act, 1879. The Coniiiuiiies Act, 1880. The ('oiniuiiiics (Colonial Registers) Act, 1883. The C<»nii)anies Act, 1880. The I'reierential Payments in Bankruptcy Act, 1888 COMPANIES, ETC., ACTS. 41 The Companies (Memorandum of Association) Act, 1890. The Companies (Winding-up) Act, 1890. The Directors' Liability Act, 1890. The Companies (Winding-up) Act, 1893. The Companies Act, 1898. The Comjmnies Act. 1900. Many, however, of the above Acts do not contain any reference to Auditors, or to the Books and Accounts of Companies. 3. For the Purposes of this Act a Company tliat Definition of carries on the business of insurance in common with any c^^ilJ^any^. other business or businesses shall be deemed to be an Insurance Company. A Comj)any registered under this Act after 9th August, 1870, carrying on the business of Life Insurance has, therefore, to comply with the conditions of Section 4 of the Life Assurance Companies Act, 1870, as to keejiing a separate account of its Life Funds, and to present its Accounts in the form prescribed by Section 5 of that Act, contained in its First and Second Schedide. {See Appendix.) 15. In the case of a Company limited by shares, if Application the ^lemorandum of Association is not accompanied by ° Articles of Association, or in so far as the Articles do not exclude or modify the regulations contained in the Table marked A in the First Schedule hereto, the last -mentioned regulations shall, so far as the same are applicable, be deemed to be the regulations of the Company in the same manner and to the same extent as if they had been inserted in Articles of Association and the Articles had been duly registered. Section 196 prescribes that Table A shall not, unless adopted by Special Eesolution, apply to any Company registered under Part VII. of this Act, which contains regulations as to registration of Companies existing at the date of the Act. 25. Every Company under this Act shall cause to be Register of kept in one or more books a Register of its Members, ^^ ^^^' and there shall be entered therein the folio wini^ particulars : (1.) The names and addresses, and the occupations, if any, of the members of the Company, with the addition, in the case of a Company having a capital divided into shares, of a statement of the 42 AUDITORS. shares held by eacli member, distinguishing each share by its number: and of the amount paid or agreed to be considered as paid on the shares of each member : {'2.) Tlie date at which the name of any person was entered in tlie Register as a member : (o.) The date at wliich any person ceased to be a member. ]3y Section ol of the ( 'oiiipanies Act, 1867, on the issue of a share warrant in respect of any share or stock, the Coinpauy shall strike out of its Eegister of Members the name of the member then entered therein as holding- such share or stock, as if he had ceased to be a member, and shall enter in the Register the fact of the issue of the warrant, a statement of the shares or stock included in the warrant, distinguishing- each share by its number and the date of the issue of the warrant, and until the Avarrant is surrendered the particidars are deemed to be the particulars I'equired by the 25th Section. Section 29 prescribes that where a Company under this Act haA'ing a capital divided into shares has converted any portion of its capital into stock, and given notice of such conversion to the Registrar of Joint Stock (Jompanies, the Register of Members is to show the amount of stock held by each member, instead of the amount of shares and the particulars relating to shares. T]ie Register may consist of different books, which, by reference from one to tlie other, supply all the information rec[iured. — Wickers- helm'' s Ca.ie, 8 Ch. 831, 836. Under certain circumstances it is probable that Allotment Sheets might constitute a Register of Members. — Kv parte Cammell [1894] 1 Oh. 528, [1894] 2 Ch. 392. A Company wl^ose objects comprise the transaction of business in a ( Jolony may keep a branch Register of Members resident in such Colony, if authorised so to do by its regulations as originally framed, or as a]ter<'(l ])y Special Resoluticm. (Companies (Colonial Registers) Act, 1883.) If shares l)e paid in wdiole or in part, not in money, but in money's worth, tlio Directors will properly state on the Register of Members that the shares are to the extent of such money's worth paid up, altliougli no money has passed. — Anglesea Colliery Co., 2 Eq. 379, 1 ('}i. 555. Auimui i.i>i -<'. I'^ery Company under this Act, and having a "' ^''"''"''■'- capital divided into shares, shall make, once at least in every yeai", a list of all persons who, on the fourteentli day succeeding the day on which the Ordinary General I COMPANIES, ETC., ACTS. 48 Meeting, or if there is more than one Ordinary Meeting in eacli year, the first of such Ordinary General Meetings, is held, are members of the Company : and such hst shall state the names, addresses, and occupations of all the members therein mentioned, and the number of shares held by each of them, and shall contain a summary specifying the following particulars : (1.) The amount of the capital of the Company, and the number of shares into Avhich it is divided : (2.) The number of shares taken from the commence- ment of the Company up to the date of the summary : (3.) The amount of calls made on each share : (4.) The total amount of calls received : (5.) The total amount of calls unpaid : (6.) The total amount of shares forfeited : (7.) The names, addresses, and occupations of the ]3ersons who have ceased to be members since the last list was made, and the number of shares held by each of them. The above list and summary shall be contained in a separate part of the Register, and shall be completed within seven days after such fourteenth day as is mentioned in this section, and a copy shall forthwith be forwarded to the Registrar of Joint Stock Companies. Eveiy year meausa year from 1st January to 31st December.— 6r/J*(/;i V. Barton, 10 Q.B. 329 ; Edmonds u. Foster, 33 L.T. 690. Sectiou 32 of the Companies Act, 1867, prescribes that after the issue of a share warrant the Annual Sumnuiry shall contain the follow- ing- particulars : the total amount of shares or stock for which share warrants are outstanding at the date of the Summary, and the total amount of share warrants which have been issued and surrendered respectively since the last Summary was made, and the number of shares or amount of stock comprised in each warrant. Section 29 prescribes that where a ConqDany under this Act, having- a capital divided into shares, has converted any portion of its capital into stock {see note to Section 25), the List of Members shall show the amount of stock held by each member in the list, instead of the amount of shares and the particulars relating- to shares. 44 AUDITORS. Entry of Trusts on Ke^ster. Register of Mortgages. Section 19 of the Companies Act, 1900, prescribes that tlie Annual Summary shall be so framed as to distinguish between the shares issued for cash and the shares issued otherwise than for cash or only partly for cash, and shall, in addition to the particulars required by that section, specify others. (-S^^^ Companies Act, 1900, Section 19.) 80. Xo notice of any trust, expressed, implied, or constructive, shall be entered on the Register, or be receivable by the Registrar, in the case of Companies under this Act and registered in England or Ireland. This section does not apply to Scotland, it being the Scotch practice to notice trusts in the transfer and registration of stocks. 43. Every Limited Company under this Act shall keep a Register of all mortgages and charges specifically affecting property of the Company, and shall enter in such Register in respect of each mortgage or charge a short description of the property mortgaged or charged, tlie amount of charge created, and the names of the mortgagees or persons entitled to such charge : If any })roperty of the Company is mortgaged or charged without such entry as aforesaid being made, every Director, ^lanager, or other officer of the Company who knowingly and wilfully authorises or permits the omission of such entry shall incur a penalty not exceeding fifty pounds : The Register of Mortgages required by this section shall he open to inspection by any creditor or Member of the Company at all reasonable times ; and if such inspection is refused any officer of the Company refusing the same, and every Director and Manager of the Company authorising or knowingly and wilfully permitting such refusal, shall incur a penalty. The Act requires registration, not of the instrument creating the charge, but of the property charged. It extends, therefore, to the case where there is no instrument, such as where the security is created by depfjsit. — Smit/i's Case, 1 1 Ch. Div. 579, 585. When debentures are issued to bearer it is the practice to register the name of the person to whom each debenture is first issued. When a debenture trust deed is executed it is tlie practice to register the trustees or the persons entitled to the charge. The right of a creditor or member of a Company to iusjject the Register of Mortgages includes a right to take copies of the Register. — Nehon V. Auglo-Americau Laud Mortgage Agency Co. [1897] 1 Ch. 130. COMPANIES, ETC., ACTS. 45 44. Every Limited Banking Company and every Certain Com- Insurance Company, and Deposit, Provident, or Benefit publish state- Society under this Act shall, before it commences SJj^gciiediii?^ business, and also on the first Monday in February and the iirst ^londay in August in every year during which it carries on business, make a statement in the form marked D (see Appendix) in the First Schedule hereto, or as near thereto as circumstances will admit, and a copy of such statement shall be put up in a conspicuous place in the registered office of the Company and in every branch office or place where the business of the Company is carried on. 45. Every Company under this Act shall keep List of at its registered office a Register containing the be^sTurto*° names and addresses and the occupations of its Registrar. Directors or ^lanagers, and shall send to the Registrar of Joint Stock Companies a copy of such Register, and shall from time to time notify to the Registrar any change that takes place in such Directors or Managers. 49. A (xeneral Meetino- of every Company under this General A X I, 11 1 U 1^ ^1 ^ ' Meeting of Act shall be held once at least m every year. Company. The year is the natural one, from 1st January to 31st December. — Edmonds r. Foster, 33 L.T. 690. It is at this meeting that the Accounts are laid before the Share- holders, and the Auditors for the ensuing year are a^jpointed. 67. Every Company under this Act shall cause minutes Evidence of of all resolutions and proceedings of General Meetings of at*^ieetings. the Company, and of the Directors or Managers of the Company in cases where there are Directors or Managers, to be duly entered in books to be from time to time provided for the purpose. The books containing these minutes are known as "Minute Books." In large Companies it is the practice to keep separate " Minute Books" for meetings of the Directors, for meetings of Committees of Directors, and for the meetings of Shareholders respectively. These "Minute Books " are, it is conceived, open to the inspection of the Auditor should he, in the perfonnance of his duties, consider such inspection desirable. A clause, however, giving a right of inspection of " the 46 AUDITORS. Power of Coui't to summon persons before it suspected of having pro- perty of Company. books "wherein the proceedings of the Company are recorded" does not give a Shareholder the right to inspec^t the hooks of minutes of the proceedings of tlie Directors. — Reg. v. Mariquita Co., 1 E. & E. 289. 115. The Court may, after it has made an order for winding up the Company, summon before it any Officer of the Company, or person known or suspected to have in his possession any of tlie estate or effects of the Company, ov supposed to be indebted to the Company, or any person Avliom the Court may deem capable of giving information concerning the trade, deahngs, estate, (^r effects of the Company ; and the Court may require any such Officer or person to produce any books, papers, deeds, writings, or other documents in his custody or power relating to the Company ; and if any person so summoned, after l^eing tendered a reasonable sum for his expenses, refuses to come before the Court at the time appointed, having no lawful impediment (made known to the Court at the time of its sitting, and allowed by it), the Court may cause sucli person to be apprehended, and brought before the Court for examination ; nevertheless, in cases where any })erson claims any lien on papers, deeds, or writings, or documents produced by him, such production shall be without prejudice to such lien, and the Court shall have jurisdiction in the winding-up to determine all questions relating to such lien. This Section is now supplemented by Sec. 8 of the Companies (Winding-up) Act, 1890, which see. As to an Auditor l)eing an Officer of the Compan}', see remarks in Chapter I. The Section is as applicable to matters occurring in tlie winding-up as to matters before the winding-\ip. — Ex parte Carver, 47 L.J. Ch. 702. The Witness is entitled to be attended at his examination l>y liis Counsel and Solicitor. — In re Breech-Loading Armourg Co., In re MercIianU' Co., 4 Eq. 453. Tlie Witness is entitled to be re-examined for tlie purpose of explaining tlie evidence given in his examination. — Cambrian Mining Co., 20 Ch. D. 376. companies, etc., acts. 47 First Schedule. Table A. — Regulations for Management of a Company Limited by Shares. 7. Tlie Directors may, if they think fit, receive fromCaUson any member wiUing' tu advance the same all or any part of the moneys due upon the shares held by hiin beyond the sunis actually called for ; and upon the moneys so paid in advance, or so much thereof as from time to time exceeds the amount of the calls then made upon the shares in respect of which such advance has been made, the Company may pay interest at such rate as the member paying such sum in advance and the Directors agTee upon. The word "interest" does not mean "dividend," Interest upon moneys paid in advance is a legal debt, payable out of any assets of the Compam', including its capital. — Lock r. Queensland Investment Co. [1896"! A.C."^461. 23. The Directors may, with the sanction of the Conversion of ^, . , . • /-( 1 Af 4-- , Shares into Company j^reviously given ni (jreneral Meeting, convert stock, any paid-up shares into stock. 25. The several h(^lders of stock shall be entitled to participate in the dividends and profits of the Company according to the amount of their respective interests in such stock. 26. The Directors may, with the sanction of a special issue of new resolution of the Company previously given in General* Meeting, increase its capital by the issue of new shares, such aggregate increase to be of such amount, and to be divided into shares (jf such respective amounts, as the Company in General Meeting directs, or, if no direction is given, as the Directors think expedient. 28. Any capital raised by the creation of new shares To be 1 11 1 " . , T n 1 • • 1 ' ^ 1 considered ns shall be considered as part oi the original capital, and part of shall be subject to the same provisions with reference to ca°JJ3. the payment of calls, and the forfeiture of shares on non- payment of calls, or otherwise, as if it had been part of the original capital. 48 AUDITORS. General 30. General Meetings shall be held at such time and place as may be prescribed by the Company in General Meeting ; and if no other time and place is prescribed, a General Meeting shall be held on the first Monday in February in every year, at such place as may be determined by the Directors. See Note to Section 49 of the Act. Dividends. 72. The Directors may, with the sanction of the Company in General Meeting, declare a dividend to be paid to the members in proportion to their shares. A Waterworks Company, constituted under this Act, whose Articles of Association contained a clause similar to the above, having ajiplied the profits which had been earned to the construction of productive works instead of paying a dividend, passed a resolution proposing to give to the Shareholders Debenture Bonds bearing interest, and redeemable at par by an annual drawing extending over thirty j^ears. It was held that this was, upon the true construction of the Articles, not in accordance with them, and the Directors were restrained from acting on the resolution. — Wood v. Odessa IVaterworks Co., 42 Ch. D. 636. The result of this decision is that, under Articles of x'Vssociation in this form, dividends are payable in proportion to the amount of the subscribed capital, not of the paid-up capital. The Articles of a Company provided for the submission of Accounts up to a date within three months and reports thereon, the sanction of a dividend, and the transaction of the ordinary business at the Annual Greneral Meeting. It was held by North, J., that a final dividend could not be sanctioned except at an Annual General Meeting, at which Accounts up to the jirescribed date and reports thereon were submitted. —Nicholson v. Rhodesia Trading Co. [1897] 1 Ch. 434. 73. No dividend shall be payable except out of the profits arising from the business of the Company. As to profits available for dividend see Chapter XIII. 74. The Directors may, before recommending any dividend, set aside out of the profits of the Company such sum as they think proper as a Reserved Fund to meet contingencies, or for equalising dividends, or for repairing or maintaining the works connected with the business of the Company, or any part thereof; and COMPANIES, ETC., ACTS. 49 the Directors may invest the sum so set apart as a Reserved Fund upon such securities as they may select. This Article seems to indicate that the amount set aside is to he invested and not employed in the business. 75. The Directors may deduct from the di^ddends payable to any member all such sums of money as may be due from him to the Company on account of calls (jr otherwise. 76. Notice of any dividend that may have been declared shall be given to each member in manner liereinafter mentioned ; and all dividends unclaimed for three years, after having been declared, may be forfeited by the Directors for the benefit of the Company. Dividends thus forfeited may he carried to the Reserve Fund, or even to the credit of the Revenue Account. 77. No dividend shall" bear interest as against the Company. 78. The Directors shall cause true Accounts to be kept — Accounts. Of the stock-in-trade of the Company ; Of the sums of money received and expended by the Company, and the matter in respect of which such receipt and expenditure takes place ; and Of the credits and liabilities of the Company ; The Books of Account shall be kept at the registered office of the Company, and, subject to any reasonable restrictions as to the time and manner of inspecting the same that may be imposed by the Company in General Meeting, shall be open to the inspection of the Members during the hours of business. Directors keeping- fraudulent Accounts are by 24 & 25 Vict., c. 96, ss. 81 — 84 [see post), guilty of a misdemeanour. 79. Once at the least in every year the Directors shall statement of lay before the Company in General Meeting a Statement pj^'^^'^dihire. of the Income and Expenditure for the past year, made up to a date not more than three months before such Meeting. This Statement is the one usually styled a Profit and Loss Account E 50 AUDITORS. or Eevenue Aceouut, and not a Cash Account. For difference between these accounts see Chapter VII. SO. Tlie Statement so made shall show, arranged under tlie most convenient heads, the amount of gross income, distinguishing the several sources from which it has been derived, and the amount of gross expendi- ture, distinguishing the expense of the establishment, salaries, and other Uke matters : Every item of expenditure fiiirly chargeable against the year's income shall be brought into account, so that a just balance of Proiit and Loss may be laid before the Meeting ; and in cases where any item of expenditure which may in fairness be distributed over several years has been incurred in any one year the whole amount of such item shall be stated, with the addition of the reasons why only a portion of such expenditure is charged against the income of the year. See Chapter IX. for special remarks on the various items of receipt and expenditure which ordinarily occur in this Statement. Balance 81. A Balance Sheet shall be made out in every year, '^^^^^- and laid before the Company in General Meeting, and such Balance Sheet shall contain a summary of the property and liabilities of the Company arranged under the heads appearing in the form annexed to this Table, or as near thereto as circumstances admit. See Chapters X. and XI. for special remarks on the various items which ordinarily occur in this Statement. 82. A printed copy of such Balance Sheet shall, seven days previously to such Meeting, be served on every member in the mamier in which notices are hereinafter directed to be served. Tlie Certiticate of the Auditor is by the Companies Act, 1900, Sec. 23, recjuirod to be affixed to the Balance Sheet, and is printed on the copies sent to each member in accordance with this Article. Where the Articles of Association of a Company provided for the presentation at every half-yearly General Meeting of a Balance Sheet and General Smumary of Accounts, which was to be binding- and con- clusive on the Shareholders, imless objected to before the next General COMPANIES, ETC., ACTS. .51 Meeting, and no such Balance Sheet or General Summary, hut only a lialf-yearly Eeport was prepared, in which the affairs of the Company were mis-stated, it was held that such Reports were not binding- on the Shareholders. — Portsmouth Bunking) Co.''s, Ilclbi/^s, and other Cases, 2 Eq. 167. A Director is not necessarily personally responsible for Balance Sheets and Reports stated to be issued " by order of the Directors." —Denliam Sf Co., 25 Ch. D. 752. 83. Once at the least in every year the Accounts Audit. of the Company shall be examined, and the correctness of the Balance Sheet ascertained, by one or more Auditor or Auditors. See remarks and opinion of Counsel in Chapter II. as to members of the same firm being "more Auditors" within meaning of this Article* 84. The First Auditors shall be appointed by the Appointment Directors : subsequent Auditors shall be appointed by °* ^^^'' ^^^^'^' the Company in General Meeting. It is the ordinary practice for the names of the first Auditors to be printed on the Prospectus. It is, perhaps, doubtful as to whether this is an appointment within the meaning of this Article, but it is certainly a pledge given by the Directors to those who apply for shares on the faith of the statements in the Prosj)ectus that the Auditors named on the Prospectus will be validly appointed, and tlius audit the Accounts to be placed before the members at the first Annual General Meeting. 85. If one Auditor only is appointed, all the provisions herein contained relating to Auditors shall apply to him. 86. The Auditors may be members of the Company ; but no person is eligible as an Auditor who is interested otherwise than as a member in any transactit)n of the Company ; and no Director or other officer of the Company is eligible during his continuance in office. 87. The election of Auditors shall be made by the Company at their Ordinary Meeting in each year. This is now compulsory by Section 21 of the Companies Act, 1900. 88. The remuneration of the first Auditors shall be Remunera- fixed by the Directors ; that of subsequent Auditors shall be fixed by the Company in General Meeting. E 2 52 AUDITORS. 89. Any Auditor sliall be re- eligible on his quitting office. i)0. If any casual vacancy occurs in the office of any Auditor appointed by the Company, the Directors shall forthwith call an Extraordinary General Meeting for the purpose of supplying the same. Tliis Article is now superseded by Section 21 (5), of the Companies Act, 1900, which authorises the Directors to fill any casual vacancy, and also authorises the surviving or continuing Auditor or Auditors (if any) to act while any vacancy continues. 91. If no election of Auditors is made in manner aforesaid the Board of Trade may, on the application of not less than five members of the Company, appoint an Auditor for the current year, and fix the remuneration to be paid to him by the Company for his services. By Section 21 (2), of the Companies Act, 1900, the Board of Trade may appoint an Auditor on the application of any member of the Compan}'. Duties of 92. Every Auditor shall be supplied with a copy of the Balance Sheet, and it shall be his duty to examine the same wdth the Accounts and vouchers relating thereto. It is perfectly clear from this Article that the preparation of the Balance Slieet is no part of an Auditor's duties. It is to be supplied to him, presumably by the Directors, for his Certificate to be affixed thereto, in accordance with Article 94, and the Companies Act, 1900, Section 23. 93. Every Auditor shall have a list delivered to him of all books kept by the Company, and shall at all reasonable times have access to the Books and Accounts of the Company. He may, at the expense of the Company, employ Accountants or other persons to assist him in investigating such Accounts, and he may in relation to such Accounts examine the Directors or any other officer of the Company. The power giveu by this Article is conferred on each Auditor. — Steele r. Sutton Gas Co., 12 Q.B.D. 68; see Chaj^ter XIV. Tlio " books " are presumed to include not merely the Books of Account, but also the Minute Books and Letter Books. {See note to Companies Act, 1900, Sectiim 23.) COMPANIES, ETC., ACTS. 53 94. Tlie Auditors shall make a Report to the Report of members upon the Balance Sheet and Accounts, and in ' "*^ every such Report they shall state whether in their opinicm the Balance Sheet is a full and fair lialance Sheet containing the particulars required by these regulations, and properly draAvn up so as to exhibit a true and correct view of the state of the Company's affairs, and in case they have called for explanations or information from the Directors, whether such expla- nations or information have been given by the Directors, and whether they have been satisfactory ; and such Report shall be read, together with the Report of the Directors, at the Ordinary Meeting. For remarks ou the Report aud Certificate of Auditors see Chapter XV. The Report is made compulsory upon the Auditors of all Companies registered under the Act of 1862 by the Act of 1900, and the state- ment required by the above Article must be supplemented by the words required by Section 23 of the latter Act. Second Schedule. Form B. — Memorandum and Articles of Association or A Company Limited by Guarantee, and not having a Capital Divided into Shares. 29. The Accounts of the Company shall be audited Audit by a Committee of five members, to be called the Audit Committee. 30. The first Audit Committee shall be nominated by the Directors out of the body of members. 31. Subsequent Audit Committees shall be nomi- nated by the members at the Ordinary General Meetmg in each year. 32. The Audit Committee shall be supplied with a copy of the Balance Sheet, and it shall be their duty to examine the same with the Accounts and Vouchers relating thereto. 33. The Audit Committee shall have a list dehvered to them of all books kept by the Company, and they 54 AUDITORS. Report of Audit Committee. shall at all reasonable times have access to the Books and Accounts of the Company : They may, at the expense of the Company, employ Accountants or other persons to assist them in investigating such Accounts, and they may in relation to such Accounts examine the Directors or any other Officer of the Company. 34. The Audit Committee shall make a Report to the members upon the Balance Sheet and Accounts, and in every such Report they shall state whether in their opinion the Balance Sheet is a full and fair Balance Sheet, containing the particulars required by these regulations of the Company, and properly drawn up so as to exhibit a true and correct view of the state of the Company's affairs, and in case they have called for explanation or information from the Directors, whether such explanations or information have been given by the Directors, and whether they have been satisfactory, and such Report shall be read together with the Report of the Directors at the Ordinary Meeting. The preceding six Sections must be read in conjunction with the Companies Act, 1900, Sections 21-23. The Companies Act, 1867. (30 & 31 Vict., c. 131.) [20th August, 1867.] Short Title. 1- This Act may be cited for all purposes as "The Companies Act, 1867." Particulars to 32. After the issue by the Company of a share Srunuar^ warrant, the Annual Sunnnary required by the 26tli Summary. Scctiou of tlie principal Act shall contain the following- particulars, — Tlie total amount of shares or stock for wliich share warrants are outstandino- at the date of the o Suuuaary, and the total amount of share warrants which have been issued ami surrendered respectively since the last Summary was made, and the number of shares or amount of stock comprised in each warrant. COMPANIES, ETC., ACTS. 55 The Companies Act, 1879. (42 & 43 Vict., c. 76.) [15th August, 1879.] 1. This Act may be cited as "The Companies Act, 1879." short Title. 2. This Act shall not apply to the Bank of England. ;\?piy toSaiik of England. o. This x\ct shall, so far as is consistent with the Act to be con- tenor thereof, he construed as one with the Companies 25 & 26 Vict., Acts, 1862, 1867, and 1877, and those Acts t(>gether 3Q'^'3iYic(. with this Act maybe referred to as "The Companies Acts, Jq^^^^Iv'^y^^ 1862 to 1879." C.26. ''" This Act is now construed with the Acts referred to in the notes to the Companies Act, 1862, Section 1, and is cited with these Acts as the Companies Acts 1862 to 1900. 7. — (1.) Once at the least in every year the Accounts Audit of of every Banking Company registered after the passing Banking of this Act as a Limited Company shall be examined by Companies. an Auditor or Auditors, who shall be elected annually by the Company in General Meeting. (2.) A Director or Officer of the Company shall not be capable of being elected Auditor of such Company. (3.) An Auditor on quitting office shall be re-eligible. (4.) If any casual vacancy occurs in the office of any Auditor, the surviving Auditor or Auditors (if any) may act, but if there is no surviving Auditor, the Directors shall forthwith call an Extraordinary General Meeting for the purpose of supplying the vacancy or vacancies in the Auditorship. (5.) Every Auditor shall have a list delivered to him of all books kept by the Company, and shall at all reasonable times have access to the Books and Accounts of the Company ; and any Auditor may, in relation to such Books and Accounts, examine the Directors or any other Officer of the Company : Provided that if a Banking- Company has branch banks beyond the limits of Europe, it shall be sufficient if the Auditor is allowed access to such copies of and extracts from the Books and Account.^ 56 AUDITORS. of any such branch as may have been transmitted to the head office of the Banking Company in the United lvingd( )m. Report of (G.) The Auditor or Auditors shall make a Report to the Members on the Accounts examined by him or them, and on every Balance Sheet laid before the Company in General Meeting' durino- his or their tenure of office : and in every such Rep;)rt shall state whether, in his or their o})inion, the Balance Sheet referred to in the Report is a full and fan* Balance Sheet, properly drawn up, so as to exhibit a true and correct view of the state of the Compan3''s aflairs, as shown by the Books of the Company ; and such Report shall be read before the Company in General Meeting. (7.) The remuneration of the Auditor or Auditors shall be fixed by the General Meeting appointing such Auditor or Auditors, and shall be paid by the Company. "It is impossible to read Section 7 without being struck Avith the importance of the enactment that the Auditors are to be appointed by the sliareholders, and are to report to them dii'ectly, and not to or through the Directors. The object of this enactment is obvious. It evideutl}' is to secure to the shareholders independent and rehable infonnation resj)ecting the true financial position of the Company at the time of the audit." — In re London and General Bank (No. 2) [1895] 2 Ch. 682. Signature of (8.) Every Balance Sheet submitted to the Annual or other Meeting of the Members of every Banking Company registered after the passing of this Act as a J limited Company shall be signed by the Auditor or Auditors, and by the Secretary or Manager (if any), and by the Directors of the Company, or three of such Directors at the least. Tlio provisions contained in Sections 21, 22, and 23 of the Companies Act, 1900, are supplemental to and not in substitution for provisions as to audit in tho preceding Section (where applicable), and the Act of 1900 docs not relievo an Auditor Irom the necessity of complying with such provisions, even though tlioy impose obligations beyond those imposed by tho Act of 1900. In so far, however, as the Act of 1900 is inconsistent with the provisions of the Act of 1879, the later Act prevails. companies, etc., acts. 57 The Companies Act, 1880. (43 Vict., c. 19.) [24tli March, 1880.] 1. This Act may be cited for all purposes as " The siiort Title. Companies Act, 1880." 2. This Act shall, so far as is consistent with the Construction of Aral's tenor thereof, be construed as one mth the Companies 25 & 26 vict., Acts, 18G2, 1867, 1877, and 1879, and the said Acts 3o&'3ivict.. and this Act may be referred to as " The Companies Acts, ^o^^^^ii vict 1862 to 1880." c. 26, '^ ■' 3. When any Company has accumulated a sum ofc. 76. undivided prohts, which with the consent of the Accumulated shareholders may be distributed among the shareholders returned to in the form of a dividend or bonus, it shall be lawful In reduction^ for the Company, by Special Resolution, to return the J^^ J'J,^ '"^ same, or any part thereof, to the shareholders in reduction of the paid-up capital of the Company, the unpaid capital being thereby increased by a similar amount. The powers vested in the Directors of making calls upon the shareholders in respect of moneys unpaid upon their shares shall extend to the amount of the unpaid capital as augmented by such reduction. 4. No such Special Resolution as aforesaid shall take No Resolution effect until a Memorandum, showing the particulars tin particu- required by law in the case of a reducticm of J.^^'^j^J.'^^^^*^^^^ capital by order of the Court, shall have been produced to and registered by the Registrar of Joint Stock Companies. 5. Upon any reduction of paid-up capital made in Power to any pursuance of this Act, it shall be lawful for any within one shareholder, or for any one or more of several j^^^sin/o/ joint shareholders, mthin one month after the passing Resolution to '',__' r o require Uom- of the Special Resolution for such reduction, to P'l-iiytor^t'^'" 1 ri • Tin in inoucys paid require the Company to retani, and the Company shall up on shares retain accordingly, the whole of the moneys actually pg/go/ ^"^ 58 AUDITORS. paid up on the shares held by such person, either alone or jointly with any other person or persons, and which, in consequence of such reduction, would otherwise be returned to him or them, and thereupon the shares in respect of which the said moneys shall be so retained shall, in regard to the payment of dividends thereon, be deemed to be paid up to the same extent only as the shares on which payment as aforesaid has been accepted by the shareholders in reduction of their paid-up capital, and the Company shall invest and keep invested the moneys so retained in such securities authorised for investment by Trustees as the Company shall determine, and upon tlie money so invested, or upon so much thereof as from time to time exceeds the amount of calls subsequently made upon the shares in respect of which such money shall have been retained, the Company shall pay such interest as shall be received by them from time to time on such securities, and the amount so retained and invested shall be held to represent the future calls which may be made to replace the capital so reduced on those shares, whether the amount obtained on sale of the whole or such proportion thereof as represents the amount of any call when made produces more or less than the amount of such call. Company to 6. From and after such reduction of capital the amounts Company shall specify in the annual Lists of ^lembers, which Share- to be made by them in i)ursuance of the Twenty- holders hfl/VG „ requiredthem sixtli Scctiou of tlic Companies Act, 1862, the amounts under^s!^5; wliicli any of the shareholders t)f the Company sliall ?e°dfv have required the Company to retain, and the Company amounts of shall liavc retained accordino-ly in pursuance of the profits re- -r^. ^ ^ ,-, • n ^ • 4 11 n 1 11 1 turned to l" iitli bcctiou ot tlus Act, aud the Company shall also 25 &^2({'vict!! specify in the Statements of Account, laid before any c. 81). (xcneral Meeting of the Company, the amount of tlie undivided prohts of the Company which shall have been returned to the shareholders in reduction of the paid-up capital of the Company under this Act. companies, etc., acts, 59 The Companies Act, 1900. (63 vt 64 Vict., c. 48.) [8th August, 1900.] o. — (1.) Without prejudice to the restrictions imposed Qualification by the last foregoing section, it shall be the duty of every Director who is by the Regulations of the Company required to hold a specified share qualification, and who is not already qualified, to obtain his qualification within tn't) months after his appointment, or such shorter time as may be fixed by the Regulations of the Company. (2.) The ofiice of Director of a Company shall be vacated, if the Director does not within two months from the date of his appointment, or within such shorter time as may be fixed by the Regulations of the Company, obtain his qualification, or if after the expiration of such period or shorter time he ceases at any time to hold his qualification : and a person vacating ofiice under this Section shall be incapable of being re-appointed Director of the Company until he has obtained his qualification. (3.) If after the expiration of the said period or shorter tune any unqualified person acts as Director of a Company, he shall be liable to pay to the Company the sum of five pounds for ever}' day during which he so acts. The restrictions in Section 2 referred to relate to the mode of Appointment of Directors. Although not compulsory upon him it would be very proper for an Auditor to mention in his Report the fact that a person was acting as a Director who had not complied with the j)rovisions of this Section as to qualification. A qualification may, unless the Articles of Association otherwise provide, he properly obtained, either by taking the shares from the Company or acquiring them hy transier.— Browne's Case, 9 Ch. 102. In the absence of special provision in the Articles, a Director who is the registered holder of the required qualification shares is qualified, even though he holds them merely as trustee for some other person. — Pulbrook V. Richmond Consolidated Co., 9 CD. 610 ; Bainhridge v. Smith, 41 CD. 462. A Director is duly qualified if he is one of several joint holders of the required qualification. — In re Glory Paper Mills, Bunster's Case [1894] 3 Ch. 473. 60 AUDITORS. Restriction 4. — (1.) No allotment shall be made of any Share ijiotmont. Cai)ital of a Company offered to the public for subscrij)ti()ii, unless the following condititms have been complied with, namely, — (a) the amount (if any) fixed by the Memorandum or Articles of Association and named in the prosi)ectus as the minimum subscription upon which the Directors may proceed to allotment ; or {/)) if no amount is so fixed and named, then the whole amount of the Share Capital so ofi^"ered for subscription, has been subscribed, and the sum payable on application for the amount so fixed and named, or for the whole amount offered for subscription has been ijaid to and received by the Company. (2.) The amount so fixed and named and the whole amount aforesaid shall be reckoned exclusively of any amount payable otherwise than in cash, and is in this Act referred to as the minimum subscription. (3.) The amount payable on application on each share shall not be less than five per cent, of the nominal amount of the share. (4.) If the conditions aforesaid have not been complied with on the expiration of forty days after the first issue of the prospectus, all money received from applicants for shares shall be forthwith repaid to the applicants without interest, and, if any such money is not so repaid within forty-eight days after the issue of the prospectus, the Directors of the Company shall be jointly and severally liable to repay that money with interest at the rate of five per centum per annum fi-om the expiration of the forty- eight days : Provided that a Director shall not be Kable il" he j)r()ves that the loss of the money was not due to any misconduct or negligence on his part. (.5.) Any conditicm re([uiring or binding anv applicant for shares to waive compliance with any re(|uirement of this Section shall be void. (G.) This Section, except Subsection (3) thereof, shall COMPANIES, ETC., ACTS. 61 iK)t apply tt) any allotment of shares subsequent to the first allotment of shares offered to the public for subscription. This Section does not apply unless Share Capital is offered for public subscription, and therefore it does not apply to a private Company which makes no offer of Shares for public subscription, or to a Company which only offers Debentures or Debenture Stock for public subscription, or to a case in which the offer is not to the public, but to a select class of persons, such as to members of a Company re- constructing'. 7. — (1.) Whenever a Company limited by shares makes Uetm-uasto any allotment of its shares, the Company shall within one '^^"*"^*'^*^- month thereafter file with the Reo-istrar — CI (a) a return of the allotments, stating the number and nominal amount of the shares comprised in the allotment, the names, addresses, and descriptions of the allottees, and the amount (if any) paid or due and payable on each share ; and (b) in the case of shares allotted in whole or in part for a consideration other than cash, a contract in writing constituting the title of the allottee to such allotment, together with any contract of sale, or for services or other consideration in respect of which such allotment was made, such contracts being duly stamped, and a return stating the number and nominal amount of shares so allotted, the extent to which they are to be treated as paid up, and the ccmsideration for which they have been allotted. (2.) If default is made in complying with the requirements of this Section, every Director, Manager, Secretary, or other Officer of the Company, who is knowingly a party to the defiiult, shall be liable to a fine not exceeding fifty pounds for every day during which the default continues. It does not fall within an Auditor's duty to satisfy himself that documents which oug-ht to be filed with the Eegistrar of Joint Stock Companies have been so filed ; but, should he knowingly be a party to the default referred to, he runs the risk of being judicially held to be an '• Officer " under this Section. " Knowingly " means " knowing the facts," and a man commits 62 AUDITORS. the offence if he knows of the allotment, or knows of the contract, and does not procure compliance with this Section. — Ttvycrosfi v. Grant, 2 C.P. Div. 469. Commissions, 8. — (1.) Upoii any offer of shares to the pubUc for &c. ' subscription, it shall be lawful for a Company to pay a commission to any person in consideration of his sub- scribing or agreeing to subscribe, whether absolutely or conditionally, for any shares in the Company, or procuring or agreeing to procure subscriptions, whether absolute or conditional, for any shares in the Company, if the payment of the commission and the amount or rate per cent, of the commission paid or agreed to be paid are respectively authorised by the Articles of Association and disclosed in the prospectus, and the commission paid or agreed to be paid does not exceed the amount or rate so authorised. (2.) Save as aforesaid, no Company shall apply an}- of its shares or capital money, either du*ectly or indirectly, in payment of any commission, discount, or allowance, to any person in consideration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any shares of the Company, or procuring or agreeing to procure subscriptions, whether absolute or conditional, for any shares in the Company, whether the shares or money be so apjjlied by being added to the purchase money of any property acquired by the Company or to the contract price of any work to be executed for the Company, or the money be paid out of the nominal purchase money or contract price, or otherwise. (3.) But nothing in this section shall affect the power of any Company to pay such brokerage as it has heretofore been lawful for a Company to pay. If shares are offered to the public for subscription Subsection (1) applies, even though none of the shares so offered be allotted to the public. The Auditor must note that payment of the commission must be autliorisod by the Articles of Association. A Company is, of course, at liberty to apply any of its profits, including premiums on issue of shares, in paying commissions. A brokerage at the rate of 2^ per cent, on the shares placed was COMPANIES, ETC., ACTS. 63 allowed in Metropolitan Coal Consumers' Association, Limited, v. Scrimgeour [1895] 2 Q.B. 604. 10. — (1.) Every prospectus issued by or on behalf of a Sp^'cjfic ^ '' 11'/' !• requirements Coinpanv, or by or on behalf of any person who is or has us to been engaged or interested in the formation of the Com- of^ ^*^^ ^^"^ pany, nuist state- Prospectus. (/) The names and addresses of the iVuditors (if any) of the Company. 12. — (1.) Every Company limited by shares and regis- First tered after the commencement of this Act shall, within a Meeting of periixl of not less than one month nor more than three ^o"^?''^^^.^'- months from the date at which the Company is entitled to commence business, hold a General Meeting of the members of the Company, which shall be called the Statutory Meeting. (2.) The Directors shall, at least seven days before the day on which the meeting is held, forward to every member of the Company a Report, certified by not less than two Directors of the Company, or, where there are less than two Directors, by the sole Director and Manager, stating : — {ti) The total number of shares allotted, distinguishing shares allotted as fully or partly paid up otherwise than in cash, and stating in the case of shares partly paid up the extent to which they are so paid up, and in either case the consideration for which they have been allotted ; (A) The total amount of cash received by the Company in respect of such shares, distinguished as aforesaid ; (f) An abstract of the receipts and payments of the Company on Capital Account to the date of the Report, and an account or estimate of the preliminary expenses of the Company ; {d) The names, addresses, and descriptions of the Directors, Auditors (if any). Manager (if any), and Secretary of the Company ; and (^') The })articulars of any contract, the modification of which is to be submitted to the meeting for its 64 AUDITORS. approval, together with tlie particulars of the modification or proposed modification. (3.) The Report shall, so far as it relates to the shares allotted by the Company, and to the cash received in respect of such shares, and to the receipts and payments of the Company on Capital Account, be certified as correct by the Auditors, if any, of the Company. A Company is entitled to commence business as soon as it has received from the Registrar of Joint Stock Companies a certificate to this eifect, but, in the case of a Company where there is no invitation to the public to subscribe for its shares, it is entitled to commence business immediately on its incorporation. As it is the practice of every respectably fonned Company issuing a prospectus to place thereon a Chartered Accountant as Auditor, such Auditor should request the Secretary to advise him immediately of the issue of the Registrar's Certificate, and to give him due notice of the date of the first Statutory Meeting, so that he may have time to examine and certify the Receipts and Payments on Capital Account, as required by this Section. Registration 14. — (1.) Every mortgage or charge created by a Com- and cikw-%s! V^^^J ^^^^^ the Commencement of this Act, and being either — (a) A mortgage or charge for the purpose of securing any issue of debentures ; or (b) A mortgage or charge on uncalled Capital of the Company ; or (c) A mortgage or charge created or evidenced by an instrument which, if executed by an individual, would require registration as a bill of sale ; or ((/) A floating charge on the undertaking or property of the Company, shall, so far as any security on the Company's property or undertaking is thereby conferred, be void against the li(iuidator and any creditor of the Company, unless filed with the Registrar for registration in manner required by this Act within twenty-one days after the date of its creation, but without prejudice to any contract or obliga- tion for re})ayment of the money thereby secured. This section only applies to certain kinds of mortgages and charges, and not to all. Thus, a specific mortgage or charge of land, or of a I COMPANIES. ETC.. ACTS. 65 poneessiou, oi' patent, or copyright, is not within the 8ection unless it is to secure any issue of Debentures or Debenture Stock. (2.) Wliere the mortgag'e or charge comprises jiroperty outside the United Kingdom, it shall, so far as that property is concerned, be snfficient compliance with the requirements of this Section, if a deed purporting to specifically charge such property be registered notwith- standing that further ])roceedings may be necessary to make such mortgage or charge valid or effectual, according to the law of the country in which such property is situate. (6.) The Registrar shall give a certificate, under his hand of the registration of any mortgage or charge registered in pursuance of this Section, stating the amount thereby secured (which certificate shall be conclusive evidence that the requirements of this Section as to registration have been complied with), and the Company shall cause a copy of the certificate so given to be endorsed on every debenture or certificate of debenture stock which is issued by the Company, and the payment of which is secured by the mortgage or charge so registered. (7.) It shall be the duty of the Company to register every mortgage or charge created by the Company and requiring registration under this Section, and for that pur- pose to supply the Registrar with the particulars required for registration ; but any such mortgage or charge may be registered on the application of any person interested therein. (8.) The Register kept, in pursuance of this Section, of the mortgages and charges of each Company shall be open to inspection by any person on payment of the prescribed fee, not exceeding one shilling for each inspection. (9.) Every (xmipany shall cause a copy of every instru- ment creating any mortgage or charge requiring registration under this Section to be ke])t at the Registered Office of the Company, and to be open to inspection by the members and creditors of the Company on payment of such fee, not exceeding one shilling for each inspection, as may be fixed by the regulations of th(^ Compan}'. Provided that in the F 66 AUDITORS. Penalties Annual Summary, 25 & 2li Viet. c. 89. case of a series of uniform debentures a copy of one such debenture shall be sufficient. 18. If any Company makes default in complying with the requirements of this Act as to the registration of any mortgage or charge created by the Company, the Company, and every Director, ^lanager and other Officer of the Company, who knowingly and wilfully authorised or permitted such default, shall, without prejudice to any other liability, be liable on summary conviction to a fine not exceeding one hundred pounds ; and if any person knowingly and wilfully authorises or permits the delivery of any debenture or certificate of debenture stock required by this Act to be registered, without a cop}^ of the certificate of the Registrar being endorsed upon it, he shall, without prejudice to any other liability, be liable on summary conviction to a fine not exceeding one hundred pounds. '' Wilfully " means that the act is done deliberately and intentionally, not by accident or inadvertence, but so that the niind of the person who does the act goes with it. — Regina v. Senior [1899] 1 Q.B. 283, 290. 19. — (1.) The Summary mentioned in Section Twenty- six of the Companies Act, 1862, shall be so framed as to distinofuish between the shares issued for cash and the shares issued otherwise than for cash or only partly for cash, and shall, in addition to the particulars required by that Section to be specified, also specify — i^a) the total amount of debt due from the Company in respect of all mortgages and charges which require registration under this Act, or which would require such registration if created after the connnence- ment of this Act ; and [b) the names and addresses of the persons who are the Directors of the Company at the date of the sunnnary. (2.) The list and summary mentioned in the said Section Twenty-six must be signed Ijy the Manager or by the Secretary of the Company. COMPANIES, ETC., ACTS. 67 21. — (1.) Every Company shall at each Annual General Appointment Aleeting apjioint an Auditor or Auditors, to hold office ° until the next Annual (leneral Meetino-. (2.) If an appointment of xludi tors is not made at an Annual Greneral Meetino- the Board of Trade mav. on the appUcation of any Member of the Company, appoint an Auditor of the Company for tlie current year, and fix the remuneration to be paid to him by the Company for his seridces. (3.) A Director or Officer of the Company shall not be capable of being appointed Auditor of the Company. (4.) The first Auditors of the Company may be appointed by the Directors before the Statutory Meeting", and if so appointed shall hold office until the first Annual General ^[eeting, unless previously removed by a resolution of the shareholders in General Meetino-, in which case the shareholders at such meeting may appoint Auditors. (o.) The Directors of a Company may fill any casual vacancy in the office of Auditor, but while any such vacancy continues the surviving or continuing Auditor or Auditors, if any, may act. This and two following Sections are supplemental to and not in sub- stitution for provisions as to Audit contained in the Companies Act, 1862, Table A, or in Articles of Association registered under that Act, or in the Companies Act, 1879 (where applicable), and the Act of 1900 does not relieve an Auditor from the necessity of complying with such provisions, even though they impose obligations beyond those imposed by the Act of 1900. In so far, however, as tlie Act of 1900 is incon- sistent with the earlier provisions, tliis Act must, of course, prevail. 22. The remuneration of the Auditors of a Company Eemunera- shall be fixed by the Company in (leneral Meeting, except Auditors. that the remuneration of any Auditors appointed before the Statutory Meeting, or to fill any casual vacancy, may be fixed by the Directors. For special remarks on the remuneration of Auditors, see Chapter II. 23. Every Auditor of a Company shall have a right Rights and of access at all times to the books and accounts and Auditors, vouchers of the Companv, and shall be entitled to require f2 ()8 AUDITORS. fi'oin the Directors and Officers of the Company such information and explanation as may be necessary for the performance of the duties of the Auditors, and the Auditors sliall sign a Certificate at the foot of the Balance Sheet stating whether or not all their requirements as Auditors have been complied with, and shall make a report to the Shareholders on the Accounts examined by them, and on every Balance Sheet hiid before the Company in General Meeting during their tenure of office ; and in every such Report shall state whether, in their opinion, the Balance Sheet referred to in the Report is properly drawii up so as to exliibit a true and correct view of the state of the Company's affairs as shown by the books of the Company ; and such Report shall be read before the Company in General fleeting. For special remarks on the Report and Certificate of the Auditor, as required by this Section, see Chapter XV. Provisions as 27. — (1.) A Company limited by guarantee shall not HnSted^bT^^ be capable of having a capital divided into sliares, unless guarantee. ^]^g ^lemoraudum of Association so provides, and specifies the amount of its capital (subject to increase or reduction in accordance with the Companies Acts) and the number of shares into AA'hich the capital is divided. (2.) Ever}^ provision in any Memorandum or Articles of Association or Resolution of a Company (whether limited ])v guarantee or otherwise) purporting to divide the undertaking of the Company into shares or interests shall for the purposes of this Section be treated as a provi- sion for a capital divided into shares, notwithstanding that the nominal amount or number of the shares or interests is not specified thereby. (o.) In the case of a Conij^any limited by guarantee and not having a capital divided into shares, every provision in the Memorandum or Articles of Association or in any Resolution of the Company i)urporting to give any person a right to participate in the divisible profits of the Com- panv otherwise than as a member shall be void. COMPANIES, ETC., ACTS. 69 (4.) Tliis Section shall :»p[)ly only to Companies regis- tered after the connnencenient of this Act. :28. If any person in any Keturn, Report, Certiiicate, Penalty for Balance Sheet, or other document, required by or for the statement purposes of this Act, wilfully makes a statement false in any material particular, knowing it to be false, he shall be guilty of a misdemeanour, and shall be liable on conviction on indictment to imprisonment for a term not exceeding two years, with or without hard labour, and on summary conviction to imprisonment foi" a term not exceeding four months, with or without hard labour, and in either case to a fine in lieu of or in addition" to such im})risonment as aforesaid : Provided that the fine imposed on suiinnary conviction shall not exceed one hundred pounds. Among the documents "required by or for tlie purposes of this Act " are— The Report referred to in Section 12, including that part of it which has by Subsection (3) to be certified by the Auditors. The Balance Sheet and Report and Certificate of the Auditors, refeiTed to in Section 23. 29. Every Company limited by shares, and which has, conversion of in pursuance of the Companies Act, 1862, con\-erted any s^ares"^*" portion of its shares into stock, may so far modify the ^-^^ ^^ '^^'^*- conditions in its Memorandum of Association, if authorised to do so by its Articles as originally framed or as altered by Special Resolution in manner provided in the Com- panies Act, 1862, as to reconvert such stock into paid-up shares of any denomination. ol. Tliis Act shall, except as otherwise expressed, apply Application to every Company, whether formed before or after the " ^^' commencement of this Act. 36. This Act may be cited as the Companies Act, 1900, short Title. and may be cited with the Companies Acts, 1862 to 1898. The Companies (Colonial Registeks) Act, 1883. (46 & 4:7 Vict., c. 30.) [20th August, 1883.] 1. This Act may be cited for all purposes as " The short Title Companies (Colonial Registers) Act, 1883 " ; and this Act t£n. 70 AUDITORS. shall, so far as is consistent Avitli the tenor thereof, be construed as one with the Coni})anies Acts, 1862 to 1880, and the said Acts and this Act may be referred to as " The Companies Acts, 1862 to 1883." Definitions. 2. In this Act the term " Company " means a Com]3any registered under the Companies Act, 1862, and having a capital divided into shares ; the term "Shares" hicludes Stock; the term "Colony" does not include any place within the United Kingdom, the Isle of Man, or the Channel Islands, but includes such territories as may for the time being be vested in Her Majesty by virtue of an Act of Parliament for the Grovernment of India, and any plantation, territory, or settlement situate elsewhere within Her Majesty's dominions. Power for ^- — (!•) ^^J Company whose objects comprise the ker^Coioniai ^^'^^^^''^ction of business in a colony may, if authorised Registers. so to do by its regulations as originally framed or as altered by Special Resolution, cause to be kept in any colony in which it transacts business a branch liegister or Registers of Members resident in such colony. (2.) The Company shall give to the Registrar of Joint Stock Companies notice of the situation of the office where any such Branch Register (in this Act called a Colonial Register) is kept, and of any change therein, and of the discontinuance of any such office in the event of the same being discontinued. (3.) A Colonial Register shall, as regards the particulars entered therein, be deemed to be a part of the Company's Register of Members, and shall be prima facie evidence of all particulars entered therein. Any such Register shall be kept in the manner provided by the Companies Acts, 1862 to 1880. (4.) The Company shall transmit to its registered office a copy of every entry in its Colonial Register or Registers as soon as may be after such entry is made, and the Company shall cause to be kept at its registered t)ffice, duly entered up from time to time, a duplicate or COMPANIES, ETC., ACTS. 71 duplicates of its Colonial Register or Registers. The provisions of Section Thirty-two of the Companies Act, 1(S62, shall apply to every such duplicate, and every such duplicate shall, for all the purposes of the Companies Acts, 186i to 1880, be deemed to be part of the Register of Members of the Company. (5.) Subject to the provisions of this Act with respect to the duplicate Register, the shares registered in a Colonial Reuister shall be distinofuished from the shares registered in the principal Register, and no transaction with respect to any shares registered in a Colonial Reo'ister shall, durino- the continuance of the reji'istration of such shares in such Colonial Register, be registered in any other Register. (6.) The Company may discontinue to keep any Colonial Register, and thereupon all entries in that Register shall be transferred to some other Colonial Register kept by the Company in the same colony, or to the Register of Members kept at the registered office of the Company. (8.) Subject to the provisions of this Act, any Company may, by its regulations as originally framed, or as altered by Special Resolution, make such provisions as it may think lit respecting the keeping of Colonial Registers. The ComPxVnies (Wixding-Up) Act, 1890. (53 & 54 Vict., c. 63.) [18th August, 1890.] 8. — (1.) Where the Court has made an order for Report ou winding up a Company, the Official Receiver shall, and proceed- as soon as practicable after receipt of the Statement of the ^^^^^^ ^^^' Company's affairs, submit a preliminary report to the Court — (a.) as to the amount of Capital issued, subscribed, and paid up, and the estimated amount of Assets and Liabilities ; and 72 ALDITOKS. (/>.) if tlie roiiipaiiv liiis failed, us tu the causes of the failure ; and (c.) whether in his ()))inion fiu'ther inquiry is desirable as to any matter relating to tlie promotion, formation, or failure of the Com})any, or the conduct of the business thereof. ('2.) The Official Receiver may also, if he thinks ht, make a further report, or further reports, stilting the manner in which the Company was formed and whether in his opinion any fraud has been committed by any person in the promotion or formation of the Company or by any Director or other Officer of the Company in relation to the Company since the formation thereof, and any t)ther matters \Ndiicli in his opinion it is desirable to bring to the notice of the Court. (o.) The Court may, after consideration of any such report, direct that any person who has taken any part in the promotion or formation of the Company, or has been a Director or Officer of the Company, shall attend before the Court on a day appointed by the Ccnirt for that purpose, and be ))ublicly examined as to the promotion or formation of the Company, or as to the conduct of the business of the Company, or as to his conduct and dealings as Director or Officer of the Company. As to au Auditor being au Officer of a Coiupauy uuJer this Section ■see Note to Section 10 of this Act. A report of the Official Eeceiver under Section 8, Subsection (2) of tlie < 'i)m}»anies (Winding--up) Act, 1890, finding- fraud will not, on the application of a person implicated, be taken off the file or sent back to the Official Receiver for reconsideration because it omits some material facts ; })ut the Court, in directing a public examination, exercises a judicial discretion, and will consider whether the facts stated in the report are sufficient to sujiport an application for a pul)lic examination. — In re New 'Iracelleni' Chambers, II. Manson 110. (7.) The person examined shall be examined on oath, and it shall be his duty to answer all such cpiestions as the Coui-t may i)ut oi- allow to be put to him. The person examined sliall at liis own cost, i)rior to sucli examination, be lurnished wifli a copy of the Official Receiver's report, COMPANIES, ETC.. ACTS. 73 and shall also at Lis own cost be entitled to employ at sLicli examination a Solicitor, with or without Counsel, who shall be at lil)erty to put such tpiestions to the person examined as the Court may deem just for the purpose of enabling that person to explain or quaUfy any answers given by him. Provided always, that if such person is, in the opinion of the Court, exculpated from anv charges made or suggested against him, the Court may allow him such costs as the Court in its discretion may think tit. ^otes of the examination shall be taken down in writinof, and shall be read over to (jr by, and signed by, the person examined, and may thereafter be used in evidence against him. 10. — (1.) Where in the course of the winding-up of a Power of Company under the Companies Acts it appears that iiny ISess ^'^ person who has taken ijart in the formation or promotion '^'"^'^of'^ . , ,, •"■ . ^ aguiust ot the Company, or any past or present Director, Manager, deiinqueut Liquidator, or other Officer of the Company, has misapplied officer.s, and or retained or become liable or accountable for any moneys ^'^'<'™°*^^'^'^- or property of the Company, or been guilty of any mis- feasance or breach of trust in relation to the Company, the Court may, on the application of the Official Receiver, or of the Li( juidator of the Company, or of any credit(^r or contributory of the Company, examine into the conduct of such Promoter, Director, ^lanager. Liquidator, or other Officer of the Company, and com])el him to repay any moneys or restore any property so misapplied or retained, or for which he has become liable or accountable, together with interest after such rate as the Court thinks just, or to contribute such sums of money to the assets of the Company by way of compensation in respect of such mis- application, retainer, misfeasance, or breach of trust as the Court thinks just. (2.) The provisions of this Section shall apply in the winding-up of any Company under the Companies Acts, whether the same is being wound up by or subject to the supervision of the Court, or is being wound up voluntarily, and whether the winding-up commenced before or after the 74 AUDIT0E8. passing of this Act, and notwithstanding that the offence is one fen* which the offender may be criminally responsible. An Auditor mayor may not be an "Officer" of a Compau}", and prima facie he is not ; but if he is appointed to the office of Auditor to the Company, and acts in that office, he will be an Officer within this Section ; and in case the Company is wound up he will be liable to a misfeasance summons under that Section in respect of dividends declared uj)on the faith of his audit ; and no irregularity in his appointment woiild avail him as a defence. But, seeing that the word " Audit(-»r " does not occur in this Section, the performance of Auditor's work upon a given occasion by a person who has never been appointed to the office of Auditor of the Comj^any does not make that person an "Officer" of the Company so as to render him liable under the Section. — In re Western Counties Steam Bakeries and Milling Co. [1897] 1 Ch. 617. Auditors Avho have been appointed by a Banking Company in pursuance of the Companies Act, 1879, s. 7, and are spoken of as Officers of the Company in the Articles of Association, are Officers within the meaning of this Section, and if guilty of misfeasance may be made liable in proceedings under this Section. — In re london ^' General Bank [1895] 2 Ch. 166. Misfeasance is defined, in Wharton's Law Lexicon as " a misdeed or trespass; also the improper performance of some lawful act"; and James L.J., in reference to Section 165 of the Act of 1862, laid down that the word " misfeasance " is there confined to a misfeasance in the nature of a breach of ixw^X. — Coventry &; Dixon's Case, 14 Ch. D. 660, 670. Misfeasance covers every misconduct by an Officer of the Company as such for which such Officer might have been sued apart from the Section, and includes the case of an Auditor who, either knowingly or through failure to use reasonable skill and care, certifies Accounts which ought not to have been certified, provided the direct result is l>ecuniary damage to the Company. — In re Kingston Cotton Mill Co. (No. 2) [1896] 1 Ch. 331. The omission or neglect of a Trustee, Director, or Manager to comply with statutory provisions as to audit uuiy constitute misfeasance. — Davies' Case, 45 Ch. D. 537. The onus of proving misfeasance is on the applicant, so that, even if tlie misfeasanc^e alleged bo uou-distdosure, tlie applicant must prove non- disclosure,- //^^i^mf/; V. Fenu, 12 App. Cas. 652, &c. The Section is personal only, and does not apply as against the executors of a deceased Director or Officer. — Felton's Kveeutors' Case, 1 Eq. 219 ; British Guardian Co., 14 Ch. D. 335. The Section appli(>s to misfeasance, not to non-feasance. — Wedgwood Coal Co., 10 Ch. D. 450. As to whether an Auditor is an Officer of every Company registered under the Act oi 1862, see renmrks in Chapter I., p. 20. COMPANIES, ETC., ACTS. 75 The Litjuidator of a Company, iu order to obtain evidence in support of a luisfeasauce siiiuiuous "which he liad issued against the Directors and Auditors, applied under Sec. 115 of the Act of 1862 for an order that the Surveyor of Taxes should attend for examination, and produce some Balance Sheets of the Company which had been delivered to him fur the purjjose of assessment of income tax, in order to prove as against the Auditors the case alleged by the summons. Wright J. held that the order ought not to be made, and the Court of Appeal upheld his decision. — In re Joseph Hargremes, Limited [1900] 1 Ch. 347. In an action to realise Debentures granted by a Company, which was afterwards ordered to be wound up, a summons was taken out by tlie Official Receiver and Liquidator, asking for the leave of the Court to take misfeasance proceedings against the Directors and Auditors of the Company, and that the costs might be provided by the Receiver in the action. A majority of the Debenture-holders was opposed to misfeasance proceedings being taken at the expense of the assets covered by the Debentures, and also to abandoning the claims of the Debenture-holders to any sums recovered in the proceedings. A suggestion was, however, made by a Debenture-holder that if there were i)eople who believed they could make a good thing out of a misfeasance summons they would be prepared, for the right to step into the Debenture-holders' shoes, to pay a substantial sum, but that the right should not be given up Avithout anything in return. It was held that an order must be made directing the Receiver to sell by auction the claim against the Directors and Auditors. — Wood v. Woodkousc $• RawsoH United [1896] W.N. 4. 20. — (1.) Every Liquidator of a Company which is being Audit of wound up by order of the CDurt shall, at such times as Accounts!^ '^ may be prescribed, but not less than twice in each year during his tenure of office, send to the Board of Trade, or as they direct, an Account of his receipts and payments as such Liquidator. (2.) The Account shall be in a prescribed form, shall be made in duplicate, and shall be verified by a statutory declaration in the prescribed form. (3.) The Board of Trade shall cause the Accounts so sent to be audited, and for the purpose of the audit the I^iquidator shall fui-nish the Board with such vouchers and information as the Board may require, and the Board may at any time require the production of and inspect any books or accounts kept by the Liquidator. (4.) When any such Account has been audited, one copy Short Title. 76 AUDITOKS. thereof shall be filed and kept by the Board, and the other eopy shall he filed with the Court, and each copy shall be open to the inspection of any creditor, or of any person interested. (5.) The Board of Trade shall cause the Account or a summary thereof when audited to be printed, and shall send a printed copy thereof by post to every creditor and contributory. o5. — (1.) This Act may be cited as " The Companies (Winding-up) Act, 1890." (2.) This Act and the Companies Acts, 1862 to 1886, may be cited together as '' The Companies Acts, 1862 to 1890." Short Title. Extent of Act. No Company to avail themselves of Act unless it shall com- ply with Provisions herein named. The Moktgage Debenture Act, 1865. (28 & 29 Vict., c. 78.) [29th June, 1865.] 1. This Act may be cited for all |)urposes as ''The Morto'ao'e Debenture Act, 1865." 2. This Act shall extend and apply to, and the powers hereby conferred may be exercised by, all such Companies incorporated and carryinu" on business under the Companies Act, 1862, or under any Act of Parliament, as now or hei'eafter may be entitled to advance money on the security of land ; and in the construction of this Act the expression '' the Compau}' " means any Company to which this Act applies, and which shall for the time being be availing itself of the provisions of this Act. o. Xo Company shall be entitled to avail itself of this Act unless it shall comply Avith the following provisions : First. The Company must, under its Act of Parliament or Memorandum of Association, be limited to one or more of the following objects : (1.) The making of advances of money upon any of the following Securities : — (((.) Lands, messuages, hereditaments, and real j)ro})erty and all estates and interests therein : COMPANIES, ETC., ACTS. 77 [(>.) Hates, dues, assessments, and inijxisitions upon the owners or occupiers of lands or real property imposed by or under the authority of any Act of Parliament, public or private. Royal Charter, Commission of Sewers or Drainag-e, or other sufficient legal authority : (('.) Charges and vSecurities upon or affecting lands, messuages, hereditaments, and real property executed, made, given, or issued under the authority of any Act of Parliament, public or pri\'ate : ( 2. ) The borrowing- of mone v on transferable ^b )rto'ai>-e Debentures, or on one or more of the Securities above-mentioned : Provided that any Company already constituted under the Companies Act, 1862, for the purpose t)f making advances on real Securities : and whose Memorandum of Association includes but is not limited to the objects hereinbefore specified, may, by special resolution in accordance with the provisions of that Act, alter its Memorandum for the purpose of limiting and so as to limit its objects and business to those so specified ; and such Company shall thereupon be and become a Company constituted and carrying on business under such altered Memorandum, and on its being siiown to the satisfaction of the Registrar hereinafter mentioned that such alteration has been made, and that all obligations, if any, entered into by the Company in respect of the business which prior to such special resolution it ^vas empowered to transact, other than the business to which it will be limited after the passing of such special resolution, lia\'e been discharged, and that the Articles of Association of the Company are in accordance with the altered Memorandum, such Company shall be deemed to be a C(jmpany Avithin this Act and entitled to the benefits thereof: Second. The Company must have a paid-up Capital of not less than one hundred th(jusand pounds : 78 AUDITORS. Tliird. Eacli share must be of tlie nominal value of not less than iiftv pounds, of which not less than one- tenth nor more than one-half must have been paid up. rower to 4. Subject to the provisions and restrictions of this Act, boiTow^^ '^ tlie Company may from time to time borrow money upon Mort4°e Mortgage Debentures to be issued by it under the Deboutui-es. authority of this Act. Kegister of 7. For the purposes of such registration there shall be beestabUshed established iu such Office of Land Registry, in respect of Laud^'^^ ^^ every Company issuing Mortgage Debentures under this Registry. Act, a Register, with the name of the Company attached, which shall be called a Register of Securities under the Mortgage Debentures Act, 1865. Registrar of 8. The busiucss of the registration shall be conducted to conduct in such office in accordance with such rules and ReSster.''* regulations as the Registrar, with the sanction of the Lord Chancellor, from time to time shall prescribe. Upon Deposit 9. Upou production to and deposit with the Registrar trarof^^^^" ^^ ^^^^ decds or instruments purporting to be duly heidb^'Com ^^^^utcd and stamped as aforesaid, together with a pany, and the certificate uuder the common seal of the Comi^anv and the ing thereto, hauds of ouc or morc Directors and of the Secretary or cateSr*^^^" Accountant of the Company, in the form or to the effect Company, (,f YoYui (A) in the Schedule hereto, and in the cases and Dfclara- . ^ . , tion of luireinafter mentioned of the certihcate of a Surveyor as Surveyor, i • r* • i n i t^ • in • i Registrarmay hereiuaiter provided, the Registrar shall enter in the creating ^^ projjcr Register of Securities the date of every such deed Security. (,j. other instrument, its nature, whether mortoaoe, o-rant of annuity, rentcharge, or other Security, the amount of the principal money or the amount and duration of the annuity thereby secured, and the tenure, extent, and situation of the property upon which the security is taken : Provided always that the Registrar shall not register any deed or instrument relating to or affecting any pro])erty not situate in EiujlaDd or Wales. Power to n. V\)i)n the Securities so from time to time registered, toisTu"^ tlic Company may found and issue its Mortgage COMPANIES, ETC., ACTS. 79 Debentures, but so that the aggregate principtil sum Debentures secured by all the Mortgage Debentures shall never Amount*of"^^ exceed at any one time the then total amount (to be yg^^^^rft^es ascertained in the manner hereinafter provided) of the '^''• registered Securities of the Company, and also shall never exceed ten times the amount for the time beino- uncalled of its subscribed share Capital. i'2. Ijefore any Company entitled to issue Mortgage Before Com- Debentures under the provisions of this Act shall register register any any such Mortgage Debentures under the provisions of JJg^g^^°Jgg this Act, such Company shall file in the office of the Land 1^ shall file a ' . . , . Return con- Reu'istry a return containino- the followino- and such other taming . . . . . Particulars particulars as the Registrar may from time to time require, herein which return shall be under the hand of one at least of ^''^™^*^- the Directors of the Compau}^ and the Secretary : (a.) The amount of the nominal Capittd of the Compaii}-, and the number and amount of shares mto which the same is divided : (b.) The amount per share and the aggregate amount paid up on ttie shares : [c.) The assets or property of the Company at the date of the return, and how invested : (^/.) The names, addresses, and occupations of the Directors and Auditors of the Company : (e.) The registered office of the Company. 13. If and whenever any of such Mortgage Debentures Company 1111 • 1 ,*• 1 1 /-I 1/1 • J^^y issue shall be paid oft by the (company, the Company may issue new Deben- iiew ^lortgage Debentures in lieu thereof, and so from [J^hose '^^^ time to time, provided that the aggregate principal sum P^^^^ °^- secured by all the Mortgage Debentures then issued and outstanding shall not exceed either of the b(ifore- mentioned limits. 15. The persons from time to time entitled to the Eights of Company's Mortgage Debentures shall, proportionally, Mortgage according to the amount of the moneys secured thereby, Debentures, be entitled one with another to the benefit of the registered Securities of the Company upon which such Mortgage Debentures are founded, without any preference so AUDITORS. Company to miike QuartiTly Kiturus to Registrar. Quarter- Days for Purposes of Act. Quarterly Returns imicle to Kej^strar to be as iu Form (C) in Sche- dule, an:l to contain Particulars herein uanied. one above another by reason of priority of tbe date of any such Mortiia^iie De]:)enture or otherwise. 21. When and so long as the Company issues any ^[ortiiage Debentures under this Act, and from time to Time so long :is any Mortgage Debenture so issued remains outsnindiiig, the Company shall, within ten days after every (Quarter-Day as hereinafter defined, make t)ut and deliver to the Registrar the Quarterly Return by this Act })rescribed ; and every Quarterly Return shall be verified by the Statutory Declaration of two Directors, and the Manager, Secretary, or Accountant of the Company. 22. The thirty-first day of March, the thirtieth day of Junt', the thirtieth day of September^ and the thirty- first day of December in every year shall be the (Quarter- Days for the purposes of this Act. 28. Every Quarterly Return tt) be made by the Com])any to the Registrar shall be in the form set forth in Form (C) in the Schedule to this x\ct, or as near thereto as circumstances may admit, and shall ctmtain, with reference to the then last (Quarterly Day, the following particulars : [(I.) An account of all the Securities of the Company's at that time registered, shoAving the aggregate of all princi])al sums remaining secured thereby and unpaid, and showing also the aggregate amount or the aggregate estimated value of all annuities and other periodical payments secured thereby : (A.) An accoiuit showing the aggregate amount and the estimated value of the Companv's other invest- ments, and also the total number and aggregate nominal amount of the shares of the Company's Capital held l)y pers:)ns registered in the Vowx- pauy's books as the holders thereof, and the aggregate amount paid up in respect of those reuistered sjiares, and the ao-oreiiate amount remaining to be paid thereon : (r.) The luimbers and dates oi the several ^lortgage COMPANIES, ETC., ACTS. 81 Debentures issued by the Company and remaining in force, and the several principal sums secured by those Mortgage Debentures respectively, and the aggregate amount thereof, and the rates of interest payable on those principal sums respec- tively, and the time or times for the repayment of those principal sums respectively. 25. The aggregate of all principal sums remaining Total secured by the registered Securities, together with the registered ao-o-reo-ate amount or value of the said annuities as so ^^^^^^"ties. ascertained or estimated, shall, for the purposes of this Act, be deemed to be the total amount for tlie time being of the registered Securities of the Company. 27. The Company shall keep a Register, to be called Company to the " Register of Securities," in which shall be entered the te^of Sectf-^ date of every deed or other instrument registered at the "*'®^-" Land Registry for the purposes of this Act, its nature, whether mortgage, grant of annuity, rentcharge, or other Security, the amount of the principal money, or the amount and duration of the annuity thereby secured, the tenure, extent, and situation of the property upon which the Security is taken, and if there are any charges which take priority of the Company's Security, then the amount of such prior charges. 29. The Mortgage Debentures shall be numbered Mortgage 1 T . . ., 1 T Debentiu-es consecutively, beginning with number one, and every to be num- Mortgage Debenture shall be distinguished by its appro- ^®^'*^^^' priate number ; and notwithstanding the cancellation, loss, or destruction of a Mortgage Debenture, no other Mortgage Debenture shall bear the number of that so cancelled, lost, or destroyed. 31. A book containing a list of Mortgage Debentures List of shall be kept by the Company's Secretary, and on the Ventures issue of any Morto-ao-e Debenture an entry of the number *? ^^ '^^p* ^y "^ ^ '-' __ ^ ^ ^ Company. and date thereof, and of the principal money secured thereby, and the name, description, and residence of the person to whom it is issued shall be entered in such book, G 82 AUDITORS. Register of 32. There shall also be established and kept in the iSeStfres. Office of Land Registry, by or under the direction of the Registrar, in respect of every Company issuing ^lortii-aoe Debentures under this Act, a Register of the ]\Iortgage Debentures of the Company. Regi!.) The amount per share and the aggregate amount paid up on the shares : g2 84 AUDITORS. (c.) The Assets or property of the Company at the date of the return, and how invested : (fl.) Tlie names, addresses, and occupations of the I)i)-ecte»rs and Auditors of the Company : (e.) The registered office of the Company. Regibtemi 7. All the registered Securities for the time being of the duugid with Company shall be charged with the payment of the paviueut of pi-i^cipal moucys and interest from time to time payable and not upon or in respect of all the Mortgage Debentures of the aSJ- othJ °' Company for the time being issued and outstanding, and Sargecf '^ no registered Security until discharged therefrom, as herein - tl'at^on °^^' ^^^^^' provided, shall be applicable to or available for any other purpose than the satisfaction of such principal moneys and interest, or be transferred, disposed of, or otherwise dealt A^dth by the Company, unless and until the same shall have been discharged from registration in the manner hereinafter provided : Presided, nevertheless, that such registration shall not prevent the Company from receiving, applying, and giving a valid discharge for any instalments payable by the terms of the deed creating the Security or any annuities or interest which may from time to time be receivable upon or in respect of any such security, unless where a Receiver shall have been actually appointed under the provisions of the principal Act. Inspection of 11. Subject to the regulations mentioned in Section 19 UoUims.^ "'^ ^f the principal Act, and on payment of such fees as the Registrar with the sanction of the Lord Chancellor from time to time prescribes, any person may inspect and make copies of and extracts from the Register of Securities, the Register of Mortgage Debentures, and the returns made by the Company to the Registrar under the provisions of the principal Act. Additional 12. In addition to the particulars required to be be'rontainod Contained in the (Quarterly Return to be made by the m Quarterly Comi>any to the Registrar by the 23rd Section of the RetuniH to . *. *|^ c> j Kegistrar. pniicipal Act, every such Quarterly Return shall contain the following particulars : — COMPANIES, ETC., ACTS. 85 (a.) Tlie naines, addresses, and occopatiuns of the Directors and Auditors of the Company : (b.) The registered office of the Company. 13. Where by any Mortgage or other hke Seciu'ity to Value of the Company the principal is expressly distinguished from sSrltyXii tlie interest, and such principal is made payable by ^ i^e^jj^ouut periodical payments, the amount or value of such Mortgage of principal or Security shall for the purpose of the Quarterly Returns for pm'pose be deemed to be the amount of ])rincipal money exclusive ?4tJirns^"^^ of interest remaining unpaid thereon at the date of the (Quarterly Keturn. 14. In all cases not provided for by the last section the if not other- amount or value of the annuities and other periodical ^idtcrvuiue payments to be comprised in the Quarterly Returns sluiU fj^'^toht'es- be ascertained or estimated by an Actuarv approved by the timated by -.^ . "^ .11 ./ an Actuary. Registrar. 16. The Mortgage Debentures shall be for the payment Terms on of principal sums, either at a fixed time to be named Jge^D^be'i" therein, not less than six months nor exceedino- ten years ^"'^^"^^^y ^^ „ o ./ issued. irom the date, or at any time on six calendar months' previous notice being given to the Company by the holder for the time being of the Mortgage Debenture, or by the Company to the holder for the time being of the Mortgage Debenture with interest thereon in the meantime at such rate as may be agreed payable half-yearly or otherwise, and no Mortgage Debenture shall be issued for a less principal sum than iifty pounds. 17. When a Mortgage Debenture is produced by the Entry in Company to the Registrar discharged or cancelled, he ^^fJ^J^ge^of shall make in the Reo^ister of Morto-ao-e Debentures an ^^°Jf*g'}S« , o r> o Debenture. entry ot the discharge thereof. 18. Nothing in this Act shall exempt the Company company not from the prijvisions of any Act relating to Joint Stock joSiit^stock^ Companies, and applicable to the Company. Act^^'^^^^^ 86 auditors. The Companies Clauses Consolidation Act, 1845. (S Vict, c. 16.) [8th May, 1845.] Act to apply L Tliis Act sluiU apply to every Joint Stock Company ^aJief hSor- wliicli shall by any Act which shall hereafter be passed be poratedby incorporated for the i^urpose of carryino' on anv under- to be passed. takino\ and this Act shall be incorporated with such Act ; and all the Clauses and Provisions of this Act, save so far as they shall be expressly varied or excepted by any such Act, shall apply to the Company which shall be incorp(jrated by such Act, and to the undertaking for carrying on which such Company shall be incorporated, so far as the same shall be apphcable thereto respec- tively ; and such Clauses and Provisions, as well as the Clauses and Provisions of every other Act which shall be mcorporated with such Act, shall, save as afore- said, form part of such Act, and be construed together therewith as forming one Act. "The Special 2. The expression " the Special Act " used in this Act ^ ' shall be construed to mean any Act which shall be here- after passed incorporating a Joint Stock Company for the purpose of carrying on any undei'taking, and with which this Act shall be so incorporated as aforesaid. Short Title 4. And bc it enacted, that in citing this Act in other Acts of Parliament, and in legal instruments, it shall be sufficient to use the expression " The Companies Clauses Consolidation Act, 1845." Capital to be (). The Capital of the Company shall be divided into Shares. shares of the prescribed number and amount ; and such shares shall be numbered in arithmetical progression, beginning witli number one ; and every such share shall be distinguished by its appropriate number. This Section (loos not prevent the Conipauy from reduciug tlie amount of the shares. — Ainhcrgate Railway Company v. Mitchell, 6 E.G. 235. Tlie provision with regard to the numbering of the shares is directory only. — PuHal v. Emmens, 1 C.P.D. 201, G64. Register of D. The -Company shall keep a book to be called the ers. .. j. -^^^.j. ^,|- Shareholders " ; and in such book shall be COMPANIES, ETC., ACTS. 87 fliirly and distinctly entered, from time to time, the names of the several Corporations, and the names and additions of the several persons entitled to shares in the Company, together with the number of shares to which such shareholders shall be respectively entitled, distinguishing each share by its number, and the amount of the subscriptions paid on such shares, and the surnames or corporate names of the said shareholders, shall be placed in alphabetical order ; and such book shall be authenticated by the common seal of the Company being affixed thereto ; and such autlientication shall take place at the First Ordinary fleeting, or at the next subsequent Meeting of the Company, and so from time to time at each Ordinary Meeting of the Company. For the purpose of paying debts, entry upon the Eegister, or even the existence of a Eegister, is not material. — Portal v. Emmens, 1 C.P.D. 201, 664. The Section is merely directory, but it must be substantially complied with in order to make the Eegister evidence of a Defendant in an action for calls being a Shareholder. — East Gloucestershire Railway Companu v. Bartholomew^ L.E., 3 Ex. 15. 10. In addition to the said Register of Sharehe)lders, Addresses of the Company shall provide a book, to be called the ' " Shareholders' Address Book," in which the Secretary shall from time to time enter in alphabetical order the corporate names and places of business of the several shareholders of the Company, being Corporations, and the surnames of the several other shareholders, with tlieir respective Christian names, places of abode, and descriptions, so far as the same shall be known to the Company. 38. If the Company be authorised by the special Act to Power to lK)rro^v money on Mortgage or Bond, it shall be lawful for Money. them, subject to the restrictions contained in the special Act, to borrow on Mortgage or Bond such sums of money as shall from time to time, by an order of a General Meeting of the Company, be authorised to be borrowed, 88 AUDITORS. Power to Re -borrow. Register of Mortgages and Bonds. not exceeding in the wliole the sum prescribed by the speciiil Act. and fur securing the repayment of the money so borrowed, with interest, to mortgage the undertaking, and the future calls on the Shareholders, or to give Bonds in manner heremafter mentioned. A Oompauy iucorporated hy Statute can borrow money only within the limits and in the manner authorised by Statute. AVhere, therefore, there is no power to borrow, it is ultra vires to OA'ordraw the banking account, this being- in effect borrowing. — BJackhurn Buildimj Societi/ v. Cunlijfc Brooks 8f Co., 22 Ch. D. 61. Such a Oompanj^ cannot, therefore, without express powers, issue bills of exchange. — Bateman v. Mid- Wales Railway Co., L.E., 1 C.P. 499. It can, however, incur debts in the ordinary course of its business. 39. If, after having borrowed any part of the money so authorised to be borrowed on Morto'ao-e t)r Bond, the Company pay off the same, it shall be lawful for them again t(j borrow the amount so paid off, and so from time to time ; but such power of re-borrowing shall not be exercised without the authority of a General Meeting of the Company, unless the money be so re -borrowed in order to pay off' any existing Mortgage or Bond. 45. A Register of Mortgages and Bonds shall be kept by the Secretarj^, and within fourteen days after the date of jiny such Mortgage or Bond an entry or memorial, specifying the number and date of such mortgage or bond and the sums secured thereby, and the names of the parties thereto, with their proper additions, shall Ijc made in such Register ; and such Register may be perused at all reasonable times by any of the shareholders, or by any mortgagee or bond creditor of the Company, or by any i>erson interested in any such Mortgage (jr Bond, wit) lout fee or reward. Tlie right of perusal may be exercised without assigning any reason, and may bo enforced by 'm^nuaiion.—Eolland v. Dickson, 37 Ch. D. (■)(;;». Tlie right includes a right to take i:o\ws,.— Mutter v. Eastern and Midlands Bailway Co., 38 Ch. D. 92. IV'rsons entitled to inspect the Eegister under this Section would appear to bo entitled to inspection by their Solicitor. — See In re Credit Co., 1 1 Ch. D. 25G, COMPANIES, ETC., ACTS. 89 4S. The interest of the money borrowed upon any such Payment of ^lortguge or Bond shall be paid at the periods appointed Uonejs bor- in such Mortgage or Bond, and if no period be appointed, ^°^^'" ' half-yearly, to the several parties entitled thereto, and in preference to any dividends payable to the shareholders of the Company. If the debt be uot repaid on the day appointed, the mortgage or bond will continue to carry interest, although not so expressed in the deed. — Price v. Great Western Railway Co., 16 M. & W. 244. 55. At all reasonable times the Books of Account of the Access to n 1 n 1 1 • • o ^ ■ Account Company shall be open to the uispection oi the respective Books by mortgagees and bond creditors thereof, Avith liberty to ° ° • take extracts therefrom without fee or reward. 56. It shall be lawful for the Company, if they think Power to fit, unless it be otherwise provided by the special Act, to into Capital, raise the additional sum so authorised to be borrowed, or any part thereof, by creating new shares of the Company, instead (jf borrowing the same, or, having borrowed the same, to continue at interest only a part of such additional sum, and to raise part thereof by creating new shares ; but no such augmentation of Capital as aforesaid shall take place without the previous authority of a General Meeting of the Company. 57. The Capital so to be raised by the creation of new New shares shares shall be considered as part of the general capital, sidereci same and shall be subject to the same provisions in all respects, gharef.™^ whether with reference to the payment of calls, or the forfeiture of shares on non-payment of calls, or otherwise, as if it had been part of the original Capital, except as to the times of making calls for such additional capital, and the amount of such calls, which respectively it shall be lawful for the Company from time to time to fix as they shall think fit. 61. It shall be lawful for the Company from time Power to . ,• ' ^ ^ PI ,' o 1 (1 i_i (^consolidate to time. With the consent oi three-liiths oi the votes oi shares into the shareholders present in person or by proxy at any ^^^'^^^ (ieneral fleeting of the Company, when due notice for that purpose shall have been given, to convert or 90 AUDITORS. Kegister of Stock. Application of Capital. Ordinary Moeting.s to be held Half-yearly. Ihisines-s at Ordinary Meetings. consolidate all oi- any part of the shares then existing in tlie Capital of tliu Company, and in respect whereof the \\hole money subscribed shall have been paid up, into a General Capital Stock, to be divided amongst the share - h(^lders according to their respective interests therein. 63. The Company shall from time to time cause the names of the several parties who may be interested in any such Stock as aforesaid, with the amount of the interest therein possessed by them respectively, to be entered in a book to be kept for the purpose, and to be called " The Register of Holders of Consolidated Stock." 65. And be it enacted, that all the money raised by the Company, whether by subscriptions of the shareholders, or by loan or otherwise, shall be applied, firstly, in paying the costs and expenses incurred in obtaining the special Act, and all expenses incident thereto, and, secondly, in carrying the purposes of the Company into execution. 66. The first General Meeting of the shareholders of the Company shall be held within the prescribed time, or, if no time be prescribed within one month after the passing of the special Act, and the future General Meetings shall be held at the prescribed periods, and, if no periods be prescribed, in the months of February and August in each year, or at such other stated periods as shall be appointed for that purpose by an order of a General Meeting ; and the meetings so appointed to be held as aforesaid shall be called " Ordinary Meetings," and all meetings, whether ordinary or extraordinary, shall be held in the prescribed place, if any, and, if no place be ])rescribed, then at some place to be appointed by the Directors. 67. No matters, except such as are appointed by this or the special Act to be done at an Ordinary ]\leeting, shall be transacted at any such meeting, unless special notice of such matters have been uiven in the advertise- incut (■oiiv('iiin<'- such meetina'. It is at tlicso Half-yearly Ordinary Meetings that the Accuuuts are COMPANIES, ETC., ACTS. 91 produced to the Shareholders («(?^ Sections 116, 118) and Dividends declared. At the first Ordinary Meeting in each year one of the Auditors retires and is re-elected, or a new Auditor appointed in his place {see Sections 101, 103). If any vacancy takes place among the Auditors in the course of the year, then the Shareholders may fill the vacancy at any Greneral Meeting {see Section 104). Special notice of intention to vote remuneration to Directors must be given. — Hutton v. West Cork Railway Co., 23 Ch. D, 654. 91, Except as otherwise provided by the special Act, Powers of the the following- powers of the Company (that is to say), beTxercised the choice and removal of the Directors, except as herein- General'* before mentioned, and the increasino- or reducino- of their Meeting, number where authorised by the special Act, the choice of Auditors, the determination as to the remuneration of the Directors, Auditors, Treasurer, and Secretary, the determination as to the amount of money to be borrowed on mortgage, the determination as to the augmentation of Capital, and the declarati(jn of dividends, shall be exercised only at a (jeneral Meeting of the Company. 98. The Directors shall cause notes, minutes, or copies, Proceedings ,1 • (• Ti • , , 1 to be entered as tne case may requu-e, oi all appointments made or ma Book and contracts entered into by the Directors, and of the orders *ie^ce^^^" and proceedings of all meetings of the Company and of the Directors and Committees of Directors, to be duly entered in books, to be from time to time provided for the purpose, which shall be kept under the superintendence of the Directors, and every such entry shall be signed by the Chairman of such meetino-. 101. Except where, by the special Act, Auditors shall Election of be directed to be appointed otherwise than by the Company, the Company shall, at the First Ordinary Meeting after the passmg of the Special Act, elect the prescribed number of Auditors, and if no number is prescribed two Auditors, in like manner as is provided lor the election of Directors ; and at the First Ordinary Meeting of the Company in each year thereafter the 92 AUDITORS. Company shall in like manner elect an Auditor to supply the i)lace of the Auditor then retiring from office, according to the provision hereinafter contained ; and every Auditor elected as hereinbefore provided, being neither removed nor disqualified nor having resigned, shall continue to be an Auditor until another be elected in his stead. Qualification 102. Where no other qualiiication shall be prescribed of Auditors. ^^ ^j^g special Act, every Auditor shall have at least one share in the undertaking ; and he shall not hold any office in the Company, nor be in any other manner interested in its concerns, except as a shareholder. This Section is amended as to Eailways Tiy the Eegiilation of Eail- ways Act, 1868 (31 & 32 Vict., c. 119), Sections 11 & 12, and anAuditor appointed under that Act need not be a Shareholder. Rotation of 103. One of such Auditors (to be determined in the first instance by ballot between themselves, unless they shall otherwise agree, and afterwards by seniority) shall go out of office at the First Ordinary Meeting in each year ; but the Auditor so going out shall be immediately re-eligible, and after any such re-election shall, with respect to the going out of office by rotation, be deemed a new Auditor. Vacancies in 10-1. If auv vacancv take placc amono' the Auditors in office of ^ J L n Auditor. the course of the current year, then at any General Meeting of the Company the vacancy may, if the Company think fit, be supplied by election of the share- holders. Failure of 105. The provision of this Act respecting the lailure elect Auditor. <'l J^ Ordinary Meeting at \vhich Directors ought to be chosen shall ap})ly, mutatis mutdndis, to any Ordinary Meeting at which an Auditor t)ught to be appointed. If the prescribed (piorinn of shareholders be not present witliin an hour, no election of Auditors can be made, and the meeting- stands adjourned to tlie following day at the same time and place, when, if the prescribed quorum be not present within an hour, the existing Auditors will continue to act uutil the First Ordinary Meeting of the following year. COMPANIES, ETC., ACTS. 93 106. The Directors shall deliver to such Auditors the Delivery of half-yearly or other periodical Accounts and Balance sheet.&c, by Sheet fourteen days at the least before the ensuing ^^^{^^^3^ *° Ordinary Meeting- at which the same are required to be produced to the shareholders as hereinafter provided. The Forms of Accounts and Balance Sheet prescribed by the Gras- works Clauses Act (1847) Aniendmeut, and by the Regulation of Eailways Act, 1868, will be found in Appendix. 107. It shall be the duty of such Auditors to receive Duty of from the Directors the half-yearly or other periodical ^ Accounts and Balance Sheet required to be presented to the shareholders, and to examine the same. 108. It shall be lawful for the Auditors to employ such Powers of Accountants and other persons as they may think proper, ^ ^^" ^^* at the expense of the Company, and they shall either make a Special Report on the said Accounts, or simply coniirm the same ; and such Report or Coniirmation shall be read, together with the Report of the Directors, at the Ordinary Meetmg. The power given by this Section is conferred on each Auditor. — Steele v. Sutton Gas Company, 12 Q.B.D. 68; see Chapter XIY. And with respect to the keeping of Accounts, and the right of inspection thereof by the shareholders, be it enacted as follows : 115. The Directors shall cause full and true Accounts Accounts to to be kept of all sums of money received or expended on ^ ^^ ' account of the Company by the Directors and all persons employed by or under them, and of the matters and things for which such sums of money shall have been received or disbursed and paid. The common order for inspection includes the Plaintiff, his Solicitors, and Agents, which appears to be limited to a general Agent. — Braper V. Manchester, Sheffield 8f Lincolnshire Railway Company, 3 D.F. & J. 23 ; 9 W.R. 215. Inspection by witnesses will only be allowed if a sj^ecial case is made out. A professional Accountant, or a person familiar with accounts, will be allowed to inspect, if the action involves complicated accounts, but not otherwise. — Swansea Vale Railway Co. v. Budd, 2 Ecj^. 274; Lindsay V. Gladstone, 9 Eq. 132. 94 AUDITORS. A professional Accouutant will not he allowed to insjiect the hooks of a rVnupany if he ho also the Auditor of a rival Company. — Draper V. Mancheater, Sheffield ^- Lmcolnshire Railway Co., 3 D.F. & J. 23 ; 9 W.E. 215. Books to be 116. The books of the. Company shall be balanced at the prescribed periods, and, if no periods be prescribed, fourteen days at least before each Ordinary Meeting ; and, forthwith on the books being so balanced, an exact Balance Sheet shall be made up, which shall exhibit a true Statement of the Capital Stock, Credits, and Property of every description belonging to the Company, and the debts due by the Company at the date of making such Balance Sheet, and a distinct \dew of the Profit or Loss which shall have arisen on the transactions of the Company in the course of the preceding half-year ; and pre^dously to each Ordinary Meeting such Balance Sheet shall be examined by the Directors, or any three of their number, and shall be signed by the Chairman or Deputy- Chairman of the Directors. As hy Section 106 the Directors have to deliver to the Auditors the Balance Sheet and Accounts fourteen days at the least before the Ordinary Meeting, it follows that, should the Directors only balance the books on the last day allowed by Section 1 1 6, they must be delivered to the Auditors the same day. Inspection of 117. The Books so balanced, together with such Balance shareiloidors Sheet as aforesaid, shall for the prescribed periods, and if no periods be prescribed for fourteen days previous to each Ordinary Meeting, and for one month thereafter, be open for the inspection of the shareh(,)lders at the principal office or place of business of the Company ; but the share- liolders shall not be entitled at any time, except during the periods aforesaid, to demand the inspection of such Books, unless in \irtue (jf a written order signed by three of the Directors. Haianceshect W^. 'I'he Directors shall produce to the shareholders (hVraut°tho asscMubled at sucli Ordinary Meeting the said Balance Meeting. Sheet, applicable to the period innnediately preceding at stated times COMPANIES, ETC., ACTS. 95 sucli Meeting, together with the Report of the Auditors thereon, as hereinbefore provided. 119. The Directors shall appoint a book-keeper to enter Book-keeper the Accounts aforesaid in books to be provided for the inspection of purpose ; and every such book-keeper shall permit any ^t^the^^^^"^*^ shareholder to inspect such books, and to take copies or appointed extracts therefrom, at any reasonable time during the prescribed periods, and if no periotls be prescribed during one fortnight before and one month after every Ordinary Meeting. 120. Previously to every Ordinary fleeting at which Previously to a dividend is intended to be declared the Directors shall Dividends a cause a scheme to be prepared, showing the prohts, if any, pi!gp™4i° ^^ of the Company for the period current since the ])receding Ordinary Meeting at which a dividend was declared, and apportioning the same, or so much thereof as they may consider applicable to the purposes of dividend, among the shareholders, according to the shares held by them respectively, the amount paid thereon, and the periods during which the same may have been paid, and shall exhibit such sclieme at such Ordinary fleeting, and at such Meeting a dividend may be declared according to such scheme. For gejieral remarks as to Profits available for Divideud see Chapter XIII. Money borrowed for the purpose of completiug a railway line is not payable ont of profits, but debts incurred for rails, stations, and the like are payable out of profits. — Coey v. London and EnniskiUen Railway Co.^ 27 B. 263. Dividends may not be paid out of borrowed capital, nor can interest on Debentures be charged to Capital Account. — Bloxam v. Metropolitan Railway Co., 3 Ch. 337. 121. The Company shall not make any dividend Dividend not whereby their Capital Stock will be in any degree as to reduce reduced : Provided always that the word " Dividend " ^'^p^*''^- shall not be construed to apply to a return of any portion of the Capital Stock, with the consent of all the Mortgagees and Bond Creditors of the Company, due 96 AUDITORS. notice being given for that purpose at an Extraordinary Meeting to be convened for that object. Compare Compauies Act, 1862, Schedule I. (Table A), Ai-t. (73) : "No dividoiid shall be payable except out of the profits ai-ising from the business of the Company." Power to 122. Before apportioning the profits to be divided Directors to f^ij-^Qj^o- the shareholders the Directors may, if they set apart a o j t j Fund for Con- think fit, sct asidc thereout such sum as they may tingencies. , . , , • • f ^ • thmk proper to meet contingencies, or tor enlarging, repairing, or improving the works connected with the Undertaking, or any part thereof, and may divide the balance only among the shareholders. Dividend not 123. No Dividends shall be paid in respect of any iin£s^aif share until all calls then due in respect of that and Calls paid, gyery other share held by the person to whom such dividend may be payable shall have been paid. The Companies Clauses Act, 1863. (26 & 27 Vict., c. 118). [28th July, 1863.] Short Title. 1. This Act may be cited as " The Companies Clauses Act, 1863." Power to 4. Where any share of the Capital of the Company is, canceH(fr-*° jdter the passing of this Act, declared forfeited under felted Shares. .^yi([ in pursuance of the provisions with respect to the forfeiture of shares for non-payment of calls contained in the Companies Clauses Consolidation Act, 18-15, and the Companies Clauses Consolidation (Scotland) Act, 1845, res])cctively, and the forfeiture is confirmed by a meeting ill accordance with the same provisions respectively, and notice of the forfeiture has been given, then and in every such case, if the Directors of the Company are unable to sell the share for a sum equal to the arrears of calls and interest and expenses due in respect thereof, the Company at any General Meeting held not less than two months after such notice is given may, in case payment of the COMPANIES, ETC., ACTS. 97 arrears of calls, interest, and expenses due in respect thereof is not made by the registered holder of the share before the meeting is held, resolve that the share instead of being sold shall be cancelled, and the share shall thereupon be cancelled accordingly. 6. Where it is so resolved that any share shall be Payment of cancelled, the holder thereof shall from and after the an-ear not- passing of the resolution be precluded from all right and ^ncenatioi? interest therein and in respect thereof ; but the cancella- tion shall not affect the liability of the last registered holder of the share to pay to the Company all arrears of calls, interest, and expenses due in respect of the share at the time of the cancellation, or the power of the Company to enforce payment thereof by action or otherwise. 7. Provided always, that if the Company enforces the Value of for- payment of the arrears of calls, interest, and expenses t^be cie-^^^^ under the last preceding: provision, the value of the share f^^icted from i . amount due at the time of the cancellation thereof shall be deducted m respect from the amount so then due ; provided also, that if payment of all arrears of calls, interest, and expenses is made before such meeting as aforesaid is held, the share shall revert to the person to whom it belonged at the time of forfeiture, and shall be re-entered on the Company's Register accordingly. 8. Where any share is declared forfeited, or where any Company sum payable on any share remains unpaid, the Company, fo^ited'^*^ with the consent in writino' of the registered holder of the '''hai^es with o o ^ consent of share, and with the sanction of a General Meeting, may holders. resolve that the share shall be cancelled, and immediately thereupon the share shall be cancelled, and all liabili- ties and rights with respect to the share shall thereupon be absolutely extinguished. 9. The Company may from time to time accept, on such As to sxu-- terms as they think iit, surrenders of any shares which shares." have not been fully paid up. 10. The Company shall not pay or refund to any share- No money to holder any sum of money for or in respect of the cancellation cancellation or surrender of any share. or surrender. H 98 AUDITORS. Power to 1 1. The Coinpanv may from time to time, in lieu of any i'riieuof^^'slian's that have been cancelled or surrendered, issue new ouuvii.a, shares of such amounts as will allow the same to be Shares. cttuveniently apportioned or disposed oi according to the resolution of any Ordinary or Extraordinary fleeting of the Company, and may from time to time fix the amounts and times of payment of the calls on any such new shares, and dispose thereof on such terms and conditions as may be so resolved upon : Provided that the aggregate nominal amount of the new shares shall not exceed the aggregate nominal amount of the shares in lieu of which the new shares are issued, after deducting the amount actually paid up in respect of the shares cancelled or surrendered. Hepuiatioiis 12. Where any Company, incorporated either before or umris^n?of'" '^^^^^* ^^^^ passing of this Act for the purpose of carrying on Ordinary aiiv uudertakinof, is authorised by any special Act here- Sliarcs ornew ^/ i i • • i • ^ i- ^i • a ^ ^ Ordinary after passed and incorporating this part ot tins Act, to raise any additional sum or sums by the issue of new ordinary shares, or by the issue of new ordinary stock, or (at the option of the Company) by either of those modes, then and in every such case the Company, with the sanction of such pn)portit)n of the votes of the shareholders and stockholders entitled to vote in that behalf at meetings of the Company, present (personally or by proxy) at a meeting of the Com})any specially convened for the purpose, as is prescribed in the special Act ; and if no |)roportion is prescribed, then of three-fifths of such votes, may, for the purpose of raising the additional sum or sums, irom time to time create and issue (according as the aiitlicjrity given ))y the s})ecial Act extends to shares only, (»r to stock on!}', or to both) such new ordinary shares, of Midi iiomiiial amount, and subject to the payment of calls of such amounts and at such times as the Company thinks fit, or sucli new ordinary stock as the Company thinks fit. IlT'ltat'lnn !•'• ^^'''^''•'" ='".^- ^i'*''^' Company is authorised by any nl'w'i'n'i.'.'^ *^l»ecial Act hereafter passed and incorporating this part of r.n.T shar.H tljjs Act to raise any additional sum or sums by the issue or mw I'rt!- i- i> i i i i • ,. i^ ferencostock. <»' i»^v\- J rctereiice shares, or by the issue ol new Preference COMPANIES, ETC., ACTS. 99 stock, or (at the option of the Company) by either of those modes, then and in every such case the Company, witli the like sanction as aforesaid, may for the ])urpose of raising such additional sum or sums from time to time create and issue (according as the authority given by the special Act extends to shares only or to stock only, or to both) such new shares or new stock, either ordinary or preference, and either of one class and with like privileges, or of several classes and with different pri^dleges, and of the same or different amounts, and respectively with any iixed, fluctuating, contingent, preferential, per})etual, terminable, deferred, or other dividend or interest, not exceeding the rate prescribed in the special Act ; and if no rate is })rescribed, then not exceeding the rate of five pounds per centum per annum, and subject (as to any such new shares) to the payment of calls of such amounts and at such times as the Company from time to time thinks fit. Provided always that any })reference assigned to any saving rights shares or stock so issued under the special Act shall not sharehoiS? affect any guarantee or any preference or priority in the payment of dividend or interest on any shares or stock, that may have been granted by the Company under or confirmed by any previous Act, or that may be otherwise lawfully subsisting. 14. The Preference Shares or Preference Stock shall Preference be entitled to the preferential dividend, or interest entitled to ^ assigned thereto, out of the profits of each year, in JJj[^^o""f ^f priority to the Ordinary Shares and Ordinary Stock of tiie Profits of each Year. the Company ; but if in any year ending on the day prescribed in the special Act, and if no day is prescribed, then on the thirty -first day of December^ there are not profits available for the payment of the full amount of preferential dividend or interest for that year, no part of the deficiency shall be made good out of the profits of any subsequent year, or out of any other funds of the Company. In cases not within these Sections it has been held that preference shareholders are entitled to have arrears of interest made up out of the h2 100 AUDITORS. profits of subsequent years.— Iff »n/ v. Great Northern Raihcay Co., 1 De G. & J. 606 ; Corry v. Loidonderry, ^t., Raihvay Co., 29 E. 263 ; MattJieivs r. Great Northern Railway Co., 28 L.J. Ch. 375. Preference shareholders who have allowed the surplus profits of one year to he apiiHed in papnent of ordinary shareholders, instead of in pa^^nent of arrears due to them, are not prevented from claiming such arrears against the profits of future years. — Matthews v. Great Northern Railway Co., 28 L.J. Ch. 375. Keguiatioiis 22. Where any Company incorporated either before or and°is?ue of " '^^^^ ^he passing of this Act for the purpose of carrying on Debenture r^^j undertaking is authorised by any special Act here- after passed, and incorporating this part of this Act, to create and issue Debenture Stock, then and in every such case the Company, with the sanction of such proportion of the votes of the shareholders and stockholders entitled to vote in that behalf at meetings of the Company, present (personally or by proxy) at a meeting of the Company specially convened for the purpose, as is prescribed in the special Act, and if no proportion is prescribed then of three-fifths of such votes, may from time to time raise all or any part of the money which for the time being they have raised, or are authorised U) raise, on Mortgage or Bond, by the creation and issue, at such times, in sucli amounts and manner, on such terms, subject to such conditions, and with such rights and privileges as the Company thinks fit, of stock to be called Debenture Stock, instead cjf and to the same amount as the whole or any part of the money which may for the time being be owing by the Company on Mortgage or Bond, or which they may from time to time have power to raise on Mc^rtgage or Bond, and may attach to the stt)ck so created such fixed and perpetual preferential interest •Repealed by *[not exceeding the rate prescribed in the special Act, and c. 127, s. 24,' ^^ ^^^^ ^'^^^ ^^ prescribed then not exceeding the rate of Viet^^c^G^G* four pounds per centum per annum], payable half-yearly or otherwise, and conunencing at once or at any future time or times, when and as the Debenture Stock is issued, or otherwise, as the Company thinks fit. For 30 & 31 Vict., c. 127, s. 24 (the Eailway Companies Act, 1867), see post. COMPANIES, ETC., ACTS. 101 23. Debenture Stock, with the interest thereon, shall be Debenture ji charge upon tlie undertaking of the Company ] )rior t( ) prior charge. all shares or stock of the Company, and shall be trans- missible and transferable in the same manner and according to the same regulations and provisions as other stock of the Company. See the Railway Companies Act, 1867, Sec, 23. 24. The interest on Debenture Stock shall have ])riority interest on of payment over all dividends or interest on any shares sto^k"to be a or stock of the Company, whether ordinary or primary preference or guaranteed, and shall rank next to the interest payable on the Mortgages or Bonds iov the time being of the Company legally granted before the creation of such stock ; but the holders of Debenture Stock shall not, as among themselves, be entitled to any preference or priority. See 1)1 re Burnj Port, Sfc, Railway Co., 33 W.E. 741; 54 L.J. Oh. 710. 28. The Company shall cause entries of the Debenture Debenture Stock from time to time created to be made in a Register registered. to be kept for that purpose, wherein they shall enter the names and addresses of the several persons and corporations from time to time entitled to the Debenture Stock, with the respective amounts of the stock to which they are respectively entitled. 32. Money raised by Debenture Stock shall be applied Application exclusively either in paying off money due by the raised!^''^ Company on Mortgage or Bond, or else for the purpose to Avhich the same money would be applicable if it were raised on MortL>ao-e or Bond instead of on Debenture a O Stock. 33. Separate and distinct Accounts shall be kept by Separate i 1 / 1 1 • 1 1 11 Accounts of tne Company, showing how much money has been Debenture received for or on account of Debenture Stock, and how ^^'^^'^ much money borrowed or owing on Mortgage or Bond, or which they have power so to borrow, has been paid off by Debenture Stock, or raised thereby, instead of being borrowed on Mortgage or Bond. 102 AUDITORS. Borrowiug 34. Tlie powei's of borrowing and reborrowing by the extinguished CoiniJjiny sluill, to the extent of the money raised by to extent of ^j^g issue of Debenture Stock, be extinmiished. Debenture n ^ • pi Stock. 35. The provisions of this part oi the Act shall be '^PP^^?*^°" deemed to a])ply to Morto-ao-e Preference Stock, and to of Sections i i J no ^ ^ ' 22 to 34 to Funded Debt, as the case may re(|uire, in all respects Preference as if Morti>'aoe Preference Stock or Funded Debt were FuiidedDebt. niciitioned throughout this part of this Act wherever Debenture Stock is mentioned therein. The Companies Clauses Act, 1869. (32 & 33 Vict., c. 48.) [2nd August, 1869.] Whereas the Companies Clauses Act, 1863, has been amended in certain respects as regards Railway Companies, and it is expedient that such amendments should extend to other Companies : Be it therefore enacted as follows : Amendment 1. Part III. [Scctioiis 22 to 35] of the Companies of 2(^^27 Clauses Act, 1863, shall be read and have effect as if the Vict., c. 118, foUowino; words, that is to sav, "not exceeding' the rate as to rate of . . "^ interest on prescribed in the special Act, and if no rate is prescribed, Debenture . Stock. then not exceeding the rate of four pounds per centum per annum," had not been inserted in Section 22 of that Act, and any special Act of a Company passed before the passing of this Act, prescribing any rate, shall be read and have effect as if no rate had been prescribed therein. Restriction 2. Provided, that any Debenture Stock, the creation interest °on thereof has been authorised by a Company, but which has stock already ^^"^ ^^^^^^ issucd before the passing of this Act, shall not be authorised, issucd Oil any terms other than those whereon it miirht have been issued if this Act had not been passed, unless and until the issue thereof, on terms other than as afore- said, is after the passing of this Act authorised by the (yompany in manner provided in Section 22 of the Companies Clauses Act, 1863. COMPANIES, ETC., ACTS. 103 ;l Any Company having power to raise money on rower to Mortgage or Bond by virtue of any Act of Parliament, but tt^e stock, not having power to create and issue Debenture Stock, pJ,{;^in*°of mav create and issue Debenture Stock subject to the 26 & 27 vict. , - c. 118. pro^dsions of Part III. of the Companies Clauses Act, 1863 (relating to Debenture Stock), and Part III. of the said Act, as amended by this Act, shall be deemed to be incorpoi'ated with the special Act of every such Company. 4. Money borrowed by a Company for the purpose of Advances to paying off and duly applied in paying off Bonds or tares faUiug Mortgages of tlie Company given or made under the statutory powers of the Company shall, so far as the same is so applied, be deemed money borrowed within and not in excess of such statutory powers. 5. Section 21 of the Companies Clauses Act, 1863, Power to shall, with respect to any Company to wliich it is or stock at* applicable under the provisions of this or any other Act, d^^^^o^^*- be read and have effect as if the following words, that is to say, " but so that not less than the full nominal amount of any share or portion of stock be payable or paid in respect thereof," had not been inserted in that Section. A Company governed by the Companies Clauses Consolidation Act, 1845, and the Acts amending it, may issue fuUy paid-up Original Stock at a discount, and for payment either in cash, or for land or labour or other consideration, subject to the liability of the Directors for issuing the Stock below its value without necessity. — JJ^ebb v. Shropshire Railways Co. [1893] 3 Ch. 307. A Company governed by the same Acts may issue fully paid-up Original Shares at a sum less than their nominal amount, in the same manner as new shares can, under the authority of those Acts, be issued. — Statham v. Brighton Marine Palace and Pier Co. [1899] 1 Ch. 199. 6. Any shares forming part of the capital (whether Power to original or additional) authorised to be raised by any of original special Act of a Company passed before the present session oa^Jtai at which have not been disposed of may be disposed of in discount. manner provided by Part II. of the Companies Clauses Act, 1863, as amended by this Act, and that part, as so amended, shall be deemed incorporated with such special Act accordingly. 104 AUDITORS. Kc^triction on i.ssiiing at discoiint Shares or Stock already authorised. Act not to affect pro- visions as to Ciii^ital upon which the Dividend is limited. Short Title. 7. Pruvided that any shares, the creation whereof has been authorised by a Company, but which liave nut been issued before the ])assing of this Act, shall not be issued on any terms other than those whereon the same might ha\'e been issued if this Act had not been passed unless and until the issue thereof on terms other than as aforesaid is after the passing of this Act authorised by the Company in manner jn-ovided by Part II. of the Companies Clauses Act, 1863. 8. Provided always, that this Act shall not be construed to alter or extend the provisions of any Act relating to share capital in respect of which the amount of profits to be divided is limited to a fixed rate per centum upon the paid-up capital of the Company. 9. This Act may be cited as " The Companies Clauses Act, 1869." Short Title. In what cases Com- pany shall be incorporated. In others Company may be in- corporated. Power for Board of Trade to incorporate Company by Certificate. The Railways Construction Facilities Act, 1864. (27 & 28 Vict., c. 121.) [29th July, 1864.] 1. This Act may be cited as " The Railways Con- struction Facilities Act, 1864." 24. When the Promoters are not a Company incorporated by special Act, or by i)revious Certificate under this Act, and are seven or more in number, a Company shall be incorporated by the Certificate, for the purposes thereof. 25. Where the Promoters are not a Com])any incor- ])urated by special Act, or by previous Certificate under tliis Act, and are less than seven in number, a Conn)any may be incor})orated by the Certificate for the purposes thereof, if the Promoters so desire. 26. Where the Certificate incorporates a Com])aiiy, it shall contain ])ro])er provisions Avith apt terms for creating a body cor])oi-ate, l)y an api)ropriate name, with per})etual succession and a common seal, and with power to take, COMPANIES, ETC., ACTS. 105 liold, and dispose of lands and other property, for the })urposes and subject to the restrictions of the Certiiicate, and may confer on the Company power to borrow on mortgao-e, and all other usual or proper })owers. 27. In every such case the Companies Clauses Acts incorpora- shall be incorporated with the Certificate (which shall be panies T T ,1 • 1 A x\ Clauses Acts. deemed the special Act). 28. It shall not be lawful for any Company empowered Restriction •; 1 -, as to issue oi by a Certiiicate under this Act to issue any share created shares. under the authority of the Certiiicate, nor shall any such share vest in the person accepting the same, unless and until a sum not being less than one-iifth part of the amount of such share is paid up in respect thereof. 29. Every Company, whether incorporated by special Restrictions Act or by Certiiicate, empowered by a Certiiicate to borrow as to bonow- money, shall, as regards the money so authorised to be "^°' borrowed, be subject to the following restrictions ; namely, (1.) They shall not exercise the said powers of borrow- ing any money until the whole of the share capital authorised by the Certiiicate is subscribed for or taken, and until one -half thereof is actually paid up, and until they prove to the Justice who is to certify under Section 40 of the Companies Clauses Consolidation Act, 1845, or (in Scotland) to the Sheriif who is to certify under Section 42 of the Companies Clauses Consolidation [Scotland) Act, 1845, as the case may be, before he so certilies, that shares for the whole of the capital are issued and accepted, and that not less than one-iifth part of the amount of each separate share has been paid up on account thereof before or at the time of the issue or acceptance thereof, and that all such shares were taken in good faith, and are held by the subscribers or their assigns, those subscribers or their assigns being legally liable for the same (of which matters the Certiiicate of the Justice or Sheriif shall be sufficient evidence) : 106 AUDITORS. (2.) They shall not hornnv a larger sum in the whole than one-third of the amount of the share capital authorised by the Certificate : (o.) They shall not out of money raised under the Certificate by calls or IjorroAving pay interest or dividend to a shareholder on the amount of calls made on his shares, whether created under the Certificate t)r otherwise (but this provision shall not prevent them paying to a shareholder under the Certificate such interest on money advanced by him beyond the amount of calls actually made, as is allowed by the Companies Clauses Acts) : (4.) They shall not out of money so raised pay or deposit any money that may be required to be paid or deposited in relation to any application to Parliament or the Board of Trade : (5.) They shall apply every part of the money so raised only for jjurposes for which it is by the Certificate authorised to be applied. yuviugfor oo. Xothing in the Certificate shall exempt the railway, or^Eevisiou of ^^^* ^^^^ Company, or persons to whom it belongs, from the Charges. ])rovisions of any general Act of Parliament relating to railway?, or to the better audit of the accounts of Railway Companies, passed before or after the issuing of the Certificate, or from any revision and alteration, under the authority of Parliament, of the maximum tolls and charges allowed to be taken under the Certificate. Power to 56. Where the Certificate is obtained by a previously behlK^a*^ "' existing Company incorporated by special Act or by Sse^iiddi-*" Certificate, the Certificate may authorise the Company to c*.'"itii I'i'ise, as capital, for the purposes of the Certificate, such additional sum of money as therein limited, by the issue of new shares or new stock, either ordinary or preference, or partly ordinary and partly preference, or partly in that mode and partly by borrowing on mortgage, at the option of the Company, or as may be prescribed in the Certificate, and Avith power to create and issue Debentiu'e Stock. COMPANIES, ETC., ACTS. 107 In every such case the Companies Clauses Acts shall be iuc()r})()rated with the Certificate. In every such case the restrictions by this Act imposed on a Company when originally incorporated by Certificate, with respect to the exercise of their borrowing puwei* and to the application of money raised under the Certificate by calls or borrowing, shall extend and apply to such previously existing Company in respect of such additional capital. The Railavay Companies Securities Act, 1S66. (29 & 80 Vict., c. 108). [10th August, 1866.] 1. This Act may be cited as " The Railway Companies f^hort Title. Securities Act, 1866." 2. In this Act luterpreta- The Term "Railway" includes a Tramway authorised by Act of Parliament incorporating the Companies Clauses Consolidation Act, 1845, but not any other Tramway ; The Term " Railway Company " includes every Company authorised by Act of Parliament to raise any loan capital for the construction or working of a Railway, or for any purposes connected with the conveyance by such Company of trafiic on a Railway either alone or in conjunction with other purposes ; The Term " Debenture Stock " includes Mortgage Preference Stock and Funded Debt, and any Stock or Shares representing Loan Capital of a Railway Company, by whatever name called. 4. Half-years shall, for the purposes of this Act, be Half- Years deemed to end on the thirtieth day of June and the of Act. tliirty-first day of December ; and the first half-year to which this Act appUes shall be that ending on the thirty- first day of December^ One thousand eight hundred and 108 AUDITORS. sixty-six ; but the Board of Trade, on the application of any Railway Company, may (by writing under the hand of one of their secretaries or assistant secretaries, which shall be registered by the Railway Company at the office of the said Registrar) appoint, with respect to that Company, other days for the ending of half-years (including the hrst). Loan Capital 5. Within fourtccn days after the end of each half-year be made half- ^^cry Railway Company shall make an account ( )f their yearly. Loan Capital authorised to be raised and actually raised up to the end of that half-year, specifying the particulars described in the First Schedule to this Act, Part L (which Account for each half-year is in this Act referred to as the Loan Capital half-yearly Account). Form of 6. The Board of Trade may from time to time, by Account ^ notice pubhshed in the London, Edinburgh, and Dtddin Gazettes, prescribe the form in which the Loan Capital half-yearly Account is to be made. The First Schedule. Part 1. — Particulars to be Specified in Loan Capital Half-yearly Account. A. Every half-yearly Account to show — (L) The Act or Acts of Parhament under the powers of which the Company have contracted any ^Mortgage or Bond Debt existing at the end of the half-year, or have issued any Debenture Stock then existing, or the Act or Acts of Parhament by or under which any ^Mortgage or Bond Debt or Debenture Stock of the Company then existing has been conhrmed, and the Act or Acts of Parliament under which the Company have any subsisting power to contract any Mortgage or Bond Debt, or to issue any Debenture Stock (either on fullilment of any condition or otherwise) ; (2.) The amount or respective amounts of Mortgage or Bond Debt or Debenture Stt)ck thereby authorised or coiilirmed : COMPANIES, ETC., ACTS. 109 (o.) Whether or not by any such Act or Acts the obtaining' of the certificate of a Justice or Sheriff for any purpose, or the obtaining of the assent of a ^Meeting of the Company, lias been made a condition precedent to the exercise of the power thereby conferred of borrowing on Mortgage or Bond, or of creating and issuing Debenture Stock ; (4.) The date at which such condition has been fulfilled ; (5.) The amount or the aggregate amount, under the powers of such Act or Acts, actually borrowed up to the end of the half-year on Mortgage or Bond (dis- tinguishing them), and then being an existing debt, and of Debenture Stock actually issued up to that time and then existing ; (6.) The amount or the aggregate amount remaining to be borrowed. B. The second and every subsequent half-yearly Account to show also — (7.) The items described in paragraphs (2) and (5) of this part of the present Schedule for two con- secutive half-years, and the increase or decrease of any of those items in the second of those half-years as compared with the first. The Bailway Companies Act, 1^'penditure of the Undertakers, be it enacted, that Undertakers, ^}jg Undertakers shall, in each year after they have and sent to . the Clerk of Ix'ouii to sui)i)lv watcr uiidcr this or the special Act, the Peace in ' » . i i i i- xl En-land or causc an Accouut lu abstract to be prepared of tlie the Sheriff " wholc Receipt and Exjienditure of all rates or other SotHnd and ^""^^^.^ '^ k'\ied under the powers of this or the special to be open to Act for tlic Ycar prcccdino-, under the several distinct Inspection. , , /• -r> '^ • ^ -i-\ ^^ • i < iieads of Kecei})t and Expenditure, with a statement of the Ralance of such Account, duly audited and certified by the Chairman of tlie Undertakers, and also by the Auditors thereof, if any ; and a copy of siicli annual Account shall be sent, free of charge. COMPANIES, ETC., ACTS. 125 to the Clerk of the Peace for the County in which tlie Waterworks are situated, if the Waterworks are situated in England or Ireland^ and if the Waterworks are situated in Scotland to the Sheriff Clerk of such County, on or before the thirty-first day of Januarii in each year. The Metropolis Water Act, 1852. (15 & 16 Vict., c. - o o COMPANIES, ETC., ACTS. 120 Acts, save so far as they are expressly varied or excepted Lighting bv the Order, and shall, subject to any such \ariatioiis or exceptions, apply, so far as applicable, to the uiidertakino- authorised by the Order. The said provisions shall also, with the necessary modi- tications, and in particular with the substitution of the words '' special Act " for '* special Order," be incorporated with any special Act, save so far as they are expressly varied or excepted thereby. The expression '• Electric Lio-hting Acts " means in this 45 & 46 vict. Act the Electric Lighthig x\cts, 1882 and 1888, and, so 51 &'52 vict. far as respects Scotland, the Electric Lio-htino- Acts, 1882 gg^Jg^Yj^^. and 1888, and the Electric Lighting (Scotland) Act, c 13. 1890. The expression " Special Act " means in this Act any Act passed after the connnencement of this Act anthorising the supply of Electricity tor any public or private purposes within any area. 2. — (1.) This Act may be cited as the Electric Lighting Sboi-t Title. (Clauses) Act, 1899. " ' Schedule. o. — (1.) The Undertakers shall not purchase or acquire Undertakers the Undertaking of or associate themselves with any Com- chase other pany or person supplying energy under any Licence. ^"i<^ertakmgs. Provisional Order, or Special Act, unless the Undertakers are authorised by Parliament to do so. 6. The followino; provisions shall apply as to the audit Audit of ^ 11. Undertakers' of Accounts where the Undertakers are not a Local Accounts. Authority : — (].) The annual Statement of Accounts of the mider- taking, before being published as provided by Section nine of the Electric Lighting Act, 1882, 45 &46yict., shall be examined and audited by such competent and impartial person as the Board of Trade appoint, and the remuneration of the Auditor shall be such K 130 AUDITORS. as the Board of Trade direct, and that remune- ration and all expenses incurred by him in or aljout the execution of his duties, to such an amount as the Board of Trade approve, shall be paid by the Undertakers on demand, and shall be recoverable summarily as a civil debt. (2.) The Undertakers shall give to the Auditor, his clerks and assistants, access to such of the books and documents relating to the undertaking as are necessary for the purposes of the audit, and shall when required furnish to him and them all vouchers and information requisite for that purpose, and shall afford to him and them all facilities for the proper execution of his and their duty. (3.) The Board of Trade may make and vary regulations ]3rescribing the times at and the mode in which the audit shall be made and conducted, or otherwise for the purpose of giving effect to the provisions of this Section. (4.) Any Report made by the Auditor, or such portion thereof as the Board of Trade direct, shall be appended to the annual Statement of Accounts, and shall form part thereof for the purposes of the said Section nine. AstoMort- '^^- Nothing in the Special Order shall prevent the gages. Undertakers, in a case where a Local Authority are not the Undertakers, from borrowing money on the security ot mortgages of the undertaking, or shall make the consent or a})proval of the Board of Trade necessary to the validity or effect of any such mortgage. Provided that every mortgage of the undertaking shall be deemed to comprise all purchase money which may be paid to the Undertakers in the event of any sale or transfer of the undertaking or any part thereof, under Section two of the Electric Lighting Act, 1888, or under the Si)ecial Order, and that any mortgage granted by the Undertakers shall not be a charge upon the undertaking, or any part thereof, in the event of the undertjiking or that part being COMPANIES, ETC., ACTS. 131 sold or transferred as aforesaid, and that every mortgage deed granted Ijy the Undertakers shall be endorsed with notice to that effect. The Stannaries Act, 1869. (32 & 33 Yict., c. 19.) [24th June, 1869.] 1. This Act may be cited as "The Stannaries Act, Short Title. 1869." 2. In this Act— Interpreta- The term "the Stannaries" means the Stannaries of ^^^^^^^^^^'^s- Devon and Cornwall : The term " Company " includes any persons or partner- ship body working a mine in the Stannaries : The term " Purser " means the Purser for the time beino- o of a Company, and if there is no Purser then the Secretary for the time being, or if there is no Secretary then the principal Agent for the time being of a Company : The term " Cost Book " includes all books and papers relating to the business of a mine, which are for the time being kept by a Purser, or which, according to the custom of the Stannaries, or the directions of the Company, ought to be kept by him. These iutei-pretations are altered slightly in the Stannaries Act, 1887, Section 2, ■which see. 3. This Act extends only to mines within the Stannaries, Extent and and subject to the jurisdiction of the Court, or within the oPacT*^°" cognisance of the Vice-Warden, and nothing in this Act shall extend to Companies registered under any of the Joint Stock Companies Acts, except where such Com- panies are expressly mentioned or necessarily implied. 9. The Purser of every Company shall, once at least in Entry of every four months, truly enter in the cost book of the Company Accounts showing the actual financial position of the Company at the end of the financial month of the k2 1,')2 AlIDl'I'ol.'S, I CompMiiv last piHHHuliii^' llic t-iinc! of <'iitry, including' a statcMUMit of all ciHulits, debts, and lial)iliti(^s, and dis- tin"nisjiiii<'- in such Accounts tlic amount of calls paid and calls not paid, with accunitc lists of all the Share- lioldci-s foi- the time l)(;ino- in the Company, with their i-especti\(' addresses, corrected irom time to time as occasion rciiuires, and all other Accounts, documents, and thini;s w hich tin' Turser is for tlie time being required to enti'i" therein by tlie custom of the Stannaries, or by the directions of the Company ; and aftei* the passing of this Act all existing oi- future Companies having any rules oi- regulations touching the management of the Company or conduct of the business of any mine shall "file a true copy of them at the ottice of the Registrar without pay- ment of any fee ; and sucli rules or regulations shall be subject to the inspection of all applicants at reasonable times ; and if any Company shall neglect to hie such rules or regulations as above recpiired, then any shareholder in or creditor of any such Company may apply for an order oi' the Court to lile such rules or regulations forthwith, which order shall be enforced by the process of the Court. Audit ami 10. At any meeting of a Company with special notice ^"^^' the Accounts of the Company may be audited, and a call may be made. CaUfor 11. A call may he made by a Company for the purpose Expeuser^^ of ileh-ayiug the whole or any portion of the estimated expenses to be incurred at any time within three months after the date of the meeting at which the call is made. Di^oouutor !-• At tlic time of making a call, a Company may Si^'^*'" t^hrect that discount not exceeding hve per cent, shall be allowed to every shareholder on payment of the call at or within the time appointed for payment thereof, and may direct that interest at the rate of live pounds per centum per annum shall be charged on all amounts due on account of a call and remaining unpaid after one month from the time appointed for the payment thereof. Notice on IG. If a shareholder fails to pay a call on the day pH/cail! appointed for payment thereof, the Company may at any COMPANIES, ETC., ACTS. l;^3 time tlioreafter, during- such time as the call remains unpaid, serve a notice on him requirino- him to pay such call, with or without interest and any expenses that may have accrued by reason of such non-payment, and stating to the eft'ect that in the event of non-payment in accordance with the notice the share in respect of which such call was made will be liable to be forfeited. 17. If the requisitions of any such notice as aforesaid Forfeiture on are not complied with, any share in respect of which sucli ^^^'^^ ''P^y- notice has been given may at any time tliereafter, before payment of all calls, interest, and expenses due in respect thereof has been made, be forfeited by a resf)lution of the Company to that effect passed at a meeting with special notice. 18. Any share so forfeited shall be carried to an account Sale of for- to be called " The Account of Forfeited Shares," and shall ^'^^'^^ ^^'^'^'■ be deemed to be the property of the Company, and may be disposed of in such manner as the Company thinks fit ; and any shareholder may purchase any such share if sold. 20. Any shareholder whose share has been forfeited Paymentnot- shall, nevertheless, be liable to pay all calls, interest, and Forfeitm-e. ^ expenses payable on or in respect of the same at the time of forfeiture. 21. Where a share in a Company is relinquished, it Disposal of shall be carried to an account to be called '' The Account shares, of Relinquished Shares," and shall be deemed to be the property of the Company, and may be disposed of as the Company thinks fit, and any Shareholder may purchase any such share if sold. The Stannaries Act, 1887. (50 & 51 Vict., c. 43.) [16th September, 1887.] 1. This Act may be cited as " The Stannaries Act, shortTitio. 1887." 2. In this Act — The term " Company " means any persons or partner- interpreta- ship body. Joint Stock Company, Company Funds to be accounted for 134 AUDITOKS. constituted under the Companies Act, 1862, or any statutory modification thereof, and whether corporate or unincorporate, and whether hmited or unhmited, engaged in or formed for working mines within the Stannaries. The term "Purser" means the Purser for the time being of a Company, or if there is no Purser then the Secretary for the time being, or if there is no Secretary then the principal Agent or Manager for the time being of a Company. The term " Cost Book " includes all books and papers relating to the business of a mine which are for the time being kept by a Purser, or which, accordino: to law or the custom of the Stannaries, ought to be kept by him. Mine Club 13. — (1.) After tlic Commencement of this Act, any custom or rule of law to the contrary notwithstanding, all moneys deducted in any mine from the wages or earnings of or otherwise contributed by the miners for the purposes of a mine club, or accident, or sick or benefit fund, shall, unless a majority of the miners shall by resolution decide otherwise, be deemed to belong to the miners and not to the Company, and the said moneys, and any contributions added thereto by the shareholders, shall be placed to a separate account, and the details thereof, showing the amount received and the several payments thereout, and to whom made during each pre- ceding sixteen weeks, shall be set out in the Balance Sheet to be presented to the shareholders at each Ordinary Meeting ; and a copy of the same shall be posted in the miners' dry or changing sheds, and in the account house ; and it shall be lawful for the miners in any mine, if they so please, to appoint any two of themselves to audit the said Mine Club Fund Accounts. Accounts to 23. The Purser of every cost book mine shall, once at Co&?B'ook/" least every sixteen weeks, truly enter in the cost book of the mine Accounts showing the actual financial position of the Company at the end either of the financial month COMPANIES, ETC., ACTS. 135 of such Company last preceding that time, and inckiding a statement of all credits, debts, and liabilities, and dis- tinguishing in such Accounts the amounts of calls paid, and calls not paid, and also all other accounts, documents, and things that the Purser is required to enter therein by the custom of tlie Stanneries or by the direction of the Company. 25. The Purser of every cost book mine shall duly Meetings to convene an Ordinary Meeting of the shareholders in such every sixteen mine at least once every sixteen weeks, for the transaction ^^ ^®^^' of the ordinary business of the said mine, and at every such meeting the cost book of the said mine containing the Accounts and otlier matters required by this Act to be entered therein, to^'ether with a list showino; the name and address of every shareliolder from whom any call is in arrear and unpaid, and the amount of the calls unpaid by him, shall be laid before the meeting. 26. The Accounts by the twenty-third Section of this Atcoimtsto Act directed to be entered in the cost book shall, after tlie same have been laid before a meetino; of the shareholders in pursuance of the twenty-fifth Section, be printed, and a copy thereof sent to each shareholder in the Company, and also to the lessors of the mine. The Life Assukance Companies Act, 1870. (33 & 34 Vict., c. 61.) [9th August, 1870.] ■ 1. This Act may be cited as "The Life Assurance Short Title. Companies Act, 1870." 2. In this Act — Interpreta- rp, , ,, r^ ?? tionof Terms. Ihe term "Company means any person or persons, corporate or unincorporate, not being registered under the Acts relating to Friendly Societies, who issue or are ha])le under policies of assurance upon human life within the LTnited Kingdom, or who grant annuities upon human life within the United Kingdom. The term " Financial year " means each period of 186 AUDITOKS. twelve months, at the end of which the balance of the Accounts of the Company is struck, or if no such balance is struck, then each period of twelve months ending with the thirty -first day of December. Life Funds 4. Ill the casc of a Company estabhshed after the separate. passing of this Act, transacting other business besides that of Life Assurance, a separate Account shall be kept of all receipts in respect of the life assurance and annuity contracts of the Company, and the said receipts shall be carried to and form a separate fund to be called the Life Assurance Fund of the Company, and such fund shall be as absolutely the security of the life policy and annuity holders as though it belonged to a Com})any carrying on no other business than that of Life Assurance, and shall not be liable for any contracts of the Company for which it would not have been liable had the business of the Company been only that of Life Assurance ; and in respect to all existing Companies, the exemption of the Life Assurance Fund from liability for other obligations than to its life policy holders shall have reference only to the contracts entered into after the passing of this Act, unless by the constitution of the Company such exemption already exists : Provided always, that this section shall not apply to any contracts made by any existing Company by the terms of whose deed of settlement the whole of the profits of all the business are paid exclusively to the life policy holders, and on the face of which contracts the liability of the assured distinctly appears. statements to 5. From and after the i^assino- of this Act every be made by ,-^ in . . , -in • i Companies. Company shall, at the expiration of each financial year of such Company, prepare a statement of its Re^'enue Account for such year, and of its Balance Sheet at the close of such year, in the forms respectively contained in the first and second Schedules to this Act. statements 6. Every Company which, concurrently with the by Company ,• r t • i- • • i doing other granting oi policies 01 assurance or annuities on human COMPANIES, ETC., ACTS. 137 life, transacts any other kind of assurance or other than Life business shall, at the expiration of each such tinancial year as aforesaid, prepare statements of its Revenue Account for such year, and of its Balance Sheet at the close of such year, in the forms respectively contained in the third and fourth Schedules of this Act. 7. E\'ery Company shall, once in every live years if Actuarial estabhshed after the passing of this Act, and once every Abstract!^ ten years if established before the passing of this Act, or at such shorter intervals as may be prescribed by the instrument constituthig the Company, or by its regula- tions or bye-laws, cause an investigaticm to be made into its financial condition by an Actuary, and shall cause an abstract of the re})ort of such Actuary to be made in the form prescribed in the fifth Scliedule to this Act. 8. Every Company sliall. within nine months after the statement of date of each such investigation as aforesaid into its Annuity financial condition, pre})are a statement of its life "•'^™^"'*- assurance and annuity business in the form contained in the sixth Schedule of this Act, each of such state- ments to be made up as at the date of the last investigation : Provided as follows : (2.) If such investigation be made annually by any Company, such Company may prepare such state- ment at any time, so that it be made at least once in every three years. The expression date of each such investigation in this section shall mean the date to which the Accounts of each Company are made up for the purposes of each such investio'ation. o 9. The Board of Trade, upon the aiiplication of or Forms may be Altered. with the consent of a Company, may alter the forms contained in the Schedules to this Act for the purpose of adapting them to the circumstances of such Company, or of better carrying into effect the objects of this Act. 10. Every statement or abstract hereinbefore required statements, to be made shall be signed by the Chairman and two signed and Directors of the Company and by the principal officer ^"''**''^ """"^ 138 AUDITORS. Deposited managing the Life Assurance business, and, if the ^Trade!'^ Company has a Managing Director, by such Managing Director, and shall be printed ; and the original, so signed as aforesaid, together with three printed copies thereof, shall be deposited at the Board of Trade within nine months of the dates respectively hereinbefore prescribed as the dates at which the same are to be prepared. And every annual statement so deposited after the next in- vestigation shall be accompanied by a printed copy of the abstract required to be made by Section seven. Copies of 11. A printed copy of the last deposited statement, be gi>^nto'^° abstract, or other document by this Act required to be shareiioiders, panted, shall be forwarded by the Company, by post or otherwise, on application, to every shareholder and policy holder of the Company. List of 12. Every Company which is not registered under Shareholders, ^.j^^ Companies Act, 1862, and which has not incor- porated in its deed of settlement Section ten of the Companies Clauses Consolidaticm Act, 1845, shall keep a " Shareholders' Address Book," in accordance with the provisions of that section. statements in 15. When ail amalgamation takes place between any gamatimrOT* Companies, or when the business of one Company is Transfer. transferred to another Company, the combined Company or the purchasing Company, as the case may be, shall, within ten days from the date of the completion of the amalgamation or transfer, deposit with the Board of Trade certified copies of statements of the assets and liabilities of the Companies concerned in such amalgamation or transfer. Penalty for 19. If any statement, abstract, or other document sliatements, required by this Act is fiilse in any particular to the ^^- knowledge of any person who signs the same, such person shall be liable, on conviction thereof on indictment to fine and imprisomnent, or on summary conviction thereof to a penalty not exceeding fifty pounds. For Scliedules to this Act, consisting of Revenue Accounts, Balance Sheet, &c., see Appendix. companies, etc., acts. 139 The Building Societies Act, 1874. (37 & 38 Vict., c. 42.) [30th July, 1874.] 1. This Act may be cited as ''The Building Societies short title. Act, 1874." 2. This Act shall commence and take effect on the Commence- second day of November, one thousand eight hundred ™^^ " and seventy-four. 13. Any number of persons may establish a Society Piu-po?e for under this Act, either terminating or permanent, for the societies maj^ purpose of rait»ing by tlie subscription of the Members a J^htS^^' Stock or Fund for making ad\'ai)ces to Members out of the funds of the Society, upon security of freehold, copyhold, or leasehold estate by way of mortgage ; and any Society under tliis Act shall, so far as is necessary for the said purpose, have power to hold land, with the right of fore- closure, and may from time to time raise funds by the issue of shares of one or more denominations, either paid up in full or to be paid by i)eriodical or other subscri[)tions, and with or without accumulating interest, and may repay such funds ^vhen no longer required for the purposes of the Society. Provided always that any land to which any such Society may become absolutely entitled by foreclosure, or by surrender, or other extinguishment of the right of redemption, shall, as soon afterwards as may be conve- niently practicable, be sold or converted into money. The Auditor should at each audit inquire into the position of each property " in hand," and the reasons why it has not been disposed of. The Building Societies Act, 1894, requires a Schedule of such properties to be affixed to the Accounts presented to the members. 15. With respect to the borrowing of money by Societies Power to under this Act, the following provisions shall have effect : nJiiey. (1.) Any Society under this Act may receive deposits or loans at interest, within the limit in this section provided, from the members or other persons, or fi'om corporate bodies. Joint Stock Companies, or from any terminating Building 140 AUDITORS. Society, to be api)lied to the purposes of the Society ; (2.) In R permanent Society the total amount so received on deposit or loan and not repaid by the Society shall not at any time exceed two-thirds of the amount for the time being secured to the Society by mortgages from its members ; (o.) In a terminating Society the total amount so received and not repaid may either be a sum not exceeding such two-thirds as aforesaid, or a sum not exceeding twelve months' subscriptions on the shares for the time being in force ; (4.) Any Deposits with or JA)ans to a Society under this Act, made before the commencement of this Act in accordance with its certihed Rules, are hereby declared to be valid and binding on the Society, but no further deposits or loans shall be received by such Society, except within the limits provided by this section ; (5.) Every deposit book, or acknowledgment or Security of any kind given for a de])osit or loan by a Society, shall have printed or written therein or thereon the whole of the fourteenth and hfteenth Sections of the present Act. Matters to be 16. The Rulcs of cvcry Society hereafter established thcSes!" ^"^<^^er this Act shall set forth : (1.) The name of the Society and chief office or place of meeting for the business of the Society ; (o.) The purposes to which the funds of the Society are to be apphed, and the manner in which they are to be invested ; (G . ) The manner ( )f appointing, remunerating, and remov- ing the Board of Directors or Committee of Manage- ment, Auditors, and other Officers ; (8.) Provision for an annual or more frequent audit of the Acc(uints and inspection by the Auditors of the Mortgages and other Securities bek)nging to the Society ; COMPANIES, ETC., ACTS. 141 (11.) Provision for the custody of the mortgao-e deeds and other securities belonging to the Society. (12.) The powers and duties of the Board of Directors, or Committee of Manaoement, and other Officers. 25. Any Society under this Act may from time to luvestmentof time, as the Rules permit, invest any portion of the funds t^'^j^^.'' of the Society, not immediately required for its purposes, upon real or leasehold securities, or in the public funds, or in or upon any Parliamentary stock or securities, or in or upon any stock or securities payment of the interest on which is guaranteed by authority of Parliament, or in the case of terminatino- Societies with other Societies under this Act ; and for the purpose of investments in the public funds or upon security of copyhold or customary estate, the Society, or the Board of Directors or Com- mittee of Management thereof, may from time to time appoint and remove Trustees. The powers of iuvestment under this section have been extended by the Buikling Societies Act, 1894, Sec. 17, so as to include power to invest in or upon any secui'ity in which Trustees are for the time being- authorised by law to invest. 37. A Society under this Act may purchase, build, hire. Buildings for or take upon lease any building for conducting its business, may^be Pur- and may adapt and furnish the same, and may purchase ^^^2^,^^ or hold upon lease any land for the purpose only of erecting thereon a building for conducting the business of the Society, and mav sell, exchange, or let such building, or any part thereof. 40. The Secretary or other Officer of every Society societies shaU under this Act shall, once in every year at least, prepare ASdS;f aud^^ an Account of all the Receipts and Expenditure of the ^J^JJ^^^J^jg Society since the preceding statement, and a general State- to the Mem- ment of its funds and effects, liabilities and assets, showing the amounts due to the holders of the various classes of shares respectively, to depositors and creditors fjr loans, and also the balance due or outstanding on their Mortgage Securities (not including prospective interest), and the amount invested in the funds or other Securities ; 142 AUDITORS. and every such Account and Statement shall be attested by the Auditors, to whom the mortgag-e deeds and other Securities belonging to the Society shall be produced, and such Account and Statement shall be countersigned by the Secretary or other Officer ; and every member, depositor, and creditor for loans shall be entitled to receive from the Society a copy of such Account and Statement, and a copy thereof shall be sent to the Registrar within fourteen days after the Annual or other General Meeting at which it is presented, and another copy thereof shall be suspended in a conspicuous place in every office of the Society under this Act. The Building Societies Act, 1894. (57 & 58 Vict., c. 47.) [25th August, 1894.] Matters to be 1. The Rulcs of cvery Society under the Building Euies! "^ Societies Acts established or substituting a new set of Rules for its existing Rules after the passing of this Act shall set forth — (a.) The manner in which the Stock or Funds of the Society is or are to be raised ; (/;,) The terms upon which unadvanced subscrij^tion shares are to be issued ; the manner in which the contributions are to be paid to the Society, and withdrawn by the members, with tables, where applicable in the opinion of the Registrar, showing the amount due by the Society for principal and interest separately ; (r.) The terms upon which paid-up shares, if any, are to be issued and withdrawn, with tables, where applicable in the opinion of the Registrar, showing the amount due by the Society for principal and interest separately ; COMPANIES, ETC., ACTS. 143 (d.) Whether preferential shares are to be issued, and, if so, within what Hmits ; ((?.) The manner in which advances are to be made and repaid ; the deductions, if any, for premiums, and the conditions upon which a borrower can redeem the amount due from him before the expiration of the period for which the advance was made, with tables, where applicable in the opinion of the Registrar, showing the amount due from the bf)rrower after each stipulated payment ; (/'.) The manner in which losses are to be ascertained and provided for ; (/?.) Whether the Society intends to borrow money, and, if so, within what limits not exceeding those prescribed by the Building Societies Acts. 2. — (1.) Every Annual Account and Statement under Annual Section forty of the Building Societies Act, 1874, shall be siSemen't"'^ made up to the end of the official year of the Society to ^'^^^'^^^''^'^•' Avliich it relates, and shall be in such form and shall contain such particulars as the Chief Registrar of Friendly Societies may from time to time, with the ap|)roval of a Secretary of State, direct, either generally or with respect to any Society or class of Societies. The form of Annual Account and Statement prescribed for general use by the Chief Registrar under this section, and every alteration of that form, shall as soon as practicable be laid before each House of Parliament, and shall not come into operation until the expiration of forty days from the date at which it is so laid. Provided that every such Account and Statement shall set forth : (a.) With respect to Mortgages to the Society upon each of which the present debt does not exceed live thousand pounds (not being Mortgages where the repayments are upwards of twelve months in arrear, or where the property has for upwards of twelve months been in possession of the Society), the number of all such Morto-ao-es, and the aggregate amount owing thereon at the date of the 144 AUDITORS. Account or Statement, such information being- given separately in respect of each of the four following classes : (i.) Where the elebt does not exceed five hundred pounds : (ii.) Where the debt exceeds ^xe hundred pounds and does not exceed one thousand pounds : (iii.) Where the debt exceeds one thousand pounds and does not exceed three thousand pounds : (iv.) Where the debt exceeds three thousand pounds and does not exceed five thousand pounds ; and (/>.) With respect to any other Mortgage to the Society, the particulars shown by the ap})ropriate tabular form in the First Schedule to this Act. The Form prescrihed hy the Chief Registrar of Friendly Societies presented pursuant to this Act was ordered hy the House of Commons to be printed on the 5th September, 1895, and will be found in the Appendix. Affixed to the Form is a Certificate for the Auditors to sign, but no authority was given by this section to the Registrar to issue this Certificate as part of his Form, and it may, therefore, be disregarded by Auditors. Tiie form of Certificate is, however, a good one, and may usefully })e adojjted. (2.) Every Auditor, in attesting any such Annual Account or Statement, shall either certify that it is correct, duly vouched, and in accordance with law, or specially report to the Society in what respect he finds it incorrect, unvouched, or not in accordance with law, and shall also certify that he has at that audit actually inspected the Mortgage deeds and other Securities belonging to the Society, and shall state the number of properties with respect to which deeds have been produced to and actually inspected by him. (3.) A copy of every such Annual Account and State- ment shall be sent to the Registrar within fourteen days after the Annual or other General Meeting at which it is presented, or withiu three months after the expiration of COMPANIES, ETC., ACTS. 145 the official year of the Society, whichever period expires first. (4.) For the purposes of this section the expression •• Official year " shall mean, in the case of any Society established after the i^assino- of this x\ct, the year endino- with the thirty-first day of December, and, in the case of any Society established before the passing of this Act ; tlie year ending with the time up to which its Annual Account and Statement is made at the passing of this Act. (.5.) This Section shall not come into operation until the ex})iration of twelve months after the j)assing of this Act. As tlie Act recoived the Royal assent ou tlie 2.5th August, 1894, this Section came into operation on 26th August, 1895. 3. Xotwithstanding anything in the Rules of any Auditors. Society under the Uuilding Societies Acts, one at least of the Auditors of the Society shall be a person who publicly carries on the business of an Accountant. For detinition of a person wlio publicly carries on the business of an Accountant kcc remarks in C'liaptcr I., page 12. 4. — (1.) The Uegistrar may, if he thinks fit, on the lii>pection of application often members of a Society under the IJuilding Societies Acts, each of whom has been a member of the Society for not less than twelve months inunediately preceding the date of the applicati(m, appoint an Accountant or Actuary to inspect the books of the Society, and to report thereon. (2.) Provided as folknvs : — {a.) The applicants shall deposit with the Registrar such sum as a security for the costs of the proposed inspection as the Registrar may recpnre ; and ib.) All expenses of and incidental to any such in- spection shall be defrayed by the applicants, or out of the funds of the Society, or by the members or officers, or former members or officers, of the Society in such proportions as the Registrar may direct. 146 AUDITORS. Power of Eegisfrar ou applicatiou to appoint Inspector or call Special Meetincr. Prohibition of Advances (3.) A ]ier8on appointed under this section shall have power to make copies of any books of the Society, and to take extracts therefrom at all reasonable hours, at the reo'istered office of the Society, or at any place where the })ooks are ke})t. (•1.) The Registrar shall communicate the results of any such inspection to the applicants and to the Society. o.— (1.) The Registrar may, on the apph cation o^ one- tenth of the whole number of members of a Society under the Building- Societies Acts, or of one hundred members in the case of a Society consisting of more than one thousand members, and ^^■itll the consent of the Secretary of State, either : — (a.) appoint an Inspector to examine into and report on the affairs of the Society ; or (b.) call a special meeting of the Society. (2.) Provided as follows : — (a.) The application under this section shall be supported by such evidence as the Registrar may direct for the purpose of showing that the ap})licants have good reason for requiring the inspection to be made or the meeting to be called, and that they are not actuated by malicious motives in their application ; and (b.) Such notice of the application shall be given to the Society as the Registrar may direct ; and (r.) The Registrar shall require the applicants to give security for the costs of the proposed inspection or meeting before the Inspector is appointed or the meeting is called ; and (^& 57 vict., 1 7. The powers of investment under Section twenty-hve Extension of of the Building Societies Act, 1874, shall include power investment, to invest in or upon any security in which Trustees are for the time being authorised by law to invest. 22. If any person wilfully makes, orders, or allows to False entries. l2 14S AUDITOliS. Gifts, kc, not to be accepted bv Officials. be made any false statement in any document required by the Building Societies Acts to be sent to the Eeoij^trar. or by erasure, omission, or otherwise wilfully falsities any such document, he shall be Kable on summary conviction to a fine not exceeding fifty pounds. 2o. No Director, Secretary, Surveyor, Solicitor, or otlier Officer of a Society under the Building Societies Acts shall, in addition to the remuneration prescribed or authorised by the rules t)f the Society, receive from any other person any gift, bonus, commission, or benefit, for or in connection with any loan made by the Society, and any person paying or accepting any such gift, bonus, conunission, or benefit shall be liable on summary con\iction to a fine not exceeding fifty pounds, and. in defiault of payment, to be imprisoned with or without liard labour for any time not exceeding six months, and tlic person accepting any such gift, bonus, commission, or benefit, shall, as and when directed by the Court by whom lie is convicted, pay over to the Society the amount or value of such gift, bonus, commission, or benefit, and in default of such payment shall be liable to be imprisoned with or witliout hard labour for any time not exceeding six months. As tu whether an Auditor is au Officer iiuder tliis section, see remarks in Chapter I. and note to Industrial and Provident Societies Act, 1893, Sec. 50, post. Short Title -''• This Act may be citcd as " The Buildiiig Societies and construe- \^,x 1894," and shall be construed as one with the tion. ..-,.. 37&3svict., Ijuilding Societies Act, 1874, the Building Societies Act, (■42 ..-'.' 38&3nvict.,f..9. 1875, the Building Societies Act, 1877, and the Building 40 & 41 Vict., ... " ° Societies Act, 1884, and those Acts and this Act are in tliis Act referred to and may be cited collectively as '* The Building Societies Acts." 30. Tliis Act sliall, except as otherwise expressed, come into ()p(,'i'atioii on the first day of January one thousand eight luiudred and ninety-five. c. 63. 47 & 48 Vict., c. 41. Coiinnencc- meiit of Act companies, etc., acts. 149 The Friendly Societies Act, 1896. (59 c^ GO Vict., c. 25.) [7th Auo-ust, 1896.] 22. — (1.) A Reo-istered Society or Branch nmv contribute Contributions *^ . . from one to the funds and take part by deleg'ates or otherwise in the Society to go\'erinuent of any other Reo-istered Society or Registered '"^o*^^^^'- Branch of a Society, as provided in the Rules of that first- named Society or Branch, without becoming a Branch under this Act of that other Society or Branch. (2.) This Section shall, in respect of contributing to the funds and taking part in the government of a Medical Society, that is to say, a Society for the purpose of relief in sickness by providing medical attendance and medicine, extend to any Registered Trade Union or Branch of a Registered Trade Union. 25. — (1.) Every Registered Society and Branch shall Appointment T ^ ^ rri T * of Trustees. have one or more irustees. (4.) The same person shall not be a Secretary or Treasurer of a Registered Society or Branch, and a Trustee of that Society or Branch. 26! — (1.) Every Registered Society and Branch shall -^^iciit- once at least in every year submit its Accounts for audit either to one of the Public Auditors appointed as in this Act mentioned, or to two or more persons a]ipointed as the Rules of the Society or Branch provide. (2.) The Auditors shall have access to all the Books and Accounts of the Society or Branch, and shall examine the Annual Return mentioned in this Act, and verify the Annual Return with the Accounts and A^ouchers relating thereto, and shall either sign the Annual Return as found by them to be correct, dul}' vouched, and in accordance with law, or specially report to the Society or Branch in what respects they find it incorrect, unvouched, or not in accordance with law. 27. — (1.) Every Registered Society and Branch shall, Annual once in every year, not later than the thirty-first day of May, send to the Registrar a Return (in this Act called the 150 AUDITORS. Annual lieturn) of the receipts and expenditure, funds, and effects of the Society or Branch as audited. (2.) Tlie Animal Eeturn must — (-'/.) Show separately the expenditure in respect of the several objects of the Society or Branch ; and {[>.) ]3e made out to the thirty-first day of December then last inclusively ; and (r.) State whether the audit has been conducted by a Public Auditor appointed as by this Act provided, and by whom, and, if by persons other than a Public Auditor, state the name, address, and calling or profession of every such person, and the manner in which, and the authority under which, he is appointed. (8.) The Society or Branch shall, together with the Annual Keturn, send a copy of any special report of the Auditors. (4.) In the case of a Branch the Annual Ileturn shall be sent to the Registrar through an officer appointed in that behalf by the Society of Avhich the Branch forms part. Quinqueu- 28. — (1.) Evcry Registered Society and J)ranch shall, iiial Valua- , • ^1 • c ^- ' -i i x i ^ • tiou. except as m tins hection provided, once at least m ever}' five years either — {(I.) Cause its assets and liabilities to be valued by a valuer to be appohited by the Society or Branch and send to the Registrar a Report on the condition of the Society or Branch ; or (/>.) Send to the Registrar a return of the benefits assured and contributions receivable from all the members of the Society or Branch, and of all its funds and effects, debts and credits, accompanied by such evidence in support thereof as the Chief Registrar ])rescribes. Copy oi last 29. E\erv Registered Society and Branch shall keep a copy of the last Annual Balance Sheet, and of the last Quinquennial Valuation, together with any special report of the Auditors, always hung up in a cons})icuous place at the Registered Ottice of the Society or Branch. Balauce Sheet COMPANIES, ETC., ACTS. 151 30. — (1.) For tlic purpose of audits and valuations to Public be made under this Act the Treasury may appoint Public valuers! ^^" Auditors and A'auiers, and may determine the rates of remuneration to be paid by Societies and Branches for the services of those Auditors and Valuers ; but the em- ployment of those Auditors and Valuers shall not be compulsory. (2.) The Treasury may, out of money to be provided by Parliament, pay to the Public Auditors and Valuers such remuneration (if any) as the Treasury may allow. 37. A Registered Society or Branch may subscribe out Subscriptions of its funds to any hospital, iniirmary, charitable or provi- ° '^"^^ dent institution, any annual or other sum which may be necessary to secure to members of the Society or Branch and their families the benefits of the hospital, iniirmary, or other institution, according to its rules. 38. Every Reoistered Society and Branch shall deliver Right to supply of to every person on demand, on payment of a sum not copies of the exceeding one shilling, a copy of the Rules of the Society ^^^^'^'^* or Branch. 39. Every Reonstered Society and Branch shall sup])ly Right to 1 , • 1 • •/ supply of gratuitously to every member or person interested m its copies of funds, on his application, either Return. {a) a copy of the last Annual Return of the Society or Branch ; or (/>) a Balance Sheet or other document duly audited containing the same particulars as to the receipts and expenditure, funds and effects, of the Society or liranch as are contained in the Annual Return. 40. A member or person having an interest in the funds inspection of of a Registered Society or Branch may inspect the books Memibers. at all reasonable hours at the registered office of the Society or Branch, or at any place where the books are kept, except that the member or person shall not, unless he is an officer of the Society or Branch, or is specially authorised by a resolution of the Society or Branch to do so, have the right to inspect the Loan Account of any other member without the written consent of that member. 152 AUDI TO us. Investment of Funds. 26 & 27 Vict, e. XI. Loans to Assured. Members. Loans out of separiitc Ldun l''tiiiil 44. — (1.) The Trustees of a Registered Society or Branch mav. with the consent of the committee or of a majority of the members present and entitled to vote in general meeting, invest the funds of the Society or Branch, or any ])art thereof, to any amount in any of the following ways : — (fi) in the Post Oifice Savings Bank, or in any Savings Jjank certified nnder the Trustee Savings Bank Act, 1863 ; or (/)) in the })uhlic funds ; or (r) with the National Debt Commissioners as in this i\ct provided ; or ((/) in the purchase of land, or in the erection or altera- tion of offices or other buildings thereon ; or ((') u])on any other security expressly directed by the rules of the Society or Branch, not being personal security, except as in this Act authorised with respect to loans. (2.) The rules of a Society with Branches, and of any Branch thereof, may jH'ovide for the investment of funds of the Society or of that Branch by the Trustees of any Branch, or by the Trustees of the Society, and the con- sent required for any such investment shall be the consent of the committee, or of such majority as aforesaid of the Society or Branch by whom the funds are invested. 45. — (1.) A Registered Society and, subject to the rules of the Society, a registered Branch may advance to a member of at least one full year's standing any sum not exceeding one-half of the amount of an assurance on his life, on the written security of himself and two satisfactory sureties for rejmynient. (2.) The amount so advanced, with all interest thereon, may be deducted from the sum assured, without prejudice ill tlic nicantiiiie to the o])eration of the security. K). A Registered Society may, out of any separate loan I'lmd to be fin'med })y contributions or deposits of its members, make loans to members on tlieir ])ersonal secu- rity, with or without sureties, as may be provided by tlie rules, subject to the following restrictions : — COMPANIES, ETC., ACTS, 1^53 ((() a loan sliall not at any time l)e made out of money contributed for the other purposes of the Society : (A) a member shall not be capable of holdino- any interest in the loan fund exceeding two hundred pounds : (r) a Society shall not make any loan to a member on ])ersonal security beyond the amount fixed by the rules, or make any loan which, together with any money owing by a member to the Society, exceeds fifty pounds : {ranch of a Registered Society need not for the purposes of this Section be separately registered. (3). Nothing in this Section shall authorise a Benevolent Society to hold land exceeding one acre in extent. 52. — (1.) A Registered Society or Branch may pay to investments the account of the National Debt Commissioners at the National Bank of England or the Bank of Ireland, as the case may f^^^^,^^;^ require, any sum of money not less than fifty pounds upon a declaration of the Trustees of the Society or Branch, or any two of them, that the money belongs exclusi\-ely to the Society or Branch. 154 AUDITORS. Threepence per cen- tum per diem. (5.) A Society or Branch so investing money with the Commissioners shall be entitled to a receipt entitling to interest at the following rates : — To a Friendly Society or Branch legally ^ established before the twenty -eighth of July one thousand eight hundred and twenty -eight, which had invested funds with the Commissioners before the twenty-third of July one thou- sand eight hundred and fifty-five, a rate of interest in respect of any assurance made before the fifteenth of August one thousand eight hundred and fifty of- To a Friendly Society or Branch legally established between the twenty-eighth of July one thousand eight hundred and twenty-eight and the fifteenth of August one thousand eiglit hundred and fifty, which had invested funds with the Commissioners before the twenty-third of July one thousand eight hundred and fifty-five, a rate of interest in respect of any assurance made before the fifteenth of Ausfust one thousand ei^ht hundred and c fifty of - To a Friendly Society or Branch legall}' established before the twenty-eighth of June, one thousand eiglit hundred and eighty-eight, which had invested i'unds with the Commissioners before the first day of January, one thousand eight hundred and ninety-six, a rate ol" interest in respect of any assu- rance made on or before the said twenty-eighth day of June of Twopence halfpenny per cen- tum per diem. T w o pence per cen- tum per diem. COMPANIES, ETC., ACTS. 155 To a Society or Branch in respect of ^ Two pounds any investment with the Com- ! fifteen shil- missioners, other than as hereinbefore hngs per in this Section mentioned, a rate of I centum per interest of - - - - j annum. (6.) A Society or Branch withdrawing money so invested with the Commissioners shall not be entitled to make any further deposit without their consent. 55. — (1.) Every Officer of a Registered Society or Accounts of Branch having receipt or charge of money shall, at such times as by the rules of the Society or Branch he should render account, or upon demand made, or notice in writing gi^•en or left at his last or usual place of residence, give in his Account as may be required by the Society or Branch, or by the Trustees or Committee thereof, to be examined and allowed or disallowed by them, and shall, on the like demand or notice, pay over all sums of money and deliver all property in his hands or custody to such person as the Society or Branch, or the Committee or the Trustees, appoint. (2.) In case of any neglect or refusal to deliver the Account, or to pay over the sums of money, or to deliver the property in manner aforesaid, the Trustees or authorised Officers of the Society or Branch may sue upon the bond or security before mentioned, or may apply to the County Court or to a Court of Summary Jurisdiction, and the order of either such Court shall be final and conclusive. 88. If any person wilfully makes, orders, or allows to Fine for be made, any entry, erasure in, or omission from a Balance ^^^^i^^''**^*^"' Sheet of a Registered Society or Branch, or a return or document required to be sent, produced, or delivered for the purposes of this Act, with intent to felsify the same, or to evade any of the provisions of this Act, he shall be liable to a fine not exceeding fifty pounds. 109. This Act may be cited as " The Friendlv Societies Short Title. Act, 1896. 156 auditors. The First Schedule. ^[atters to be provided for by the rules of societies registered under this act. 1. Tlie name and place of office of the Society. 2. The whole of the objects for wliich the Society is to be established, the purposes for which the funds thereof shall l)e applicable, the terms of admission of members, the conditions under which any member may become entitled to any benefit assured thereby, and the fines and forfeitures to be imposed on any member, and the consequences of nonpayment of any subscrij)tion or fine. 3. The mode of holding meetings and right of voting, and the manner of malving, altering, or rescinding rules. 4. The appointment and removal of a Committee of Management (by whatever name),of a Treasurer and other officers, and of Trustees, and in the case of a Society with Branches, the composition and powers of the central body, and the conditions under which a Branch may secede from the Society. 5. The investment of the Funds, the keeping of the Accounts, and the Audit of the same once a year at least. 6. Annual Keturns to the Registrar of the Receipts, Funds, Effects, and Expenditure, and Numbers of Members, of the Society. 7. The Inspection of the Books of the Society by every person having an interest in the Fimds of the Society. (S. The manner in which disputes shall be settled. 1). In case of dividing Societies, a provision for meeting all claims u])on the Society existing at the time of division before any such (li\ ision takes place. And also in the case of Friendly and Cattle Insurance Societies : — 10. The kee])ing se])arate Accounts of all moneys recei\('d or ])ai(l on account ol" every ])articular fund ov benefit assured for Avhich a separate table of contributions payal)le shall ha\e been adopted, and the keeping separate COMPANIES, ETC., ACTS. 157 account of the expenses of Management, and of all Contributions on account thereof. 11. (Except as to Cattle Insurance Societies) a N'aluation once at least in every iixe years of the Assets and Liabilities of the Society, including the estimated risks and contributions. Tjie Societies' Bokuowing Powers Act, 1898. (01 c^ (52 Vict., c. 15.) [25th July. 1S!)8.] 1. A Society may by rule provide that it may receive Pro\isioii for deposit-^ and borrow money at interest from its members. or from other persons, and upon the registry of such rule the same shall be valid. 2. The expression " Society " in this Act means a interpreta- specially authorised Society registered, or seeking registra- tion, under the Friendly Societies Act. 1896. having for 59 &60Vict., its object the creation of funds to be lent out to the mem- bers of the Society or for their benefit, and having in its rules provisions — (a) that no part of its funds shall be divided by way of profit, bonus, dividend, or otherwise among its members : (h) that idl money lent to mend^ers shall l)e applied to such purpose as the Society or its Committee of Management may approve. 3. This Act shall be cited for all purposes as " The short Title. Societies' Borrowing Powers Act, 1898." The Collecting Societies and Industrial Assurance Companies Act, 1896. (59 & 60 Vict., c. 26.) [7th August, 1896.] 1. This Act shall jxpply to every such — (((.) Friendlv Societv or Branch, whether registered or Application \ ' ^' ' ■ - . of Act. unregistered (in this Act relerred to as a Collecting Society) ; and 158 AUDITUKS. General Meetings. Balance Sheets and Annual Returns. (h.) Person or body of persons, whether corporate or iin- incorporate, gi'anting Assurances on any one life for a less sum than twenty pounds (in this Act referred to as an Industrial Assurance Company), as receives contributions or premiums by means of collectors at a gi-eater distance than ten miles from the registered office or principal place of business of the Society or Company, and, in the case of an Industrial Assurance Company, at less periodical intervals than two months : Provided that nothing in this Act shall, except as expressh- provided thereby, apply to any Assiu-ance with an Indii>trial Assurance Company the })remiums in respect of which are receivable at greater periixhcal intervals than two months. 5. — ( 1 . ) At least one General Meeting of every Collecting- Society and Industrial Assurance Company shall be held in every year. (2.) Except where the day, hour, and place of an Annual or other periodical Meetuig is fixed by the Rules, notice of every General Meeting shall either be given by the Society or Company to the members by advertisement to be published at least twice in two or more of the newspapers in general circulation in every comity where the Society or Company carries on business, or be served upon every member. 6. — (1.) A copy of every Balance Sheet of a Collecting Society shall, during the seven days next preceding the Meeting at which the Balance Sheet is to be presented, be kept open by the Society for inspection at every office at which the business of the Society is carried on, and shall be delivered or sent by post to every member on demand. (2.) The Annual lieturns required to be sent to the Registrar under the Friendly Societies Act, 1896, shall, in the case of a C(^llecting Society, be certified by some ])erson iKjt an officer of the Society (otherwise than an Auditor thercdrj carr\iiig on publicly the business of an AccountiUit. and if not s(j certified shall be deemed not to have })cen made. COMPANIES, ETC.. ACTS. 159 1."). Tf any person wilfullv makes, ()r(ler>.<)i' allows to be Fine for 1 ' • ■ . . , •! • falsification. iiuule any entry, erasure iii. <>r unu^siun iruni a enntribation or collecting' book, with intent to falsify that book, or to evade any of the provisions of this Act. he shall be liable to a fine not exceeding fifty pounds recoverable at the suit oi' the Chief or any Assistant Registrar, or of any per- son aggrieved, '20. This Act may be cited as " The Collecting Societies Short Title 1 T 1 • 1 * ' n • t -iiir\/i ?i and cou- and Industrial As>uranee ( om panics Act. IM'b. struction. The Industrial and Provident Societies Act, 1893. (56 & 57 Vict., c. 39.) [12th September, 1893.] 1. This Act may be cited as '"The Industrial and short Title of Provident Societies'^Act. 1893." '^''■ 2. This Act shall come into operation on the first day Extent of of January next after the passing thereof, and shall * extend to (J-reat Britain and Ireland and the Channel Islands. 3. E^■ery incorporated Society now existing which has Existing Ijeen registered or certified under any Act relating to ' °^^^ ^^~" Industrial and Provident Societies shall be deemed to be a Society registered under this Act, and its Rules shall, so far as the same are not contrary to any express provision of this Act, continue in force until altered or rescinded. 10. — (1.) The Rtiles of a Society registered under this Rules and Act shall contain provisions in respect of the several ments. matters mentioned in the second Schedule to this Act. 13. — (1.) Every registered Society shall once at least in Andit. every year submit its Accounts for audit either to one of the Public Auditors appointed as in this Act mentioned, or to two or more persons appointed as the Rules of the Society provide. (2.) The Auditors shall have access to all the books, deeds, documents, and Accounts of the Society, and shall 160 AUDITORS. Annual Re- tlU'U.*. Supply Copies of Annual Ueturns. examine the Balance Sheets showing the receipts and expenditure, funds and effects of the Society, and verify the same with the books, deeds, documents. Accounts and voucliers relating thereto, and shall either sign the same as found hy them to be correct, duly vouched, and in accordance with law, or specially report to the Society in Avhat respects they find them incorrect, unvouched, or not in accordance with law. 14. — (1) Every registered Society shall once in every vear, not later than the thirty-first day of March, send to the Registrar an Annual Return of the Receipts and Ex))enditure, Funds and effects of the Society as audited. (2.) The Annual Return — (a.) shall be signed by the Auditor or Auditors ; and {/>.) shall show separately the expenditure in respect of the several objects of the Society ; and (r.) shall be made out from the date of its registration or last Annual Return to that of its last published Balance Sheet provided that the last-named date is not more than one month before or after the thirty-first of December then last, or otherwise to the said day of December inclusive ; and {(/.) shall state whether the audit has been conducted by a Public Auditor appointed as by this Act is provided, and by whom, and, if by any persons other than a Public Auditor, shall state the name, address, and calling or profession of every such person, and the manner in which, and the authority under which, he is appointed. The Society shall, together with the Annual Return, send a copy of the Re})ort of the Auditors, or, if more than one such Report has been made during the period included in the Return, a copy of each of such Reports. lo. livery registered Society shall supply gratuitously to every member or perscm interested in the funds of the Society, on his aj)plication, a copy of the last Annual Return of the Society for the time being. COMPANIES, ETC., ACTS. 161 16. Every registered Society shall keep a copy of the Copy of last last Balance Sheet for the time being, together with the sheet.*^^ Report of the Auditors, always hung up in a conspicuous place at the registered office of the Society. 19. — (1.) No registered Society which has any with- Conditions drawable share Capital shall carry on the business of by societies. banking. (2.) Every registered Society which carries on the Imsiness of banking shall on the lirst Mondays in February and August in each year make out and keep conspicuously hung up in its registered office, and every other office or place of business belonging to it where the business of banking is carried on, a statement in the form in the Third Schedule, or as near thereto as the circum- stances admit. (3.) The taking deposits of not more than ten shillings in any one payment, nor more than twenty pounds for any one depositor, payable on not less than two clear days' notice, shall not be included in the business of banking within the meaning of this Act ; but no Society which takes such deposits shall make any payment of withdraw- able Capital while any claim due on account of any such deposit is unsatisfied. 36. A reoistered Society may (if its Rules do not direct Holding of ® 11 1 • • Land. otherwise) hold, purchase, or take on lease in its own name any land, and may sell, exchange, mortgage, lease, or build -upon the same, or grant Bonds and dispositions on security or other heritable Securities over the same (with power to alter and pull down buildings and again rebuild). Debentures issued by an Industrial Society are invalid unless registered as a Bill of Sale. The exemption from registration contained in Section 17 of the BiUs of Sale Act, 1882, does not apply to an Industrial Society. Such a Society ia not an " Incorporated Company " within the meaning of the Section. — In re Coal Co-operative Society, Great Northern Railway Co. V. Same, 11. Monson 621. 38. — (1.) A registered Society may invest any part of investments ^ ' ^ ./ ./ ^ Societies. M ^ 162 AUDITORS. its Capital in or upon any Security authorised by its Rules, and also, if the Rules do not direct otherwise — (a.) in or upon any Security in which Trustees are for the time being authorised by law to invest ; and {/>.) in or upon any Mortgage, Bond. Debentare, Debenture Stock, Corporation Stock, annuity, rentcharge, rent, or other Security (not being Securities payable to bearer) authorised by or under any Act of Parliament passed or to be passed of any Local Authority as defined by Section 38&39Vici., thirty-four of the [.ocal Loans Act, 1875 ; and ^'^'^' (c.) in the shares or on the Security of any other Society registered or deemed to be registered under this Act, or under the Building Societies Acts, or of any Company registered under the Com})anies Acts or incorporated by Act of l^arliament or by charter, provided that no such investment be made in the shares of any Society or Company other than one with limited liability. (a.) Tlie Securities in which Trustees are authorised hy law to invest will be found in the Trustee Acts, Cliapter IV. (2.) A Society so investing shall be deemed to be a person within the meaning of the Comj^anies Acts, and of the Building Societies Acts. (3.) Any investments made before the passing of this Act, which would have been ^•alid if this Act had then been in force, are hereby ratified and confirmed. Power to 39. A Society (not being one chargeable with income savhigs" *^'^ "^ pursuance of this Act) may invest its Capital and S^?27 Vict ■^^"^^^*^; *^^^ ^^^J V^'^'^ thereof to any amount, in any Sa^■ings c. 87. ' Bank certified under the Trustee Savings lianks Act, 1863, or in a Post Office Savings ]3ank. Advances to 40. The Rulcs of a remstercd Society may lu-ovidc for Member^;. -, ^ J J i advances of money to members on the security of real or personal property, or in the case of a Society registered to carry on banking business in any manner customary in the conduct of such business. COMPANIES, ETC., ACTS. 163 50. — (1.) Upon the application of one-tenth of the whole Power to number of members of a registered Society, or of one iiTp^\ors. hundred members in the case of a Society exceeding one thousand members, the Chief Registrar, or, in the case of Societies registered and doing business exclusively in Scotland or Ireland, the Assistant Registrar for Scotland or Ireland respectively, but with the consent of the Treasury in every case, may — (rt.) appoint an Inspector or Inspectors to examine into and report on the affairs of such Society. (5.) An Inspector appointed under this Section may require the production of all or any of the Books, Accounts, Securities, and Documents of the Society, and may examine on oath its officers, members, agents, and servants in relation to its business, and may administer an oath accordingly. The Auditor is not an Officer under this Section, as in Clause 79 the term "Officer" is defined as extending "to any Treasurer, Secretary, member of the Committee, Manager, or servant, other than a servant appointed by the Committee of a Society." 65. If any person wilfidly makes, orders, or allows to Penalty for -,•'■'■ ' . . . J, falsification. be made any entry or erasure m, or omission trom, any Balance Sheet of a registered Society, or any contribution or collecting book, or any return or document required to be sent, produced, or delivered for the purposes of this Act, with intent to falsify the same, or to evade any of the provisions of this Act, he shall be hable to a fine not exceeding fifty j^ounds. 72. The Treasury may appoint Pubhc Auditors for the Public purposes of this Act, and may determine the rates of remuneration to be paid by registered Societies for the services of such Auditors, but the employment of such Auditors shall not be compulsory. 7o. — (1 .) The Treasury may determine a scale of fees to Fees, be paid for matters to be transacted or for the inspection of documents under this Act. 75. Every document purportino- to be simed by the Evidence of o ./ Documents. Chief or any Assistant Registrar, or any Inspector or M 2 164 AUDITORS. Application of Act to Channel Islands. Public Auditor under this Act, shall, in the absence of any evidence to the contrary, be received in evidence mthout proof of the signature. 77. With respect to the Channel Islands this Act shall l)e varied as follows : — (2.) As respects the Bailiwick of the Island of Guernsey : — (r.) All Industrial and Provident Societies within the Bailiwick shall be authorised to invest any part of their funds in the States Bonds either of Guernsey or Alderney. The omission mtli regard to authority for similar investment in the Island of Jersey was made good by the Industrial and Provident Societies Act, 1894, Section 3, see post. Schedule II. MATTERS TO BE PROVIDED FOR BY THE RULES OF SOCIETIES REGISTERED UNDER THIS ACT. 4. The appointment and removal of a Committee of Management, by whatever name, of Managers or other Officers, and their respective powers and remuneration. 6. Determination whether the Society may contract loans or receive money on deposit subject to the provisions of this Act from members or others ; and, if so, under what conditions, on what security, and to what limits of amount. 8. Provision for the audit of Accounts and for the appointment of Auditors or a Public Auditor. 9. Determination whether and how members may with- draw from the Society. 10. Mode of application of profits. 1 2. Determination whether, and by what authority, and in what manner, any part of the Capital may be invested. companies, etc., acts. 165 The Industrial and Pkovident Societies Act, 1894. (57 Vict., c. 8.) [18tli June, 1894.] 1. This Act may be cited as "The Industrial and Short Title. Provident Societies Act, 1894," and the Industrial and Provident Societies Act, 1893, and this Act may be cited to"-ether as " The Industrial and Provident Societies Acts, lbM)3 and 1894." 3. The following shall be added to Subsection (L) ol Powers of PIT • 1 I . 1 Investment. Section seventy-seven oi the last-mentioned Act as sub- head (/') : All Industrial and Provident Societies within the said Island shall be authorised to invest any part of their funds in the " Rentes Publiques," or in the States Bonds of the said Island, if they think lit. The heading to 77 (?') referred to is "As respects the Island of Jersey, the following provisions shall have effect." The Trustee Savings Banks Act, 1863. (26 & 27 Vict., c. 87.) [28th July, 1863.J 5. Every Savings Bank established or to be established As to Title under the provisions of the said hereby repealed Acts or BankrcerU- this Act shall be certified under the provisions of tliis Act ^^JjJ^'J.J^'^ by the title of " Savings Bank certified under the Act of 1863 ;" and if any other Bank, Association, or Company, or any other person, shall use or adopt such title as their or his designation, or in carrying on business, the members of every such Association or Company, or any of them, penalty on or any such person res})ectively, shall be guilty of a^^J^^^^g misdemeanour, and on conviction thereof shall be punishable ^^i^Jj^f^^^i^i^g. accordingly. 6. Xo Savings Bank, subject to the proviso hereinafter no Savings contained with respect to the Branch Offices or Tocal ^^f proviso'' '^'^ Receivers of any Savings Bank, shall have the benefit of ^hereinafter IGG AUDITOKS. contained this Act iinless ill the Kules and Regulations for the tlJ)^Brancir* management thereof it shall be ex^^ressly provided — siiTiThav '^^ ' ( ^ •) '^'^I'^t ^^^ person or persons, being Treasurer, Trustee, benefit of this or ^lanager of such Savings Bank, or having any Act unless in i • i , ,i n i ^^ i ' Rules, i-c, it Control in the management tnereoi, shall derive any expressVpro- beiietit from aiij Deposit made in such Savings l^^^*-} "^ Bank, save only and except such salaries and herein ' ^ ^ specified. allowances or other necessary expenses as shall according to such rules and regulations be provided for the charges of managing such Savings Bank, and for remuneration to Officers employed in the management thereof, exclusive of the Treasurer or Treasurers, Trustee or Trustees, Manager or Managers, or other persons having direction in the management of such SaA'ings Bank, who shall not directly or indirectly have any salary, alloTvance, profit, or benefit whatsoever therefrom beyond their actual expenses for the purposes of such Savings Bank. (2.) That not less than two persons, being either Trustees, Managers, or paid Officers appointed for that specific purpose, and where two only, except in the case of Savings Banks w^hich are open for more than six hours in every week, one such person to be a Trustee or Manager, be present on all occasions of public business, and be parties to every transaction of deposit and repayment, so as to form at least a double check on every such transaction with Depositors. (3.) That the Depositor's Pass Book shall be compared with the Ledger on every transaction of repayment, and on its first production at the Bank after each twentieth (kiy of November. (4.) Tiiat every Depositor in a Savings Bank established under this Act shall once at least in every year cause his Deposit Book to be produced at the office of the said Savings Bank for the purpose of being examined. COMPANIES, ETC., ACTS. 167 (5.) Tliat no money be received from or paid to Depositors except at the Office or Branch Offices where the business of the Savings Bank is carried on under the authority of the Board of Managers, and during the usual lioiu-s for public business. (G.) That a Public Accountant or one or more Auditors be appointed by the Trustees and Managers, but not out of their own body, to examine the books of the Bank, and to re]^ort in writing to the Board or Committee of Management the result of such Audit, not less than once in every half-year, also to examine an extracted list of the Depositors' Balances made up every year to tlie twentieth day of November^ and to certify as to the correct amount of the I^iabilities and Assets of the bank : (7.) That a book containing such extracted list of every Depositor's Balance, omitting the name, but giving the distinctive number and se[)arate amount of each, and showino; the a2r2:reo;ate number and amount of the whole, checked and certihed by such Public Accountant or Auditors, be open at any time during the hours of public business for the inspection of every Depositor as respects his own Account, to examine his own Deposit Book therewith, and the general results of the same : (8.) That the Trustees and Managers, or Committee of Manao'ement, shall hold meetino-s once at least in every half-year, and shall keep minutes of their proceedings in a separate book provided for that purpose : (9.) Provided that where Savings Banks are established Proviso with with agents or local receivers elsewhere than at the Branch ° head office, the Rules shall provide for the due ^-*fficRsjiii 1 r' 7-t 7 7 r 7 7 ®^"^ ^°* ^^^^ empowered to pay into the Bank oi mu/lana or 1 7\u a na thanibo to / , I 1 \ A , 1 • the account (as the case may be) any sum or sums oi money, not being of the Com- less than fifty pounds, to the Account of the Commissioners ^eReduc^tion for the Reduction of the National Debt, upon the of the Na- declaration of the Trustees of such Savings Bank, or any two or more of them, that such moneys belong exclusively to the Savings Bank for which such payment is intended to be made, whether such moneys shall have been deposited therein before the passing of this Act or there- after shall be deposited therein. 16. Nothing in this Act contained shall extend toNottopre- prevent the Trustees of any Savings Bank already from receiv^-*^^ established or to be established receiving any sum or sums bg^j^^^^gd ^j^ of money from any Dei^ositor for any purpose except to be a^y ot^er , . ^ i »/ J. J. i manner. paid into the Bank to the account of the Commissioners for Reduction of the National Debt, and it shall be lawful for such Trustees to apply any such sum or sums of money in any other manner for the benefit of the several Depositors according to the rules and regulations of such Savings Banks respectively, anything in the said hereby repealed Acts or in this Act contained to the contrary notwithstandinof. 17. In cases where any Savings Banks have been or Central Banks may 170 AUDITORS. invest the money of Branch Banks. Interest due on money mentioned in receipt to be calcidated half-yearly np to 20th November and 20th May and curried to account of Savings Bank as additional principal. shall be established in any town or place, and other smaller J>anks have been or shall be established in the neighljourJiood of such town or place as l>ranch Banks thereof, and such liranch Banks by their Treasurers have paid or shall pay any sums into the Bank in any such town or place as a Central Bank, it shall and may be lawful for the said Trustees of any such Central Bank, or any two of them, to pay into the Bank of Btu/hoid or Ireh.uul in manner prescribed by this Act, along with the moneys belonging to such Central Bank, any sum or sums of money l^elonging to and on account of any such Branch Bank : Provided always, that the Treasurer of such Branch Banks shall certify to the Treasurer of such Central Bank that the amount contributed by any one Depositor in any such Branch Bank in any one year does not exceed the limit of deposits authorised by this Act. 22. All interest which shall become due and payable upon any sum of money mentioned in any such receipt upon the twentieth day of November and the twentieth day of May in every year next after the date of any such receipt shall be from time to time calculated and computed by the Officer of the said Commissioners, and shall in each and e^■ery year be placed to the credit of the Savings Bank on whose account any such sum of money was paid within six weeks from such twentieth day of November and twentieth day of May respectively, and shall be carried to and written on the Account of such Savings Bank, and shall become princijjal, and shall from thenceforth carry interest as principal money paid into the said Bank of EiKjlaml or Ireland, as the case may be, on the Account of such Savings Bank ; and a receipt according to such form as the said Commissioners shall approve shall be signed by the Officer of the said Commissioners, and shall \k\ issuable by the said Officer half-yearly within sixty days I'rom and after such twentieth day of November and twentieth day of May respectively (and such receipts shall bear date the twenty-first day of November and twenty-first day of May res])ectively) for the amount of such interest so credited ^' UNIv\ -3(T- COMPANIES, ETC., ACTS. 171 and made principal as aforesaid as if the amount thereof had been a pa}'ment made by the Trustees of such Savings Bank to the Account of the said Commissioners : Provided No interest always, that no interest shall be computed or calculated on on any fmc- any fractional part of a pound of the half-yearly Balance *' poun^'^^*^ '^^ standing in the books of the said Commissioners on account of any Savings Bank on any twentieth day of November or twentieth day of May respectively. 23. It shall be lawful for the Trustees and Managers of luterest any such Savings Bank, if they shall so think fit, to direct Depositors that all interest which shall be payable to the Depositors S'yeSP'' in such Saviuffs Bank shall yearly, or twice in each and '^^'*'^^°® '"■ '^ ./ ./ ' year and every year, be calculated and computed by the Trustees of carried to T "^ (■ , . T-v T ■■ , , their credit such bavmgs Bank, or such person or persons as they as principal, shall appoint, and shall be carried to the credit of such Depositors respectively, and shall become principal, and shall from thenceforth carry interest in all respects as other principal money deposited in the said Banks, or as if the said sum of interest so credited to the said Depositors respectively had actually been paid to the said Depositors and by them repaid to the said Trustees and Managers, any law, statute, or usage to the contrary notmthstanding : Provided always, that from and after the twentieth day of interest to November one thousand eight hundred and sixty-three the uot^to exceed interest payable to Depositors by the Trustees and pe^^ceilt^'^per ]\Ianagers of any Savings Banks shall not exceed the rate i^nnmn. of three pounds and tenpence per- centum 'per annum. 39. It shall not be lawful for the Trustees of any Trustees not Savings Bank to receive from any one present or future from'^iny one Depositor, within any one year ending on the twentieth ^g^e than day of November (whether any sum or sums of money had ^'^o "^ ^^y , •I'll \ "^^^ yC'^i"! iior been previously withdrawn or not), any sum or sums more than exceeding in the whole thirty pounds, exclusive of com- whole. pound interest : Provided always, that, except in the cases when De- hereinafter provided, Avhenever the sum or sums standing interest in the name of any Depositor shall amount in the whole to £%q^^ j^Jgrest two hundred pounds, principal and interest included, to cease. thenceforth no interest shall be payable on any such 172 AUDITOHS. Appointment of Auditors in Ireland. Depositors' Book in Ire- land to con- tiiin copy of Rules. Dui^licate copy to be exhibited in the Office. deposit so long as it shall continue to amount to the said sum of two hundred pounds. 51. Tlie Trustees of each Savings Bank in Ireland shall, as soon as conveniently may be after the passing of this Act, and from time to time in case of a vacancy, appoint an Auditor or Auditors to audit the Accounts of the said Savings Bank, as well as to examine and insj^ect the books of the several Depositors, and the said Trustees shall immediately after such appointment transmit the signature, name, and address of the said Auditor or Auditors to the Commissioners for the Keduction of the National Debt ; and the Trustees of every such Savings Bank in Ireland shall cause the annual and other Statements required to be transmitted under this Act to be certified and verified by the Auditor or Auditors appointed by the said Trustees, in addition to the attestation by Trustees and Managers, as also required by this Act, and shall also cause a certificate from the said Auditor or Auditors, as to the result of his or their examination of such of the Depositors' books as may have been produced to him or them for examination to be transmitted with the said Annual Statement to the said Commissioners : Pro\dded always, that it shall be lawful for the Trustees of any such Savings Bank in Ireland to agree with the Trustees of any other such Savings Bank or Banks in Ireland as to the appointment of a common Auditor or Auditors, and the Auditor or Auditors so appointed for all the said Banks shall be deemed and taken, as soon as the signature, name, and address shall have been transmitted by each such Bank to the said Commissioners, to be the Auditor or Auditors of each such Bank. 52. Every Depositor in every Savings Bank in Ireland on his first dei)()sit shall be furnished with a deposit book, ill whicli sliall be printed at length a copy of the certified Bules of the Savini'-s Bank in which he shall make such deposit ; and a duplicate copy of the certified Kules, and of every alteration and amendment thereof, and a dupUcate copy of every Annual Statement or Account required l)y COMPANIES, ETC., ACTS. 173 and furnished to the said Commissioners, signed by two Trustees or Managers of any such Savings Bank, shall be from time to time exhibited in the office of such Savings Bank, and shall be open to the inspection of every Depositor or person intending to be such. 53. The rules of every Savings Bank in Ireland shall Rules in ire- specify a number of days, not less than two in every year, ^JJefoVpro'- ending on the twentietli of November^ in which the book fjf ^^'^JJj^^ ^^ of each Depositor shall be produced at the office of the said Books. Savings Bank for the purpose of being inspected, examined, and verified with the books of the Savings Bank by the Auditor or Auditors. 55. For the more effectual ascertaining from time to Trustees of time the actual and progressive state of the several Baukf shall Savings Banks enrolled under the provisions of this Act, ^"J^^u^ the Trustees and Manao-ers of every such Savings Bank Accounts of shall annually cause a general Statement oi the luncls oi gress, &c., such Savings Bank invested in the Bank of Ewjland or the same to the Bank of Ireland in the names of the Commissioners gljfj^^'s'for" for the Reduction of the National Debt to be prepared ui) iteduction of ^ ^ . ' the National to the twentieth day ot November m each year, showing Debt, the balance or principal sum due to all the Depositors collectively in such Savings Bank, and a Statement of the ex- penses incurred, and stating in whose hands such balance shall then be remaining ; and every such Annual Statement shall ])e attested by two Managers or two Trustees, or by one Manager and one Trustee, of such Savings Bank, and every such Annual Statement shall be countersigned by the Secretary or Actuary of such Savings Bank, and all such Annual Statements shall be transmitted to the office of the said Commissioners for the Reduction of the National Debt in London or Dublin (as the case may be) within nine weeks after the twentieth day of November in each year. 59. The Trustees and Managers of every such Savings a duplicate Bank shall cause a duplicate of every such Annual count shall Statement, accompanied by a list of the Trustees and ^j^/office S Managers of such institution for the time being, attested J^^k^^'""^^ and countersigned as aforesaid, to be publicly affixed and 174 AUDITORS. Savings Banks shall compute In- terest on 20th May and 20th November half-yearly or yearly. exliil)ited in some conspicuous part of tlie office or place where the deposits of such Savings Bank are usually received, for the information of all parties making deposits therein ; and every such duplicate shall from tune to time remahi so affixed and exhibited until tlie ensuing Annual Statement shall in like manner be affixed and exhibited as aforesaid ; and every Depositor shall be entitled to receive from the said Savings Bank a printed copy of such Annual Statement on payment of one penny. 62. For the purpose of rendering the Accounts of the several Savings Banks in Great Britain and Ireland uniform and correspondent with the Accounts of the Commissioners for the Reduction of the National Debt the interest payable to the Depositors in such Savings Banks in Great Britain and Ireland shall, from and after the twentieth day of November^ one thousand eight hundred and sixty-three, be computed half-yearly to the twentieth day of May and the twentieth day of November, or yearly to the twentieth day of November in each year, as the case may be, and to no other periods. Establish- ment of Ilispcction Committee. Powers and duties of Insjicction Committee. The Savings Banks Act, 1891. (54 & 55 Vict., c. 21.) [8rd July, 1891.] 2. — (1.) There shall be established an Inspection Committee of Trustee Savino-s l^anks. 3. — ( 1.) The Inspection Committee may appoint persons to inspect the Books and Accounts of Trustee Savings Banks, and to examine and ascertain and report to the Committee from time to time, with respect to eacli Bank, whether the Bank has complied Avith the re(j[uirements of the Acts and Rules relating to the Bank as to the security to be taken from officers, the Accounts of the Bank and the conduct of its business, and whether any portion of the expenditure is excessive or unnecessary ; and every COMPANIES, ETC., ACTS. 175 Trustee Savings Bank shall give all due facilities for enabling any such inspection or examination to be made. (4.) The Trustees of every Trustee Savings Bank shall, on the requisition of the Committee, supply the Committee with a copy of the pass book in use in the Bank, of the Annual General Statement of the Accounts of the Bank, and of the Rules of the Bank, and of any amendments thereof. (5.) If in the opinion of the Committee tlie Rules of any such Bank are insufficient for the purpose of main- taining an efficient audit, the Bank shall with all convenient speed make such additional Rules as may, in the opinion of the Committee, be required for the purpose. (6.) If the Bank do not, within a time specified by the Committee from the date of being required to make any such Rules, comply with the requirement, the Committee may make such Rules, and shall submit the Rules so made to the Registrar of Friendly Societies, to be certified by him ; and, when so certified, they shall be binding on the Trustees. 8. The Annual Statement required by Section fifty-five Form of of the Trustee Savings Banks Act, 1863, to be made by statement by the Trustees and Managers of every Trustee Savings ^mstersav- Bank shall be in such form, and contain, or be accom- iugs Banks, panied by, such particulars as the Xational Debt Com- missioners direct. A similar Statement shall be sent to the Inspection Committee each year at the same time. 10. The power of a Trustee Savings Bank to make Provisions investments (hereinafter referred to as special investments) fnve°stmeui. in pursuance of Section sixteen of the Trustee Savings Banks Act, 1863, shall be subject to the following restrictions, namely : — [a.) An investment shall not be made after the com- mencement of this Act on behalf of any person unless he is at the time of making the investment a Depositor in the Bank to the extent of not less than fifty pounds : Provided that nothing in this subsection shall prevent the continuance of special 176 AUDITORS investments in behalf of any person who is before the passing of this Act a Depositor under Section sixteen of the Trustee Savings Banks Act, 1863 ; (b.) The total amount to be invested after the com- mencement of this Act on behalf of any one Depositor shall not exceed five hundred pounds in the aggregate ; (c.) The money received for investment after the commencement of this Act shall not be invested in any manner not for the time being authorised by law in the case of investment by Trusteesj and shall not be invested on mortgage of land or any interest in land ; (d.) The Accounts of the Bank shall be kept so as to distinguish between the receipts and expenditure on account of special investments and the receipts and expenditure on account of the general business of the Bank ; (e.) The assets of the Bank in respect of ordinary deposits shall not be chargeable with any part of the expenditure on account of special investments, and shall not be liable for any loss or deficiency in respect of special investments ; (g.) The Annual Statement required by Section fifty- five of the Trustee Savings Banks Act, 1868, shall contain, or be accompanied by, such particulars with respect to the special investments of the Bank as the National Debt Commissioners direct ; (h.) The Rules of the Bank shall provide to the satis- faction of the Inspection (.'ommittee for the audit, examination, and publication of the investment accounts, for the safe custody of the securities held by the Bank on account of special investments, and the security to be given by Oflicers of the Bank in respect of the amount received on such account ; (/.) The power to make s])ecial investments shall not be exercised by any Bank unless the Bank has COMPANIES, ETC., ACTS. 177 exercised the power before the first day of June, one thousand eight hundred and ninety-one. 11. Whereas it is not lawful for the Trustees of a Amendment Savings Bank or for the Postmaster- General to receive umit of from any Depositor any sum which shall make the sum to ^^^t^rSt oif which such Depositor shall be entitled exceed the sum of deposit, one hundred and fifty pounds in the wht)ie, exclusive of interest, but the sum standing in the name of any Depositor may be increased by accumulation of interest to any sum not exceeding two hundred pounds in the whole, and difficulties have arisen in the due apportionment between principal and interest standing to the credit of Depositors in excess of one hundred and fifty pounds, be it therefore enacted as follows : (1.) A Savings Bank shall not receive any deposit which makes the sum standing in the name of any Depositor in the Bank exceed two hundred pounds. (2.) So much of any enactment as prohibits the receipt from any Depositor of any sum of money which makes the sum to which he is entitled exceed the sum of (me hundred and lifty pounds in the whole, exclusive of interest, is hereby repealed, (o.) Interest shall be allowed in full on the sum standing in the name of a Depositor in a Savings Bank so long as it does not exceed two hundred pounds, but whenever the sum standing in the name of any Depositor in any Savings Bank exceeds that amount, interest shall not be allowed on any sum in excess of two hundred pounds. (4.) Xot withstanding any restriction on the amount to be dej^osited in any one year, a Depositor in a Savings Bank may, not more than once in any Savings Bank year, deposit money to replace money previously withdrawn in one entire sum during that year. For the purposes of this pro- vision the expression " Savings Bank year " means, with reference to Trustee Savings Banks, the year N 178 AUDITORS. enclino- the twentieth day of Xovember, and with reference to the Post Office Savings Banks, the year ending the thirty -first day of December. Definitions. 16. In this Act The expression " Trustee Savings Bank " means a Bank certified under the Trustee Savings Banks Act, 1863. The expression " Savings Bank " (without the word Trustee) includes both a Trustee Savings Bank and a Post Office Savings Bank. The expression " Friendly Society " means a Friendly Society legally registered in the manner required by the Acts for the time being in force relating to Friendly Societies, and includes a registered branch. Short Title 3. 19. — (1.) This Act may be cited as " The Savings Banks Act, 1891." (2.) The Trustee Savings Banks Acts, 1863 and 1887, and so much of the Savings Banks Act, 1887, as relates to Trustee Savings Banks, and this Act, may be cited collectively as " The Trustee Savings Bank Acts, 1863 to 1891." UNIVERSITIES, ETC., ACTS. 179 CHAPTER lY. THE LAW RELATING TO AUDITORS AND ACCOUNTS OF UNIVERSITIES, JUDICIAL TRUSTEES, EXECUTORS, ETC. The Universities and College Estates Act, 1858 — The Universities and College Estates Amendment Act, 1880— The Universities and College Estates Act, 1898 — The Universities of Oxford and Cambridge Act, 1877— The County Com-ts Act, 1888— The Sheriffs Act, 1887— The Judicial Trustees Act, 1896— The Intestates' Estates Act, 1890— The Apportionment Act, 1870— The Trustee Act, 1893~The Colonial Stock Act, 1900— The Larceny Act, 1861 — The Falsification of Accomits Act, 1875. The Universities and College Estates Act, 1858. (21 & 22 Vict., c. 44.) [23rd July, 1858.] 21. All the net Rents, Tolls, Duties, Royalties, and Application Reservations which shall be received by the University or Eeutsr&c. College, for or in respect of any Lease to be granted under the authority of the last foregoing Section, shall be applied and disposed of by such University or College in manner following ; (that is to say,) One equal Third Part of such net Rents, Tolls, Duties, Royalties, and Reservations, shall be applicable and be applied by such University or College as part of their ordinary income, and the remaining two equal third parts thereof shall be applicable and be applied by such University or College in or upon any of the pur- poses following ; (that is to say,) in the purchase of lands to be conveyed to the use or for the benefit of such University or College, or in the erection of new buildings, or in the addition to and enlargement of any existing buildings, or in the drainage or other permanent and lasting improvement of any lands belonging to such N 2 180 AUDITORS. University or Colle^'e, or in the purcliaise of any wayleaves or other easements, in, over, or upon any lands adjoining, or near to any such lands ; and, in the meantime, until such two equal third parts shall be applied in or upon any of the purposes aforesaid, the same shall be invested by such University or College in the purchase of Government Stocks, Funds, or Securities, and the interest, dividends, and annual proceeds thereof shall be received by such University or College, and be applicable as part of their ordinary income. Particular 26. Provided always, that this Act or anything herein to be"eased. Contained, shall not authorise the granting of any lease or the laying out or appropriating for the purposes in this Act mentioned of any house, or building or lands forming part of or attached to or locally situate within the boun- daries or precincts of any College or of any offices, out- buildings, yards, and gardens to any such College adjoining or appertaining, and which may be necessary" or convenient for actual occupation by the members of any such College or any of them, or the grant or lease of any mines, minerals, quarries, ways, watercourses, or other easements, the grant thereof may be prejudicial to the convenient enjoyment of any such house or building, or the offices or gardens thereto belonging. Powers to 27. It shall be lawfid for the said Universities and any with consent College therein respectively, and for the Colleges of of Copyhold ^^f^ Marv of Winchester near Winchester, and of Kini'- Commis- ^ ^ _ ' o sioners, by Henry the Sixth at Eton, from time to time and at any certaui" time hereafter, with the consent of the said Copyhold purposes. Commissioners (such consent to be evidenced by an Order, to be issued under their Hands and Common Seal, in the form or to the effect set forth in the said Schedule hereto) to raise by Mortgage of any Lands belonging to such University or College, for any term of years (determinable as hereafter provided), sucli sum or sums of money (together with all reasonable costs and expenses incidental to such raising and the a})plication thereof) as shall be certified by the Surveyor of the University or College to be proj^erly UNIVERSITIES, ETC., ACTS. 181 required, and shall be authorised by the said Coinniissioners, with interest thereon not exceeding the rate to be specified in such Order, and to apply such sum or sums of money for all or any of the purposes following : (that is to i^ay,) for or towards the restoration and inprovement and (if need be) enlargement of any house or building forming part of or connected with or otherwise belonoino- to such University or College, or for or towards the erection of new or additional houses or buildino-s, or for the extension and improvement of any existing houses or buildings upon any lands belono'ino' to such Universitv or College, or for the drainage or other permanent and lasting improvement of any lands belonging to such University or College. 28. Where any Morto-ao-e is made by any University or Provision . ^ . for the College under either of the powers hereinbefore contained discharge of for that purpose, such University or College shall, out of ^,^^.0^^^^^ the rents and profits of the lands comprised in any such Mortgages. Mortgage, or out of the funds and revenues of such University or College, either repay the same monies by the grant of an annuity, upon such terms as shall he approved of by the said Commissioners, to the lender or other person to whom the same monies shall be due, or shall keep down all the interest of such monies as the same shall become due, and annually thereafter reserve or raise out of the same rents and profits, or funds and revenues, and out of the income arising from any such Sinking Fund as shall have been created under the provisions following, one- thirtieth part at least of the amount of the principal debt, and apply the same to the reduction thereof, either by direct payment to the lender, or other person to whom the same shall be due, if he shall consent or be under engage- ments or otherwise required to receive the same, or by the creation of a Shiking Fund for that purpose, in such manner as shall be approved by the said Com- missioners. 33. It shall be sufficient for all ])urposes to cite this Short Title. Act as " The Universities and College Estates Act, 1858." 182 auditors. The Universities and College Estates Amendment Act, 1880. (43 & 44 Yict, c. 46.) [7th September, 1880.] Short Title 1 • Tliis Act may be cited as " The Universities and College Estates Amendment Act, 1880," and this Act and the 21 k 22 Vict., Universities and College Estates Act, 1858, and the 23 ^& 24 Vict., Universities and College Estates Act Extension, 1860, may ^- ^^' be cited collectively as " The Universities and College Estates Acts, 1858 to 1880." Appiicatiou 2. — (1.) The purchase money of land sold by a raoney^for^ University or College under the Universities and College UuiversHy or Estates Act, 1858, or any other Act amending the same, CoUege. shall, with the consent of the Coi^yhold Commissioners, be 21 & 22 Vict. "^ c. 44. ' from time to time applicable by the University or College in the repayment of any money borrowed under any of those Acts, or to any of the purposes to which money so borrowed is applicable under those Acts. (2.) Where any such purchase money is so applied, the like provision shall be made by the University or College for replacing the same as is by Section twenty -eight of the 21 i: 22 Vict., Universities and College Estates Act, 1858, required to be made for the repayment of money borrowed under that Act : Pro^dded that where any such purchase money is applied in repayment of a loan, it shall be replaced within or at the expiration of the period limited for repayment of the loan and upon the terms mentioned in the order of the Copyhold Commissioners by which their consent to the loan is or was evidenced. Robiiiiding of 3. Any iiioneys applicable under the said Acts to or for be^ within " '^^^7 ^^ ^^^ purposes mentioned in the twenty -seventh ^i^& 22 Vict *^^^'*^^^ ^^ ^^^ Universities and College Estates Act, 1858, c. 44. ' may also })e a})plied, by and under the authority of the said Copyhold Commissioners, in or towards the restoration or rebuilding of the Chancel of any Church which the University or College to which such moneys belong may be by law liable to restore or rebuild. universities, etc., acts. 183 The Universities and College Estates Act, 1898. (Gl & 62 Vict., c. 55.) [12th August, 1898.] 1. For the purposes of sale, enfrauchisenient, exchange, Extension of partition, and leasing, a University or College may ^°ilf &c!^, exercise any of the powers conferred on a tenant for life ^Jie^iJ!f " hy the Settled Land Acts, 1882 to 1890, and for those Universities 1 •• fi A -I'-riT ^^^^ Colleges. purposes the provisions ol those Acts mentioned in rart 1. of the First Schedule to this Act shall apply accordingly, subject to the modifications mentioned in Part XL of that Schedule, Provided that — (a.) The powers of sale, enfranchisement, exchange, and partition, and the power of granting building leases with option of purchase, shall not be exercised without the consent of the Board of Agriculture ; and {[>.) Caj^ital money payable on any such sale, enfi'an- chisement, exchange, or partition, or on the exercise of any such option, shall be paid to the l>oard of Agriculture. 2. — (1.) Capital money paid, whether before or after the Application commencement of this Act, to the Board of Agriculture Money^. ^ under the Universities and College Estates Acts, 1858 to 1880, or this Act, or arising under Section twenty-one of the Universities and College Estates Act, 1858, and the proceeds of sale of securities representing any such money, may, with the consent of the Board of Agriculture, be applied by a University or College to any of the following purposes : — (i.) The iiiN-estment in the name of the Board on any securities in which Trustees are by law authorised to invest trust money ; and (ii.) The purposes mentioned in the Second Schedule to this Act ; and (iii.) The purchase of the interest of a lessee under a lease fi'om the University or College. 184 AUDITORS. Powers of Borrowing for Improve- meuts. Power to extend period for Repayment of Fine or Loans. (2.) Tlie income of an}" such Securities shall be paid or ap])lie(l as the income of the land represented by the Securities would have been payable or applical)le. (8.) Land purchased under this section shall be conveyed to the University or College to be held to uses or upon trusts corresponding to the purposes for which the capital money or proceeds of sale of Securities applied in the purchase were held, except that copyhold land may be conveyed to trustees. (4.) Where the purpose to which money may be applied under this section is of such a nature that, in the opinion of the Board of Agriculture, provision ought to be made for replacing the money within a limited time, the Board shall, in giving their consent to the application, require provision to be so made. -(1.) The purposes for which money may be bor- o.- rowed b}^ a University or College under Section twenty- seven of the Universities and College Estates Act, 1858, shall include the improvements mentioned in the Third Schedule to this Act, being improvements to which capital money arising under the Settled Land Acts, 1882 to 1890, may be applied. (2.) The period for repayment of money borrowed after the commencement of this Act for an improvement under the Universities and College Estates Acts, 1858 to 1880, or this Act shall be such period not exceeding fifty }'ears as the Board of Agriculture, having regard in each case to the character and probable duration of the improvement, determine. 4. — Where under the Universities and College Estates Acts, 1858 to 1880, money has, before the commencement of this Act, been borrowed or applied by a University or College for the purpose of an indemnity for the loss of a fine in res])ect of Lnid held under a beneficial lease, and it is proved to the satisfiiction of the Board of Agriculture that the annual amount recpiired for the repayment of the money exceeds one-half of the net annual value of the land after deduction therefi'om of the rent reserved by the UNIVERSITIES, ETC., ACTS. 185 beneficial lease, the l)oard ma}' (with the consent of the lender in the case of money borrowed) extend, within the limits authorised by this Act for improvement loans, the term for repayment or replacement of the money, and make such other modifications in the provi- sions for repayment or replacement as may be considered expedient. Provided that the aggregate amount required to be repaid or replaced by a University or College in any one year in respect of money so borrowed or applied shall be not less than the average animal amount so repaid or replaced during the five years ending the thirty -first day of December one thousand eight hundred and ninety-eight. 6. — (1.) AVhere the purchase consideration or com- rrovisionas pensation monev payable in respect of any land belonging payabie^'^ to a University or College is directed by any Act ofj^X^XL?' Parliament to be paid into Court, or either into Court or to Trustees, the money shall, at the option of the Univer- sity or College, be paid either as directed by the Act or to the Board of Agriculture. (2.) Where any such money has been paid either before or after the commencement of this Act either into Court or to Trustees on behalf of a University or College, that sum, or the securities representing it, may, if in Court on the application of, and if held by Trustees by the direction of, the University or College, be paid or transferred to the Board of Agriculture. (3.) Money paid and securities transferred to the Board of Agriculture under this section on behalf of a Uinversit}' or College shall be treated as capital money paid to the Board under this Act and as securities representing money so paid. 7. — This Act shall apply only to the Universities and Appiicution Colleges to which the Universities and College Estates tatioiu ^^^^ Acts, 1858 to 1880, supply, and references in those Acts to any specific provisions thereof shall be construed as references to those provisions as amended by this Act or to the corresponding provisions of this Act as the case may require. 186 AUDITORS. « Short Title. ' the strai\ widening-, Vict. c. 38 . . s. 25 • ' or deepening of drains, streams, and water- feV^S'- courses: (ii.) Irrigation ; warping : (iii.) Drains, pipes, and machinery for supply and distribution of sewage as manure : (iv.) Embanking or weiring from a river or lake, or fi'om the sea, or a tidal water : (^^) Groynes ; sea walls ; defences against water : (vi.) Inclosing ; straightening of fences ; re-division of fields : {\'n.) Reclamation ; dry warping : (viii.) Farm roads ; private roads ; roads or streets in villages or towns : (ix.) Clearing ; trenching ; planting : (x.) Cottages for labourers, farm servants, and artizans employed on the land or not : (xi.) Farmhouses, offices, and out-buildings, and other buildings for farm })urposes : (xii.) Saw mills, scutch mills, and other mills, water- wheels, engine-houses, and kilns, which will increase the value of land belonging to the University or College for agricultural purposes or as woodland or otherwise : (xiii.) Reservoirs, ttuiks, conduits, watercourses, pipes, UNIVERSITIES, ETC., ACTS. 189 wells, ponds, shafts, dams, weirs, sluices, and other works and machinery for supply and dis- tribution of water for agricultural, manutacturing, or other purposes, or for domestic or other con- sumption : (xiv.) Tramways ; railways ; canals ; docks : (xv.) Jetties, piers, and landing places on rivers, lakes, the sea, or tidal waters, for facilitating transport of persons and of agricultural stock and produce, and of manure and other things required for agricultural purposes, and of minerals, and of things required for mining purposes : (xvi.) Markets and market-places : (xvii.) Streets, roads, paths, squares, gardens, or other open spaces for the use, gratuitously or on pay- ment, of the public or of individuals, or for dedication to the public, the same being neces- sary or proper in connection with the conversion of land into building land : (xviii.) Sewers, drains, watercourses, pipe-making, fencing, paving, brick -making, tile-making, and other works necessary or proper in connection with any of the objects aforesaid : (xix.) Trial pits for mines, and other preliminary works necessary or proper in connection with develop- ment of mines : (xx.) Bridges : (xxi.) Making any additions to or alterations in build- ings reasonably necessary or proper to enable the same to be let. (xxii.) Erection of buildings in substitution for build- ings within an urban district taken by a local or other public authority, or for buildings taken under compulsory powers, but so that no more money be expended than the amount received for the buildino's taken and the site thereof : o (xxiii.) Reconstruction, enlargement, or improvement of any of those works. 190 AUDITORS. Short Title. Objects of Statutes for University. The Universities of Oxford and Cambridge Act, 1877. (40 & 41 Yict., c. 48.) [10th August, 1877.] 1. This Act may be cited as '* The Universities of Oxford and Cambridge Act, 1877." 12. The Commissioners may by virtue of this Act, and subject and according to the provisions thereof, make by writing under their Seal Statutes for the University and for any College or Hall. 16. With a view to the advancement of art, science, and other branches of learning, the Commissioners, in Statutes made by them for the University, may from time to time make provision for the following purposes or any of them : (1.) For enabling or requiring the several Colleges, or any of them, to make contribution out of their Revenues for University purposes, regard bemg first had to the wants of the several Colleges m themselves for educational and other collegiate purposes : (2.) For the creation, by means of contributions from the Colleges or otherwise, of a common Universit}'' Fund to be administered under the supervision of the University : (3.) For making payments, under the supervision of the University, out of the said common Fund for the giving of instruction, the doing of work, or the conducting of investigations Avithin the UniAcrsity in any branch of learning or mquiry connected with the studies of the University : For consolidating any two or more Professorships or Lectureships : For erecting and endowing Professorships or Lectureships : (9.) For providing retiring pensions for Professors and Lecturers : (4.) (5.) UNIVERSITIES, ETC., ACTS. 191 (10.) For providing new or improving existing Build- ings, Libraries, Collections, or Apparatus : (11.) For diminishing the expense of University educa- tion by founding Scholarships tenable by Students either at any College or Hall within the University, or as unattached Students, not members of any College or Hall, or by paying salaries to the teachers of such unattached Students, or by other- wise encourao'ino; such unattached Students : (12.) For founding and endowing Scholarships, exhibi- tions, and prizes for encouragement of proficiency in any art or science or other branch of learning : (15.) For regulating the application of the purchase- money for any Advowson sold by the University : (16.) For founding any office not paid out of University or College Funds in connection with any special educational work done out of the University under the control of the University, and for remunerating any Secretary or Officer resident in the University and employed there in the management of any such special educational work. In accordance with the power conferred on them the University of Oxford Commissioners made the foUoAving- Statute concerning- the form of Accounts of the University and the Audit and Publication thereof : — 1 . The Curators of the University Chest shall take care that the Accounts of the University are duly kept in proper Books of account, in which shall be entered all Receipts and Payments by them on behalf of the University, whether in respect of the Greneral Fund, or of Punds appropriated to the support of particular Institutions within the University, or to other special purposes, or of Trust Funds. Proper records should be kept of all property of every kind held, and of all debts and liabilities contracted, by or on account of the University or any Trust. The Books shall include : — (rt.) A Register of all the property of the University, showing the description, situation, amount, rental, or other annual value of every property ; the fixed charges on it (if any) ; and, in the case of Stocks or other Securities, the names in which and the Accounts to which the same are standing : {b.) A Roll of Rents, Rentcharges, Dividends, and other annual income, showing the amounts receivable and those actually 192 AUDITORS. received during the year, and the arrears (if any) at the beginning and at the close of the account : (c.) A Cash hook or Cash hooks, containing a record of all cash transactions : (d.) A Ledger or Ledgers : And also all such other Books as may be necessary or convenient for regularly recording all such receipts and papnents and other matters and things as aforesaid, and for enabling the several Accounts to be duly checked and balanced, and the correctness of the Abstracts and Balance Sheet for the publication of which provision is made bj^ this Statute, to be ascertained and verified. 2. On or before the twenty-fourth day of March in every year the Curators of the University Chest shall cause to be prepared and delivered to the Vice-Chancellor : — (ff.) Abstracts of Eeceipts and Payments on the general account of the University for the year ending on the thirtj'-first of December last preceding : (b.) Abstracts of Eeceipts and Pa^^nents on account of the several properties held in trust by the University and administered bj' the Curators of the University Chest : {c.) Abstracts of Eeceii)ts and Payments on account of any special Punds administered by the Curators of the University Chest : {d.) A Balance Sheet, showing at the close of the account the state of the current accounts of all the Funds administered by the Curators of the University Chest : {e.) A Statement of all Loans contracted by the University and outstanding ; showing in respect of each Loan the amount originally borrowed, the amount remaining unpaid, the power under which the Loan was contracted, the rate of interest, and the pro^'ision made for repayment. The Abstracts of Eeceipts and Payments on the general account of the University, and on account of properties held in Trust, and the Balance Sheet shall be respectively in the forms set forth in the Schedvde annexed to this Statute. But the Curators may, if for special reasons it appear advisable to do so, sub-divide any item of account in the scheduled forms into more items than one, or insert additional items. 3. The Hebdomadal Council shall annually appoint a University Auditor, who shall be either a professional Accountant carrying on business in London or Westminster, or (if they think tit) a person con- versant with Accounts approved by the Permanent Secretary to Her Majesty's Treasury. He shall, in conjunction with the Auditors of University Accounts appointed by the University (or alone if the University by Statute so determine), audit all Accounts, whether relating to the general Eevenues and Expenditure of the University, or to property held on special Trusts. Tlie Auditor or Auditors shaU report in writing to the Vice-Chancellor whether the Accounts are UNIVERSITIES, ETC., ACTS. 193 duly kept in proper Books of account in conformity with the provisions of this Statute, and whetlier the Abstracts, Balance Sheet, and Statement contain a true account of the financial condition of the Universit3^ It shall be lawful for the Auditors or any Auditor to report specially as to any payment which they or he may judge to have been made without sufficient authority. When such a special Report is made, the question shall be referred to three persons, one of whom shall be the Assessor for the time being to the Vice-Chancellor, and the other two shall be nominated at the beginning of each academical year by the Hebdomadal Council ; and the decision of such three persons or the major part of them shall be final. 4. The expense of such audit (including any payment of any cler or clerks whose assistance may be required) shall be paid out of the University Chest. 5. On receiving the Abstracts, Balance Sheet, Statement, and Auditors' Report above mentioned, the Vice-Chancellor shall cause them to be printed, laid before Convocation, and published within the University. When any question is referred as aforesaid the Vice- Chancellor shall cause the decision of the Referees to be in like manner printed and published. 6. Abstracts of the Accounts of the Bodleian Library, the Botanic Garden, the Sheldonian Theatre, the Ashmolean Museum, the Taylor Institution, the University Gfalleries, the University Museum (including the several scientific departments thereof), the University Observatory, the Delegacy of University Police, the Curators of the Park, the Hope Curators, the Hc^pe Keeper of Engraved Portraits, the Delegacy of Students not attached to any College or Hall, the Lodging-houses Delegacy, the Euskin Trustees, and of all other funds appropriated to the support of particular Institutions, or to other special purposes within the University, and administered otherwise than by the Curators of the University Chest, shall be in like manner audited, laid before Convocation, and published. 7. The general Accounts of the University and the Accounts of each Trust shall, after the audit thereof, be open to inspection by Members of Convocation at convenient times, under such regulations as the University may by Statute make from time to time, and in default of subject to any such statutory regulations, under regulations to be made by the Curators of the University Chest. 8. The Accounts of the Delegates of the Clarendon Press shall be audited in such manner as the University shall by Statute from time to time determine. This Statute is a Statute whoUy for the University within the meaning of the Universities of Oxford and Cambridge Act, 1877, Section 30, 194 AUDITORS. Objects of Statutes for Colleges in themselves. Objects of Statutes for Colleges in relation to University. 17. The Commissioners, in Statutes made by them for a College, may from time to time make provision for the following purposes relative to the College, or any of them : (1.) For altering and regulating the conditions of eligibility or appointment, including where it seems fit those relating to age, to any Emolument or Office held in or connected with the College, the mode of election or appointment thereto, and the value, length, and conditions of tenure thereof, and for providing a retiring pension for a holder thereof : (5.) For affording further or better instruction in any art or science or other branch of learning : (6.) For providing new or improving existing buildings, libraries, collections, or apparatus, for any purpose connected with instruction or research in any art or science or other branch of learning, and for main- taining the same : (7.) For diminishing the expense of education in the College : (10.) For regulating the application of the purchase money for any Advowson sold by the College : 1(S. The Commissioners, in Statutes made by them for a College, may fi'om time to time make provision for the follow- ing purposes relative to the Universit}', or any of them : (1.) For authorising the College to commute any annual payment agreed or required to be made by it for University purposes into a Capital sum to be pro- vided by the College out of money belonging to it, and not produced by any sale of lands or heredita- ments made after the passing of this Act : (8.) For assigning a portion of the Revenues or property of the College, as a contribution to the Common Fund or otherwise, for encouragement of instruction in the University in any art or science or other branch of learning, or for the maintenance and benefit of persons of known ability and UNIVERSITIES, ETC., ACTS. 195 learning studyino- or makino- researches in any art or science or other branch of learnino" in the University : (5.) For providing out of the Revenues of the College for payments to be made, under the supervision of the Universitv, for work done or investio-ations conducted in any branch of learning or inquiry con- nected with the studies of the University within the University : 21. The Commissioners, in Statutes made by them, shall Provision for P . ^ ^. T . . Accounts, irom time to tmie make provision — Audit, Bor- (1.) For the form of Accounts of the University and of ^«^^^f ; '™^^ a College relating to funds administered either for general purposes, or in trust, or otherwise, and for the audit and publication thereof : (2.) For the publication of Accounts of Receipts and Expenditure of money raised under the borrowing powers of the University or of a College : And the Commissioners, in Statutes made by them, may from time to time, if they think fit, make provision — (3.) For regulating the exercise of the borrowing powers of the University or of a College : (4.) For regulating the conditions under which beneficial leases may be renewed by the University or a College. In accordance with this power conferred on them, the University of Oxford Commissioners have made a Statute for each College concerning the Form of Accounts and their Audit, and the following is tlie form almost universally followed : — We, the University of Oxford Commissioners, under and by virtue of all and every the powers in this behalf enabling us contained in the Universities of Oxford and Cambridge Act, 1877, do by this present Instrument under our Seal make the Statute hereunto annexed for CoUege, in the University of Oxford, con- cerning the Form of Accounts of the College, and the Audit and Publication thereof : — A Statute for College, concerning the Form of A ccounts of the College and the Audit and Publication thereof. 1. The (Dean, President, Master, Principal, Warden, &c.) and Accounts. o2 106 AUDITORS. Follows shall cause proper Boots of Account to ho kopt, in which shall ho entorofl — (i.) All Eoceipts and Papnents on account of or authorised hy the CoUege, whether from and to persons being menihers of the College or from and to any other person whomsoever ; (ii.) All Dehts and Liahilities contracted hy or to the College or by or to any person on account or by authority of the College ; (iii.) A Statement in detail of all property of every kind or description held by or in trust for the College. 2. The Books shall include — {a.) A Register of all the property- of the College, showing the description, situation, amount, rental or other annual value of every property ; the fixed charges on it (if any) ; and in the case of Stocks or other Securities the names in which and the accounts to which the same are standing : (h.) A Eoll of Eents, Eentcharges, Dividends, and other annual income, showing the amounts receivable and those actiuilly received dxu-ing the 3'ear, and the arrears (if any) at the beginning and at the close of the Accoimt ; {e.) A Cash Book or Cash Books, containing a record of all Cash transactions ; {d.) A Ledger or Ledgers ; And also such other books as may be necessary or convenient for regularly recording all such Eecei^its and Payments and other matters and things as aforesaid, and for enabling the several Accounts to be duly checked and balanced, and the correctness of the Abstracts, for the publication of which provision is hereinafter made, to be ascertained and verified. 3. Separate Accounts shaU be kept of all property held in trust for any purpose other than the general purposes of the CoUege, and of Eeceipts and Payments in respect of such proj^erty. 4. The College Accounts shall be audited once at least in every year. The and Fellows shall appoint for that purpose an Auditor or Auditors. One person so appointed shall be either a professional Accountant carrying on business in Loudon or West- minster, or (if the and Fellows think fit) a person conver- sant with Accounts aj)proved by the Permanent Secretary to Her Majesty's Treasury. The Auditor or Auditors shall report in Avriting to the and Fellows whether the Accounts of the College are duly kept in proper Books of Account in conformity with the provisions of this Statute, and whether the Abstracts and Balance Sheet prepared pursuant to the provisions of this Statute contain a full and true Account of the financial condition of tlie College. It sliall be lawful for the Auditors or any Auditor to rei)ort sijecially as to any payment which they or lie may judge to have been made without sufiicient authority. The expenses of the Audit (including payment to any clerks or clerk wliose UNIVERSITIES, ETC., ACTS. 197 assistance the Auditor or Auditors may require) sliall be paid out of the revenues of tlie College. 5. The and Fellows shall in every year cause to be Abstracts, prepared and delivered to the Registrar of the Uuiversity for n'^'l^^^ .■ publication such Abstracts, Statements, and other matters relating to the Accounts of the College as by any Statute made or to be made for the University under the powers of the Universities of Oxford and Cambridge Act, 1877, they are or shall be required to furnish ; and shall also furnish to the Curators of the University Chest such information as may be reqviired for determining the amount to be paid by the College to the Curators as a contribution for Uuiversity purposes under any Statute made under the like authority. The Cambridge University Commissioners, as mentioned in Cliapter L, have not appomted professional Auditors for either the University Chest or for Colleges. The following Statute was made by them under the zVct of 1887 :— The Accounts of all moneys received and expended on behalf of the University, relating to funds administered for general purposes, or in trust or otherwise, shall be audited once in every year. The time of such audit, the number of Auditors, and the mode of their appointment shall be determined by Grace. An Abstract of the Accounts shall be made after the Audit, as nearly as practicable in the fonn contained in the Schedule attached to this Chapter. Such Abstract shall be signed by the Auditors, and published to the University by the Vice-Chancellor. The Accounts of receipt and exi)enditure of money raised under the borrowing powers of the irniversity shaU be annually audited and published to the University. The County Courts Act, 1888. (51 & 52 Vict., c. 43.) [13th August, 1888.] 1. This Act m;iy be cited as " The County Courts Act, Short Title. 1888." 171. The Treasurer of every Court shall from time to Audit of time audit and settle the Accounts of the Registrar and Accounts.^ other Officers of the Court, and shall receive the balances of the various moneys Avhich such Registrar and other 198 AUDITORS. Officers shall have received under this Act ; and the Registrar shall pay over to the Treasurer of the Court, at such times as he may be directed by the Treasury, the moneys recei\ed by him as a Registrar. The Sheriffs Act, 1887. (50 & 51 Vict., c. 55.) [16th September, 1887.] Short Title. 1. This xVct may be cited as "The Sheriffs Act, 1887." Transmission 21. — (1.) Every Sheriff' shall within two months after of Sheriff. the expiration of his office, or in case of the death of any Sheriff' the Under- Sheriff' by him appointed shall within two months next after the death of such Sheriff', transmit to the Treasury a just and true Account under his hand : — («.) Of all sums received by such Sheriff' for the use of the Crown, and of all sums paid or claimed by him or on his behalf (including such sums as have been usually inserted in the bill of cravings), with all such particulars as are needful to explain the same, and (b.) Of the names and residences of all persons incur- rmg fines, issues, amerciaments, forfeited recogni- zances, or suras of money which he has been authorised to levy by virtue of any writ issued to him or to any predecessor in office, and if the same have not been levied the causes of their not having been levied ; and the Treasury ma}' grant a Warrant for the allowance of the sums so paid or claimed in the Account, or for the j)ayment of such sum of mcmey in res^^ect thereof as they may think reasonable : (2.) Provided as follows : — (a.) A Sheriff' or Under-Sheriff shall not be hnprisoned upon any ])rocess for not finishing his Accounts in due time, or for any contempt or neglect in relation UNIVERSITIES, ETC., ACTS. 199 to his Accounts, except by a Warrant naming such Sheriff or Under- Sheriff and specifying his offence, and issued by one of the Judges of the High Court of Justice ; (h.) An Under- Sheriff* shall not be personally responsible for any sum received by a deceased Sheriff, but the same shall be answered by the representatives of the deceased Sheriff' or otherwise in due course of law ; and (c.) Nothing in this section shall alter the right of any body corporate or person under any Charter to receive any fines or other sums. 22. — (1.) All Accounts of Sheriffs and their Under- Audit of Sheriffs which are transmitted to the Treasury under this yhe^ff. Act shall be examined and audited by such persons and in such manner as the Treasury may from time to time by warrant direct ; and the Treasury may by any Warrant make such provisions in relation to the transmission, examination, verification, and audit of such Accounts, and for ascertaining and determining the balances due from and the discharge of the persons accounting, as to the Treasury may seem proper. (2.) Every such Warrant shall be laid before both Houses of Parliament within fourteen days after the making thereof if Parliament be sitting, and if Parliament be not sitting then Avithin fourteen days after the next meeting of Parliament. The Judicial Trustees Act, 1896. (59 & 60 Vict., c. 35.) [14th August, 1896.] 1. — (4.) The Court may, either on request or without request, give to a Judicial Trustee any general or special directions in re^'ard to the trust or the administration thereof. (5.) There may be paid to a Judicial Trustee out of the 200 AUDITORS. Remunera- tion of Judicial Trustee. trust ])roperty such reinuiieration not exceedino' the pre- scribed hiuits, as the Court may assign in each case, sul)ject to any rules under this Act respecting the ajjpHcation of such remuneration wliere the Judicial Trustee is an official of the Court, and the remuneration so assigned U) any Judicial Trustee shall, save as the Court may for special reasons otherwise order, cover all his Avork and personal outlaw The followiug Rules under the Judicial Trustee Rules, 1897, are applicable to this Section : — 17. — ^1.) Where a Judicial Trustee is to be remunerated the remu- neration to be paid to him shall be fixed by the Court, and may- be altered by the Court from time to time. (2.) In fixing the remuneration, regard shall be had to tlie duties entailed upon the Judicial Trustee by the Trust. (3.) The Court may make, if it thinks fit, special allowances to Judicial Trustees for the following matters, to be paid out of the Trust property — (a.) For the Statement of Trust Property prepared by a Judicial Trustee on his appointment, an allowance not exceeding ten guineas ; (b.) For realising and reinvesting Trust Property, where the property is realised for the purpose of reinvestment, an allowance not exceeding one and haK per centum on the amount realised and reinvested ; (c.) For realising or investing Trust Property in any other case, an allowance not exceeding one per centimi on the amount realised or invested. (4.) The Court may also in any year make a sjDecial allowance to a Judicial Trustee, if satisfied that in that year more trouble has been thrown upon the Trustee by reason of exceptional circum- stances than would ordinarily be involved in the administration of the Trust. (5.) Where a Trustee is remunerated, any allowance under this Rule may be paid in addition to his remuneration. (6.) Any remuneration or allowance payable to a Judicial Trustee shall be paid or allowed to him at such times and in such manner as the Court directs. (6.) Once in every year the Accoimts of every trust, of whicli a Judicial Trustee has been appointed, shall be audited, and a Keport thereon made to the Court by the prescribed persons, and, in any case where the Court shall so direct, an inquirv into the administration by a Judicial UNIVERSITIES, ETC., ACTS. 201 Trustee of any trust, or into any dealing or transaction of a Judicial Trustee, sliall be made in the prescril)ed manner. The fulluwiug Rules under the Judicial Trustee Rules, 1897, are applicable : — 14. — (1.) The Court shall give directions to a Judicial Trustee as to Accounts the date to which the Accounts of the Trust are to be made up ' Audit. in each year, and shall fix in each year the time after that date within which the Accounts are to be delivered to it for audit. (2.) The Accounts shall in ordinary cases be audited by the officer of the Court, but the Court, if it considers that the Accounts are likely to involve questions of difficulty, may refer them to a Professional Accountant for report, and order the payment to him of such amount in respect of his report as the Court may fix. 15. — (1.) The Accounts of any Trust of which there is a Judicial Filing and Trustee, with a note of any corrections made upon the audit, ^c^^^j^l"" shall be filed as the Court directs. (2.) The Judicial Trustee shall send a copy of the Accounts or, if the Court thinks fit, of a Summary of the Accounts, of the Trust to such beneficiaries or other persons as the Court thinks proper. (3.) The Court may, if it thinks fit, having regard to the nature of the relation of the applicant to the Trust, allow any person applying to inspect the filed Accounts so to inspect them on giving reasonable notice to the oflicer of the Court. 16. A Judicial Trustee shall, vmless the Court otherwise directs, be Deductions allowed on the audit of his Accounts deductions made on allowed, account of his remuneration and allowances under these Rules, and also on account of the fees paid by him under these Rides, but shall not be allowed any deduction on account of the expenses of professional assistance, or his own work or personal outlay, unless the deduction has been authorised by the Court in pursuance of the Act or the Court is satisfied that the deduc- tion is justified by the strict necessity of the case. The following Rules shoidd also be borne in mind by the Auditor : — (9.) Any premium payable by a Judicial Trustee to any Guarantee Company on account of his security may, if the Court so directs, be paid out of the Trust property. 10. — (1.) When a Judicial Trustee is appointed, a separate account Trust for receipts and payments on behalf of the Trust must be kept Account at in the names of the Trustees at some bank approved by the Custody of Court. Documents. (2.) All title deeds and all certificates and other documents which are evidence of the title of the Trustee to any of the Trust property shall be deposited either with that bank or in such other custody as the Court directs. 202 AUDITORS. Judicial Trustee not to keep money in his hands. Short Title. 1 1 . A Judicial Trustee must pay all money coming into his hands on account of his Trust without delay to the Trust Account at the bank, and if he keeps any such money in his liands for a longer time than the Court considers necessary, shall be liable to pay interest upon it at such rate not exceeding five per centum as the Court may fix for the time during which the money remains in his hands. (G. — 1.) This Act may be cited as " The Judicial Trustees Act, 1896." Intestate's Estate not exceeding £500. Intestate's Estate exceeding £500. How charge to be borne. The Intestates' Estates Act, 1890. (53 & 54 Vict., c. 29.) [2oth July, 1890.] 1. The real and personal estates of every man who shall die intestate after the first day of September one thousand eight hundred and ninety leaving a widow but no issue shall, in all cases where the net value of such real and personal estates shall not exceed five hundred pounds, belong to his widow absolutely and exclusively. 2. Where the net value of the real and personal estates in the preceding section mentioned shall exceed the sum of five hundred pounds, the widow of such intestate shall be entitled to fi^'e hundred pounds part thereof absolutely and exclusively, and shall have a charge upon the whole of such real and personal estates for such five hundred pounds, with interest thereon from the date of the death of the intestate at four per cent, per annum until payment. 3. As between the real and personal representatives of such intestate, such charge shall l3e borne and paid in pro- portion to the values of the real and personal estates resj^ectively. 4. The provision for tlie widow intended to be made by this Act shall l)e in addition and without prejudice to her interest and share in the residue of the real and personal estates of such intestate remaining after payment of the sum of five hun(h'od ])onn(ls. in the same way as if such univp:ks'ities, etc., acts. 203 residue liiul been the whole of such intestate's real =^ii<^^ ^T- valued personal estates and this Act had not been passed. 5. The net value of such real estates as aforesaid shall for the purposes of this Act be estimated in the case of a fee simple upon the basis of twenty years purchase of the annual value by the year at the date of the death of the intestate as determined by law for the purposes of property tax, less the gross amount of any mortgage or other principal sum charged thereon, and less the value of any annuity or other periodical payment chargeable thereon, to be valued according to the tables and rules in the Schedule annexed to the Statute sixteenth and seventeenth Victoria, chapter hfty-one, and in the case of an estate for a life or lives according to the said tables and rules. 6. The net value of such personal estate as aforesaid How shall be ascertained by deducting from the gross value to^e'vaiuea. thereof all debts, funeral and testamentary expenses of the intestate, and all other lawful liabilities and charges to which the said ])ersonal estate shall be subject. The phrase " testamentary expenses " in this Section is a slip in the drafting- of the Act, and means expenses of letters of administra- tion and of administration genei'ally. — In re Twigg's Edate. Twigg v. Black [1892] 1 Ch. 579. 7. This Act may be cited as " The Intestates' Estates ;~;iiort Title. Act, 1890." 8. This Act shall not extend to Scotland. ^^{"^t of The Apportionment Act, 1870. (33 & 34 A'ict., c. 35.) [1st August, 1870.] 1. This Act may be cited for all purposes as " The short Title. Apportionment Act, 1870." 2. From and after the passing of this Act all Rents, Rents, &c., Annuities, Dividends, and other periodical payments in f^ respecTof^ the nature of income (whether reserved or made payable *™®- 204 AUDITORS. under an instrument in writing or otherwise) shall, like interest on money lent, be considered as accruing from day to day, and shall be apportionable in respect of time accordingly. The Word "Dividends " includes payments by way of bonus or sui-jdus profits to the shareholders of a Public Company, even though such papuents may be only occasional and not strictly periodical. — In re Griffith. Carr V. Griffith, 12 Ch. D. 655. The Act does not apply to rent, annuities, dividends, and other payments in the nature of income, which have accrued due before the happening of the event by reason of which it is proposed to apply the Act; the Act, therefore, does not appl}' to rent payable in advance. —Ellis V. Rowbotham [1900] 1 Q.B. 741. (3.) If under any such Warrant it is necessary for a Sheriff or Under- Sheriff to take any oath to any Account or any matter relating thereto, such oath, except when the Treasury require his personal examination before the person appointed by them to audit, may be sworn before any Judge of Her Majesty's High Court of Justice, or before any Master of the Sujjreme Court of Judicature, or before any Commissioner for taking oaths in the Supreme Court of Judicature, or before any Justice of the Peace. (4.) K any Officer, clerk, or other person concerned in the passing of Sheriffs' Accounts by his wilful act or default hinders any Sheriff in passing his Accounts, or obtainuig his " Quietus," he shall make such satisfaction to the })arty aggTieved as may be ordered by Her ]Majest}-'s High Court of Justice, or any Judge thereof, on complaint made in such summary manner as the said Court may order, luterpreta- 5. In the Construction of this Act : — The word " Kents " includes Rent service, Rentcharge, and Rent seek, and also Tithes and all periodical payments or rendermgs in lieu of or in the nature of Rent or Tithe. The word " Annuities " includes salaries and ],)ensions. The word '' Dividends " includes (besides Dividends strictly so called) all payments made by the name of dividend, bonus, or otherwise out of the revenue of trading or other Pu])lic Companies, divisible tion ot terms. UNIVERSITIES, ETC., ACTS. 205 between all or any of the members of snch respective Companies, whether such payments shall be usually made or declared at any fixed times or otherwise; and all such divisible revenue shall, for the pur})oses of this Act, be deemed to have accrued by equal daily increment during and within the period for or in respect of which the payment of the same revenue shall be declared or expressed to be made ; but the said word " Dividend " does not include payments in the nature of a return or reimbursement of capital. 6. Nothing in this Act contahied shall render appor- Act not to tionable any annual sums made payable in Policies ofpoUciesof Assurance of any description. Assurance; 7. The provisions of this Act shall not extend to any nor where case in which it is or shall be expressly stipulated that no made to the apportionment shall take place. contrary. Every Company registered under the Companies Act, 1862, is a " Public Company " within the meaning of the term in this Act. A bec^uest of sliares in a limited Company, coupled with a declara- tion that the shares so bequeathed shall carry the dividend accruing thereon at the testator's death, operates as an exclusion of the Apportionment Act. A Testator becj[ueathed certain shares in a Limited Company to Trustees upon trust to sell, with a power of postponement, and stand possessed of the proceeds and the shares remaining unsold upon trust to receive the annual produce thereof and hold the same in trust for the Testator's children and remoter issue in succession, and declared that every share bequeathed by his will should cany the dividend accruing thereon at his death. The dividends were payable annually. It was held by the Court of Appeal that the Trustees took the whole of the dividend for the year in which the Testator died without appor- tionment, and that such dividend was payable as income to the tenants for life under the will. — In re Lysaght. Lysiujht v. Lysaght [1898] 1 Ch. 115. A Testator directed the whole of the income of stocks, out of which his wife was entitled to an annuity, should 'be paid to her during widowhood. It was held that he had expressly stipulated, within the meaning of Section 7, that the Apportionment Act should not apply. —In re Meredith. Stone r. Meredith [1898] W.N. 48 (2). 206 auditors. The Trustee Act, LSOS. (56 & 57 Vict., c. 53.) [22nd September, 1893.] Authorised 1. A Trustee may, unless expressly forbidden by the Investments. . , . /•/? \ .• .1 - ^ • nistrument (ii any) creatmg the trust, nivest any trust funds in his hands, whether at the time in a state of invest- ment or not, in manner following, that is to say : The funds of a Benefit Building Society invested in the name of the Societ}', or in the names of Trustees who have no power of investment independently of the Act, are not '• Trust Funds " within this Section. — In re National Permanent Mutual Benefit Building Society, 43 Ch. D. 431. (a.) In any of the Parliamentary Stocks or Public Funds or Government Securities of the United Kingdom : "Public Securities" have been distinguished from " GoA-eniment Securities." — Sampayo v. Gould, 12 Sim. 435. {I).) On Real or Heritable Securities in Great Britain or Ireland : It is a breach of trust for Trustees, ha^dng the ordinary power to invest on "Real Securities," to invest on a contributory mortgage in the absence of an express authority. — Wehh r. Jamefi, 39 Ch. D. 660. Trustees are not justified in advancing trust moneys on a second mortgage — Drosier v. Nelson, AV.N. 1876, 225 — or on mortgages of leaseholds.— i?^ Chennell, 8 Ch. D. 492. (c.) In the Stock of the Bank of England or the Bank of Ireland : (^/.) In India Three and a- Half per cent. Stock and India Three per cent. Stock, or in any other Capital Stock which may at any time hereafter be issued by the Secretary of State in Council of India under the authority of Act of Parliament, and charged on the revenues of India : (.) In any of the Stocks, Funds, or Securities for the time being authorised for the investment of cash under the control or su])ject to the order of the High Court ; The Stocks, &c., are regulated hy Order XXII., Eule 17, of Rules of the Supreme Court. and may also from time to time vary any such investment. UNIVERSITIES, ETC., ACTS. 209 2. — (1.) A Trustee may under the powers of this Act Purchase at a invest in any of the Securities mentioned or referred to in ^d^lmbk Section one of this Act, notwithstanding that the same may stocks. be redeemable, and that the price exceeds the redemption value. (2.) Prox'ided that a Trustee may not under the })owers of this Act purchase at a price exceeding its redemption value any Stock mentioned or referred to in Subsections (//), (/), (/■), (/), and (w) of Section one, which is liable to be redeemed Avithin fifteen years of the date of purchase at par or at some other fixed rate, or purchase any such Stock as is inentioned or referred to in the subsections aforesaid, which is liable to be redeemed at par or at some other fixed rate, at a price exceeding fifteen per centum above par or such other fixed rate. The restrictions mentioned in this Subsection apply to Colonial Stock. See Colonial Stock Act, 1900, Section 2. (3.) A Trustee may retain until redemption any redeem- Discretion of able Stock, Fund, or Security which may have been ])ur- '^™^*^^^- chased in accordance with the powers of this Act. o. Every power conferred by the preceding Sections shall be exercised according to the discretion of the Trustee, but subject to any consent required by the instrument, if any, creating the Trust with respect to the im'estment of the Trust Funds. The Court will not as a rule control a Trustee's discretion as to investments. — Lee v. Young, I.Y. & C.C.C. 532. 4. The preceding Sections shall apply as well to Trusts AppUcation created before as to Trusts created after the passing of yections"^^^ this Act, and the powers thereby conferred shall be in addition to the powers conferred by the instrument, if any, creatinii" the Trust. 5. — (1.) A Trustee having power to invest hi real Eniargemeut Securities, unless expressly forbidden by the instrument pow^e?rof creating the Trust, may invest and shall be deemed to have Tuvestment. always had power to invest — (^a.) On mortgage of property held for an unexpired term of not less than two hundred years, and not 210 auditokkS. subject to a reservation of rent greater than a shilling a year, or to any right of redemption or to any condition for re-entry, except for non-payment of rent ; and (A.) On any charge, or upon mortgage of any charge, 27 & 28 Vict., made under the Improvement of Land Act, 1S64. ^' ^^'^' (2.) A Trustee having power to hi vest in the Mortgages or Bonds of any Railway Company or of any other description of Company may, unless the contrary is expressed in the instrument authorising the investment, invest in the Debenture Stock of a Railway Company or such other Company as aforesaid. (3.) A Trustee havhig power to invest mone}' in the Debentures or Debenture Stock of any Railway or other Com])auy may, unless the contrary is expressed in the instrument authorising the investment, invest in any nominal Debentures or nominal Debenture Stock issued 38 & 39 Vict., under the Local Loans Act, 1875. ^' ^^' (4.) A Trustee having power to invest money in Securities in the Isle of Man, or in Securities of the Government of a Colony, may, unless the contrary is expressed in the instrument authorising the investment, invest in any Securities of the Government of the Isle of 43 & 44 Vict., Man, under the Isle of Man Loans Act, 1880. ^' ' (b.) A Trustee having a general power to invest Trust moneys in or upon the security of Shares, Stock, Mortgages, Bonds, or Debentures of Companies incor- porated by or acting under the authority of an Act of Parliament may invest in, or u})on the security of. Mortgage Debentures duly issued under and hi accordance 28 & 29 Vict., with the provisions of the Mortgage Debenture Act, 18Go. c. 78. A " Nominal Debenture " is a Debenture in which the principal sum is made payable to a person named, his Executors, Administrators, or Assigns. " Nominal Debenture Stock " is Debenture Stock in respect of which a Stock Certificate to })earer has not been issued. Power to (5, A Trustee having ]H)\ver to invest in the purchase of invc&t, not- ' /• i i • • i i withstanding liuid or i/ii mortgage oi land may invest in the purcliase. Charges.^ ur oil mortgage of any land, notwithstanding the same is UNIVERSITIES, ETC., ACTS. 211 charged with a rent under the powers of the Public Money Drainage Acts, 1846 to 1856, or the Landed Property Improvement (Ireland) Act, 18-1:7, or by an absolute order made under the Improvement of Land Act, 1864, unless the terms of the Trust expressly provide that the land to be purchased or taken in mortgage shall not be subject to any such prior charge. 7. — (1.) A Trustee, unless authorised by the terms of Trustees not his Trust, shall not apply for or hold any Certificate to J^sSed bearer issued under the authority of any of the following ^*°^]^i^*'' Acts, that is to say : to Bearer. (a.) The India Stock Certificate Act, 1863 ; {[>.) The National Debt Act, 1870 ; (c.) The Local Loans Act, 1875 ; {ank balance, examine the Securities, and then withdraw initil they are informed that the Balance Sheet and other Statements are prepared and the Books ready for audit. It is always more troublesome for the Auditor to vouch for the correctness of the Securities after they have been changed, as he frequently has to work back through vai'ious cash transactions in order to satisfy himself. rREPAKATlON OF ACCOUNTS FOR AUDIT. 221 For the purposes of the examination ]:)y the Auditor a List of hst of Securities should be prepared, to which should }3g ^ *^''"" i^^- affixed the cost jn'ice, the price proposed to be taken credit for in the Ixilance Sheet, and the market price, so that the Secretary or Officials can first of all j)lace the correct value upon the Securities, and can subsequently justify this valuation to the Auditors, It is not customary to revalue the Securities at each period of closing the books, and the following is the usual and the safest method of arriving at the proper figures to be inserted in the Balance Sheet, viz. : If the Securities have not depreciated since they were purchased, or are of greater value, the cost price is usually taken as the value for the ])alance Sheet ; but if there has been a depreciation from the cost })rice, taking the investments as a whole, a Reserve should be made and charged against revenue to cover such depreciation. Provided the stock has been taken on the day u}) to which the books are closed, the cash in hand examined on that day or the following morning, and the Securities examined before they are changed, the rest of the audit can be dt)ne more leisurely, and for many reasons it is not advisable it should take place in any hurried way. It is exceedingly important for the Directors and other Directors Officials of the Company that there should be no omission JgalLt^"'^^ from the liabilities in the Balance Sheet, and in order to ?°^',®?,\'?? °^ ' ^ _ Liabilities. avoid this many Companies now adopt the plan of sending out a printed notice to their creditors asking for a state- ment of their account to be sent in for the purpose of verification for the audit, or to state the amount the Company believes it is indebted to them, with a request that if incorrect a notice should be immediately sent of any difference that may exist. In those cases where debts have been collected before the Accounts are finally settled, it is easier to calculate the allowances for discounts, and perhaps also for loss on realisation of the debts. At the same time there slu)uld be no luniecessary delay between the date of the Balance Sheet and the meeting of 222 AUDITORS. tlie Shareholders at which the Accounts are submitted, and ill many Comjianies the Articles of Association prescribe that not more than three months shall elapse between these two occurrences. Before finally closhig the books a list should be ])re])ared of all matters in which apportionments may have to be made, having regard to the date on which the bo(jks are closed. In the case of certain expenditure — such as rents, rates, insurance; or, on the other hand, revenue, such as interest or dividends on investments — the necessary calculations must be made of all the liabilities and income which have accrued due to the date of closing the Books. Where payments have been made in advance the Company may take credit for the proportion of the payment applic- able to the period after the date on which the books are closed until its expiration. The Company may also take credit for interest accrued on investments where the rate (jf interest is fixed, and it is confidently expected it will be paid when due, such as that on Debentures, Mortgages, &c. Where the dividends are on shares it may in some cases be allowable to take an estimated amount, basini>' it on the experience of the past, but this nnist of course be done cautiously. The amount due for Directors' fees should also be agreed, and should for any reason the Directors determine to forego any part of these fees, a minute should be made to that effect. Having settled these matters, the proper Journal entries should be made, incorporating the results in the books of the Company. When the Articles of Association provide that the Directors shall each receive a fixed sum per annum by way of remuneration for their t)rdinary services, it has been held that the fees are for a whole year's service, and are not apportionable. — In re Central Be Knap (iold Mines, \1\. Manson, (S2. Before ]n-e])aring the Revenue or Profit and Loss Account and lialance Sheet, the balances of the Ledger Accounts, both personal and impersonal, should ])e taken PREPAEATION OF ACCOUNTS FOK AUDIT. 223 out and a summary made of them, the debit and credit balances bein<>- in two separate columns. This is called a " Trial Balance," and when the tt)tals of the two colunnis cohicide (including the balances of the Cash Book and Petty Cash Book) it is usually taken as correct so far as figures are concerned, and is a proof of the accuracy of the postings. From the '' Trial Balance " the Revenue or Profit and Loss Account and Balance Sheet are prepared. The Trial Balance nuist not be confounded with the Difference 1> 1 CI ^ ;i (• • 1111 ,, between Trial jalance hneet ; the lornier contanis merely the balances oi Balance and the Ledger Accounts (including the Cash balance), the sheetf^ total of the debit balances of which must aaree with that of the credit balances. The Balance Sheet consists of the debit and credit balances of the Ledo-er after the Revenue or Profit and Loss Account has been closed, and the profit or loss, as the case may be, has been ascertained ; that is, it shows on one side the actual liabilities of the Company, including that to its own shareholders, represented by their Capital, and the Reserve or unappropriated profits as shown on paper ; while, on the other, are enumerated the debit balances, frerpiently and erroneously referred to as Assets, as explained hereafter. When no forms of Account are prescribed, a Profit and Loss Account, or Revenue Account, together with a Balance Sheet, are usually the t)nly statements presented to the meetings of shareholders of a Company, but these two Statements should m any event be submitted. It would l)e exceedingly un^Aise for the Directors and Risk of Officials of a Company to merely prepare a Cash Account SshAccount and place it before its shareholders, for the purpose of a °'^^- dividend being declared, based on a balance hi hand at the end of the period. In a case where the Directors of a Company which had been m existence only eight months declared a bonus, James, L.J., said : " A bonus, which of course could only he lawfully made out of moneys which had been earned, or believed to have been earned, in the way of profit. . . . How was this done ? Was there 224 AUDITOKS. Directors may employ Professional Accountants. Preparation of Trading,' Accounts, itc. any attempt to make a Balance Sheet or Profit and Loss Account in such a way as any mercantile body, and certainly any Insurance CV)mpany, ought to haye done ? . . . . The Directors simply liad before them the cash balance of the receipts and payments, and, without making the slightest ])rovisioii on that account for anything whatever, they proceed out of the balance to declare this bonus. I quite agree that it would haye been different if there had been, as there ought to haye been, in the ordinary course of business, a Balance Sheet bond fide made out with proper assistance, so as to ascertain the true state of the Company." — Ranee s Case, In re County Mariiie Insurance Co., 6 Ch. lOL If it be found impossible from any cause whatever for the Officials of a Company to balance the books, the Directors would be quite justified in instructing the Auditors, but in their capacity as professional Accountants, as already referred to, to balance the books ; or they may, if they prefer it, employ another firm of Chartered Accountants for that })urp()se. The fee for this profes- sional assistance should be included in the Revenue Account amongst the salaries or ^professional charges, as it must be distinctly understood that the fee voted at the meeting of Shareholders to the Auditors is for the audit alone, and does not throw upon the Auditors any duties whatever in assisting the Officials to balance the books or prepare the Accounts for audit. When the Trial l)alance comes out the same amount on both sides it is usually accepted as correct, but inasmuch as it has been frequently found that a small error may, on its behig looked for, result in the discovery of ver}^ many larger ones, there is the slight chance that the Trial Balance may be Avrong to the extent t)f ernjrs of ecpial amount existing on both the credit and debit sides. The Trial Iklance having been agreed, the Profit and Loss Account and the Balance Sheet can be prepared therefi'om. As regards the former Account, this can be divit iiii' ti • ^ Auditors' then' Oertmcate, the same should be nnmediately printed Shareholders. ^^^'^^ dealt witli according to the Articles of Association. The Certihcate must, of course, be printed at the foot of the Balance Sheet, but the Report of the Auditors of Companies registered under the Companies Acts, 1862 to 1900, need not be printed, as it is only required to be read to the Shareholders at the Annual General Meeting. THE BOOKS TO BE EXAMINED. 231 CHAPTER VI. ON THE BOOKS TO BE EXAMINED BY THE AUDITOR. Auditors should be provided with a list of Books — Auditors should under- stand Book-keeping — Books submitted to Auditors of Public Companies — Of Trustee Savings Banks— Of Executors and Trustees. It is prescribed by Section 93 of the First Schedule to Auditors the Companies Act, 1862, and consequently by most vided with Articles of Association of Limited Companies, that every ^^^^ °^ ^^°'^^' Auditor shall have a list delivered to him of all books kept by the Company, and it is most desirable this practice be conformed to in all cases. With a list of the books in front of him, an Auditor is far less likely to omit performing some essential })art of his audit than when he relies solely on his memory, however that may be fortified by experience. One of the absolutely essential qualifications of an Auditors Auditor is a thorough knowledge of the theory and It^^^a Book/' practice of book-keeping, and in many cases an Auditor is '^^epnig. at a great disadvantage if he does not possess some special experience in the book-keepmg of other concerns carrying on transactions of a nature similar to the one whose Accounts, as Auditor, he is about to examine. It does not come within the provmce of this work to give any instruction in the method of keeping ordinary books of account, and the remarks will be confined to those points which require attention from the point of view of the Auditor. Some of the books contained in the list handed to the Certain Books Auditor need not be referred to by him at every referred to by audit, but should he at any time not be satisfied with ^'j® ^^^'^y^*'''' the Accounts and documents placed before him in support Audit. thereof, he may deem it necessary to examine some, or even all of them, for the purpose of his investigation. 232 AUDITORS. Books of Public Companies. Books ill use by Public Companies. Registry or Statistical Books. Application for and Allotment of Shares Book. Register of Members. TJie books used by public Companies are as numerous as the ingenuity of Managers, Accountants, and Secre- taries have been able to devise, and, as very frequently the official to whom is entrusted the important duty of modelling and opening them has been previously engaged in a different class of business, it often happens that unnecessary columns, accompanied by equally unnecessary detail, are introduced into the books. An efficient Auditor would, if necessary, be able to remedy this, and to suggest more suitable forms for adoption, but it would be impossible in this work to prescribe the forms of books for recording the transac- tions in detail of every class of Company, The books in use by public Companies may be divided into two classes : 1. Registry or Statistical. 2. Financial or Account. The attention of the Auditor is principally confined to the financial books, and it does not ordinarily come within his province to investigate the statistical ones or books of record, every Company having few or many according to the nature of its business. The following, however, may occasionally require to be inspected or referred to by him, some of which are prescribed by Acts of Parliament, the others by general practice and custom. The Application for and Allotment of Shares Book should contain the names, addresses, and occupations of all applicants for shares, entered in the order in which their applications are received at the office of the Company, together with the number of shares they each apply for, the number of shares allotted to them in respect of such applicatit)n, the dates of appli- cation, of receipt of application, and of allotment, the numerical number of the shares allotted, the date of the issue of the Certificates, and any other particulars the Directors or Manager may consider it desirable to have recorded. A Register of Members is required to be kept by THE BOOKS TO BE EXAMINED. 233 every Company registered under the Companies Act, 1862. This must contain the names, addresses, and occupations of the members, a statement of the shares held by each member, distinguishing each share by its number, the amount paid, or agreed to be considered as paid, on the shares of each member, also the dates on which their names are entered on the Register, and the dates on which they cease to be members of the Company. The Register may be kept in more than one book, which by reference from one to the other supply all the information required by the Act ( WicJcershelm s Case, 8 Ch. 831, 836). If shares be paid in whole or in part, not in money, but in money's worth, the extent of such money's worth is to be entered on the Register (Anglesea Colliery Company, 2 Eq. 379, 1 Ch. 555). The Companies (Colonial Register) Act, 1883, allows certain Companies to keep branch Registers of Members resident in Colonies. Frequently the Shareholders' Ledger is so designed as Frequently to contain all these particulars, and thus two books ^jtkshure- are amalgamated in one. This plan has, however, one Lcd^^ef great disadvantage. Sectif)n 32 of the Companies Act, 1862, prescribes that the Register of Members shall be open to the inspection of any Member gratis, and to that of any other person on the payment of one shilling, or any less sum the Company may prescribe for each inspection. It might be very undesirable for the Company to throw open its Share Ledger to the inspection of everyone making a demand under this section, and for this reason the Shareholders' Ledger is usually kept as a separate book. The book which gives all the par- ticulars required by the Act, mthout affording any information to an inspector except by considerable research, is one which contains the shares in numerical order, with the names of their respective holders, and other particulars, in the same line with the number. By Section 30 of the Act just referred to, no notice 234 AUDITORS. of any trust, expressed, implied, or constructive, may be entered in the Register of Members. Ee"-isterof Companies incorporated by special Act of Parliament Shareholders, r^^.g required by tlie Companies Clauses Consolidation Act, 1845, to keep a book, called a " Register of Share- holders," in which the names, arranged in alphabetical order, of the individuals and corporations holding shares in the Company are entered, together with the number of shares they hold, each share being distinguished by its number and the amount paid on such shares. At each Ordinary Meeting of the Shareholders the common seal of the Company is affixed to this Register for the purpose of authentication. Shareholders' These Com]:)anies, and also all Life Assurance Comi^anies Address Book. not registered under the Companies Act, 1862, and which have not incorporated in their Deeds of Settlement Section 10 of the Companies Clauses Consolidation Act, 1845, are obliged to keep a Shareholders' Address Book, in which are entered in alphabetical order the names and addresses of the shareholders. Register of A Register of Holders of Consolidated Stock has also Consolidated to be kept by Companies incorporated by sj^ecial Acts stock. ^£ l^aj-iijxment, which, should contain the names of the proprietors of the stock and the amounts they hold respectively. Register of Limited Companies reo^istered under the Companies Mortgages. '- ^ ^ ^ ^ ^ Act, 1862, and also Companies incorporated by special Act of Parliament, are obliged to keep a Register of Mortgages and charges given by them which sj)ecially affect the property of the Company. This Register should contain a short description of the property mortgaged or charged, each mortgage or charge being separately entered, also the names of the Mortgagees or persons entitled to such charges, with the amcjunts of charge created. In the case of mortmio-es or cliaroes created after the 1st January, 11)01, a copy of every instrument creating such mortgage or charge has to be entered in the Register THE BOOKS TO BE EXAMINED. 235 of Mortgages, or some other book specially kept for this purpose, provided that in the case of a series of uniform debentures a copy of one of these debentures is sufficient. Companies registered under the Mortgage Debenture Kegister of Acts have to keep a Register of Securities, in which has to ' be entered the date of every Deed or other Instrument registered at the Land Registry Office, its nature, whether Mortgage, Grant of Annuity, Rentcharge, or other Security, the amount of the Principal money, or the amount and duration of the Annuity thereby secured, the tenure, extent, and situation of the property upon which the Security is taken, and, if there are any Charges which take priority of the Company's Security, then the amount of such prior Charges. Nearly all Companies keep a Register of Transfers (and Register of Companies incorporated by special Act of Parliament ^^''^^'*^<^^^- are obliged to do so), in which is entered the names and addresses of the transferors and transferees of any shares or stock, also the particulars and amount of the shares, or the amount of the stock transferred. Companies incorporated by special Act have also to Regit-ter of keep a Register of Debenture Stock, in which is entered stock! ^^^^ the names and addresses of the several persons and corporations holding the Debenture Stock, with the amounts of the stock to which they are respectively entitled. Companies, registered under the Companies Act, 1862, Register of have to keep at their registered office a Register containing Manager!''"'^ the names, addresses, and the occupations of its Directors and M ana O'er s. A copy of this Register has to be sent to the Registrar of Joint Stock Companies, and any change that takes place therein has to be at once notified to him. The Pursers of Companies working under the Stannaries Cost Book. Acts have to keep a Cost Book, which term includes all books and papers relating to the business of the mine, which, according to law, or the custom of the Stannaries, ought to be kept by him. 236 AUDITORS. Depositors' Under the Trustee Savings Banks Act, 1893, a Book has Book. to be kept containing an extracted list of the Depositors' balances, made up every year to the 20th November, omittmg the name, but givmg the distinctive number and separate amount of each, and showing the aggregate number and amount of the whole ; this book has to be checked and certified by a professional Accountant or by the Auditors. Annual Scctiou 26 of the Companies Act, 1862, prescribes that Members cvcry Company registered under that Act, having a capital divided into shares, shall keep an Annual List of Members, together with a summary. The particulars which have to be entered in this book will be found in Chapter III. Minute Book. The Minute Book, which every Company is obliged to keep, should contain a record of the Directors present at each Board meeting, and of all their transactions thereat. As the Auditor may frequently have to refer to this book, he should, if it be not properly kept, call the attention of the Directors to the fact, and request them to exercise greater supervision over the entries. All agreements entered into by the Directors should be placed on record in this book, also the cheques drawn, discussions of importance and their result, and, in fact, all that transpires at meetings of the Board, with the exception of mere conversation. Committee ^^^ large Companies the Directors divide their routine business among Committees of their body, each of which has its own Minute Book. The above remarks, llo^^ ever, apply, whether the minutes are recorded in one or more books. ■Shareholders' A Miuutc Book sliould also be kept of the transac- Minutc Book. |-j(jj^^ ^^f ^i^g meetings of the shareholders. The Auditor is of course entitled to refer to this book for the purpose of ascertaining if any resolutions have been passed affecting the Accounts. Financial The following Financial or Account Books are generally Books!"^"^ used by public Companies ; in non-trading Conq)anies Minute Books THE BOOKS TO BE EXAMINED. 237 the Day Book and Invoice Book are known by other names. The Cash Book, as its name implies, contains a record Cash Book, of the receipts and expenditm-e of the Company. It should, however, except in the case of very small Companies, only contain those payments which are either made by cheques, or bills payable, and bank charges. All payments for which cheques are not drawn should be entered in a subsidiary book, called the " Petty Cash Book," to j^i'o^^icle for which payments cheques for round sums should be drawn, and entered in the Cash Book to the debit of petty cash, to be accounted for in the subsidiary book. The Cash Book is, therefore, practically a counter- part of the Bankers' Pass Book, and they can be easily checked against each other. All monetary receipts, coin, bank notes, cheques, ParticiUars bankers' drafts and orders are, of course, entered in the Receipts and Cash Book, including the capital as received, premiums ^'"^J™*^"*^- on shares, also the cheques drawn by the Company on its bankers, bank charges, and bank interest. When Bills of Exchange Beceivable are discounted the proceeds are, of course, brought into the receipt side of the Cash Book, while on the other side should be entered the amount charged by the bankers for the accommodation. The Petty Cash Book contains, as already mentioned, i^etty Cash a record of those payments for which it would be incom'enient, or the amounts of which would be con- sidered to(j small, to draw for each a separate cheque. Instead of posting each of the items in the Petty Cash Book to the debit of their Ledo-er Accounts, an abstract may be made monthly, journalised, and then posted into the Ledger. The Day Book contains the records of all gxjods Day Book. Sold and delivered by a trading Company ; these need not be entered in detail, but the amcnint charged should be placed in a cash column. The totiUs of the cash columns are carried in the usual 238 AUDITORS. way through the Journal to the credit of a general sales or a departmental account, while each sale is usually posted direct into the Ledger to the debit of the purchaser of the goods. When a business is divided into several departments, each department has usually its own Day Book. Equivalent In non-trading Companies books of record of the iu^non-^ °° busiucss transacted are kept on very much the same Com "if i - pi'inciple as the Day Book of a trading Company, their object being to ensure that the Accounts of the customers in the Ledger are debited with the proper amounts, also that these amounts are carried, either in detail or in total, periodically to the credit of an impersonal Account in the Ledger, from which they will be ultimately transferred to the credit of the Revenue or Profit and Loss Account. Invoice Book. Li the Livoicc or Bought Book are entered, with full particulars, the purchases by a trading Company of all ofoods intended to be sold aoain. The invoices themselves should be numbered and filed in numerical order in Guard Books. For the purpose oi facilitating reference, the numbers should coincide with those in the Li voice Book. Minor Books. There are many minor books kept by Companies, according to the class of business carried on, which may re(|uire examination by the Auditor, such as : Order Books. Order Books, wdiicli coiitaiu copies of the orders as received, and should be produced to the Auditor should he not feel satisfied that sales taken credit for are genuine, or have been brought into the Accounts when they belong to those which will be presented to the Shareholders on a future occasion. If after inspection the Auditor is still in doubt he should require production of the original orders. Contract and Estimate Books. Delivery Books. Press Copy Books, containing copies of the original Invoices of Goods sent out, copies of Statements, &c. Stock Books. Stores Books. THE BOOKS TO BE EXAMINED. 239 Returns Outwards. This book contains Purchases which have subsequently been returned. Returns Inwards. This book contains goods returned by customers of the house. Wao-es Books. Bills are written undertakings to pay certain sums on Bills of certain dates, and can be drawn in two forms, as ^^ ^^^^' Acceptances or as Promissory ^NTotes, the former being more generally used in commercial transactions. The Bills Receivable Book contains the particulars of Bills those Bills the proceeds of which, on maturity, are paid aud Bills to the Company, while the particulars of those Bills boSs^^ which have to be paid by the Company on their due date are entered in the Bills Payable Book. When a customer gives a Bill Receivable to the Company in lieu of cash, his Ledger Account is at once credited with the amount of the bill, while the Bills Receivable Account in the Ledger is debited with a like amount. In the same way, when the Company discharges one of its obligations by giving a bill payable, the hrm receiving the bill is debited with the amount, and the Bills Payable Account in the Ledger is at the same time credited. The Journal is the book which constitutes the Journal, system of book-keeping by double entry. Into it are collected, either in detail or in abstract form, the transactions of the Company previously entered in the books already described, or in those corresponding to them. The Journal has two cash columns, usually on the Particulars same page, with an additional column for the Ledger tuereiu! folios. In the left, or debit cash column, are entered the amounts which have to be posted to the debit of Accounts in the Ledo-er, while in the rio-ht-hand cash column are entered those amounts which have to be posted to the credit of Ledger Accounts. As a check on the correctness of the figures, the columns should be added up on the completion of the 240 AUDITORS. entries for the time being, and if the totals of the two cohinms agree the items can be posted into the Ledger. Opening The first entries in the Journal of a Company formed Journai"of a ^*^^^' acquiring a property, or taking over a business, New Avould be those referring to the purchase, such entries Compcany. tp i m • • -ia benig made tor the purpose oi bringing into the Accounts any property or other asset, the particulars of which would be contained in the deed or other document by which such property was acquired, also any mortgages or charges, if any, with which the property is encumbered. All sales, purchases, interest, discount, commission, expenses, &c., should be journalised, also the bills pay- able and receivable. In fact, to fully carry out the system of book-keeping by double entry, every item in the subsidiary books should be journalised, and posted from the Journal into the l^edger. It is, however, usual to post the Day Book and Invoice Book entries direct to the debit or credit of the personal Accounts in the Ledger, also the cash receipts and payments. In some Companies the cash is partly journalised as regards certain entries, the remainder being posted direct. Ledger The Ledger contains the classification of all the entries in the other financial books, and no other entries, with the exception of transfers from one Ledger Account to another, should be made in it, as, in strict accordance with the theory of double entry as practised in this country, all items found in the Ledger should have passed through the Journal, and been posted into the Ledger therefrom. It should, however, be stated here that the above remarks apply to those books which are kept uj)on the strict principles of double entry book-keeping, but the pressure of business and the desire of reducing labour has in many large establishments caused the entries in the Journal to be as few in number as possible. Still, the principle remains, and to an Auditor it is a matter of but little importance whether the amounts are THE BOOKS TO BE EXAMINED. 241 posted direct to the debit or credit of the Ledger Accounts from the subsidiary books direct, or through the instru- mentahty of the Journal. As long, however, as this book is the accepted inediiun of posting, the foregoing remarks will apply. The preceding remarks explain the system of book- keejnng in general use by public Companies. With reference to the subsidiar}^ books, it would, as stated at the commencement of the chapter, be impossible to prescribe the forms for every class of Company. The books necessarily vary according to the nature of the business, but the object for which they are employed is always the same, namely, to record the tran- sactions in as simple a manner as is consistent with ensuring perfect accuracy, combined with rapidity in the transfer. The Inspection Committee of Trustee Savings Banks Books of recommend that Duplicate Cash Counter books or Tellers' savhigs books be kept, also General Cash books, a General Ledger ^^n^^*- and Journal and Depositors' Ledgers, and that the General Ledo'er should contain the folio win o' accounts : — 1. Commissioners for the Reduction of the Xational Debt. — General account. 2. Commissioners for the Reduction of the National Debt. — Separate surplus fund not bearing interest. 3. Commissioners for the Reduction of the National Debt. — Separate surplus fund bearing interest. 4. Depositors. 5. Treasurer. 6. Cash. 7. Petty cash. 8. Interest. 9. Expenses of management. 10. Profit and loss. 11. Premises, and 12. Such other accounts as the circumstances of each Bank may require. R 242 AUDITORS. The Duplicate Cash Counter books previously referred to might be used as follows : — Cash C'ouuter book A, kept by the Trustee or Manager in attendance (if his attendance is required by Subsection 2 t)f Section 6 of the Act of 1863), to be used for posting items of receipts and payments to the Deposit Ledgers. It should show a constant weekly summation, and the weekly totals should be certified by the signature of the Trustee or Manager. The Cash Counter book B might be made in similar form, and would give the figures for the weekly returns of cash transactions sent to the National Debt Office. The Cash book and General Ledger should also be jiosted from this source. Books of The Books of Accomit of Executors or Trustees under a Trustees.'^ '*'"^ will Usually submitted to an Auditor are the following : — Cash Book. Cash Book, which would commence with the balances at the Bank or Banks with which the Testator banked at the date of his death. The cash found in the house, and all other receipts by the Executors or Trustees, including the debts due to the Testator at the date of his death, and collected by the Executors or Trustees, dividends on investments, proceeds of investments st)ld, and any other recei])ts would be entered, while the payments would include the funeral expenses, death duties, probate and other law expenses, legacies, debts due by the Testator at the date of his death and discharoed bv his Executors or Trustees, purchase of investments, and all other payments. Ledger. The General Ledger would contain the amounts posted fi'om the Cash Book, with headinji's similar to those indicated in the Cash Book. The Livestment Ledger would contain the Accounts of the various Investments belonging to the Testator at the date of his death, and of those purchased since by the Executors or Trustees, also an Account of all dividends received thereon. Should the Testator have lel't ]»r()j)ertv in land or THE BOOKS TO RE EXAMINED. 243 houses, the books usually kept for this class of })roperty should also be kept by the Trustees. The same remark n])])hes should the Testator have left an interest in any businesses or ventures, and these books should of course be placed before the Auditor, who would examine them in the ordinary way, as though the })ro})erty or businesses belonged to a living })erson. Executors and Trustees are bound to keep Accounts, and to give a satistactory statement of the state of a Testator's Assets. — Ottley v. Gilbij^ 8 Beav. 692. \i2 244 AUDITORS. CHAPTER YII. FORMS OF ACCOUNTS SUBMITTED TO AUDITORS. Variety in Forms of Accounts published hj Public Companies — Foi-ms of Accounts published by Limited Liability Companies — By Life Assurance Companies — By Eailway Companies — By Gas and Water Companies — Profit and Loss (or Eevenue) Account and Balance Sheet usually issued alone when Forms of Account not j^rescribed — Difference between Eevenue Account and Cash Account — Balance Sheet — Forms of Accounts of Building Societies — Of Friendly Societies— Of Industrial and Provident Societies — Forms requii-ed by the Hospital Sunday and Hospital Satui-day Funds — Accounts of Executors and Trustees under aWiU. Variety in The Accoiiiits of Public Companies and Societies, Accoimts ^^^ placed before their Auditors for confirmation, vary Com^*^^^"^ ^^■^ very considerably. In some Companies and Societies •^c. the forms are specially prescribed, and are set forth in Schedules to the Acts of Parliament under which they Avork, while other Companies are unfettered in this resj^ect, and it is left entirely to the Directors and officers as to hoAv the results of their management are laid before the shareholders. Life Assurance, Railway (including Tramway), Gas Companies, and Building Societies are examples of the first class, while nearly all Companies registered under the Companies Act, 1862, are at liberty to use their own forms of Accounts, Avitli the exception of those registered without Articles of Association. Tlie Companies Act, 1 UOO, prescribes that the Auditors shall sign a Certificate at the foot of the Balance Sheet, but ' thereto, and an Abstract of the Receipts and Pay- ments of the Compan}' on Capital Account to the date of the Report, and an account or estimate of the preUminary expenses, duly certified by the Auditors, if any. Companies registered under the Act of J'ith some degree of confidence upon what are known as " Internal Checks," that is, checks performed in the offices of large Companies by one set of clerks having no connection in their ordinary daily work with the other departments over which they exercise this supervision. interiKii For example, it is the custom in many large concerns for the clerks who recei\'e me)ne}', either in cheques or cash, to enter the amounts received in a rough Cash Bt>ok, and they have no further control over or further connec- tion with the carrying of the entries relating thereto. The taking of these cheques and paying them into the bank is performed by another official, whose entries are sub- sequently checked by a third official against the rough or counter Cash Book of the clerk who receiA'es the UKniey. PRINCIPLES OF AN AUDIT, 255 This is merely one example of what is known as an '* Internal Check," but there are well-known general instructions, which are recommended by professional Auditors, which should be carried out in the offices of every Company, and in the offices of every mercantile lirm, except those A\4iose transactions are on such a small scale that they can be supervised by the principals. Where a good system is not prevalent the following ^"ggestions recommendations should be made bv the Auditor, althoucrh, of coiu'se, it does not fall within his province, strictly speaking, to make these reccmimendations, and he has no power to enforce them. In the Companies Act, 1900, however, special power is put into the Auditor's hands, by means of the Repoi't which he has to address to the share- holders, partaking of the nature of a private and conhdential communication to them, in Avhich he can inform them, without doing any injury whatever to the Company, that certain suggesti(jns have not been carried out to his satisfaction. All cash received should be paid into the bank, and no deductions whatever should be allowed for petty cash, for which cheques for round sums should be drawn. All payments above a certain amount, varying according to the magnitude of the transactions of the business, should be made by che([ue. \>\ this means the Cash Book can ])e checked in detail with the Bankers' Pass Book. Counterfoil Receipt Books should be used for giving receipts, in place of allowing the Cashier or any other official to give receipts on the invoices themselves. The Cashier should be instructed to obtain vouchers for payments of every kind made by him, including petty cash payments. In all manufacturinof and trading^ concerns Stock Accounts should be kept, and, if possible, in sterling, as well as in weight or quantity. When these Accounts are kept in sterling they can be introduced into the system of bi>ok-keeping, but the weights and quantities should be also entered, for the Omission. 256 AUDITORS. purpose uf their being checked at tlie time of the periodical stocktaking. An audit, to be effectual, that is, to enable the Auditor to certify as to the accuracy of the Accounts presented, may for practical purposes be divided into three parts, namely, to guard against (1) Errors of Omission ; (2) Errors of Commissitm ; and (o) Errors of Principle. Errors of AVith regard to " Errors of Omission," each item which appears either on the debit side of the Balance Sheet or the Cash Book should be checked as far as possible by an original document obtained from an independent source, in order to ascertain that the Company has charged itself with all cash received or liabihty incurred. For example : In the case of the lirst audit of a Company's Accounts it is necessary to check the applications for shares and letters of allotment agamst the amounts shown in the Cash Book as having l^een received on capital account, and to finally ascertain tliat they appear among the liabilities to shareholders in the Balance Sheet. In regard to the liabilities in respect of purchases, the postings in the Ledger should be checked through the subsidiary books, so as to ascertain that the balances representing the Accounts unpaid at the date on which the books are closed are all brought to the debit side of the Balance Sheet. In the case of a Kailway Company, when surplus lands have been sold, the Auditor should ascertain that the actual purchase money has been debited in the Cash Book. This could be proved from various independent sources, such as the Sohcitor's bill of costs, showing the entries relating to the conveyances, or the convey- ances themselves, or copies thereof could be produced. If any of the investments of a Company have been sold, the Auditor is able to ascertain from the corre- spondence, or from the broker's notes, that the full PRINCIPLES OF AN AUDIT. 257 amount which they liad reahsed had been properly entered in the Cash Book. For the purpose of satisfying the Auditor that the Dividends stated to have been received on investments are correct, the notices which are invariably received from Railway and other Companies affixed to the Dividend warrants should be produced to him. The examination of Departmental Cash Books, Counter Cash Books, Counterfoils of Receipt Books, and Collec- tors' Books frequently enables an Auditor to detect the omission of cash receipts, which he would never ascertain were he to rely solely on the entries in the principal Books of Account. "Errors of Commission" may be either accidental or Errors of . , p " . . ,• 1 Commission. mtentional ; ni the lormer case it is a comparatively simple task to detect any errors of this nature that may exist, as it is a mere mechanical process to check the items of one book with the corresponding" items of another, until they are brought into the Ledger, and from thence hnally carried into the Revenue or Profit and Loss Account and Balance Sheet, or to compare the amounts taken credit for as payments with the vouchers produced. Entries in books of Account made with intent to deceive or defraud are not so readily detected, and the work may be so skilfully done as not to excite any suspicion in the mind of the Auditor. As a rule, however, an Auditor of experience knows intuitively when a deliberate attempt is made to deceive him, and he should in such circum- stances go beyond the ordinary tests applied by him in his audit in his endeavours to ascertain the correctness or otherwise of the Accounts. In this he must, of course, he guided by his experience, and not by ordinary rules. When the Auditor is a Chartered Accountant, the Errors of details of the audit, such as checking the items from one ^^^"^ ^' book into another, examining the vouchers, &c., are usually entrusted to clerks working under his superin- tendence, the Auditor reserving for himself the duty S 258 AUDITORS. of ascertaining if any " Errors of Principle " have been committed. For example : The Auditor should ascertain that the authorised capital of the Company, both share and loan, has not been exceeded. That expenditure which ought properly to be charged against the Revenue Account has not been capitalised. That the funds of the Com- pany have not been invested in prohibited securities, and generally that the Statements presented to the shareholders not only agree with the books of the Company, but that the transactions, the financial results of which are recorded in these Accounts, have been in conformity with the public law and the private statutes of the Company, and if the forms of account to be presented to the shareholders are prescribed by law the Auditor should endeavour to induce the Directors to present the Statements prepared in the statutory form. A List of the The Auditor, before entering upon the duties of his grett\ervice ^^^^ audit of a Company's Accounts, will find it very *°*jlj useful to have in his possession a complete list of the books in use by the Company, both financial and statis- tical. A careful perusal of this list will, in conjunction with any verbal explanation he may think it advisable to obtain from the ofiicials, make the Auditor acquainted with the nature of the business, and also with the system on which it is conducted and its transactions recorded, which knowledge an Auditor will consider most essential he should obtain l^efore commencing his examination of the books. Auditor The Secretary should also be requested to supply him provide? witli a copy of the original prospectus if the Company with a Copy j^g ^ j^g^y qj-^q^ r^ copy of the Memorandum and Articles of Regulations. Association should the Company have been registered under the Companies Act, 1862, a copy of the Act if the Company has been incorporated by special Act or Acts of Parhament, or a copy of the Rules in PRINCIPLES OF AN AUDIT. 259 the case of a Society registered under the Building Societies Act or the Friendly Societies or Industrial and Provident Societies Acts. These should be carefully perused, and special notice should be taken of those sections which in any way relate to or have any bearing on the Accounts of the Company or Society, or the duties of the Auditors. " Auditors are bound to see what exceptional duties, if any, are cast upon them by the Articles of the Company whose Accounts they are called upon to audit. Ignorance of the Articles, and of exceptional duties imposed by them, would not afford any legal justification for not observing them." — In re Kinr/ston Cotton Mill Co. (No. 2) [1896] 2 Ch. 284. Should the Articles of Association not impose any exceptional duties upon the Auditor, he will, of course, be guided by the public Acts under which the Company or Society is registered, the sections of which demanding his attention will be found in Chapter III. When special instructions are given in the Articles of Association, or in the private Acts or Rules, as to how the Accounts are to be presented to the shareholders, and how they are to be certified by the Auditor, the sections containinof these instructions are the reofulations to which he is to conform. If they only give partial directions they are to be read in conjunction A\ith the public Acts. " It is no part of an Auditor's duty to give advice, either No part of to Directors or Shareholders, as to what they ought to do. Duty to give An Auditor has nothing to do with the prudence or ^<^^^'i<^^- imprudence of making loans with or without security. It is nothing to him whethei' the business of a Company is being conducted prudently or imprudently, profitably or unprofitably. It is nothing to him whether dividends are properly or improperly declared, provided he discharges his own duty to the Shareholders. His business is to ascertain and state the true financial position of the Company at the time of the audit, and his duty is confined to that." — In re London and General Bank (No. 2) [1895] 2 Ch. Q^2. s2 260 AUDITORS. Prospectus Application for Sluires. Investigation At the first audit of the Accounts of a Company the Acciunt!^''^''^ Share Capital Account should be investigated, and the Auditor should ascertain that the share and loan capital is not in excess of the amounts authorised by the Articles of Association or the private Acts by which the Company Jias been incorporated. The contract existing between a Company and its original shareholders is almost invariably represented by a prospectus, which is accompanied by a form of applica- tion for shares. The latter usually consists of two parts, one being the actual application for the number of shares the applicant wishes to acquire in the Company. This is signed by him and addressed to the Directors, informing them that he has paid to the Bankers of the Com- pany the application money on the number of shares applied for, and requesting them to allot him these shares, also agreeing to become a member of the Company in respect of such shares in accordance with the terms of the prospectus, or in respect of any less number the Directors may allot in respect of such application, and authorising his name to be placed on the Register of Members for the shares so allotted. The other part of the form of application is the Bankers' receipt, which is forwarded by the applicant for shares to the Bankers of the Company, together with the amount which the prospectus states must be paid on application for shares, in order to treat the appUcation as hand fide, and one on which the Directors would feel justified in making an allotment. The liankers' receipt is signed by the Bankers, returned to the applicant, and is retained by him. The appUcations for shares are placed before the Board, wlio pass a resolution as to the shares to be allotted, and letters of allotment are forwarded to those whose applica- tions are accepted. When the share certificates have been prepared they are forwarded to the shareholders in exchange for the letters of allotment. Tliese, together with the applicatk)ns Letters of Allotment Share Certificates riUNCIPLES OF AN AUDIT. 261 for shares, should be filed in the offices of the Company. By these means the contract between the shareholder and the Company is made complete, and the evidence on which the contract is based is duly recorded. Frequently, in small Companies, the prospectus directs that the payments on application are to be sent to the office of the Company. The Auditor should then be particularly careful to ascertain that they have been properly accounted for. The Auditor should also see that proper entries have Entries in the l)een made in the Books of Account for recording Account of the particulars of the purchase of any property or f^e RSchL? business, to acquire which the Company was formed, also ^loney. any charges there may have been on the property at the time of its passing into the possession of the Company. Although not part of his duty, it is desirable he should Also of also ascertain that all ^lorto-ao-es, or bonds issued of the ° ^^s«*- nature of a mortirao'e, are duly recorded and reoistered in accordance with the Acts. In auditing' the Cash Book the debit or income side Examination of the Cash should be checked with the most independent source the Book. Auditor can find available — for example, the counterfoils of Receipt Books, a Counter Cash Book, the Customers' Pass Books of a Bank, or the Depositors' Pass Books of a Building Society. The items on the credit side of the Cash Book should Of the be checked with the vouchers for the payments. This, of course, although requu'ing care and attention, is a mere mechanical process ; but, unfortunately, among unprofessional Auditors is considered their sole duty. The perusal of this treatise will, however, it is hoped, correct this impression, and show that an effectual audit of the Accounts, whether of a Company or any other institution, involves a far greater amount of experience, skill, and labour than is required for the mere check- ing and vouching the expenditure of the cash, and ascertaining that the Accounts as presented agree with the books kept by the officials. 262 AUDITOKS. Vouchers should be filed. Documents required b)' the Auditor should be arranged. Vouchers should consis of actual Receipts. The Auditor has a rio-ht to demand that the vouchers shall be either kept in a Guard Book or tiled in some other way, in the order of the corresponding entries in the Cash Book, so as to facilitate ready reference, and to prevent his time being unreasonably taken up by his having to search for each voucher. It may be here remarked that the Auditor will find it greatly facilitate his work if he makes it a rule not to accept any papers handed to him for his inspection which are not properly arranged. Should his requirements in this respect be not complied with, he should, first of all, complain to the Directors, and, if he obtains no redress, he should make a statement to this effect in his Report. It very frequently happens, especially in the offices of small concerns, that, on the Auditor asking for the vouchers for the cash payments, he is handed a bundle of receipted accounts, and on attempting to check them with the Cash Book he ascertains many are missing. Much time is, in consequence, lost in looking for these, or in obtaining duplicates, while, if the vouchers were previously arranged, missing ones would be found or fresh ones obtained before the commencement of the audit. The vouchers should principally, if not entirely, consist of actual receipts, and in checking the payments to merchants or tradesmen, with the exception of those made by bills payable, the Auditor should require the receipts to be produced. In certain instances, however, secondary evidence, such as the endorsements on the cheques, may be accepted as sufficient proof that the money has been paid to the persons indicated, but endorsed cheques are merely evidence that money has been paid to the endorsees, they are not legal receipts for money paid. Beyond requiring proof that these persons have received the money, the Auditor should endeavour to satisfy himself that the expenditure has been charged against the proper Accounts. Unless this is done, items which should be charged against revenue might be posted to a wrong PKINCIPLES OF AN AUDIT. 263 Account, and subsequently improperly included in the credit side of tlie Balance Sheet. The A'ouchers for purchases should consist m)t nierel)^ of prmted receipts, hut should, if possible, be accompanied hv the invoices and statements, more especially when the entry in the Cash Book is posted direct to an Impersonal Account in the Ledo-er. In larafe concerns, however, this is frequently impossible, but in these cases there is, as a rule, an independent office check. Payments for wages are usually vouched by the pro- duction of a "Wages Book" or "Wages Sheet," in which each workman signs his name opposite the amount stated to have been paid him, and the book is also usually certified by other officials, such as — (a.) The foreman, who is responsible for the employ- ment of the men and the rate of pay due to each ; when the men are paid by time, the time charged for should be checked from the timekeeper's book. (b.) The clerk, who is responsible for the extensions, calculations, and checkino' of the wao-es sheet. (f.) The clerk responsible for the actual payment of the wages, after the deductions of any payments made hi advance. The Auditor must be guided by the circumstances of each case as to what extent his staif shall check the postings or transfers from one book to another, also as to what extent they shall check the additions. It is advisable to have a recognised " tick " for each class of check, and if after the books have been checked an unticked item appears on those pages where all entries should have been called over, an Auditor, or the ^Managing Clerk representing him, should never assume that the item has been not ticked through the carelessness of his clerk, but should carefully re-examine the entries. The balance, as shown in the Cash Book, should be Recouciiia- checked with the balance in the Bankers' Pass Book. Balance of These are very seldom identical, as cheques drawn on or *^^® ^'^^^ 264 AUDITORS. Book and of the I5tinkcrs' Pass Book. Ledger Balances. Journal. Examination of the .Sub- sidiary Books- even before the day on which the books are closed may not ha^•e been presented for payment, neither will the bankers, unless a special arrangement has been made with them, have given credit for country cheques not cleared on that day. In order to facilitate checking these balances, a Reconciliation Statement, which may be entered in the Cash Book, should be prepared for the Auditor. This should commence with the balance as shown in the Cash Book, to which should be added the amounts of the cheques outstanding. From the total thus obtained should be deducted the amount of the cheques paid into the Bank not given credit for in the Pass Book, and the result should be a balance identical Avith that shown in the Pass Book. In comparing the balances taken out of the Ledgers into the Trial Balance, the balances should be checked at the same time the addition of each Ledger account has been checked, so as to avoid any entries bemg made in the Ledger accounts between the checking of the additions and the taking out of the balances. The Journal should be carefully perused, as through it transfers are made from one Ledger account to another, frequently very incorrectly. A properly-kept Journal affords full information to an Auditor for a transfer of this descri2)tion, but the "narrative " is occasionally intentionally meagre when it is desired to conceal the true reason of the entries ; this absence of information should put an Auditor on inquiry. The Auditor must use his own discretion, guided by his ex})erience, as to how far it may be necessary to check tlic details found in subsidiary books. As previously stated he should make as much use as possible of docu- ments t)btained from independent sources to guard against errors of omission. When once an entry of any transaction is made in tlie books it may be said to come under the cognisance of the Auditor, and a perfect balance can only be obtained PRINCirLES OF AN AUDIT. 265 by each of these entries being carried forward, step by step, intu the Ledger. The Auditor, has, however, to guard against then* being carried to a \^Tong Ledger account, and also any other inaccuracies in the posting. As reo'ards the o^eneral duties of Auditors in connection General with their examination of the books, Lindley, M.R., in an important judgment, remarked : " An Auditor, however, is not bound to do more than exercise reasonable care and skill in making incpiiries and investigations. He is not an insurer ; he does not guarantee that the books do correctly show the true position of the Company's aifairs ; he does not even guarantee that his Bahnice Slieet is accurate according to the books of the Company. If he did, he would be responsible for error on his part, even if he were himself deceived without any want of reasonable care on his part, say, by the fraudulent concealment of a book from him. His obligation is not so onerous as this. Such I take to be the duty of the Auditor : he must be honest — /.t'., he must not certify what he does not believe to be true, and he must take reasonable care and skill before he believes that what he certifies is true. What is reasonable care m any particular case must depend upon the circumstances of that case. Where there is nothing to excite suspicion very little inquiry will be reasonably sufficient, and m practice, I believe, busuiess men select a few cases at haphazard, see that they are right, and assume that others like them are correct also. Where suspicion is aroused, more care is obviously necessary ; but, still, an Auditor is not bound to exercise more than reasonable care and skill, even in a case of suspicion." — In re London and General Bank (Xo. 2) [1895] 2 Ch. 683. An audit is said to be " continuous " when the Auditor, continuous instead of commencino- his duties after the Accounts have ^^^^^^ been submitted to him for audit, pays weekly, monthly, or other periodical visits, and checks tlxe books, vouchers, &c. There are many advantages attendant on a contmuous audit, errors are rectified at an earlier date, and are also 266 AUDITORS. more readily discovered, book-keepers are not allowed to let their work fall into arrear, and the audit can be completed at an earlier date after the close of the financial period ; but the one very serious objection to a continuous audit is that the figures can be altered after the books have been checked. The only perfect system of audit is, there- fore, a continuous audit supplemented by the usual audit, the expense of which few Companies, firms, or institutions care to incur. Audit of In auditing the Accounts of Executors or Trustees Executors?^ under a Will, the Auditor should in the first place be supplied with a copy of the Will. This he should peruse, and take notes of any entries found therein bearing upon his duties, such as references to legacies, annuities, specific bequests, directions as to special trusts, &c. The audit of the Accounts of Executors and Trustees does not in any way relieve them fi^om the responsibility of their acts should they have acted illegally. The Accountant of Court, Scotland, who, as to the matter referred to below, fills a similar position to that of a Master in Chancery under the Judicial Trustee Rules, 1897, has no power to approve of an improper investment. By Section 3, Subsection 10, of the Trusts (Scotland) Amendment Act, 1884, Trustees, including Judicial Factors and Curators Bonis, are authorised to lend trust mone}' in loans on real or heritable security ; and, by Sub- section 12, in loans on debentures secured on rates or taxes levied under statutory power by Municipal Corporations. A Curator Bonis invested his ward's money on a Bond of the Greenock Harbour Trustees, a Corporation consist- ing of the Magistrates, the Council, and elected Trustees. As security, the Trustees assigned to the Curator Bonis the " rates and duties and other revenues of the Harbour," but no right of obtaining possession of the works on default of payment was given. The Accounts of the Curator Bonis were audited by the Accountant of Court, and passed with- out connnent. The Harbour Trustees made default in payment of interest. PRINCITLKS OF AN AUDIT. 267 The House of Lords held (1) that tlie investment was not a real or heritable security ; (2) that it was not a debenture created by a Municipal Corporation ; (o) that, looking to the previous Statement of Accounts of the Harbour Trust, it was not a security a prudent Trustee ought to have invested his ward's money in ; and (4) that the annual audit of the Accountant of Court did not exonerate the Curator Bonis from liability. — Button v. Annan [1898] A.C. 289. 268 AUDITORS. CHAPTER IX. THE REVENUE ACCOUNT. Explaiiatiou of the Revemie Account. Explanation of the Eevenue Account — Difference between Revenue Account and Cash Account — Trading Account — Profit and Loss Account — Trading Account of a Manufacturer — East method of stating a Eevenue Account — -Stock in hand at commencement of the Period — Purchases — -Claims under Policies — Interest on Debentures — Interest on Mortgages — Interest on Calls — Amount written oS Leasehold Property — ^Eoyalties — Dead Eent - Expenses of Management —Eesolu- tion of the Council of the Institute of Actuaries— Directors' Fees — Salaries — Wages — Commission — Eent, Eates, Taxes, &c. — Eejiairs and Eenewals — Amount written off for Depreciation — lioss on Eealization of Securities — Debts irrecoverable — General Expenses —Brokerage — Com- mission for Underwriting, &c. — Amount written off Preliminary Expenses — Interest to Shareholders — Dividends on Preference Shares — Auditor should resist proposal to pay Dividends out of Capital — Income side of the Eevenue Account — Sales — Premiums — Shares in other Companies— Interest on Investments— Transfer Fees— Traffic and other Receipts — Exchange —Premiums on Shares — Stock in hand at end of the Period — Balance of the Eevenue Account. The Revenue Account, also called a ProUt and Loss Account, is, as its latter name implies, a statement showing eitlier liow the profit has been earned or the loss has been incurred on the operations of the Company, St)ciety, Firm, &c., for the period brought under the notice of the Auditor. The title Revenue Account is, perhaps, a more com- prehensive one than that of Profit and Loss, and is adopted in this work as it is the one which usually appears on the published Accounts of Public Companies. There is, however, technically si)eaking, a distinct difference between a Revenue Account and a J^-otit and Jvoss Account, as the former should only be so styled when the income is derived from investments such as rents, royalties, dividends, and other items of this nature, while a Profit and Loss Account shows the financial result of a trade or venture. THE KEVENUE ACCOUNT. 269 Tlie difference between a Revenue Account and a Ca>h Difference Account has already been explained. Init it niav l^e here EevemJe stated that whereas the latter only shows the actual cSh™* ^"^ amount of cash received and paid awav. the former -Account. shows, on the credit side, the income or the earnino-s. irrespective of whether the same has l>een actually received. or at the date of closing the books is due. while on the other or debit side are set forth the expenses, irrespective of whether they have l3een paid or are owing at the same date. The balance of these two sides, therefore, shows whether the transactions of the period have resulted in a profit or a loss according as the credit side or the debit side is respectively the greater. The Revenue Account of a ti'ading Company usually Trading comprehends the two statements known among Account- ants as a Trading Account and a Profit and Loss Account, The former shows the gross profit or the gross loss of the period, being the difference between the amount of stock in hand at the commencement of the period, purchases, wages, and other expenses incidental to production, as ag-ainst the sales and the stock in hand at the end of the period. The balance of this Account is carried forward to Profit and the Profit and Loss Account, and is then charged with the general expenses incidental to carrying on the business. The balance, after brinoino- in these charo-es, shows the actual or net profit, or the loss, of the period. In auditing the Accoimts of a Manufacturer or of a ]\Ianu- Trading facturing Company, the Auditor should impress upon his trl*nXcttirer client the gTcat desirability of carefi^illy separatmg the Expenditure between Cost of production and Cost of distribution. The cost of production will be co^'ered bv the ^Lmu- fecturiog Accomit. to which should be debited the materials consumed, and the wages paid for the production of saleable goods ; and there should be added thereto all such expenses as rent, rates, and taxes ou the buildmgs 270 AUDITORS. Best method of stating a Eeveime Account. heading containing the machinery for production, the rating of such machinery, the depreciation thereupon, and, in some cases, the packing or otherwise preparing for the market the manufactured article. Some careful persons pursue even greater exactitude, and charge the same Account with interest upon the Capital embarked in Stock held fi'om time to time, and in the buildings and machinery of the works. These total debits together form the actual cost of manufacture, the results of which are to be found on the opposite side of the Account, in the form either of Sales, or of Stock remaining on hand. Accounts such as the one here described, if kept exactly, enable a Manufacturer to know exactly the percentage of his gross profit over a term of years, and prove very valuable for purposes of comparison. The Cost of distribution will fill under the " Profit and Loss Account," the credit of which will be the Gross Profit brought from the Manufticturing Account, and the debit will include the salaries and wages of Clerks and Warehousemen engaged in sending out the goods, the cost of books and stationery for recording the same, the salaries and expenses of Travellers, the outlay on adver- tisements, and general trade expenses, and the balance of this Account will be the net Trading Profit ; here, again, the continuance of accounts accurately divided provides information as to the jDcrcentage of expenses, and enables the Manufacturer to watch and consequently control such expenses. The best method, therefore, of stating the Revenue Account or Profit and Loss Account of a trading, manu- facturing, or mining Company is to divide it into three sections, the first showing the gross profit or loss, the second the net profit or loss (as the case may be) of the period, while in the third should be set forth, as explained hereafter, the balance of this and previous Revenue Accounts, and the dividends paid to shareholders, resulting in an actual sm-plus or deficiency to date of the transactions of the Company. THE REVENUE ACCOUNT. 271 It is quite impossible to discuss in detail every description of income and expenditure which can possibly come under the notice of an Auditor, for as almost every class of business is registered under the various Joint Stock Companies Acts, such may almost be said to be innumerable. The most fomiliar headings, however, which occur in the Revenue Accounts of Companies are treated in the present chapter, the remarks on one or more of which will afford assistance to an Auditor requiring information as to how an item of receipt or expenditure, not specially referred to, should be treated. It, of course, comes within the province of an Auditor's duty to ascertain that the various items of expenditure are stated under the proper headings, for although an incorrectness in this respect would not affect the net result, yet shareholders have a right to know the exact manner in which their revenue has been expended, and to have the opportunity of refusing to pass an improper outlay. Commencing with the debit side of the Revenue stock in haud Account, in all trading Companies the first heading is mentof the ' usually the Stock in hand at the commencement of the P^^^^^^- period which comes under the investigation of the Auditor. In the case of a new Company this item will not, of course, appear ; and when a Company has previously published a Revenue Account, the duty of the Auditor is confined to merely ascertaining that the figures coincide with those under the headino- of " Stock in hand" at the date to Avhich the previous Revenue Account was made up. The figures, as certified by him or l^y a previous Auditor and adopted by the shareholders at their meeting, cannot be afterwards altered ; but should the Auditor ascertain that any figures in the previous Accounts are inaccurate, he should either require a correcting entry made in the Accounts he is auditing, or else he should call attention to the fact in his Certificate or Report, as an explanation why the apparent profit or loss, as the case may be, has been 272 AUDITORS. unduly increased or diminislied by the inaccuracy of the previous Accounts presented to the shareholders. Purchases. The item naturally coming after the stock-in-trade is that representing the additions made to it during the period embraced by the Revenue Account. The single word " Purchases " is the usual heading, under which is included the cost of the goods purchased which are intended to be resold at a profit. The amounts paid for plant, machinery, office furniture, &c., necessary for the purpose of carrying on the business, do not appear in the Revenue Account. In accordance with the theory (already explained) on which the Revenue Account is prepared, it is, of course, immaterial whether the goods purchased had been paid for at the date of closing the books or were still owing for. The total amount has to be included under " Pur- chases," and the amounts outstanding will be found among the liabilities in the Balance Sheet under the heading " Creditors." ciiiiins under jj^ Insurance Companies of every description, life, fire, accident, marine, guarantee, burglary, &c., the principal charge against the Revenue Account consists of the " claims " under its Policies, and in dealing with this item the Auditor has to be careful that not only those claims which have been made during the period, and in respect of which the stipulated amount of compensation has been paid, are included under this heading, but also in addition those that had been notified to the office. It is impossible to lay down any rules to be ft)llowed by an Auditor by which he may ascertain that all the ckiims received have been entered in the '' Register of Claims " and charoed ajxainst the Revenue Account. Instances have occurred of Managers concealing letters aiuiouncing heavy losses until after the books liave been closed, and experience (^nly can guide an Auditor in the discovery of a fraud of this nature. The Auditor may, at his discretion, allow a deduction to be made in respect of any claims which the Company THE REVENUE ACCOUNT. 273 (id not iidiuit themselves lial)le to pay, and wliicli they intend to resist. The opinion of the Company's Sohcitor w(»iild he of assistance t(j the Anditor in determinino- a the amount to be thus deducted. All amounts included under the al)ove heading, ^^'hich have not been paid at the date on which the Books are closed, must, of course, be brought into the Balance Sheet as a liabihty. When a Company has borroA\-ed money on Debentures Interest on the holders of these Debentures are creditors of the ^ ^'^t^^'^es. Company, and, therefore, the interest payable to them nuist be kept distinct from that paid to the shareholders, which represents payment on account of profits. The former must be charged against the Revenue Account before the profits, out of which Dividends can only properly be paid, are ascertained. The interest paid to the Debenture-holders is not dependent on profits, and the rate per cent, is arranged at the time of issuing the Debentures. The same remarks are applicable to the interest On payable to those who have advanced money to the °^ s^^^"- Company on ordinary mortgages of its property. The Articles of Association of Companies registered On Calls paid under the Act of 1862, usually authorise the Directors to"^'^ vancc. receive from any ^lember, willing to advance it, all or part of the money due upon the shares held by him beyond the sums called, and to pay interest on the money so paid in advance at such rate as shall be agreed on. Such interest is payable out of the general assets of the Company, including its available capital, and not merely out of profits.— Z>«/e r. Martin, 11 L.Pi. Ir. 371, C.A. When leasehold property forms part of the assets of a Amount Company the Auditor should be satisfied that a sufficient Leasehold portion has been written ofi" each lease and charged ^'^'"P'^^'*^'^'- against the Revenue x^Vccount, so that a proportionate decrease takes place each year in the amount standing at the credit of the account of each lease in the books of the Company until its expiration. This statement is, however, T 274 AUDITORS. subject to the remarks wliicli will l)e found later on in this chapter under tlie heading of " Amount Written Off for Depreciation," in connection witli the case of Lee v. Neuehatel Asphalte Companu^ 41 Ch. D. 1. Leasehold property may be held by a Company either as an investment or for occupation. In either case the above remark applies, while the rents received from the investment, after deducting the incidental expenses, such as law costs, repairs, rates, taxes, &c., should be included among the income. When a Company occupies its own leasehold premises, the proportion written off is equivalent to a rent, and should be treated accordingly, A table for calculatino- the amount to be set aside annually in order to exhaust a lease will be found in the Appendix, with directions explaining how it is to be used, also an example in the form of a Ledger Account showing how a lease is gradually exhausted in this manner. The interest calculated on each balance brought down and debited to the Lease Account is, of course, taken credit for in the Revenue Account among " Interest on Invest- ments." Royalties. The Revenue Account of Mining Companies should be charged with the royalties (sometimes called tentail or acreage rents) payable in respect of all minerals Dead Rents, sold during the period under audit. Any dead rent (sometimes called certain or minimum rents) for the same period should also be charged against the Revenue Account, but the Auditor may allow the Company to take credit in the Ralance Sheet for any dead rent so charged, which it is expected \\\\\ be recouped out of royalties before the limit t)f time allowed for that purpose in the Lease shall have exjjired. Expenses of With reference to the expenses of management, it is anagemen . ^^^^^.^j jj^ large Companies to place Directors' fees, salaries, wages, and general office expenses under one head, but in small Companies they are generally set fortli in detail in the Revenue Account. In either case the Auditor should be equally careful THE KEVENUE ACCOUNT. 275 to {iscertain that all the expenses are included. As already explained, it does not affect the amount, which should be here set forth ; wliether all the items have been actually paid or not, settled or still owing, they must all be charged against the Revenue Account. Very often an attempt is made, especially in the first Kevenue Account of a Company, to omit certain charges on the ground that they have not been paid, or that the exact amounts are not known or have not been agreed upon. This the Auditor should strenuously resist, and should defer the completion of the Accounts until the doubtful amounts have been ascertained t)r a satisfectory estimate has been made, and the amount included in the Revenue Account. With reference to the Revenue Accounts of Life Resolution Assurance Companies, the following resolution was counciiofthe passed at a meeting of the Council of the Institute of J^f^^*JjJg\°* Actuaries in consequence of an inquiry made of them by the Board of Trade : — " That in the opinion of the Council, every expense, of whatever kind, incurred by a Life Assurance Company for the purpose of promoting, carrying on, or extending the business of the Company, should, with the exception of Commission, be included under the head of ' Expenses of ^lanagement ' in the Accounts - registered in conformity with the Act." The following remarks on the various expenses incidental to the conduct of the business of pubhc Companies are equally applicable, whether they are set forth in detail in the Revenue Account or are embraced under one comprehensi^'e heading, such as, for example, " Expenses of Management." It has just been remarked that very frequently in preparing the first Revenue Account of a Company the officials, in order to make it appear as favourable as possible, leave out charges on the ground that they have not been paid, or perhaps even not ascertained ; this remark is applicable to Directors' fees. t2 276 AUDITORS. Directors' Now, oil the ])rinciple previously laid down that ^^^^' a Revenue Account is a statement of the actual income and expenditure of the period, and not of receipts and payments, this explanation should not be considered satisfactory by the Auditor ; and unless the Board actually pass a resolution at one of their meetino's, which is entered in the minute book in the usual way, that they do not intend to receive any remuneration for their services to the date on which the Accounts are made up, the Auditor should, either on the Revenue Account itself, or in his Report, call attention to the fact that the profit shown is subject to the amount to be paid to the Directors. Amount Sometimes the amount of the remuneration of the settfedTy Directors is fixed by the private Acts or Articles PriyateActor £ Association, which may be either a stated sum or Articles of . Association, a Commission on the sales, income, gross profit or net profit, e^c, or even a combination of these. When this is the case it is easy to determine the amount to be charged in the Accounts, and if the Directors have not received it they must be included among the creditors of the Company in the Balance Sheet for the sums due to them respectively. Sometimes Frequently the remuneration of the Directors is lelt Shareholders, in the hands of the shareholders, to be V(.)ted at their General Meeting. It is then, however, usually arranged previously what amount the shareholders will vote, in which case it may be inserted. In any event, however, when the actual sum is not known, an estimated amount should be charged against the Revenue Account, which nuist certainly make this Account more accurate than it would be by omitting the item altogether, or, tailing this, the Auditor should, as already stated, sj^ecially report to the shareholders the omission and point out that the profit will be reduced by any sum \-oted to the Directors, or if there be a deficiency that it will in the same manner be increased. Presents to The assets of an incorporated com2)an}', though a Directors. THE REVENUE ACCOUNT. 277 private company, are not the property of the shareholders for the time heing, and if the Du'ectors misapply those assets hy ap])lyino' them to jmrposes for which they cannot be lawfnlly applied by the Company itself, the Company, upon being properly set in motion, can make them liable. Directors cannot pay themselves for their services, or make presents to themselves out of the Companv's assets, unless authorised to do so by the instrument regulating the Company, or by the shareholders at a properly convened meeting. — In re George Newman (J* Co. [1"P"'^y- Acts to prohibit a Company formed to work a wasting- property, as, e.g., a mine or a patent, from distributing, as dividend, the excess of the proceeds of working above the expenses of working, nor to impose on the Company any obligation to set apart a sinking fund to meet the depreciation in the value of the wasting property, has been misunderstood. Whether a Company formed to work a wasting asset can so treat its expenditure in its Accounts depends entirely on its Memorandum and Articles of Association. In those Companies where it is permitted, if the expenses of working exceed the receipts, the Accounts must not be made out so as to sliow an apparent profit, and so enable the Company to pay a dividend out of capital, but the division of the profits without providing a sinking- fund is not such a payment of dividends out of capital 282 AUDITORS. as is forbidden by law. In tlie course of his judgment, Stirling, J., made the following remarks: "It may be that in some future year the Company will have to set apart a substantial sum to represent depreciation in the value of the concession ; but so long as the capital remains intact, and the current receipts exceed the current expenditure, both according to the general law and undei' the provisions of these particular Articles of Association, it rests entirely with the shareholders to decide whether the excess shall be divided among them or set apart as a reserve fund for replacing wasting assets, and the Court has no power to interfere with their decision, however foolish or imprudent it may seem to be." Lord Justice In the Court of Appeal, Lindley, L.J., remarked: Judgment. " ^ow wc come to Consider how the Companies Act is to be applied to the case of a wasting property. If a Company is formed to acquire and work a property of a wasting nature, for example, a mine, a quarry, or a patent, the capital expended in acquiring the property may be regarded as sunk and gone, and if the Company retains assets sufficient to pay its debts, it appears to me that there is nothing whatever in the Act to prevent any excess of money obtained by working the property over the cost of workino' it from being- divided among-st the shareholders, and this, in my opinion, is true, although some portion of the property itself is sold, and in some sense the capital is thereby diminished. If it is said that such a course involves payment of dividend out of capital, the answer is that the Act nowhere forbids such a payment as is here supposed." Lord Justice Lopcs, L.J., also remarked : " It is said by the Appellant Judgment, that a Company is not at liberty to pay a dividend unless they can show that their available property at the time of declaring the di\idend is equivalent to their nominal or share capital. In my opinion such a contention is untenable. Where nominal or share capital is diminished in value, not by means of any improper dealing with it by the Conq)any, but by reason of causes over which the THE REVENUE ACCOUNT. 283 Company lias no control, or by reason of its inherent nature, that diminution need not, in my opinion, be made o'ood out of revenue. In such a case a dividend may be paid out of current annual profits, out of profits arising- from the excess of ordinary receipts over expenses properly chargeable to the Revenue Account, provided there is nothing in the Articles of Association prohibiting such an application, and provided it is done honestly. It appears to me that if a contrary vie^v were adopted it might be successfully contended that where, owing to extraneous circumstances, the capital is increased in value, that increase might be dealt with as revenue or profits, and go to increase the dividend. This is contrary to all practice, and I think contrary to principle. The capital and the revenue accounts appear to me to be distinct and separate accounts, and for the purpose of determining profits, accretions to and diminutions of the capital are to be disregarded." ..." The capital in an undertaking- like this is in its inherent nature wasting. The scheme of this undertakino' is that there should be a o-radual exhaustion of material ; the wasting is the business of the Company, and \vithout such gradual exhaustion there would be no revenue." This decision of the Court of Appeal relieves the Auditor of responsibility, but it is certainly his duty to point out to the Directors that to declare dividends without creatine- a reserve for wasting property is a suicidal policy, and con- trary to the practice of soundly managed public Companies. Should a loss be sustained by the Company on the Loss on realisation of any of its capital invested on mortgage ^f^Se"^^^J.^t|gg or any class of securities, the amount should be distinctly stated in the Revenue Account, and not be concealed by being included in any item of expenditure. When there are many Ledger Accounts there is almost Debts certain to be a loss on the realisation of the outstanding- balances due to the Company, as it is jjractically impossible for any extensive business to be carried on without bad debts being occasionally incurred. 284 AUDITORS. An Au(lit(n* cannot, of course, be expected to be acquainted with, or even to ascertain, the financial position of those he may "find by the books are indebted to the Company, but it is clearly part of his duty to take all reasonable means to prevent the Company taking credit for sums appearing by the books to be due to it, the whole of which it is certain will not be eventually received. He should, therefore, have pre})ared for him a list of all those who were indebted to the Company at the date on which the books were closed, and this he should go through carefully with the official who, in his opinion, is the one most likely to be acquainted with tlie financial position of these debtors. It is a very convenient plan to have a list prepared for him, classifying the debtors under three headings, namely, good, doubtful, and bad. The amount due from the first may, of course, be fully taken credit for in the Balance Sheet, and with regard to the doubtful debts, only a percentage, such as 60, 75, or 90 per cent., of the total amount should be assumed as likely to be eventually received, while the balance of 40, 25, or 10 per cent., together with the total of the debts returned as bad, should be charo'ed ao:ainst the Revenue Account as " Debts Irrecoverable," or under some similar heading. '* No Balance Sheet can be made out for any useful purpose without distinguishing good, bad, and doubtful debts." — In re Frank Mills Mining Co.^ 23 Ch. D. 57. When a Company employs agents, the balances due from them at the end of the period under audit may be treated in the same manner. In many Companies it is usual to write off a small percentage, such as (me or one and a-half per cent, on the sales, and charge that amount against the Revenue Account as a provision for k)sses estimated to arise on realisation. When, liowever, this plan is adopted, the Auditor must be careful that the rate per cent, is sufficiently high. Even then it is not so satisfactory a way of determining the amount which oui>"ht to be written off as an allowance THE REVENUE ACCOUNT. 285 for bad debts as in mnno- tliruui>'li the list of debtors seriatim, and treating the balances in the manner recom- mended above. Items of expenditnre which are not of sufficient im- General portance to require separate headings in the Re\'enue Account are usually included in one general heading as " General Exj^enses." The Auditor, however, should for his own information see an analysis of this expenditure, as it may possibly contain some unauthorised payments, which he should call attention to in his llei^ort to the Shareholders. Payments for printing and sending out proxy forms Proxies, containing the names of certain of the Directors as proxies for a General fleeting of Shareholders, and for stamping and P'^iying the return postage thereon, has been held to be a misapplication of the funds of the Company, it being obvious that a shareholder who votes by proxy does so for his own convenience solely, and " Directors have no more right to expend the funds of the Company to promote the convenience in this respect of a shareholder who may be ' too indolent to attend the meeting than they would in providing him with post-horses or a special train to enable him to attend.'' — Studdert v. Grosvenor, 33 Ch. D. 528. The payment of brokerage or commission to a stock- Brokerage. broker for placing a Ctmipany's shares was in 1889 held to be an improper application of its capital, and not authorised even by a power given by the Memorandum t)f Association, to do whatever may be " conducive to " the specified objects of the Company. — In re Faure Electric Accumidator Co., 40 Ch. D. 141. This case, however, has been interpreted by the Court of Appeal to have referred to " payments of commission to brokers .... not bond fide payments for work and labour done — that they were not payments in the ordinary way of business, but rather in the nature of bribes." . . . '• In any case, when it is made out that the services of the broker are reasonably necessary, that the brokers are 286 AUDITORS. properly employed in the issue of the capital of the Company, and that the payment of a commission of so much per share is a fair and just pa}nient for services rendered, there is no ground, either of reason, of justice, or of principle, why the payment shall not be held to be intra vires and unimpeachable." — Jfetropolitan Coal Con- sumers^ Association v. Scriim/eour [1895] 2 Q.B., 609, Section 8, Subsection 3, of the Companies Act, 1900, gives a statutory sanction to this decision of the Court of Appeal. The Companies Act, 1900, has made it lawful for a Company to pay commission to any person in considera- tion of his subscribing, or agreeing to subscribe, whether absolutely or conditionally, for any of its shares, or pro- curing or agreeing to procure subscriptions, whether absolute or conditional, for shares, if the payment of the commission and the amount or rate per cent, of the com- mission paid, or agreed to be paid, are respectively authorised by the Articles of Association and disclosed in the Prospectus, and the commission paid or agreed to be paid does not exceed the amount or rate authorised. Should an Auditor find a payment or charge of this nature in the Revenue Account, he must, of course, ascertain that it is authorised as above indicated, and subject to this a Company is not allowed to apply any of its shares or capital money in payment of any connnis- sion, discount, or allowance to any person for the above purpose, whether the shares or money are applied by being added to the purchase money of any property acquired by the Company or to the contract price of any Avork to be executed for the Company, or the money be paid out of the nominal purchase money or contract price or otherwise. The expenses incurred in the f )rniation of a Company are usually brought together into a Suspense Account called " Preliminary Expenses," and as it would be unfair towards the Imsiness of the first year to charge the whole amount against its llevenue Account, it is the THE REVENUE ACCOUNT. 2S7 custom to write off a proportion, sucli as one-iiftli, against tlie Revenue Account of the first five years, at the end of which time this Suspense Account would thus be extinguished. Tliis method of deahng with the Prehminary Expenses Account is frequently provided for in the special Act or the Memorandum and Articles of Association, Ijut even when this has not been done it may be permitted by the Auditor, provided, of course, the shareholders are made aware of the fact, either on the face of the Accounts, or by means of the Auditor's Report. The practice of spreading expenditure of a special or exceptional nature over a term of years is recognised as admissible among business men, and may be so recognised in the Accounts of Companies. " These Companies are commercial partner- ships, and are, in the absence of express provisions, statutory or otherwise, subject to the same considerations." —Griffith v. Fac/ef, 6 Ch. D. 515. The only case dealing directly with this subject is one tried in 1864, in which an action was brought by a share- holder against two Directors, the Solicitor, and one of the Auditors of a Company registered under the Joint Stock Companies Act, 1856, Section 71 of which recognised the distribution of certain items of expenditure over several years, for false representations in a Balance Sheet, one of such representations being that only a portion of the " Pre- liminary Expenses " was brought into the year's account. The second Auditor had resigned after the declaration of a dividend wliich, in his opinion, liad not been earned, and he was not made a defendant. In his opinion there had been a loss apart from the question of how the pre- liminary expenses ought to have been treated in the account, and he had concurred with the other Auditor in addressing a report to the Directors suggesting that the meeting should fix upon such sum as it might consider fairly chargeable to the Preliminary Expenses Account, and that it be written fi:*om off that account at the rate of from ten to twenty per cent, per annum. 288 AUDITORS. While he was being examined as to tlie manner in which the preliminary expenses had been dealt with in the Directors' J^)alance Sheet, which spread them over several years, Martin B. observed that he remembered the subject had been a good deal discussed as to Railway Companies some years previous, and there was a great objection to the course taken, " but now it appeared that there was an agreement among Auditors to spread such expenses over a number of years ; that, indeed, was objected to, and it was the reason why the North Western Railway Com|)any were able to declare large dividends soon after the}' opened their line. But no doubt it was now done, and it would never do to impute it to the Directors as a fraud that they had done what was usually done by Auditors." After these remarks by the Judge, Counsel then aban- doned this part of his contention. — Bale v. Clelcuu/, lA^. F. & F. 117. The number of years over which the " Preliminary Expenses " Account may extend should not exceed five or six, except in very special cases, for which ten should be the extreme limit permitted, and the Auditor should not pass without comment any amount expended on " Preliminary Expenses" in excess of the amount stated in the Prospectus as being either the exact amount or the estimated amount, except that it is not necessary to dis- close either of these amounts in a Prospectus published more than one year after the date at which the Company became entitled to commence business. Interest It is the custoni with many Companies to place tlie Shareholders. " Interest paid to the Shareholders "in the Revenue Account, among the expenditure. This is very incorrect, and should be objected to by the Auditor. The Re\"enue Account should show clearly the actual or net profit out of which a dividend can be paid, or, if no })rofit has been earned, the fact should be distinctly shown. If, notwithstanding that a loss has been sustained during the period to whicli the Accounts refer, a dividend be paid to the shareholders, the Revenue THE REVENUE ACCOUNT. 289 Account should show at a glance that it is paid either out of past proiits or that its payment creates or adds to a previt)us deficiency, in other words, is paid out of the shareholders' capital. In order tliat these facts may he properly set forth. Revenue the Revenue Account should be divided into two shouici Yt, sections, the first (which may be sub-divided as previously t^^^ggc^ioi" suggested) consisting exclusively of the actual income and expenditure of the period under audit, the balance of which, showing the net profit earned or the actual loss sustained, should be carried down to the second part of the Revenue Account. In this second part should also be set forth the balance brought forward from the previous Revenue Account (if any), representing the undivided profits or the deficiency at that date, also the amount of the interest or dividend proposed to be paid to the shareholders. Any interim dividend paid to the shareholders since the last Accounts were made up, and any bonus proposed to be distributed among the shareholders, should be entered in the second part of the Revenue Account, which should also include any additions made to the Reserve or Reserve Fund (if any), during the period. This supplementary statement, therefore, shows clearly out of what funds the proposed dividend would have to be paid, whether out of the profits of the period, or partly or wholly out of the past profits, or partly or wholly out of the capital of the Company. The holders of preference shares, the dividends on Dividends oi which are "dependent upon the profits of the particular gj^^^™*^^ year only," are entitled to a dividend out of the profits of any year after setting aside a pro^Dortionate amount for depreciation, maintenance, repairs, and renewals for that year only, and are not to be deprived of that di^idend in order to make good any sums which in previous years should have been set aside by the Company for maintenance, but which had been u 290 AUDITORS. Income side of the Revenue Acoomit. Sales improperly applied by them in paying dividends. — Dent V. London TiYimicai/s Company^ 16 Cli. D. 344. When the Memorandum of Association of a Company incorporated under the Companies Act, .1862, stated that a portion of the shares were to have a right of receiving a dividend by preference to the other shares, resolutions passed by the Company altering the priorities and pay- ments of the net revenue as between tlie preference and ordinary shareholders were held to be not valid, and that no resolution of the Company, special or other- wise, could alter the contract made between the Com})any and all the shareholders, and that the revenue of the Company available for dividend must be applied in the manner originally prescribed by the Memorandum of Association. — Ashbury v. Watson, 28 Ch. D. o6, and 30 Ch. D. 376. The income side of the Revenue or Profit and Loss Account contains the amount of the revenue derived from the busmess for carrying on which the Com})an}' was established, together with that of any additional and incidental income. In tradmg Companies the |)rincipal source of revenue consists of that derived from sales, which may be classed under three heads : — (1.) Sales for cash. (2.) Sales on credit, i)aid for before the closing of the books. (3.) Sales on credit, unpaid at the date of closing the books. The two first items do not require any comment, but the third demands the most careful consideration of the Auditor. In the first place he nuist be satisfied tliat the sales taken credit for are bond jide sales, and that the goods are not subject to return at the option of the purchaser ; it is also in respect of goods sold and not paid for tliat bad debts arise. The best way of ascertaining how imicli should be charged against the Revenue Account, to provide for the probable failure of some of the debtors of THE KEVENUE ACCOUNT. 291 the Company to meet their engagements, has ah-eady been shown, and it is only necessary to add that the sum decided upon sliould always be entered on the debit side of the Revenue iVccount, and never be deducted from the amount of the sales. In other words, the amounts debited to customers for "'oods sold to them must be set forth in full in one sum on the income side of the Revenue Account, while any bad debts or losses expected to arise on the realisation of the balances must be distinctly stated on the other side of the Account. The \'alue of any goods returned by purchasers Eeturned should be deducted from the sales, but this is the only ^"°^^^- exce}3tion ; the total amount, therefore, of the sales, after deducting the value of the goods returned, should be brought into the income side of the Revenue Account, while all charges and expenses connected with influenc- ing such sales should be set forth on the debit side. In no other way can the shareholders see the total amount of the business done, and the expenses incurred in transacting it. The principal source of income of all Companies transact- Premiums, ing insurance business, whether life, tire, marine, accident, guarantee, burglary, &c., is the premiums they receive for undertaking the risk of the insurance. In auditino' the Revenue Account of an Insurance Company the Auditor must be careful that only those premiums are taken credit for which fall due" in the period under audit. Premiums paid in advance filling due after the date of closino- the books should not be taken credit for, but they should be brought into the Balance Sheet among the liabilities, and would form part of the income in the followino- Revenue Account. It therefore follows that Premiums received during the period under audit, but which fell due previously, should not be included, as they, of course, belong to the preceding period. In the event, however, of their not having then been taken credit for, they should be added u2 292 AUDITORS. to the amount of funds at tlie beginning of the year, with a note explaining their ])re^dous omission. The Auditor must ascertain that Note 2 of the lirst Schedule of the Life Assurance Companies Act, 1870, has been attended to. This note prescribes that the amounts paid and received in respect of re-assurances should be deducted from the premiums, and not charged against the Revenue Account on the other side. AA'^hen part of a premium is allowed to remain on credit the whole premium should be included among the income, and the part not paid should be included among the assets, under the heading " Loans on Company's PoUcies." Under the heading of " Shares in other Companies," or some such similar heading, is frequently included, in the case of Financial and Trust Companies, the amount they wish to take credit for in respect of shares of other Companies received by them, either as promoters or underwriters, or perhaps as bonuses in consideration of their havino- subscribed for shares in new undertakino's. The amount taken credit for is sometimes the total nominal amount of the shares, or this amount subject to an allowance for the possible loss on realisation. Whatever the amount may be, it requires thorough investigation by the Auditor for him to arrive as a matter of principle at the correct sum which he can pass without making any special reference to it in his Certificate or Report. In nearl}^ all these cases the Articles of Association allow of a Company purchasing property for speculative purposes, and reselling it to other Companies formed for the purpose of acquiring it, the vendor Company receiving either cash or shares, or parti}' cash and })artly shares. If the Articles do not sanction this, then, of course, the whole transaction is ultra vires, and must, of course, be reported upon by the Auditor ; but, assuming the requisite authority is in the Articles, then the amount to be taken credit for requires his attention. In the case of cash there is very little doubt. The TFIK KKVENUE ACCOUNT. 298 whole of the cash received after iiUowiiig for the expenses niixv be taken to credit of Revenue Account without any other dechiction. ])ut in the case of shares several matters have to be considered. A sale of land for shares is, in law, not a sale at all, ])ut an exchange, and the Company has only as the result one class of property, namely shares, in lieu of another class of property, namely, land ; but although the (question has never come before the Courts, it seems to be assumed that shares earned in this way can for certain purposes be treated as profits. It is, however, distinctly dangerous for any amount taken credit for in a Revenue Account in res|)ect of shares to be treated as a profit available for dividend, and it is now the usual practice, in the case of a Company whose revenue is derived by means of receiving fully-paid shares to be ultimately converted into cash, for the Revenue Account to be prepared in two columns, one showing the profit in shares, and the other the profit or loss, as the case may be, in cash, and not to treat as divisible profit anything taken to credit in the share column until the same has been realised. The interest and dividends received (^n the investments interest on of a Company, so far as they relate to the period since the date on which the books were last closed, or, if the Company be a new one, since its incorporation, must be taken credit for in the Revenue Account, and, in addition, the interest accrued to the date of closing- the books. For example, supposing the books are made up at the 31st December, and t)ne of the Company's investments is Jjank Stock, the dividends on which are paid on the 5th April and otli October in each year, the proportion of interest for the period between the 5th October and the 31st December should be taken credit for, of course sup- posing the investment to have been made prior to the 6th October, otherwise the pr()portit)n only can be taken credit for. When the shares of another Company are held as an investment, the accrued interest can only be estimated, as 294 AUDITORS. the rate of dividend which will be declared cannot, of course, be known. The Auditor must, however, not allow too sanguine an estimate to be assumed. The interest derived from investments in debentures of a Company, or from mortgages, being fixed, the calcu- lations can be easily made. Another source of revenue in nearly all Companies is the fees received for the registration of the transfer of shares, usually called " Transfer Fees," In those Com- panies whose shares are not quoted in the official list of the Stock Exchano-e the income recei^'ed from this source is generally trifling, but in large Companies, in whose shares there is constant speculation, the transfer fees often form an appreciable item of revenue. The revenues of Kailway, Tramway, Omnibus, and similar Companies consist mainly of receipts for the con- veyance of passengers and goods. Banks and Discount Companies derive theirs principally from discounting mercantile bills. Gas and Waterworks Companies from the rates they charge for the consumjDtion of their respec- tive supjDlies. These demand no special directions for the guidance of the Auditor. He must, of course, be careful to ascertain that no amounts are taken credit for which have not been properly earned, and that when it is necessary to make an estimate it is done on a reasonable and moderate basis. When currency is remitted home, or AAhen floating assets are kept abroad, there will either be a profit or loss on closing the books. For remittances home, the amount of currency remitted being known, any difference between the rate at which the currency stood in the books and the rate at which it was remitted home would have to be carried to the Exchange Account and eventually to the Profit and Loss Account. Floating assets would have to be converted from currency to sterling at the rate of the date of the I>alance Sheet, and the difference, representing a gain or a loss, would be brought into the Profit and Loss Account. THE REVENUE ACCOUNT. 295 WJien a Company carrying- on a successful business Premiums on requires additional capital for the purpose of extending its transactions, it is a very general practice to issue the new sliares at a premium. There are many reasons for this, one being that wlien should not be the market value of the shares of a Company are above par RCTenm"^ " it would depreciate this value were the new shares issued ^'^'-^°""*- below it. Anotlier reason is, that it would not be fair to the shareholders, who have borne the risk of estab- lishing and bringing the Company to its flourishing condition, for others to come in and share their reward without giving them some equivalent for the privilege. It is not desirable for these premiums to be taken credit for in the Revenue Account, as they should be invested and placed to the credit of the "Reserve Fund," or, if there be none, should form the commencement of one. The amount may, however, with great propriety, be applied towards the liquidation of an unrealisable Account on the credit side of the Balance Sheet, such as that of " Preliminary Expenses," but should the Directors insist on treating these premiums as Revenue and available for dividend purposes, the Auditor has no authority for declining to pass Accounts with these receipts thus treated, luiless it is forbidden by the Articles of Association. Early in this chapter, it was pointed out that the debit stock in hand side of the Revenue or Profit and Loss Account of a pei^od. ' trading Company commenced with the stock in hand at the beginning of the period, and consequently the credit side includes the stock left in the possession of the Company at the date on which the books are closed, that is, the unsold portion of the purchases of the period, and perhaps some of the stock in hand at the commencement of the period. The amount to be taken credit for in respect of stock is of supreme importance in many Companies, as it is no exaggeration to state that it is frequently possible to double or treble the apparent profit, where the Directors and 296 AUDITORS. Method of checking value of Stock. Manager together, or even the latter alone without the knowledo'e of the former, succeed in deceivino- the Auditor, and consequently the Shareholders. The Auditor cannot, of course, be held responsible for the value assigned to this stock, as it is manifestly impossible that he should, even if he were (|ualified, be able to take or to check the actual measurement or count- ing of stocks, whether of raw materials or manufactured articles, either by number, weight, or otherwise, but he must use reasonable discretion, when the valuation of the stock is handed to him, in satisfying himself that it has been arrived at in a systematic manner. As regards prices, it is desirable to verify those at which raw material is taken credit for by an examination of some of the invoices ; and also, where the Auditor is in doubt as to these values, to consult some prices current, in order to see how far they correspond with the value on the sheets shown to him. As regards the valuation of the manufoctured and partially manufactured stock, it is possible in some cases to test the calculations by which the cost of production per unit is made out by the manufacturer ; while in other cases, where this is from the nature of the circinn stances impossible, an approximate cost may be ascertained, by the deduction of a percentage from the selling prices, bearing the same ratio thereto that the gross profit in previous years has borne to the total production or turnover of the business. In some cases it is desirable to ascertain whether much of the stock has been on hand for a long period ; as it may lead the Auditor to form the opinion that the price taken credit for should be reduced, either owing to depreciation in the goods themselves, or to the inabilit}' of the manufacturer to sell at former prices. Some businesses admit of a mechanical method of approximately checking the quantities of the total stock, which may usefully be employed by an Auditor. For example, in the case of a Company occupied in manufacturing bags for gniin, &c., or other products from raw jute, the total consumption of raw material can be THE REVENUE ACCOUNT. 297 ascertained by adding to the raw stock at the commencement of the year the cargoes of jute delivered, and deducting therefrom tlie unmanufactured jute lying in the ware- house at the end of the year. This will show how many tons have been consumed, and give the product in a certain number of bags or yards of the manuflictured article. This result should l)e accounted for (within a small limit of devia- tion) by the total sales in ([uantities, added to the stock of the manufactured goods at the end of the period, after deducting the corresponding stock at the commencement of the period. This method is applicable to ver)^ many other varieties of mamifactures, where but one or few varieties of raw material are used ; but it cannot be applied successfully to those in which many materials are used in ct)mpleting the finished article. It is clearly, however, not incumbent on an Auditor to Auditor check the valuation of the stock handed to him by the squire Certi- officials, in this or any similar searching manner ; he should, ^f ''^^f °y^^"^ however, recpiire the valuation of the stock to be certified, both as to measurement and weight, as to the value put opposite each article, and as to the working out of the necessary calculatitnis and the additions by the officials who have respectively performed these duties. As already stated, the Accounts of a Company are prepared by the Directors, who have funds at their disposal to employ Valuers, or any other experts, to assist them in arriving at the value of stock-in-trade before handino- the Accounts to the Auditors for their approval, while an Auditor has no power to employ a Valuer or have any assistance whatever at the expense of the Company in checking the value put upon the stock by the Directors. " It is no part of an Auditor's duty to take stock. No one contends that it is. He must rely on other people for details of the stock-in-trade on hand. In the case of a cotton mill he must rely on some skilled person for the materials necessary to enable him to enter the stock-in- trade at its proper value in the Balance Sheet." — In 298 AUDITORS. re Kinqston Cotton Mill Companif (No. 2) [1896] 2 Ch. 279. In different trades the mode of procedure in taking the stock naturally varies ; but the object of stock-takmg is of course to ascertain, by number, quantity, measurement, or weight, the entire stock-in-trade, that is, the unsold portion of goods, either manufactured or purchased with the object of being resold in the ordinary course of business. Writing Up. Wlicu the Directors take credit in the Revenue Account for an increase in the value of any })r()perty over the amount this same property was taken credit for in the preceding Balance Sheet, or what is technically known as " writing-up " an Asset, the Auditor, however much he may disapprove of the step, has no legal power to object, provided he is satisfied it is done in a bona fide manner. It is also more correct to take credit for doubtful revenue, and to add a corresponding amount to reserve on the debit side, than to omit the doubt- ful item, when there appears to be any reasonable chance of the whole, or even part, being realised. When the profits are not suflficiently large to admit of a dividend being paid out of them, and the Directors in distributing one have recourse to the Reserve or " Reserve Fund," the amount taken therefrom sht)uld not be included among the income shown in the Revenue Account. As previously remarked, this Statement should sIioav the actual profit or loss of the period, and it would not do so if amounts of this description were improperly added to the income instead of beino- brouo-ht into the supplementary Statement previously explained and recommended. Balance of The final balance of the Revenue Account, representing Accounr^^^^ the amount of undi\ided profits, or the deficiency resulting from either mismanagement or misfortune, is transferred to the Balance Sheet, where it remains, showing, in con- junction with the other entries therein, the financial position of the Company, so far as the books are concerned. THE BALANCE SHEET DEBIT SIDE. 299 CHAPTER X. THE BALANCE SHEET — DEBIT SIDE. Explanation of the Balance Sheet— Not necessarily a Statement of Assets and Liabilities — A Full and Fair Balance Sheet — Liabilities — Capital — Shares Issued at a Discount — Shares Issued as Fully Paid— Audit of Capital Accoiuit — Debentures — Mortgages — Liability on Bills Receivable Discounted — Sundry Creditors — Intei*est Outstanding — x'lmounts due on Current and Deposit Accounts — Claims Admitted but not Paid — Reserve — Reserve Fund — Sinking Fund — Balance of Revenue Account (Surplus). The Balance Sheet is the most important Statement Definition of which can be laid either before the Shareholders of a sheet.*^*^ Company or before those interested in any financial venture, whether speculative or non-speculative, as it shows the financial position of the Company, partners, or indi- viduals, as the case may be, according to the liooks of Account. It must be clearly understood that a Balance Not a Sheet is not necessarily, what so many believe — or to i^ifit ^*gg*^™.^J[*i° their purposes pretend to believe — a Statement of Liabilities T-iabiuties. and Assets, using the latter word in the sense of its representing the saleable or market value of each item. A Balance Sheet is simply what its name implies, a sheet or collection of balances, and is really a Statement in an abstract form of the debtor balances and the creditor balances of the Ledger or Ledgers, after the elimination of such balances as have been transferred to the Revenue or Profit and Loss Account. The erroneous idea that a Balance Sheet is necessarily a Statement of Liabilities and Assets of course arose fi:"om the fact that, as a matter of book-kee})hig, the credit balances of the Ledo;er which are transferred to the debit side of the Balance Sheet must necessarily include all the liabilities, while in the same manner the debit balances, bemg transferred to the credit side of the Balance Sheet, must ^^00 AUDITORS. necessarily include the assets. The fallacy, however, of the popular title is of course seen when attention is called to the fact that the credit side of the Balance Sheet must also by the same process include all expenditure unrepresented by an asset or any property of value, also all special losses, or the general loss or deficiency to date brought forward from Profit and Loss Account ; while, on the other hand, the debit side necessarily hicludes the Capital of the Company or partners, also any reserve, and any surplus brought from Profit and Loss Account. "Directors may honestly and properly prepare a Balance Sheet, showing or implying a loss of capital, and at the same time may honestly and properly prepare a Loss and Profit Account, showing a balance available for dividend." — In re Barrow Hcematlte Steel Co. [1900] 2 Ch. 857. Auditor's Havinalance Sheet must be such a lialance Sheet. ^ ^"^^ ^^heet as to convey a truthful statement as to the Company's position. It nnist not conceal any known THE BALANCE SHEET DEBIT SIDE. 301 cause of weakness in the financial })()siti()n, or suggest anything which caniu)t be supported as fairly correct in a business point of view." — In re London and General Bank {No. 2) [1895] 2 Ch. 692. In finally settluig the Balance Sheet of a Company for submission to the Auditor, it must not be overlooked that, while it would be very impro})er for the Directors to intentionally deceive their co-partners in any particular, yet in many instances it would be very unfair to them- selves and to the shareholders, as well as ^ery impolitic, to either overstate the liabilities or to under- estimate the assets. This applies to Companies whose business depends on their periodically showing to their constituents and the public their sound and unquestionable financial position, for while, on the one hand, nothing could be more reprehensible than for the Directors of a Bank to deceive their shareholders and the customers, by stating its securities at a value they know they do not possess, yet they would naturally, as competitors for public patron- age, desire to set forth the assets at their full market value, and to this the Auditor cann<)t raise any objection. As a matter of prudence, however, he might suggest the cost price being inserted in the Balance Sheet, suppos- ing the securities have not depreciated in value, and there being stated, in a foot-note, the actual market value at the date on which the Balance Sheet is made out. The habilities as shown in a Company's Balance Sheet Liabilities may be classed under two heads : (1.) Liabilities to the shareholders. (2.) Liabilities to the public. The former consists of the capital, which may be re- Capital, presented either by stock or shares. If the latter, the shares may be either all of one equal value, or some may be of larger amount than others. Again, the shares may either entitle their holders to receive an equal share of the profits, or some of them may confer the right to a pre- ferential dividend, either at the same rate of interest, or 302 AUDITORS. perhaps at a Inglier or a lower rate than the " ordinary " sliares, the former usually being known by that name, the latter being usually styled " preference " shares. rrefcraicc There are two classes of "preference" shares, one which entitles their holders to a preferential dividend out of the prohts of the year only, the other which claims the preferential dividend out of the profits of preceding or future years, in the event of the profits of any one year being not sufficient to provide for the stipulated interest. Unless, however, it is expressly provided for in the private Act or Articles of Association, preference share- holders are only entitled to the preferential dividend out of the profits of each year, and, if there are not profits available for the payment of the full amount, no part of the deficiency can be made good out of the profits of any subsequent year, or out of any other funds of the Company. Details of The details, showing the particulars of the capital, should should be be clcarly stated, and when it is divided into more than set out. ^jj-^g class of shares this should be shown, also the number of shares authorised to be issued either by the special Act of Parliament or the Memorandum of Associa- tion, the number actually issued, the total nominal value of the shares issued, and the amount paid up. Any sums paid in advance of calls should also be stated. The manner in which the amount representing the Shareholders' Capital has been arrived at requires investigation. A subscriber for shares practically enters into a contract to take the shares and pay a proper consideration for them, either in money or money's worth. The Capital paid in money will of course be standing at the credit of the Ledger Account posted from the Cash Book, but it must not be taken as neces- sarily correct l)y the Auditor and passed without inquiry. Payment on shares made by a fictitious proceeding under which a C^ompany never really receives the amount })ayable cm the shares at all is invalid. — Aspinairs Case, THE BALANCE SHEET DEBIT SIDE. 303 re The Enpion Fuel and Gas Co., 36 L.T. 362 ; Haifs Case, 10 Cli. D. 593. Tlie Directors of a Compuny limited by shares may receive ])ayment from a shareholder of any amounts remaining unpaid on his shares, and may pay out of capital interest on sums so paid up in advance of calls, either under Table A (if applicable), or under provisions to the same effect in the Articles of Association, provided they do so in good faith and in the honest exercise of tlie discretion confided to Directors. — Loek v. Queensland Investment and Land Mortgaqe Co., Ltd. [1896] A.C. 461. In a limited Company, notwithstanding the Articles of Shares issued Association empower the Directors to issue shares at a '^ ^ ifecoun . discount, it is impossible for them to do so as to render the holders thereof not liable to pay the nominal amount thereof in full. — In re Raihcay Time Tcddes Publishine/ Co., Ex parte Welton [1895] 1 Ch. 255. A Company governed by the Companies Clauses Con- solidation Act, 1845, and the Acts amendmg it, may issue fully paid-up original stock at a discount, and for payment either in cash, or for land or labour, or other consideration, subject to the liability of the Directors for issuing the stock below its value without necessity. Such Companies may also issue debentures or debenture stock at a discount, if authorised to borrow money or raise money by mortgages or debentures. — Wehh v. Shropshire Baihrays Co. [1893] 3 Ch. 307. A Company governed by the same Acts may issue fully paid-up original shares at a sum less than their nominal amount in the same maimer as new shares can under the authority of those Acts be issued. — Statham V. Brir/hton Marine Palace and Bier Co. [1899] 1 Ch. i99. A Company limited by shares has no power to issue issue of FuUy shares as fully paid-up, as a free gift, or bonus, to its shares. shareholders, although a contract to do so has been made without any fraudulent intent, and registered under Section 304 AUDITOES. Audit of Capital Account. Debentures. 25 of the Companies Act, 1867. — In re Eddyslone Marine Insurance Co. [1893] 3 Ch. D. 9. It is therefore evident that where a Balance Sheet con- tains the entry of Capital issued either as fully paid up, or represented in any way except by cash received hy the Company, the Auditor should satisfy himself that to the best of his knowledge and belief the issue of such Capital has been both proper and legal. In auditing the first Accounts of a re-constructed Com- pany, the Auditor should satisfy himself that the Capital of the new Company has been issued in accordance with the Agreements entered into relating to the re-construction. If the issue has been in accordance with an Order of Court, an office copy of the Order should be produced to the x\uditor. To thoroughly audit the Capital Account at the first audit of a Company, or at the audit after any subsequent issue of capital, the following coarse should be followed : — 1. Check the Forms of Application for shares and Letters of Allotment with the Bankers' Pass Book, 2. Check the Forms of Application and Letters of Allotment into the Application and Allotment Book. Check the Application and Allotment Book into the Share Ledger. Check the money paid according to the Application and Allotment Book into the Cash Book. Repeat the same operation in respect of each Call. Check the number of shares issued according to the Balance Sheet with the numbers stated to ha\'e been allotted at Board Meetings according to the Mmute Book. In addition to the stock or shares there is another class of Capital frequently made use of by Conn)anies, technically known as " Debenture Capital." This, as its name implies, is borrowed capital, the repayment of which may be secured to the lenders by a mortgage deed either on })art or on the whole of the property t)f the Company. o. 5. 6. THE BALANCE SHEET DEBIT SIDE. 305 No satisfactory definition of a debenture has so far been given. Chitty, J., discussed the term very fully in Edmonds v. Blaina Furnaces Co., 36 Ch. D. 215, and stated, " The term itself imports a debt, an acknowledg- ment of a debt, and speaking of the numerous and various fL)rms of instruments which have been called deljcntures without anyone being able to say the term is incorrectly used, I find that, generally, if not always, the instrument imports an obligation or covenant to pay. This obligation or covenant is, in most cases at the j^i^esent day, accom- panied by some charge or security ; so that there are debentures which are secured, and debentures which are not secured." Mortgage debentures are debentures secured by a charge of some kind on the property of the Company, while ordinary debentures are merely certificates of indebtedness. Railway debentures made in the form given in Railway Schedule C of the Companies Clauses Consolidation Act, ^ en mes. 1845, are only secured on the tolls and earnings of the Undertaking, and not on the capital, the permanent way? the rolling stock, or any part of the railway itself. Debenture-holders are, of course, creditors of the Company, but the amount due to them should be kept distinct from the sums due to ordinary creditors. In a few Companies they have the privilege of voting at meetings, also oi having their own Auditor. Companies occasionally issue debentures at a discount. Debentures In such cases, as the liability is to pay back to the debenture- Discount.'^ holders the nominal amount at some future date, however remote, the nominal amount of the debentures issued must be included on the debit side of the Balance Sheet, while the discount must be either charged against the Revenue Account of the period during which the debentures were issued, or, if permitted by the Memorandum and Articles of Association, be spread over a term of years, leaving the proportion not charged against Revenue on the credit side of the Balance Sheet. X 306 AUDITORS. Amount due to Mortgagees. INIortgage of Uncalled Capital. Liability on Bills Receivable Discounted Tlie amount of the liability to those who have advanced money to the Company, secured by a mortgage on some or the whole of its property, should be included among the liabilities under a separate heading, such as " Amount due to Mortgagees." The amount set out should be that of the sums actually advanced to the Company, together with any accrued or outstanding- interest thereon, placed in a separate line. This interest, when secured by the Mortgage Deed, should not be included with amounts due to unsecured creditors. There is nothing in the Companies Act, 1862, or the subsequent amending Acts, expressly or by necessary implication prohibiting a limited Company from mortgaging its unpaid capital, consequently, where power to mortgage future or unpaid-up capital is given by the Memorandum or Articles of Association, a mortgage of such is valid. — In re Pyle Win^ks, 44 Ch. D. 584. This decision Avas approved by the Judicial Committee of the Privy Council on an appeal from the Supreme Court of New South Wales, the Companies Act being for this 23urpose identical with our Act of 1862, on the 6th March, 1895. — Newton v. Debenture-holders, 4'^., of Anijlo- Australian, cJy'., Company [1895] A.C. 244. When Bills of Exchange Receivable come into the possession of a Company from any of its debtors, they are either retained by the Company until they become due, or they are discounted and the proceeds made use of for business purposes. In the latter case, should the acceptor of a bill become insolvent before it falls due, and it is not, in consequence, honoured on presentation, the discounter will look to the Company to refund him the proceeds. The Auditor should, therefore, go carefully through the list of the Bills Receivable which have been discounted, and upon which the Company is liable, with the ^lana^-er or some other official, and endeavour by that means or in any other way he may think advisable, to ascertain what sum will ha\e ultimately to be provided for by THE BALANCE SHEET — DEBIT SIDE. 307 the Company. This amount should be carried out as a UabiUty, from which there should first be deducted the estimated amount expected to be received from the acceptors. In the event, however, of the Company becoming- insolvent, it would not obtain possession of the bills, and therefore any amount received from the acceptors would be payable to the holder of the bills, and not to the Company. Under "Sundry Creditors" or some similar heading Sundry should be included all the sums due to those creditors of the Company who are not debenture -holders and who do not hold security for the payment of the same. The amounts due to debenture-holders, whether they do or do not possess security, and to mortgagees of the Company's property, should not, consequently, be included under this heading. It therefore follows that only the sums due to two classes of creditors can be here set out, namely, those on Bills of Exchange Payable, and those on open Accounts, and the amounts due to each class is usually stated. Great care should be taken by the Auditor to ensure that all of the latter class are included. It is not, however, the omission of the amounts due to those creditors who supply the Company with goods, which are either sold ao'ain or manufactured into other o-oods for resale, that he has to guard against ; they are almost invariably entered in the books as soon as they reach the Company's premises. The difficulty is to ensure that amono- the liabilities under the above headino- are included all the sums due to creditors chargeable against the Revenue Account, and which should be included in the expenses. The Accounts representing these are frequently not sent in until some time after the books are closed, and are, in consequence, omitted. When a dividend is declared on the share capital it is Shareholders' the usual practice for the Board to draw a cheque on outstanding, the current Account for the full amount, and to place x2 308 AUDITORS. it to the credit of a separate Account at the Bankers'. Interest warrants on the Bankers are then issued to the shareholders for the amount of their respective shares of the dividend, which, on being paid, are charged against this separate Account. Owing, perhaps, to the absence of shareholders from the country, fi-om carelessness, or from other causes, it almost invariably happens that some of these warrants are not presented for a considerable time, and occasionally never come in. In preparing the Balance Sheet the amount of these outstanding interest warrants should be placed on the debit side under " Outstanding Shareholders' Interest," or some similar heading, while the same amount, representing the balance of this separate account at the Bankers', should be added to the cash balance on the credit side of the Balance Sheet. When a Company declares a dividend on its shares, a debt immediately becomes payable to each shareholder in respect of his dividend, for which he can sue at law, and the Statute of Limitations immediately begins to run. The declaration does not make the Company a Trustee of the dividend for the shareholder, and an entry of the liability in the Company's books — at any rate ^vhen no special part of its assets is set aside as representing the dividend and no notice of the entry is given to the share- holders — does not take the case out of the statute. It appears, however, to be uncertain whether, in the case of a Company registered under the Companies Act, 1862, the period of limitation is six or twenty years. — In re Severn and Wye and Severn Bridge Railway Co. [1896] 1 Ch. 559. Outstanding interest should not be taken to credit of a Profit and Loss Account until the claim is statute-barred, and not even then unless the Directors have decided not to recognise the claim should it subsequently be made. Debenture- The samc remark applies to interest unclaimed by Interest Debcuture-holders, and in the case of a Railway Company Outstanding, incorporated by a special Act, authorising it to issue THE BALANCE SHEET DEBIT SIDE. 309 Debenture Stock, bearing interest, subject to Part III. (which includes Sections 22 and 27) of the Companies' Clauses Act, 1863, which issued Debenture Stock, for which it gave certificates under its common seal, and also a warrant for interest under the signature of its Secretary^ it was held that, the liabilit}' being statutory, the period of limitation was twenty years. — In re CoriucaJl Minerals Railway Co. [1897] 2 Ch. 71. When part of the capital of a Company consists of PreEerence Preference Shares, and the dividends on these shares are Arrears cumulative and in arrear, the amount of the arrears should either be calculated and brought into the liabilities, or else a note should be made on the Balance Sheet itself. In the absence e)f any mention of this liability, the Auditor should tj^ualify his Certificate so as to call the attention of the shareholders to the omission. The principal item found among the liabilities of a Amount due Banking Company is usually the " Amount due on Current and Deposit and Deposit Accounts," This is the sum of the credit -^'^^'o^^^*-- balances of the Customers' Ledgers, and the Auditor can easily ascertain if the amount is or is not correct. Under the heading " Claims Admitted but not Paid," ciiaims , . , • 1 T? 1 cn r» T /^ • Admitted but which appears m the balance bheet oi Insurance Lompames, not raid, should be stated the amounts which have been charged against the Revenue Account for claims under policies, but not settled at the date of closino- the books. The Auditor should ascertain that a sum has been Auditors charged against the Revenue Account, and appears on the require a debit side of the Balance Sheet, sufiicient to provide for gum^to"be set any claims likely to arise in respect of contracts entered ■^p^''* ^^ ''^ •^ 'J _ i _ Reserve into by the Company, and in existence at the date on when nature which the books were closed. business For example, all Companies transacting insurance ^"'^'i^"^"^^ ^*' business should have a reserve of this nature, for the purpose of meeting claims which, from experience, it is certain will be made in respect of policies in force at the close of the period under audit. This sum can, of course, only be an estimate, but it 310 AUDITORS. Mode of ascertaining the Reserve for Insurance Companies. For Companies, &c., whose Revenue is derived from Subscrip- tions. should be calculated on the most reliable data that can be procured, such as the experience of the Office in the past, or, if the Company be a new one, that of Companies transacting insurance business of a similar nature. For this purpose it may be assumed that the premiums are received, and the claims in respect thereof arise at equal intervals throughout the year, and, therefore, at the date on which the books are closed, half the risk will have run off the })olicies then in force. The following calculation would then obtain the amount which ouo'ht to be charo-ed ao-ainst the Revenue Account for the year, and included in the Balance Sheet as the reserve : — (1.) Ascertain from the experience of the Company, or of Companies transacting similar business, the rate per cent, the losses bear to the net premium income. (2.) Ascertain the amount which bears the same ratio to the net premium income for the year under audit. Half of this amount is the reserve required. Very few, if any, Insurance Companies calculate their reserve in this manner, and an Auditor would have no right to object to any other method by which the Directors may have arrived at the reserve, provided, in his opinion, it has been fixed on a sound basis. If the revenue of a Company, Society, or Institution is derived from annual or other periodical subscriptions, these are invariably paid in advance, and the privileges acquired thereby are either available from one fixed date to another, or else from the date of the payment of the subscriptions, according to the regulations of the Company. In this case the proper reserve to be charged against the Revenue Account, and included in the Balance Sheet, should, as a rule, consist of the proportions of the subscrip- tions applicable to the periods between the date on which the books are closed and those on which the subscriptions will expire. For example, supposing an annual subscription of four guineas dates from the first of any month, and a subscriber THE BALANCE SHEET DEBIT SIDE. 311 joins tlie Company on the 20th October, the Company, on closing its books at the 31st December, would take credit in its Revenue Account for the four "'uineas, but asrainst this should be charo-ed on the debit side the three o'uineas, being the portion of the subscription applicable to the period between the 1st January and the 30th September of the following year, while the same amount should be brought into the liabilities in the Balance Sheet as a " Reserve to provide for the Liabilities on current Subscrip- tions," or a similar heading. The Auditor must, of course, use his discretion as to whether this precise method of calculating the reserve should be strictly adhered to in the early years of a Com- pany's exivStence, but in every case the accurate amount should be ascertained as in the two examples just given, and should form the basis for arriving at the reserve, and, except in the case of a new Company, should always be adopted. Although the terms " Reserve " and " Reserve Fund" Difference ,. ' -, T • 1 4 r ri • between are TreL|uentiy used in the Accounts oi Companies as Keserve and though they were synonymous terms, there is a distinct i^eserveFund. difference between them. A " Reserve " is merely the surplus of the credit side of the Balance Sheet over its debit side, although perhaps the " Reserve " may be divided under two or three more headings, such as " Reserve " and " Balance of Profit and Loss Account carried forward." A " Reserve " of this nature is either a provision against loss of capital, or a reserve for the equalisation t)f dividends, or a reserve as an extra inducement to those with whom the Company may do busmess to give credit. A " Reserve Fund," however, is not merely a surplus shown on the debit side of a Balance Sheet, but must be represented by special investments, which may or may not be shown distinctly on the credit side of the Balance Sheet. If, therefore, the reserve is used in the general busmess of the Company, it is not a " Reserve Fund," although, perhaps, tlie term might be properly so used if 312 AUDITORS. some stock, used in the ordinary course of the business, was specially set aside, and when made use of represented by cash set aside until re-invested in further stocks specially ear-marked. In the absence of any directions as to the investments of a " Reserve Fund," they must be such as are authorised by the Trustee Act, 1893, the sections of which are given in Chapter IV. Occasionally the term " Reserve Fund " is used in the Accounts of Companies in place of " Reserve," or some other term, in consequence of carelessly-drawn Articles of Association, which leave the Directors no option but to use the term. The term " Surplus " or " Rest " is a better term to use than " Reserve," as no one could then possibly pretend they were under the impression that such was specially mvested. In a case where the Articles of Assocation of a Com- pany provided that the Directors might, in priority to any Dividend, set aside out of " profits " any sum as a "Reserve Fund" for certain specified purposes, or "any other contingencies or purposes of. the Company," and might invest the same ; that any interest derived from such investment should be dealt with as profits ; and that, subject thereto, " the entire net profits of each year " should belong to the shareholders, the Directors year by year carried part of the profits to three Reserved Funds, to meet (a) depreciation of steamers, (b) insurance, and (c) canal improvements ; and the remaining profits, after providing for the preferential dividend, were distributed among the ordinary shareholders. These Reserve Funds were not represented by any separate or specific invest- ments, but were merely book-keeping entries, represented in the Company's Balance Sheets by property of various kinds. The Company's undertaking was eventually sold by special Act of Parliament at a price which left a surplus in excess of the liabilities of the Company and the capital })aid up on the ordinary and preference shares. The sale THE BALANCE SHEET DEBIT SIDE. 313 was completed during the currency of a financial year. On the completion of the sale the Company passed resolutions for a voluntary winding up. It had never been found necessary to resort to any of the Reserve Funds while the Company was a going concern, and part of them had been in fact divided among the ordinary shareholders in the form of bonus ; and at the date of the sale three funds representing these Reserve Funds were still standing in the Company's books. It Avas held by the Court of Appeal that all three Reserve Funds represented undrawn " profits " un- capitalised, and to be therefore treated as income, to which, subject to the preferential dividend for the broken financial year, the ordinary shareholders were exclusively entitled, and not as " capital " or " assets " distributable among both the ordinary and the preference shareholders ; also, that in taking the Accounts for the broken year, the value of the plant and book debts should be taken at the actual ascertained values as stated in the Stock Books, and not at the lower values at which the Company had, according to their regular custom and from motives of prudence, estimated them in a previous annual Balance Sheet on which a dividend had been declared ; and that the dif- ference between the two values represented undrawn profits, to which, subject to preferential dividend, the ordinary shareholders were exclusively entitled. — In re Bridgeicater Navigation Company [1891] 2 Ch. 317. A " Sinking Fund " is an Account to which a certain .sinkiuj amount is transferred from the Profit and Loss Account, or "^" " Revenue Account, by debiting one of the latter Accounts and creditmo; the " Sinkino- Fund " Account. The amount this Account represents should be invested outside the business, and allowed to accumulate at Compound Interest. A '' Sinking Fund " differs from a '" Reserve Fund '' in that the investments representing it must never be applied to any purpose save that for which the Fund was created, while the investments of a Reserve Fund may be realised fi)r the equalisation of dividends, replacing lost Capital, 314 AUDITORS. or for any other purpose within the Memorandum and Articles of Association of a Company. Balance of The surphis brought from the Revenue or Profit and Account Loss Accouut, after allowing for the payment of any (.suiijius). di^ddend or bonus to shareholders, is usually brought into the debit side of the Balance Sheet. It may, however, be applied towards the reduction of a credit balance in the Balance Sheet unrepresented by any Asset, or may be added to or form the commencement of a reserve. Frequently the surplus is carried forward from one Revenue Account to the following one ; sometimes part only is carried forward and the remainder placed to the credit of the " Reserve." To this there cannot be any objection. It is always undesirable to have recourse to the " Reserve Fund " for the purpose of paying a dividend or for any other use, and a balance carried from one Revenue Account to the next, or merely placed temporarily to "Reserve," often enables a dividend to be declared without disturbing the Reserve Fund, and, consequently, avoids giving alarm to the shareholders. THE BALANCE SHEET CREDIT SIDE. 315 CHAPTER XL THE BALANCE SHEET CREDIT SIDE. Credit Side of Balance Sheet frequently improperly called Assets Side — Division under Four Headings — Groverninent Secui'ities — -Shares and Debentures in Joint Stock Companies^Investnients should stand in Names of the Trustees — Freehold and Leasehold Property — Mortgages — Loans— Debtors — Bills Receivable on hand — Agents' Balances — Com- pany's own Shares — Interest on Investments due and accrued — Cash — Stock-in-Trade — Works in Progress — Office Furnitirre — Purchase of Business, «S:c. — Sinking Fund for same — Expenditure on Development of Mine — Piu'chases on Hiring Agreements — Preliminary Expenses — ■ Spreading Expenditure over a term of years — -Balance of Revenue Account (Deficiency) — Balance Sheet should be so explicit as to be understood by every Shareholder. It was explained in the previous Chapter that the debit Credit side side of the Balance Sheet was frequently erroneously called J^kiet^^'^*'^ the Liabilities Side, and instances were given of items which appear on that side of the Account which are not reall}' liabilities. Still stronger reasons exist for nt)t calling the credit side of the Balance Sheet the Assets Side, as has also been for a considerable time the usual practice. Professional Accountants who themselves used the term for many years have lately been impressed at the meaning endeavoured to be put upon it, it never ha^'ing previously occurred to them that anyone could truthfully assert that they believed that the amounts opposite the items on the credit side of a Balance Sheet were their actual realisable value. A Statement of Liabilities and Assets cannot possibly balance, one must of necessity be at least a trifle in excess of the other, and the use of the term therefore can only be looked upon as one of the many examples which constantly occur of the misuse of a popular expression. The credit side of a Balance Sheet is in some instances Except in a Statement of Assets, such as of Banks, Discount Com- ^^^ ''"^ ^^^^^' panics, Trust and Investment Companies, &c., where the items consist entirely of cash balances at banks, amounts 316 AUDITORS. Duty of Auditor. Credit Side may be divided into Fom- Hcad- iiicrs. due from debtors, investments at realisable prices, mort- gages and premises, but even in these cases the debit side would not be accurately termed the liabilities side, as, in addition to its including the capital, it also includes any reserve or surplus of unappropriated revenue. At the same time it must not be understood that an Auditor has simply to ascertain that the amounts taken credit for in the Balance Sheet in respect of property or assets are merely their book values. Prior to the Auditor commencing his duties, the figures to be inserted in respect of these items have of course to be settled by the Directors, and the groundwork upon which they have to arrive at the figure to be taken credit for in respect of each item is of course the balances of the Ledger Accounts. This is also the basis from which the Audit(n' starts in his endeavour to satisfy himself that the amount finally decided upon by the Directors is or is not correct. " Auditors have to check the books and see that the amounts are correct, but it would be stretching the duty of an Auditor considerably beyond what is reasonable to say that he is to go into the books of a Company so as to be able to check the valuation." — In re Kingston Cotton Mills Co. Ltd.., II. Manson 631. The first point for consideration, therefore, in criticising the credit side of the Balance Sheet may possibly be whether there is any reason to believe that the amount taken credit for in the previous Balance Sheet and passed by the Auditor himself or a })revious Auditor was incorrect. It is of course usual to take for granted the previous Accounts are correct, unless from some information given to the Auditor, or from some other indication, he has reason to believe that such is not the case. The items in the credit side of a Balance Sheet may be divided into four classes /Realisable Assets, Unrealisable Assets, Unrepresented Expenditure, and Losses. ) Among the first class may be enumerated Government Securities, Shares and Debentures in dividend -paying Companies, Freehold and Leasehold Property, Mortgages, Debts due to the Company, Cash, and Stock-in- Trade. THE BALANCE SHEET CREDIT SIDE. 817 Examples of the second class are the amounts expended in acquirhig" or erecting Buildings for the purposes of the business. Plant, Fixtures, Workmen's Tools, &c. The third class would include the amomit paid for Good- will, and the balance of any Expenditure Account, such as for advertising, spread over a term of years, while the fourth would consist t)f the deficiency to date on the Prt)fit and Loss Account or Revenue Account, and any Special Loss Account which might be brought direct into the P)alance Sheet. Under the general heading of " Government Securities " Government may be included all investments the repayment of and the '^*^'-'"" ^''^• dividends on which are guaranteed by recognised Govern- ments. This heading, however, unless full details are given, is very unsatisfactory, and Companies having miscellaneous investments of this nature may with great advantage adopt the division prescribed by the Life Assu- rance Companies Act, 1870, second Schedule, into British, Lidian and Colonial, and Foreign Government Securities. AVhen among the assets of a Comj^any there is British, an amount under the headino- "British Government Securities," the Auditor should ascertain that only those securities have been included whose repayment and dividends are guaranteed by the British Government. Indian Government and Colonial Government Securities inciian aiui should, therefore, not be entered here, as the dividends ^^^o^"'^^- thereon are guaranteed t)nly by their respective Govern- ments, and not by the Home Government. It is also desirable, but not necessary, to give the details of each class of security, the amount representing each being stated in an inner column, the total only being- extended. The vast difference in the relative value of the securities Foreign, of Foreign Governments is such that an Auditor should endeavour to induce the Directors to state on the face of the Balance Sheet the name of each investment in Foreign Government Securities, with the respective amounts taken credit for. 318 AUDITORS. It would be scarcely more absurd to place before shareholders a Balance Sheet with the entire property of the Company stated in one amount, under the heading "Assets," than to give them one with investments in several Foreign Government Securities under a heading without any details. While some Governments pay the stipulated interest to the holders of their bonds, which are readily saleable, and in some instances are at a premium above their nominal value, others have not paid the interest on their loans for years, and, consequently, the market values of their securities are at a considerable discount. Shares and When a Company holds, as an investment, the shares S^iSnt^stock ^^ debentures of any other Company, the name of Companies, eacli Company, together with the number of the shares or debentures held in each, should be stated, also their respective amounts ; but an Auditor has no authority to require this to be done. In the case of shares, the amount paid up on those of each Company should also be stated, and any liability to further calls, but it is not considered a suitable investment for a Company to hold shares of other Companies which are not fully paid up. If, however, there is any liability attached to holding shares in which the money of the Company is invested, the shareholders should be made aware of this fact by its being disclosed in the Balance Sheet, so that it may either meet with their approval or cause them to take steps to be released from this liability by instructing their Directors accordingly. Should the Balance Sheet be silent on this point the Auditor should call the attention of the shareholders to the contingent Habihty in his Certificate or Report. Investments All investments should be made in the names of the £°tLe^2r"'^ duly appointed Trustees of the Company, but should of the there be none, they should be held in the names of two Trustees. at least of the Directors, and never m the name of an official of the Company or of one of the Directors. THE BALANCE SHEET CREDIT SIDE. 319 It should be distinctly stated whether the values given to the investments are the cost price, market price, or estimated value. The first-named is the most usual one adopted by Companies, and is certainly the best so long as the cost price does not exceed the market value. When an estimated value is inserted, the Auditor should guard ag-ainst too sano-uine a calculation beino- taken credit for. Freehold and leasehold property are very frequently Freehold found among the investments of a Company. With ^*^P^^*y- reference to the former, the Auditor must be careful that the amount actually paid for the freehold itself is that which is brought into the assets as representing its value. All costs and other professional charges incidental to the acquisition of the freehold should strictly be charged aoainst the Revenue Account, and not added to the actual purchase money ; but, as the practice is to the contrary the Auditor cannot raise any formal objection in his Certifi- ficate should this be done. The method of dealing in the Accounts with leasehold Leasehold property has been already treated in Chapter IX. The ^^°^^®^'^' amount which should be brought into the credit side of the Balance Sheet is, of course, the balance of the Ledger Account after the proper amount has been written off and charoed against the Kevenue Account. If the Auditor has succeeded another Auditor in his duties, he should, of course, ascertain if the proper sum has been written off the Lease Accounts and charged against the previous Revenue Accounts, and that the balance as set out among the assets is a fair and proper sum to be there inserted as the present value of the leases, and for this purpose the table in the Appendix will be of assistance to him. Unless the business of the Company (among whose Mortgages, assets the heading " Mortgages " appears) consists solel}' in making advances abroad, the sums lent on mortgage on property out of the United Kingdom should be 320 AUDITORS. separately stated, and not be included under the above 2'eneral lieadino* without remark. The Life Assurance Companies Act, 1870, insists on this being done by Life Assurance Companies, and all other Companies should be recommended by their Auditor to follow this example. Mortgages on freehold and leasehold property should not be mixed up with mortgages on other ])roperty, such as on reversions or life interests, or on stocks or shares. Again, money borrowed on mortgage under the authority of an Act of Parliament for a fixed term of years, where the principal is either repaid by equal amuial instalments or the principal and interest together in a certain number of years, should not be included under one heading with those mortgages which can be called in by notice in the usual way. Loans. Unless it is part of the legitimate business of a Company to make advances, the heading " Loans " is a most objec- tionable one to be found on the credit side of a Balance Sheet. When, however, the funds of a Company have been applied to making advances which have not been repaid at the date of closing the books, the Auditor should ascertain that the amount then due fi-om borrowers has been clearly stated under the above heading. It should not be included among the " Investments " or " Sundry Debtors," or disguised under any other heading. " An Auditor has nothing to do with the prudence or imprudence of making loans, with or without security.'' — In re London and General Bank (No. 2) [1895] 2 Ch. 682. Loans by a Company transacting Life Assurance business on its policies have to be separately stated. Sundry After deducting from the total amount shown in tlie Company's Ledgers to be due to it from its customers the allowance for bad and dt)ubtful debts charged against the Revenue Account, as explained in Chapter X., the balance, representing the actual amount expected to be Debtors. THE BALANCE SHEET CREDIT SIDE. 321 ultimately realised, should be placed on the credit side of the Balance Sheet under " Amounts due from Sundry Debtors," or a similar heading. The amount of the Bills Receivable on hand may be Bills included under the same heading as the amounts due on haud. ^ from sundry debtors, but it is more correct to state it separately. When a Bill Receivable has been discounted, as far as book-keeping is C(^)ncerned it entirely disappears, although subject to the liability before alluded to, and is not therefore included on the credit side of the Balance Sheet. When a Company employs agents as a means for Agents' obtaining business, the amount either remaining in their hands, or which has to be collected by them and accounted for, should be stated separately and not included with " Amounts due from Sundry Debtors." The Auditor should be careful that commission and all other charii'es which will be allowed to the ao'ents are deducted from their balances and charged against the Re\enue Account under their proper headings, so that the difference only, which is the amount the Company should ultimately receive, is taken credit for in the Balance Sheet. A list of the agents' balances should be prepared in the same manner as suggested previously for the sums due from the ordinary debtors, and those amounts which it is considered ^vill not be ultimately reahsed may be treated as bad or doubtful debts. When a Company, whose shares are not fully paid up. Company's holds any of its own shares as an investment, the par- ticulars should be clearly set forth in the Balance Sheet, and not be included in the amount representing the value of the shares of other Companies held as an investment. Unless this be done the shareholders are not fully aware of the extent of their liability in the event of the Company going into liquidation, for, should that happen, the share- holders, in addition to having to meet calls made on their own shares, would be liable, in the proportion of their Y 322 AUDITORS. Interest on Investments due and accrued. Cash at Bankers. respective holdings, to pay the amount which would otherwise be raised by the payment of the calls made on these shares held by the Company were they in the hands of private and responsible owners. The House of Lords decided that although the Articles of Association of a limited Company, formed for the purpose of carrying on a manufacturing business, authorised the Company to purchase its own shares, such a Company had no power under the Companies Acts to make the purchase, and that it was ultra vires. In delivering his own judgment Lord Macnaghten expressed his opinion that if a power to purchase its own shares were found in the Memorandum of Association of a limited Company, it would necessarily be void. — Trevor v. Whitworth^ 12 App. Cas. 409. The interest and dividends due on investments, but not received at the date of closing the books, as well as any accrued interest, should, as stated in Chapter X., be taken credit for in the Revenue Account, and, con- sequently, the same amount must be taken credit for in the Balance Sheet. Under the heading " Cash at Bankers " may be included not only the balance of a current Account, but also any sum that may have been placed on deposit ; also any balance in the hands of the Bankers to meet any outstanding dividend warrants. For the purpose of verifying the correctness of the balance stated in the Balance Sheet to be in the hands of the Company's Bankers, the Auditor should agree it with the Bank Pass Book, and he should either also ascertain on inquiry at the banking house that the balance shown therein agrees with the 15anker's Ledger, or obtain a Certificate from the Banker of the balance at the close of business on the date of the Balance Sheet. The cash balance shown in the Balance Sheet should asfree with that of the Cash Book, but it is not usual, as previously explained, for this sum to be identical with that found in the Pass Book, for the reason that THE BALANCE SHEET CREDIT SIDE. 323 the latter is affected by cheques in transitu, botli debtor and creditor. Under the headino- "Cash in Hand" sliould be stated Cash in hand, the amount of the balance of the Petty Cash Book not accounted for by any expenditure, and which should, therefore, be in tlie possession of the cashier. As the Auditor seldom connnences his duties before at least se^'eral days have elapsed after the date on which the books are closed, he can only check the correctness of this balance by ascertainino- that the cashier has in hand the amount unaccounted for by him in the Petty Cash Book at some subsequent date. It is the custom in many offices to require the cashier to pay into the bank, on the day on which the books are closed, the balance of cash in his hands. This not only proves that the cashier has the money in his possession, but also spares the Auditor a somewhat disagreeable duty. When examining the cash in hand the Auditor has frequently presented to him, as accounting for part of the balance, cheques received not paid in, payments made in advance to clerks for salaries, to be deducted when the monthly or weekly cheque is drawn for that purpose, and perhaps some other small advances ; the Auditor must satisfy himself that these advances are properly authorised. The amount to be taken credit for in respect ofstock-in- stock-in-trade is the same as that which appears on the credit side of the Revenue Account. A Contractor, Steamship l^uilder, or a Company works in carrying on any business of this or of a similar nature, ^°s^^^^- is entitled to take credit in its Profit and Loss Account, and consequently in the Balance Sheet, for " Works in Progress." In proof of the amount taken credit for each contract or piece of work, there should be produced to the Auditor sheets, certified by responsible officials, shoAving the cost of material, includuig any unpaid for and included among the liabilities, the wages paid, and any other item which can be specially hypothecated y2 324 AUDITORS. to the works in progress. If any payments have been received on account they must be deducted from the amount taken credit for, or the amount of the payments may be included in the liabiHties. Office The Auditor should be satisfied that the amount Furniture, ^j^^^^ ^^.^^^-^ fv^, Q^^^ Fumiturc docs not unduly exceed its value. A percentage should be written oif periodically, and charged against the Revenue Account for depreciation, until the balance of the Ledger Account has been reduced to the amount representing its value. Purchase of When a Company has been formed for the purpose Busmess, &c. ^^£ acquiring and carrying on an established business, the consideration may be either money, shares (fully paid up or otherwise), or partly money and partly shares. In any case the consideration can only be entered in the Books of Account as if it were paid for in cash, under some appropriate heading, such as that in the margin. So long as the Company is prosperous and its shareholders receive a satisfactory dividend, this Account is apparently as good an asset as a realisable investment, but in the event of the Company going into liquidation the greater part, if not the whole, of its value at once disappears. SinkingFund It is, therefore, very desirable, instead of dividing all for same. ^|^^ profits among the shareholders, for a sinking fund to be raised, so that at the end of a certain period this Account may be either written oif, or be reduced in amount to a saleable value. If this plan be adopted also with other Accounts, representing expenditure, and they have by that means been abolished, the shareholders will eventually have their money invested in realisable securities. If the capital of a Company, or even part of it, has been invested in the acquisition of a business for a term of years only, a sinking fund should be raised sufficient to redeem the capital at the ex[)iration of this term. The foregoing remarks apply to all Companies whose capital or part of it has been expended in the acquisition or establishment of the business to carry on which it has been formed. THE BALANCE SHEET CREDIT SIDE. 325 For example : the capital of a Manufacturing Company is partly required either for acquiring the building, plant, machinery, and goodwill of an estabhshed business, or in erecting the necessary buildings, purchasing the plant, &c., and creating a market for the sale of its manufactures. That of a Mining Company is partly required either for buying a proved and developed mine, with its necessary plant, &c., or in paying wages for sinking the shafts, driving the adits, purchasing bricks, plant, &c., and for completing the operations necessary to enable the Company to earn a revenue in the future, and although the ^lemorandum and Articles of Association of a C(3mpany may authorise the payment of dividends without providing for the return of capital expended on what is termed a wasting asset, it is distinctly unwise and unbusiness-like to take advantage of such a power. Directors and Auditors of Mining Companies are Expenditure frequently at conflict as to the proper apportionment meut'of^Mnie. between capital and income of expenditure connected with the development and extension of the workings of the mine. In the absence of any provisions in the Articles of Association preventing them, Directors may safely employ upon any class of mining work which they deem expedient in the interests of the Company, including any work undertaken with the object of striking at a lower level beds of ore discovered in the higher levels and believed to exist at a greater depth, any moneys of the Company in their hands not wanted in a reasonable course of business for other purposes, as e.g.^ payment of existing debts, or providing for a Dividend declared or about to be declared. When the work has been done, it will be a matter of account as to how the amoiuit expended is to be debited as between Capital and Revenue. In determining this, the Directors should proceed upon the principle that anything which is of permanent value to the mine (m the sense that they cannot say that its 326 AUDITORS. usefulness will be exhausted within any reasonable short time) may properly be debited to Capital, but that any work the usefulness of which will be exhausted at the end of some reasonably short period of time is to be regarded as an item of expenditure which should be brought into account in profit and loss, but distributed fairly over several years, and not all charged against the revenue of the particular year. For example, improvements of, or additions to a Company's mills, so as to enable the Company to treat the ore extracted more effectually or more profitably, may properly be charged against Capital if the Directors, forming the best judgment they can, are of opinion that the usefulness of the mills will not come to an end, say, by the exhaustion of the ore at the end of a short period of time, or if they are of opinion that the buildings for purposes of realisation when the ore has been exhausted will be of increased worth equivalent to the additional amount expended, but otherwise the item should be treated as one to be distributed over such length of time as the additions will be of value to the Company. Accounts should be kept at the Mines so as to apportion expenditure, and it is conceived that Directors will not be personally liable if they debit the expenditure upon development bona fide as between capital and Revenue according to the best of their judgment upon the principles above stated ; but they would be probably held personally liable if they dealt with a sum which in their judgment was within those principles, one which ought to be brought into profit and loss by way of distribution over several half-years, by debiting that to Capital, and never recouping capital in respect of it, and dividing dividends upon that footing. To give a concrete instance : suppose the Directors expended money in driving a level to reach certain ore, which they believe to exist, and they find the ore, and as soon as it is worked out the level becomes useless, the profit of getting that ore is really the difference between THE BALANCE SHEET CREDIT SIDE. 327 the sale price of the ore and the wages, &c., spent in getting" it, inchiding the wages spent in making the level to reach it, which, ea; hypothesis has become useless so soon as that ore has been extracted. Plant and machinery are sometimes purchased under PLant, &c., what is known as a hiring agreement, that is. an agreement under a in which it is provided that after the lessee has paid a rent Agreement for the use of an article for a certain number of years it shall become his absolute property (m the payment of a nominal sum at the expiration of the period. Colliery wagons are frequently purchased under a live years' agreement of this description. A Company is certainly entitled to take credit in its Balance Sheet for a proportionate part of any payments of this nature, after charging the Revenue Account with a fair and reasonable amount for the use of the articles acquired under the hiring agreement. The expenses incurred incidental to the obtainment Preliminary of the share capital of the Company are, when they are not borne by the A endor, usually collected under the heading of " Preliminary Expenses." As it would press unfairly on the Revenue Account t)f the first year were the total amount thus expended charged against it, it is usual, as already explained in Chapter IX., for the Directors to charge only a proportion, varying from one-tenth to one-fifth, against each year's Revenue Account, and to place the balance, until the Account be thus gradually extinguished, on the credit side of the Balance Sheet. The Auditor's duty, therefore, in dealing with this Account, is to ascertain first of all by whom the Expenses of floating the Company have to be borne. If the pro- spectus or the Agreement between the Vendor and the Trustee on behalf of the proposed Company, afterwards adopted by the Company, states they are to be paid entirely or partly by the Vendor, he must see that the Company are not charged with them, or only to the authorised extent ; if they are to be borne by the Company, he should not allow any expenses to be included but those actually 328 AUDITORS. incidental to the obtainment of the share capital, or to making the necessary arrangements for the Company to commence its business, and when a prospectus has been issued he must satisfy himself the Preliminary expenses do not exceed in amount the sum stated therein. Particulars to The following disbursements may be properly brought therein. i^to the " Prehminary Expenses" Account, and any others in addition legitimately and properly expended, as indicated above, connected with the formation and establishment of the Company. The legal expenses for the preparation of the Memorandum and Articles of Association, the necessary agreements for the purchase of any business or property, filing the necessary documents T^dth the Registrar of Joint Stock Companies, and generally for all the legal work transacted on behalf of the Promoters and Directors of the Company until the first allotment of shares has been made, including stamps and other expenses out of pocket. The legal and Parliamentary expenses for obtaining a private Act of Parliament incorporating the Company, and for obtaining, if necessary, an extension of the same. The printers' and statioiiers' bills for printing the private Act, Parliamentary papers. Memorandum and Articles of Association, prospectuses, notices, plans, books of account, &c. The advertising account for the advertisement of the prospectus and notices. The brokerage paid to those employed by the Directors to place the shares, usually a small percentage on the capital introduced, provided the payment of brokerage is, in the case of a Limited Company, not contrary to the Memorandum and Articles of Association. Allowed to "Although a promoter of a Company cannot be con- CoD^iany.^* sidcrcd an agent or trustee for the Company, the Company not being in existence at the time, yet the principles of tlie law of agency and trusteeship are applicable to his case, and he is accountable for all moneys obtained by him from the THE BALANCE SHEET CREDIT SIDE. 329 funds of the Company without the knowledge of the Company." " The fict that a promoter is acting as agent for the vendors in getting up a Company for the purchase of their property does not exonerate him from accounting to the Company, when formed, for any secret profit made by him." " In estimating the amount of the secret profit for wliich a |)rom()ter was accountable to a Company he was held entitled to be allowed the legitimate expenses incurred by him in forming and bringing out the Company, such as the reports of Surveyors, the charges of Solicitors and Brokers, and the cost of advertisements ; but not a sum of money which he had expended in obtaining from another person a guarantee for the taking of shares." — Lydney and Wigpool Iron Ore Co., v. Bird, 33 Ch. D. 85. The following clause, or one similar, is frequently inserted Spreading A, • 1 Expenditure rticies : — o^g^ ^ ^^^.^ " Any expenditure wdiich, in the opinion of the Board, °* Years. shall be of an extraordinary nature, and not fairly charge- able against the profits of the half-year in which they were incurred, may be treated as Suspense Expenditure, and may be spread over a series of years as the Board may determine, and the amount of such expenditure for the time being outstanding may for the purposes of calculating the profits of the Company, and for the purpose of dividends, be reckoned as an asset." It is considered that this clause is sufficient authority for an Auditor to pass without comment a Balance Sheet with expenditure thus treated therein. Perhaps the most unsatisfactory item which can be Balance of found on the credit side of the Balance Sheet is that Account representing a deficiency. This is usually the result of a (deficiency). loss on the tradino- brouo;ht from the Revenue or Profit and Loss Account, and as long as it exists no dividend should be paid to the shareholders. The Auditor should require the existence of a deficiency to be clearly set forth in the Balance Sheet, and in such 330 AUDITOES. a manner that the amount could not possibly be supposed by the shareholders to represent an asset. Balance The Balance Sheet, where finally approved by the be so explicit Auditor, should be so clearly stated that every shareholder fmder^tood ^*^ ordinary intelKgence can understand it. A knowledge byeverv of book -keeping is not essential to the comprehension of bharenolder. d i u a Jja lance Sheet properly drawn ; and, although according to the recognised method of preparing a Balance Sheet, Accounts representing the balance of certain Expenditure Accounts are placed on the same side as the assets, the Auditor should endeavour to induce the Directors to have them so stated that they cannot be mistaken for realisable and marketable securities. " A full and fair Balance Sheet must be such a Balance Sheet as to convey a truthful statement as to the Company's position. It must not conceal any known cause of weak- ness in the financial position, or suggest anything which cannot be supported as fairly correct in a business point of view." — In re London and General Bank (No. 2) [1895] 2 Ch. 692. SPECIAL POINTS FOR CONSIDERATION. 331 CHAPTER XII. SPECIAL POINTS FOR CONSIDERATION IN VARIOUS CLASSES OF AUDITS. Banks— Colonial Banks — Savings Banks — Discount Houses — Insurance Companies— Building Societies — Judicial Trustees— Solicitors— Stock- brokers— Single Ship Companies— Mines, Collieries, &c. — Co-operative Stores — Landed Estates — Executors and Trustees — Newspapers — Theatres — Clubs — Schools and Colleges. In the Chapters deaUiig with the Revenue or Profit and Each class of Loss Account and the Balance Sheet reference is made to ^p^Sai^poiuts the various items whicli are usuallv found in these Accounts, for conside- ration. l)ut in each class of audit there are special points not usuallv to be found in audits of a different class, which require the attention of the Auditor before he affixes his Certificate. Banks. — The very laru-e amount of available cash wliich Bauk^. a Bank is compelled to keep renders it necessary for the Auditor to attend {it the close of business on the day on which the Balance Sheet is to be dated, to count the Bank Xotes, the reserve of Gold, Silver, and Copper in bags, and Cash m the till. The balance at the Bank of England and other Banks should be verified by a Certificate direct from these Banks. The Securities held agamst the Loans should be examined. When temporary Loans are made to customers on deposit of their securities lodged for custody, ascertain there is sufficient cover. For Loans made on deposit of Deeds, see the Deeds, and ascertain that they are conveyed to the partners of the Bank, or to the Officials if a Company. For Loans made to Stockbrokers fi-om Account to Account, check the Securities with the lists lodged bv each Broker, and ascertain that there is a sufficient margm as cover. The Bills discounted should be examined one by one against the books in which they are entered. Bank>: 332 AUDITOES. Check the sheets contaming the customers' balances with the Ledgers, and where there are overdrafts ask for the Security ; although it is impossible to state that a Bank has no right to lend to certam persons without any security. Where there is a Loan long outstanding, call attention to the same. Ascertain that Interest on Loans is charged periodically against the Current Accounts of the Customers. Examine the Investments of the Bank in accordance with the principles laid down in Chapter XIV. Colonial Colonial Batiks. — The chief receipts of the Branch in England of a Colonial Bank are money received fi'om Depositors, which amounts should be checked with the Counterfoils of the Deposit Receipt Books. Deposits paid oif during the period must be checked with the Surrendered Deposit Receipts. When the Bank lends money to Stockbrokers from Settlement to Settlement, the Auditor should attend before any variation takes place in the Securities deposited, and examine them with the Borrowing Notes from Stockbrokers, and also ascertain that the advances are made on sufficient margin. The balances in the Loan Ledger should be agreed with the list of Loans aoTeeing- with the General Ledo;er. Bills Receivable should be examined with the Bills Receivable Book. The Bills Payable Book and Bills Receivable Book and the Bills Negotiable Book should be checked into the Head Office Account, for the purpose of ascertaining that the Head Office has been properly debited and credited with the amounts paid or received. The Books containing- the drafts issued on the Head Office and Letters of Credit should also be checked with the Head Office Account. Savings Savuigs Bunks. — Check the extracted list of balances independently of the office Staff. Mark oif the balances consecutively as shown in the Deposit Ledgers, calling out the number of each account, the assistant taking the list of balances as prepared by the Staff and calling out the Banks. SPECIAL POINTS FOR CONSIDERATION. 333 amounts entered therein. The total of this hst should be checked and compared with the total liability shown by the account "Depositors" in the General Ledger, and the list should be certified by the Auditor to be correct. The interest credited to depositors should be thoroughly tested. The balance at the close of the half-year or other period fixed for audit should be verified both as to cash in hand and Treasurer's balance, or preferably the Secretary or Actuary should pay into the Treasurer's account all cash in hand at the close of each period. A reference to the Bank Pass Book should not be regarded as sufficient evidence of the balance in hand, but a formal certificate from the Treasurer or Banker should be called for. No audit of Savings Bank Accounts can be considered complete unless it comprises an independent examination and comparison with Deposit Ledgers of Depositors' Pass Books as presented at the Bank. For this purpose the Auditors should attend frequently at the Savings Bank and should carry out the comparisons in question to such an extent as will ensure the examination of at least 10 per cent, of the Pass Books extant in the course of the year. The frequency of the audit is fixed b}' the Act at a minimum of once each half-year, but it should, if possible, be continuous as to examination of Pass Books, and the Assets and Liabilities should be examined in total each quarter. The periodical meetings of Trustees and Managers (or Com- mittee of Management) should coincide with the periodical audits, and the Auditor should report direct to them. Examine the Accounts of the National Debt Commis- sioners for transfers, purchases, sales of stock, interest, &c. Ascertain that the statutory limits of yearly (£50) and total deposits (£200) are not exceeded. In the case of Banks making special investments under Section 16 of the Act of 1863, the Auditor should verify the Securities held by the Bank for moneys advanced from the funds of the Special Investment Department, and should state in his Report the manner in which this has been done. 334 AUDITORS. Discount Discount Houses. — The Bills on hand should be checked with the Bill Books for the day previous to the audit, the additions of the Books checked, and the amounts compared with the entries in the Bill Balance Book. The Securities belonging to the House should be compared with the vSecurity List, and those appearing on the List as being in the hands of the Depositors or the Bank for safe custody should be checked with the receipts given by the holders of such Securities. The Securities held ao-ainst Loans should be verified with the entries in the Contract Lists, and the amount of loan and security checked into the Summary. The prices on the list should be checked with the Stock Exchange Official List of the day, so as to ascertain that the loans are fully covered. The balances of the following Ledgers should be checked : — '' Deposits without Security " Ledger, including interest unpaid, constituting a liability in the Balance Sheet. " Deposits against Security " Ledger, including interest unpaid, and constituting a liability in the Balance Sheet, the hypothecated securities, consisting of Bills discounted and Companies' Securities, appearing per contra among the General Assets. " Loans " Ledger, being the balances of amounts advanced by the House, including interest unpaid and covered by security. "Security" Ledgers. These show the amount of security, including Bills discounted in the hands of Depositors against their deposits with the House. The " Calendars " should also be checked, as they show the Bills due on each date and the amount rediscounted. They also furnish the particulars required for the Rebate Account, which shows the amount debited to the Profit and Loss Account, on account of discount t)n Bills discounted, which will mature in the next period. In the Statement for Kebate the daily amount of lUlls falling due are entered, and the balances due after deducting the SPECIAL POINTS FOR CONSIDERATION. 335 Bills rediscounterl, tlie number of days from tlie date of the Balance Sheet to maturity, and the amount written back as rebate, calculated on the averag-e rate of the discount agreed iipon. As regards the l>ills discounted, the balances in the Ledger may be checked as follows : With the Bills on liand, with those held for collection, and those out for collection, with the Bills deposited as security, and with the Bills rediscounted, as per the Ledger balance. Insurance Companies. — Test the books written up from insurance the Agents' returns with some of the original returns. Companies. Ascertain that claims have been sent in up to the date of the Balance Sheet from all the Agencies, and if none from any Agency, or if none for an unusual period from any Agency, inquire speciiically into that Agent's Accounts. Ascertain that the Ag-ent's Commission has been charo-ed in respect of all premiums taken credit for ; also see that the Liabilities include all Premiums due to other Com- panies for re-insurances ; also for the accrued proportion of Annuities payable. The Register of Livestments would show the amount of each investment, and the date when the interest is payable. The Auditor should satisfy himself that all interest and dividends due have been received. Ascertain that the accrued interest on Investments and on Loans taken credit for in the Balance Sheet has not been over-estimated. Building Societies. — Request the Manager to send out a Bunding notice previous to each audit to the Members, asking them ^°^^^ ^^^' t( ) send in their Pass Books for the })urposes of the audit. Check the cash in hand at the close of business on the date of the Balance Sheet. Examine the Pass Books, or selections from the Pass Books if numerous, with the balances in the Ledgers. Check the Counterfoils t)f Deposits and other Receipt Books into Deposit and other Cash Books, and examine Vouchers with General Cash Book for Commission on 336 AUDITORS. Advances on account of Shares for Balance Deposit Applications. Check additions of Cash Books and Ledgers. Call over the Subscription Cash Books into the General Cash Book. Check Deposits received and paid from the Deposit Cash Book into the General Cash Book. Check or test postings from the Cash Book into the General Ledger. Check balances of Investing Ledgers, Deposit Ledgers, and Advance Ledgers into the Balance Book. Ascertain that Rents have been received from [)ro- perties in hand. Ascertain that no interest has been taken to credit of Revenue Account in respect of Borrowers whose Properties are in hand, unless proof is given that the security is ample to cover the balance. See that the amount received on deposit or loan does not exceed two-thirds of the amount secured to the Society by mortgages from its members. Examme the securities in accordance with the principles laid down in Chapter XIV. Compare Parts 1 and 2 of the Schedule with the corresponding statement of the previous year, and if any property which had been in hand upwards of twelve months, according to that Statement, is omitted in the one under audit, ascertain whether it has been disposed of, also ascertain if the properties referred to in Part 1 of the Schedule last year, and still in hand, have been transferred to Part 2. Part 3 should also be compared with the Schedule of the previous year, so that if any "Advance" has been removed it can be inquired into by the Auditor. The Rent Ledger should be inspected in all these inquiries. Judicial JwUc'uil Tvustees. — In auditing the Accounts of Judicial Trustees. Xrustccs, the Auditor should peruse the following documents, which, in accordance with No. 4 of the Rules under the Judicial Trustees Act, 1896, have to be supplied SPECIAL POINTS FOR CONSIDERATION. 837 by the applicant for the use of the Court when making' tlie application for the appointment of a Judicial Trustee : — A short description of the Trust. Short particulars of the Trust property, with an approximate estimate of its income and capital value. Short particulars of the incumbrances (if any) affecting the Trust property ; also the complete Statement of the Trust property, accompanied vnth an approximate estimate of the income and capital value of each item, as required by Rule 8 to be furnished by the Judicial Trustee to the Court. Solicitors. — Costs taken credit for should, in the absence Solicitors, of an Agreement between all the partners, include un- debited Costs as well as debited, but the Auditor must be satisfied that proper deductions have been made from both for disallowances on Taxation, and allowances which mav be voluntarily made to Clients on settlement. Outstanding- Fees to Counsel should be included in Liabilities. Clients frequently appear in Solicitors' books as creditors owing to their having made payments on account of costs of pending Actions, while they are really debtors, in consequence of undebited Costs. Accounts of this descrip- tion must be adjusted. Credit should be taken in respect of Premiums received from Articled Clerks for the proportion of the time exjjired under the Articles, leaving the balance on these Accounts in the debit side of the Balance Sheet. Stockbrokers. — These books are balanced at every stockbrokers. Account, and all balances carried down. The audit of the Accounts of a Stockbroker is one of the most trouble- some description, and, to absolutely ensure the accuracy of the books, the followino- work is necessarv : — Clients' Department. Call the Balances fi*om those of the previous " Ac- count." Call the Contango Journal to the Clients' Ledgers at the opening and the close of the " Account." o5 AUDITORS. Call the Bought Journal to Clients' Ledgers. Call the Sold Journal to Clients' Ledgers. Call the Cash Book to Clients' Ledgers. Call the Sundries Journal to Clients' Ledgers. Call the Dividend Journal to Clients' LedQ-ers. Call the Eights Journal to Clients' Ledgers. Jobbers' Department. Call the Balances brought over from the previous " Account " in Jobbers' Ledgers, if any, and check any differences adjusted in subsequent "Accounts." Call the Contano'o Journal to the Jobbers' Ledo-ers at the opening and close of the '' Account." Call the Bouo'ht Journal to the Jobbers' Ledo-ers. Call the Sold Journal to Jobbers' Ledgers. Call the Cash Book to Jobbers' Ledgers. Call the Sundries Journal to Jobbers' Ledgers. Call the Rights Journal and Dividend Journal to Jobbers' Ledo-ers and examine the Dividend List to see the Dividends and Rights have been duly debited or credited. Call the Clearing House Journal to Jobbers' Ledgers. Call the "Names Clearing" Journal to Jobbers' Ledgers. Call the Names Receivable Book to credit side of Jobbers' Ledo-ers. Call the Names Payable Book to debit side of Jobbers' Ledgers. See that the " Splits " have been j^roperly charged and adjusted. Call the Cash to Names Receivable Book. Call the Cash to Names Payable Book. Call the Dividend Journal to Names Books. Call the Cash to Clearing House Journal. Stock Department. Check the Stock Ledger, so as to ascertain that, for all cash })aid on account of Stock, Stock has been SPECIAL POINTS FOR CONSIDERATION. 339 received from the Jobber and delivered to tlie Client, and that, for Cash received, Stock has been received from the Chent and delivered to the Jobber and vice versa ; and generally agree the transactions in Stock with the Clients' Ledger Accounts . Go through tlie Ledgers and ascertain that the Shares on the two sides of all the Accounts agree, i.e., on one side the Stock carried over plus the purchases must agree with the Stock sold j^lus the Stock carried over at the end of the " Account." Any difference found must arise from deliveries of Stock, which should be vouched bv the Stock Ledo^ers. Examine the Carry-over Account with the Securities for the purpose of ascertaining that all Stock taken in for Clients is in the hands either of the Broker or his Bankers. Call Impersonal Accounts, including Splits, Stamps and Fees, Postages, Interest, Commission, Part- ners' Drawings, and Expenses Accounts from Cash Books, Journals, &c., into the Private Ledger. It has to be borne in mind that the Stock carried over, taken in, &c., is constantly changing, so that it can only be effectually vouched by tracing the deliveries and the cash received or paid through the books. Sinqle Ship Companies. — The Articles of Association Single ship 1 T • r\ n ' -> Companies. and Agreements with Managing Owner, Captam, e\:c., should be perused and notes made of any matter affecting the Accounts. Ascertain that no expenditure is added to " Purchase of Ship " Account when the iinal payment has been made to the Vendor and the total first cost has been divided into sixty- four shares. The " Voyage " Account should contain all payments made for outfit, insurance, disbursements at each Port abroad, expenses at Port of discharge inwards, Captain's emoluments, and the Managing Owner's Com- mission, and vouchers for the Outfit Account, and the z2 340 AUDITORS. Agents' Accounts from the various Ports abroad sliould l)e produced. The correctness of the Foreign Exchange and the calculations should be ascertained. The " Voyage " Account should be credited with t)ut- ward freight, freights received abroad, homeward freights, forfeited wa^'es from the Portao;e Bill, sales of stores, Port cliarges refunded, &c. The " Captain's " Account should be charged with advances to the crew, their wages, cash to himself, and payments on account of his outfit ; on the other hand, it should be credited with the Portage l)ill, after deduction of forfeited wages, his disbursements abroad, and the remuneration, which should be in accordance with his x\greement. By an examination of the Policies of Insurance and special clauses therein it can be ascertained if the ship has been fully protected, and that Returns for risks, such as laying up, not incurred, and unexpired time have been credited. No profit should be taken to credit in respect of an uncompleted voyage. When several Companies are in one ofiice, the office expenses should be divided on some equitable basis. Mines, Miues, CoUieries, l^'c. — Special care has to be taken to Collieries, &c. j^^^gj.|.j^^^j^ that expenditure of various sorts has been fully charged against Revenue, "Development" expenditure is apt, in the absence of severe criticism by the Auditor, to appear on the credit side of the Balance Sheet, when it should be charged against Revenue. (For Special Remarks on this subject see Chapter XL) Shafts are only of value so long as the minerals to obtain which they were sunk are workable by means of that shaft, and the cost of sinking should be charged gradually against Revenue, so that when the shaft is abandoned it is not represented by any expenditure on the credit side of the Balance Sheet. The same remarks apply to Tramway Lines laid under- ground, to enable the seam distant from the bottom of the shaft to be more economically worked. Pit Timl)er is very perishable, and should be entirely SPECIAL POINTS FOll CONSIDERATION. 841 charged against Revenue as used, unless very satisfactory reasons are given to the Auditor for leaving a balance on the credit side of the l>alance Sheet. Credit must not be taken hi the Balance Sheet for Dead Rent paid in respect of any time so far back as to render it not recoupable out of Royalties. Royalties should ])e charged in respect of all minerals taken credit for, either sold or in stock. When Wagons are held on a Hire- Purchase Agreement, ascertain that a full proportion of the periodical payments have been charged against Profit and Loss. If any Agreements with Railway Companies ascertain that due provision is made for Liabilities in respect thereof. The Stock of Minerals should be valued for the Balance Sheet at the cost of getting, includhig the Royalties, tlie Wages as ascertained from the Pay Sheets, c^c. Depreciation in respect of Lease, Plant, Wagons, Private Railway, &c., should be charged against the Profit and Loss Account. Co-operative Stores. — Some of the Livoices for purchases Co-operative should be compared with the Receiving Sheets and Invoice ^^^' Journal, for the purpose of ascertaining that the goods paid for have been actually received, and have been charged to the Purchases Accounts of the various departments. This will also prevent goods received being sold or taken into stock before the Department has been charged with the purchase ; it will also be a check on the Departmental Purchases (if any) in cases where a separate book is not kept for the purpose. As regards Sales, certain of the duplicates of the bills handed to customers should be compared with the Abstract prepared by each Salesman, and the totals of the Abstracts should be traced in the "Dissecting" Journal, and thence to the Cash Book. Should there be any credit sales, some of the duplicates should be checked with the Journal reserved for each Sales Ledger. Estate Accounts. — The Rent Roll should be examined Landed with the Terrier for the purpose of ascertaining that the 342 AUDITORS. Agent ha^^ included the whole of the properties in the Rent Roll, or accounted for those stated to be unlet. At the first audit, Leases should be perused tor the purpose of ascertaining the actual rentals agreed to be paid ; in future audits it will be sufficient to refer to the previous Rent RcjIIs, and to the Leases granted since that date. The Agent should produce some authority from the Landlord for reductions or allowances. The arrears brouo-ht forward into the new Rent Roll should be compared with the arrears at the closing of the previous Rent Roll. Where houses are allowed rent fi'ee to the Agent, or any of the staff or employees, lists should be produced, certified if possible by the Landlord. For Manors the original Statement received at the Estate Office from the Stewards (if any) should be examined. Where minmg property is held, the amounts received from the Lessees of the mines for royalties should be compared with the Certificates of the Landlord's Mining- Surveyor or Check Viewer. Miscellaneous receipts, such as sales of Timber, Stock, Dairy Produce, Game, &c., should be checked by Tickets taken fi'om a Counterfoil Book kept b}^ the Foreman of each Department, and sent to the Office. Ascertain that all buildings, stocks, farm implements, &c., are insured, and that the premiums are paid. Executors Executors and Trustees. — The usual Accounts sub- aud Trustees. ^^^^^^^^ ^^ Auditors will be fouud in Chapter \ll. Li auditing the Cash Book, the Auditor should ascertain that all amounts due to the Testator at the date of his death have been collected, or obtain an explanation as to those not received ; he must also be satisfied that dividends and interest on investments, rents and other income have been accounted for ; ^vhile, as regards payments, he should require the vouchers, including J>roker's Contract Notes, to be produced, and also ascertain that all payments are duly authorised by the Will or are other- wise legal. l)efi)re certifying any Accounts Avhich are intended to relieve the Executor or Trustees, the Auditor SrECIAL POINTS FOR CONSIDERATION. 343 slioiild ascertain that all payments directed by the Will, such as debts, legacies, &c., have been made, and that all duties have been })aid. After the payment of the funeral and testamentary expenses, the payment of the debts is subject to the follo^nng rules of priority : — 1. Debts due to the Crown. 2. Debts ha^•ing priority by Statute. 3. Debts of record, e.g.^ judgments and recognisances. 4. Specialty and smiple contract debts. 5. A^ohmtary bonds. When an estate is not sufficient to \^[XJ all debts and legacies it must be applied in the following order, which is known as '' marshallino- " the assets : — 1. Personalty not bequeathed, or only bequeathed by \\'ii\ of residue. 2. A real fund, created specifically for payment of debts. 3. Heal estate devised for payment of debts. 4. Real estate not specifically devised. 5. Real or personal estate devised or bequeathed subject to payment of debts. 6. General pecuniary legacies. 7. Real or personal estate specifically devised or bequeathed. 8. Real or personal estate which the Testator had power to appomt, and which he appointed by his will. 9. The paraphernalia of the Testator's widow. The expression " Testamentary Expenses " in a will includes the estate duty in respect of the personal property of which the Testat')r or other person whose " Testamen- tary Expenses " are referred to was competent to dispose at his death. A direction for the payment of " Testamentary Expenses " may extend to the expenses of administration under an intestacy. A Testator by his will gave his residuary estate to Trustees upon trust to convert and to invest the net pro- ceeds and pay the inct^me to his wife during her life ; and 344 AUDITOKS. after her decease he directed his Trustees, after paying liis widow's funeral and " Testamentary Expenses " and debts, to apply his residuary estate as therein mentioned. The Testator's wife survived him, and signed a document which purported to be her will. After her death the plaintiff and her brother, who were in the same relationship to the widow and were her next-of-kin, disputed the will, and the brother brouo-ht an action in the Probate Division to have a grant of administration to the estate of the widow made to him. The Court pronounced against the alleged will, but made ncj order as to costs. Letters of adminis- tration to the widow's estate were subsequently granted to the plaintiff' with the assent of her brother. Held, that the direction for payment of the " Testa- mentary Expenses " of the Testator's widow extended to (1) the costs and expenses of the plaintiff in obtaining the letters of administration, and in connection with the administration of the estate of the widow ; (2) the costs of the brother of the action in the Probate Division ; and (3) the estate duty payable on the death of the widow in respect of her personal property. — Li re Clemow, Yeo v. Clemow [1900] 2 Ch. 182. The plaintiff"s costs of an unsuccessful action im])eaching the validity of a will, though ordered by the Judge of the Probate Division to be paid out of the Testator's Estate, are not testamentary expenses. — In re Prince, Godwin v. Prince [1898] 2 Ch. 225. Where a general power of appointment over a fund is exercised by will, the appointed fund does not pass to the Executor as such ; conse(piently, the estate duty in respect thereof (in the absence of any direction in the will to the contrary) is payable out of the fund ; but such estate duty falls within the description of testamentary expenses ; conse(juently, where the will contains a direction to })ay testamentary expenses out of the residue, the estate duty in respect of the fund is payable out of the residue. — In re Treasure, Wild v. Stanham [1900] 2 Ch. 648. SPECIAL POINTS FOR CONSIDERATION. 345 When pecuniary legacies or shares of the residue of a testator's personal estate are settled by his will, no part of either the estate duty or the settlement estate duty imposed by the Finance Act, 1894, is to be borne by the settled legacies or shares, but the whole of those duties must be borne by the general residue. — In re Webber, Gribble V. Webber [1896] 1 Ch. 914. The Auditor should ascertain that all income, whicli is apportionable by the Apportionment Act, 1870 (see Chapter IV.), has been properly apportioned. Newspapers. — Ascertain that a Reserve has been created Newspapers, in respect of amounts received prior to date of Balance Sheet for prepaid Advertisements in respect of Advertise- ments not inserted, and also for periodical subscriptions for the Newspaper itself. Ascertain that the payments in respect of contributions which have appeared in the Newspaper to the date of the Balance Sheet have either been paid or included in the liabilities. Ascertain that the amounts ha^^e been credited to Agents in respect of Newspapers charged to them in their Accounts but returned as unsold. Tlieatres. — Check the weekly Treasury Sheets with Theatres, the vouchers and each weekly total into the Treasurer's Analysis Book, from which the expenditure is posted to the proper Ledger Account, also ascertain that all expenses are properly chargeable against the Theatre, and not against the Artistes. The balance as shown in the last Treasury Sheet of the year should agree with the Treasurer's balance as shown in his account in the Ledger. Ascertain from the Daily Box Office Returns that the money has been paid mto the Bank. There should not be any debtors in respect of Seats, except from the Libraries ; the amount stated to be due from the Libraries should be checked by their own returns. Ascertain that the amounts taken credit for in the Balance Sheet in respect of " Cost of Production " only include the actual cost of Scenery and Dresses, or, if it 346 AUDITORS. includes any other items, such as Salaries, Gas, &c,, that these can be hypothecated to rehearsals, and are not in respect of the ordinary current business of the Theatre. Where there are tours in the Provinces, the weekly Returns signed by the Manager of the tour should be checked by the Vouchers. Clubs. Clubs. — Ascertain from List of Members that each Member's Subscription has been accounted for in the Cash Book. (In some Clubs there are several classes of Members, such as Town, Country, and Supernumerary.) Ascertain that Entrance Fees of newly-elected Members are accounted for, also any Special Fees payable on election, such as to Library or Political Funds. The Auditor should also satisfy himself at each audit that these special fees are appropriated to the proper funds, and not mixed with the general income. Ascertain that the Stock of Wines, Cigars, Mineral Waters, Playing Cards, &c., have been properly taken, and obtain Certificates from persons responsible for the Stock- taking. Ascertain that no Wines the property of Wine Merchants are included in Stock stated to be the property of the Club. Schools and Sckools and Colleges. — Ascertain from the List the number of Undergraduates or Boys during each term, and that the proper Fees chargeable in respect of each have been received or brought to Account. Ascertain that any amounts received in advance of the date of the Balance Sheet for Tuition Fees are reserved, so that they will appear in the Revenue Account in respect of the term for which they are paid. Ascertain that all extras charged have been received, or included amongst the debtors. If lands or houses are owned, the audit of the books relating thereto will be of the same nature as the audit of other Estate Accounts. Colleges. PROFITS AVAILABLE FOR DIVIDEND. 347 CHAPTER XIII. PROFITS OF A COMPANY AVAILABLE FOR DIVIDEND, The Directors, not tlie xVuditor, recommend payment of Dividends — Definition of Profit — Foiu' Systems of Account for Ascertainment of Profits of a Company — The Single Account System — The Double Account System — The Thii'd System — -The Foui'th System — -Limited Dividends of Gas and Water Companies — Arrears of Dividend — Income on Yearly and Half- yearly Bonds — General Eemarks. The profit of the Company having been ascertained from Directors, the Revenue or Profit and Loss Account in the manner recommend' ah^eady indicated in Chapter IX., there then remains f( )!• Omdends. settlement the amount of profit avaihil^le for the payment of dividend, and in some cases this requires very careful consideration by the Auditor. Dividends (with the excep- tion of interim dividends) are declared by the Shareholders at their (xeneral Meeting's, and it is the dutv of the Directors, and not of the Auditors, to recommend to the Shareholders what amount out of the profit shown in the Accounts should be appropriated for the purposes of the dividend This recommendation can, however, be based cnily on the Accounts submitted to the Shareholders at the meeting, and certified by the Auditor, and " he must not certify Avhat he does not believe to be true, and he must take reasonable care and skill before he believes that what he certifies is true." — In re London and General Bank (No. 2) [1895] 2 Ch. 683. Responsibility cannot, of course, rest upon an Auditor for the declaration of an interim dividend, should such have been declared by the Directors, without consulting him in any way as to the advisability of paying such dividend. 348 AUDITORS. Kekewich, J. " A dividend presupposes a profit in some shape, and to divide as dividend the receipts, say, for a year, without deducting the expenses incurred hi that year in producing the receipts, would be as unjustifiable in pomt of law as it would be reckless and blameworthy in the eyes of business men." — Verner v. General and Commercial Investment Trust, Limited [1894] 2 Ch. 266. The various definitions of the term " Profit " by j^olitical economists are of little assistance to the Auditor in arriving at a decision as to whether he should, or should not, resist the pa}'ment of a proposed dividend, beyond, perhaps, their distinguishing between what is known as Fixed Capital and Circulating Capital, and it hardly comes within the scope of this work to discuss such questions, which are practically understood by ever}" Lawyer and Chartered Accountant. What Auditors have really to consider is the legal inter- pretation of the word, and as Lindley, M.R., has said, " the word ' profit ' is by no means free from ambiguity." — Verner v. General and Commercial hivestment Trust, Limited [1894] 2 Ch. 266. As long ago as 1849, Campbell, L.C., intimated that dividends are supposed to be paid out of profits only, and where Directors order a dividend to any given Acct)unt, without expressly saying so, that implicitly declares to the world that the Company has made profits which justify such a dividend. He added that if no such profits had been made, and the dividend had to be paid out of the capital of the concern, a gross fraud was practised, and in his opinion Directors were not only civilly liable to those whom they had deceived and injured, but were guilt}' of a conspiracy, for which they were liable to be prosecuted and punished. — Burnes v. Pennell, 2 H.L.C. 535. Kekewich, J., has given the following definition of profit : " The word ' profits,' like many other words in the English language, and even some of a technical character, is capable of more than one meaning, and it is often, and properly, used in more than one sense ; and it seems to me that the two different senses of the word PROFITS AVAILABLE FOR DIVIDEND. 349 ' profits ' afford the key to the sokition of tlie difficulty which I have now to deal with. In the ordinary parlance, among mercantile men and lawyers, ' profits ' mean that sum which periodically, at the end of the half-year, or vear, or other time fixed by agreement, is divisible among the partners — a term which, of course, includes members of a company — as income. It is sometimes called ' net profits,' only to distinguish it from what are called ' gross profits.' It is the sum wdiich is ascertained by the takmg of a proper account of what has been made ])y trading, and is therefore distributable between the parties entitled. But the word ' profits ' is also used properly in this sense : when you come to wind up a concern, you have to pay all the debts ; you have to repay to each partner what he has brought in as capital ; and after that has all been done, if the concern has been a successful one, there is a balance, and that balance is ' profit ' ; it cannot properly be called anything else. Whether you treat it as capital or whether you treat it as income is perfectly immaterial. The same persons receive both capital and income, and it is a matter for them to decide in what character they treat it. The best instance of that, because it is a more common one, is a partnership that is concerned m a single transac- tion, such as the purchase and sale, say, of a ship. The whole business of the partnership is first to purchase, and then, by proper proceedmgs, to sell the ship. There is no account in the meantime ; it is impossible. The capital is found in the first instance. Certain moneys are expended, further, beyond the purchase, in negotiating the sale, advertising, and so forth. Then the property is realised, and ultimately you ascertain whether you have a profit or a loss. If you realise more than sufficient to pay all the expenses, and return the original purchase money, then the excess is a ' profit.' " — Bishop v. Smyrna cj- Cassaba Railway Co. [1895] 2 Ch. 270. " There is nothing at all in the Acts about how dividends Liudiey, l.j. are to be paid, nor how profits are to be reckoned ; all that is left, and verv judiciously and properly left, to the 850 AUDITORS. commercial world. It is not a subject for an Act of Parlia- ment to say how Accounts are to be kept ; what is to be put into a Capital Account, what into an Income Acc(junt, is left to men of busmess." — Lee v. Neuchatel Asphalie Co., 41 Ch. D. 21. Day, J. Referrino' to the particular case which had been argued before him, Day, J., said : " Profits may l)e taken here to mean the surplus of income after defraying all, at least necessary, expenses of making it." — Last i\ London Assurance Corporation, 12 Q.B.D. .S89. Jessei, ii.R. Jcsscl, M.R., said, in 1880, " Profits for the year, of course, mean the surplus in receipts after paying expenses, and restoring the capital to the position it was in on the 1st January in that year." — De)it i\ London Tramways Co., 16 Ch.\D. 344. Where a Banking Company with a paid-up capital of £500,000 sold part of its undertaking for £875,000, after deducting the paid-up capital and other incidental expenses there remained a net balance of £205,000, and the Directors proposed to treat this balance as profit, it was held by Chitty, J., that the £205,000 was profit on capital, and not part of the capital itself, that the Directors were justified in carrying this sum to the Profit and Loss Account, and, after appropriating to the Reserve Fund so much as they thought proper, might distribute the remainder as dividends. Chitty, J. In the course of his judgment, Chitty, J., stated, as follows, the principles on which the accounts of a Trading Company should, in his opinion, be set out so as to arrive at profits available for dividend : " This is a trading- company, and I have before me a Balance Sheet of 1891, to which I refer by way of illustration, to show how the Accounts .of such a Banking Company are kept, and properly ke})t, in my opinion. I have before me the defendant Company's Accounts up to December, 1890. They put down on the (me side their liabilities, treating properly the £500,000, which has been subscribed by the shareholders, as a liability, for the purposes of bringing it PROFITS AVAILABLE FOK DIVIDEND. 351 into account, as against tlie assets, which they put down on the other side. Then, on the same liabihty side, they properly put their current Habihties, and certain other HabiUties and Reserve Fund, which the Company, according to its constitution, is justified in making, and they add up the total amount of those liabilities. On the other side they put down their assets, and, for the purpose of giving information to the shareholders, they divide the assets into certain heads : ' Cash at Bank,' ' l)ank Premises and Managers' Residences in Brazil and River Plate,' and then they add up the total on that side. They, of course — because there is not a suggestion that these Accounts are not ke})t with perfect propriety and perfect honesty — therefore put down on the assets side the money value of their assets, some being in moiie}' itself and some not. Then, when the two sides of this Account are compared, there is a surplus of £44,000 shown, which goes, according to the Accountant's regular method of keeping Accounts, to the liability side, and represents the balance of assets over liabilities. Kow, what is the result of keeping an account in this form ? The capital of the bank is intact, and the Accounts show it, and, after providing for the capital, there remains a surplus which rightly goes to the Profit and Loss Account. All that the Company is required to do, by force of the Companies Act of 1862, is to keep its capital intact, and not to pay dividends out of its own capital ; in other words, to keep that capital for its creditors, and any others who may be concerned therein. That mode of keeping the account is an excellent illus- tration of the right way to provide profit and loss. Taking the figures on this Account, this sum of £44,000 is profit made, and profit available within the Act of 1862 for division among the shareholders, unless there is something hi the Articles which would prevent the Directors, and prevent the Company, from dividhig the sum which thus stands to their credit." — Lubbock v. British Bank of South America [1892] 2 Ch. 200. " There is no law to prevent a Company from sinking Stirling, J. 3o2 AUDITORS. its capital in the purchase of a property producing mcome, and dividing- that income without making provision for keeping up the vahie of the capital. Fixed capital may be sunk and lost, and yet the excess of current receipts over current expenses may be applied in payment of a dividend, though where the income of the Company arises from the turning over of circulating capital no dividend can be paid unless the circulating capital is kept up to its original value, as otherwise there would be a payment of dividend out of capital." — Verner v. General and Commercial Investment Trust, Limited [1894] 2 Ch. 239. A Company formed in 1830 for the purpose of working gold mines in Bi'azil, made large profits from its principal mine, and paid good dividends from 1835 to 1886, when the top of the mine fell in and blocked it up, making further work impossible without a previous expenditure of large sums of money for labour and machinery in re- opening it. To obtain the necessary funds for this pur- pose the Company was twice reconstructed, and its capital increased by the issue of shares and of debentures bearing interest at £10 per cent, per annum ; and in November, 1894, the mine was reopened and supplied with new machinery and plant. From the date of the issue of the debentures up to the date of reopening the Company made no profits, and the Directors paid the interest on the debentures, which amounted to a large sum, out of Capital, but since November, 1894, the debenture hiterest and all outgoings were paid out of income. The Directors decided to form a Sinking Fund out of profits for the purpose of recouping the amount paid out of capital, and from the profits of the year 1897 proposed to pay a small dividend and carry over the remainder to the credit of the Sinking Fund. Upon motion in an action by a debenture- holder and shareholder, on behalf of himself and all other debenture-holders and shareht)lders of the Company, for an injunction restraining the Directors from applying any part of the profits in payment of a dividend until the amount paid out of capital for debenture interest PROFITS AVAILABLE FOR DIVIDEND. 353 had been replaced, it was held that tlie company were not bound to apply the profits in replacing debenture interest paid out of capital in previous years before declaring a dividend, and the action was dismissed. — Bosanquet v. St. John D'El Bey Milling Co., Ltd., 103 L.T. 316. There are two systems long known to })rofessional Four Sj'stems Accountants upon which iirofits can be ascertained, styled hag promT' respectively the Single Account System and the Double Account System. There have also been added two other systems, both of which have been advanced by lawyers, and both of which, having received the official sanction of the Court of Ap})eal, must undoubtedly be looked up(m as sanctioned by legal authority, but which in the eyes of Accountants are thoroughly unsound. The first system was sanctioned in the case of Lee v. The Neuchatel Asphalts Co., 41 CD. 1, and the latter in Verner v. General and Commercial Investment Trust, Limited, [1894] 2 Ch. 239. By the Single Account System the i)rofit is ascertained The Single more by reference to the Balance Sheet than the Profit system. and Loss Account or Revenue Account. If the Balance Sheet shows that the amount on the credit side exceeds the amount on the debit side, consisting of the j)aid-up capital of the shareholders, the debts and other liabilities, and any reserve created compulsorily in accordance with the Articles of Association, or voluntarily by the Directors acting under the powers given them by the Articles of Association, the excess is considered profit, and the theory of this system is that, so long as the capital of the share- holders is kept intact, this excess may be applied to the payment of dividends. According to this system, the Account representing any wasting property, such as a Patent or a Lease, appears on the credit side of the Balance Sheet, originally at cost price, which Account is gradually reduced in value by charging such a proportion against Profit and Loss Account, and leaving as a balance in the Balance Sheet the amount which is considered to represent the unex- hausted portion of the term of the Lease or Patent, or, AA 354 AUDITORS. what is equivalent to this, the amount remains at its oriofinal value on the credit side of the Balance Sheet, while the j^roportion referred to, after bemg charged periodically against the Profit and Loss Account, is carried as a Reserve into the debit side of the Balance Sheet. This system received legal authority in Str{n(/er''s Case, 4 Ch. D. 475 ; Selwyn, L. J., stating that the Company " would have been justified in declaring a dividend, provided they had put a fair, and no more than a fair, value upon the ships and other assets which they actually had. Taking it one step further, and assuming the case that several of the ships had been lost, that the Company was bound to put down, as they did put down, their proportion of that loss as being a loss upon this Balance Sheet, the other two-thirds of the loss were to be covered by the responsi- bility and guarantee of the Confederate Government, and, according to the view of the learned Vice -Chancellor, inasmuch as until the end of the war the value of that guarantee could not be ascertained, no dividend could be declared. I confess I am unable to agree with that view. I think that under those circumstances the Company was fully justified in putting a value on the ships and on the Confederate Debt — I think the Company was justified in doing that which, in truth, is done in almost every business, viz., taking the facts as they actually stood, and forming an estimate of their Assets as they actually existed, and then drawing a balance so as to ascertain the result in the shape of profit or of loss." Kindersiey, In Helby^s Case, 2 Eq. 175, Kmdersley, Y.C., said, " The Balance Sheet or summary of account would show, on the one hand, all the assets, and, on the other hand, all the liabilities of the Comj^any, and it was only on this sort of Statement that any safe conclusion could be drawn as to the question whether there had been any profit for the half-year or not, and whether any and whnt dividend should be declared." Ohitty, J. In re The Midland Land and Investment Corporation Case, heard ])efore Chitty, J., on the 8th November, 1886, but PROFITS AVAILABLE FOR DIVIDEND. 355 which, unfortunately, has never been reported, tlie learned Judge said, " In declaring a dividend, in my opinion, in trading concerns, the Directors are entitled to put an estimate on the value of their assets from time to time, in order to ascertain whether there is or is not a surplus remaining after providing for liabilities (including, of course, paid-up capital), and where they make those valuations from time to time on a just and fair basis, and take all the precautions which ordinary prudent men of business engaged in a similar business would do, they are entitled to treat the surplus thus ascertained as profit." This was the view taken by Wright, J., in a later Wright, j. case. A Balance Sheet had been prepared showing a net profit of £11,493 ; but the Directors, with the approval of the Company's Auditor, caused a supplemental IJalance Sheet to be prepared, in which the net profit was increased to £176,493, by transferring £165,000 from the " Suspense " Account to the Profit and Loss Account. At a general meeting of the Company both Balance Sheets were approved, and in the same year the Ctmipany went into liquidation. Ten years afterwards, the creditors having been paid, certain Directors claimed to be paid their shares of ten per cent, of the residue of net profits, in accordance with a clause in the Articles of Association, which was opposed by the Liquidator on the ground that the value of the assets had been largely over-estimated, and that the proposed distribution of the residue could not be made without a dividend being paid out of capital. It was, however, held that as it was not impossible for reasonable men, at the time when the resolutions of the general meeting were passed, to take the view then taken as to the value of the assets, the claim must be allowed, but without interest. — In re Peruvian Guano Co., Ex parte Kemp [1894] 3 Ch. D. 690. In a case tried by Byrne, J., the defendant Company Bynie, J. purchased the property and assets of another Company, AA 2 356 AUDITORS. whicli included a debt due to the old Company of 100,000 dollars, secured by the promissory notes of the New York and Bermudez Company. This debt was not regarded or treated as an asset of any value upon the purchase, and it was not specifically mentioned in the Balance Sheets of the defendant Company as an asset. Later on the New York and Bermudez Company gave to the defendant Company new promissory notes for 127,000 dollars, being the amount of the original debt, with interest then accrued due. The 127,000 dollars had been paid off, and the defendant Company proposed to treat the whole of that sum, amounting to £26,258 16s., as profits available for dividend, and to distribute the same accordingly. Byrne, J., granted an interim injunction restraining the defendant Company from distributing the 100,000 dollars as dividend without reference to the other business or assets of the company ; but added that he " must not be understood as determining that this sum, or a portion of it, may not properly be brought into Profit and Loss Account, or be taken into account in ascertaining the amount available for dividend, that appears to me to depend upon the result of the whole Accounts for the year. It is clear, I think, that an a])preciation in total value of capital assets, if duly realised by sale or getting in of some portion of such assets, may in a proper case be treated as available for purposes of dividend. This, I think, is involved in the decision in the case of Liihbock v. British Bank of South America [1892] 2 Ch. 198, cited with approval by Lord Lindley in Verner v. General and Commercial Investment Trust [1894] 2 Ch. 239, 265, where he says : " Moreover, when it is said, and said truly, that dividends are not to be paid out of capital, the w^ord ' capital ' means the money subscribed pursuant to the Memorandum of Association, or what is represented by that money. Accretions to that capital may be realised and turned into money, which may be divided amongst the shareholders, as was decided in Lubbock v. British PROFITS AVAILABLE FOR DIVIDENIX 357 Bank of South America. If I rightly appreciate tlie full effect of the decision the question of what is profit avail- able fur dividend depends upon the result of the whole Accounts, fairly taken for the year — capital, as well as profit and loss — and although dividends may be paid out of earned profits in proper cases, although there has been a depreciation of capital, I do not think that a realised accretion to the estimated value of one item of the capital assets can be deemed to be profit divisible amongst the shareholders without reference to the result of the whole Accounts fairly taken." — Foster v. New Trinidad Lake AsphaUe Co. [1901] 1 Gh. 208. The Single Account System was, of course, adopted by single Companies fi:"oni it having been the practice for merchants yyst"e^ the and traders to ])rei)are their Profit and Loss Accounts and "'^^"^•'^'^f., ^ ^ ^ _ mercantile Balance Sheets on this system, but there is one great system, obstacle to its being adopted as a universal method, viz., the difference between the nature of the capital of the partners in private partnerships, and of the capital of shareholders or partners in a joint stock enterprise, the former being fluctuating capital, and the latter a fixed one. In the Double Account System, that which has been The Double acquired by means of the capital of the Shareholders, either g^JJ^g™*' as originally or subsequently paid up, and also that which is acquired by means of the capital obtained from debenture - holders, or from loans obtamed, whether secured or unsecured, must be treated as capital expenditure, and an account nuist be kept of this separately. The Revenue Account or Profit and Loss Account nmstbe kept entirely distinct ; and the excess of income over expenditure properly chargeable against such hicome is considered the profit available for dividend. Burton Buckley, J., in the sixth edition of his work on the Companies Acts, gives the following example of this system : " If a ship-owning Company's capital be represented by ten ships, with which it trades, and one is totally lost and is uninsured, such a loss would be what is here called a loss on capital account. But if the same 358 AUDITORS. Company begins the year with ten shijjs, value, say, £100,000, and ends the year with the same ten ships, and the result ol the trading, after allowing for depreciation of the ships, is a loss of £1,000, this would be what is here called a loss on Revenue Account. Where a loss on Revenue Account has been sustained, there is, of course, no profit until that loss has been made good, either by set- off of previous undivided profits still in hand, or by profit subsequently earned, but, until Lee v. Neuchatel Asphalte Company, the question was open whether a Company under the Companies Acts, which has lost part of its capital by loss on capital account, can continue to pay dividends until the lost capital has been made good." " Lee V. Neuchatel Asphalte Co. has now shown the true principle to be that capital account and revenue account are distinct accounts, and that for the purpose of determining profits you must disregard accretion to, or diminution of, capital." '' It is no dt)ubt true that before arrivino- at revenue at all there are payments which must be made good to capital, on account of capital wasted or lost in earning the revenue. For instance, in the common case of leaseholds, which are a wasting property, the whole of the income will not properly be income. In the case of colliery properties, the difference between the price at which the coal is sold, and the cost of working and raising it will not all be income, for there must be a deduction made in favour of capital, representing the diminished value of the mine, by reason of its containing so many less tons of coal. In the case of a Tramway Company you will not have arrived at net profit before you have set apart a sum to make good deterioration, but when all proper allowances have been made in favour of capital, the balance, it is submitted, is revenue a})plicable for payment of dividend." Capital Diiiy It is HOW wcU settled in law that where the Receipts do applied for not excccd the Ex})enditure, or there happen to be from Dividends. ^^^^^^ cause uo annual Recei])ts at all, the Ca])ital cannot be ai)plied in })ayment of Dividends upt)n shares. PROFITS AVAILABLE FOR DIVIDEND. 359 That has been determmed in many cases, among- others in FlitcrofVs Case, 21 Ch. D. 519 ; Guinness v. Land Corporation of Ireland, 22 Ch. D. 349 ; and Verner v. General i')- Commercial Investment Trust, Limited l]^^)-^] 2 Ch. 239. The third system of ascertaining profits is the one upon The Third which the Directors of the Neuchatel Asphalte Paving '^^'*^°'" Company })repared their Accounts, and which was ai)proved by the Court of Appeal, affirming the decision of StirHng, J., dismissing an action brought by a shareholder to prevent the Directors declaruig a dividend on the ground that, as a large part of the capital had been lost, the loss or depreciation of a concession and assets should first of all be made good. This case has already been referred to, and it is only necessary to say, further, that, according to this system, a Balance Sheet is not necessary for the purpose of arriving at the profits, but it must be borne in mind in deciding upon the profit available for dividend of any Company which appears to be in a position identical with that of the Neuchatel Asphalte Paving Company, that regard must be had to the Memorandum and Articles of Association of each particular Company. Previous to this case it had usually been considered that where there has been a loss, either in the transactions of a non- trading Company, or in those of a trading Company, that before any future profits could be available for dividend the loss on the previous Revenue or Profit and Loss Accounts must be made good, and such is undoubtedly correct from a professional Accountant's point of view. When, however, there has been a loss, not because the Lost Capital -, . 11' • 1 • , 1 J.1 need not be ex})enditure belonging to any period is more tlian tlie replaced out Revenue, but because one or more of the Assets upon ° which the Shareholders' capital has been expended has been depreciated, or even lost, it now appears to be settled law that such need not be replaced out of Revenue. In other words, it appears that the capital of a Company, and the revenues derived therefrom, are to be treated in the same 360 AUDITORS. manner as have for many years been treated property left in trust b}' a testator for the income to be paid to persons inider his will, with the exception that trading and other Comj^anies are entitled to take credit, not merely for the cash received, but for profits earned during the period, provided the Directors are of opinion that it will ultimately be realised, and that their views, after careful investigation, have been approved by the Auditor. On this point Stirling, J., stated, "■ The plaintiff's second point is, that the property of the Company is not now sufficient to make good the Share Capital ; that the Assets to provide for that Share Capital must be made up before any di^'idend can be declared ; and that if dividends are declared without that beino- done that is to be treated as a return, and a division of Capital among the Shareholders, and therefore illegal. In my opinion that is entirely wrong. It is a misapplication of the term ' Return of Capital.'"— JTOmer v. McNamara if Co., Ltd. [1895] 2 Ch. 252. Even where a Tramway Company had, after working its tramways by a certain method involving a large out- lay of Capital for the requisite plant, rolling stock, &c., determined to entirelv chano-e its method of traction, sell some or all of the old plant and rolling stock at a loss and replace it with new, it was not considered by the Scotch Courts a loss which ought to be replaced before a dividend could be paid. In giving his judgment in the Court of Session, Edin- burgh, Lord Kyllachy made the following remarks : — " The view I take of the present case is shortly this : It is not at all, in my opinion, a case such as might have presented itself if, for example (the respondents still working the tramways by horse traction), a fire or other catastrophe had occurred by which, say, tbeir horses l)erished, and their cars were destroyed. In that case there would, of course, have been beyond question a loss of assets in the most real sense, and a loss beyond doubt requiring to be replaced. And that being so, questions, PROFITS AVAILABLE FOK DIVIDEND. 361 I think, of some difficulty would or might have occurred as to how far the necessary replacement could properly or justifiably be charged to capital. It does not, how- ever, appear to me that (taking the fects of this case as they appear on the complainer's statement and the minute of admissions) we have here to deal with anything which can be considered as in any real sense a loss or deprecia- tion, actual or prospective, of the respondents' assets. The selling off of their horses and cars is, or will be, a voluntary act on the part of the Company. It is part of a scheme or transaction on which the Compau}- has embarked presumably for the benefit and not for the detriment of their undertakino-. and if such scheme or transaction involves, by reason of enforced sale or other- wise, a sacrifice in one direction, such sacrifice will at least presumably be compensated by a corresponding gain in some other direction. I am, I think, entitled to hold that that is the view of the Directors and of the Company. I am also, I think, entitled to hold that they entertain that view on reasonable gTounds — o-rounds, at all events, which are not impeached by the complainer. But if that is so, it is surely a strong suggestion that I should assume without inquiry that the Company, as a going concern, will suffer upon the total transaction a loss equal to the loss on its discarded assets, or, on the other hand, that I should allow a proof as to the effect on the Company's general assets of the proposed conversion from horse to cable traction. I am certainly not prepared to make such an assumption, nor, on the other hand, am I prepared to allow such a proof except upon averments of a quite different kind from those with which I have here to deal. In saying so I do not proceed on any law or doctrine established or said to be established by recent decisions. I proceed on a principle as old as the beginning of Com- pany law — the principle, namely, that in matters of the kind here in question — matters necessarily of estimate and opinion — a Company is presumably the best judge of its own affairs. In such matters the Court will not 362 AUDITORS. readily interfere with the Company's action, and it will not do so at all except on averments which involve practically a case of fraud or dishonesty. The truth is that the complainer's argument involved, as it seemed to me, the assumption that capital sunk — that is to say, capital not represented by tangible and available assets — is in all cases to be considered as capital lost. Of course, if that were so, the question or kind of question would here arise which arose in the two English cases of which we have heard so much ; but such a proposition has never, so far as I know, been as yet at least advanced. The case suggested by Lord Justice Lindley, of expenditure made in starting a newspaper, is a very good illustration of the impracticability of such a doctrine. But, apart from extreme cases, few things are, I should think, more common in ordinary business than operations of the kind with which we are here concerned. A merchant or manufecturer desires to enlarge his premises, satisfied that it will pay him to do so. He accordingly pulls down old buildings which have a certain value, and he replaces them by others at perhaps great cost. There is thus, of course, in a sense, the sacrifice of a permanent asset, and it may quite well happen that the new buildings if put into the market would not fetch a sum equal to the value of the old building, plus the cost of the new. But, for the purposes of the trader's business, the result may be entirely the other way, and the presumption is that the trader is satisfied that it is so. If he is so satisfied, he will certainly not consider that he has sustained a loss of capital, or feel bound to carry the cost of the old building to the debit of his Profit and Loss Account for the year. Similarly a manufacturer requires or resolves to discard certain machinery, and to replace it with other machinery more effective or more economical. Here, again, the sacrifice in the case of the old machinery is simply an item in the cost of the change. So, also, when a Railway Company, as sometimes happen, alters its gauge or substitutes, say, steel for iron rails. The operation PROFITS AVAILABLE FOR DIVIDEND. 363 necessarily involves a sacrifice of old material. But the assumption always is that the operation as a whole enhances the value of the concern or unclertakino-. And although it may be a prudent and projier thing to provide for the recurrence of such expenditure, and to set up a renewal is a question which the trader considers for himself, and one as to which, even in the case of limited Companies, Courts of Law are not accustomed to interfere. On the whole matter I am of opinion that the complainer has stated no relevant case for interfering with the proposed dividend, or foi* granting him interdict in terms of any part of his prayer." — Cox v. Edinburgh and District Tramways Company, The fourth system referred to is the one approved by The Fourth the Court of Appeal in Verner v. General ()' Commercial ' ^^ ^^' Investment Trust, Limited, already referred to. In finally settling the amount of profit available for dividend the Auditor must be exceedingly careful where the amount is arrived at in any of the three last methods, and should he, after considering the matter, feel any doubt, he should request the Directors to take the opinion of Counsel, the case to be submitted to him by the Solicitors of the Company for approval before being laid before Counsel. The dividends of Gas and Water Companies are limited Dividends of by the private Acts of Parliament under which they are water incorporated, or when no rate is prescribed to ten j^er cent. Companies. per annum, but if in any year the profits divisible do not amount to the prescribed rate, such a sum may be taken from tlie Reserve as, with the actual divisible profits of such year, make up the prescribed dividend. The Reserve referred to is in the case of Gas Companies, formed in accordance with Clause 31 of the Gasworks Clauses Act, 1847 {see Chapter III.), and, in the case of Water Companies, formed in accordance with Clause 76 of the Waterworks Clauses Act, 1847 (see Chapter III.). The maximum dividend must not be paid free of Income Tax. A Gas Companv established before 1847 was authorised Back ^ '^ Dividends 364 AUDITORS. of Gas \)Y its si^ecial Act to pay dividends limited to 10 per cent., Compames. 1,1 ii-r-i 1 i and when that sum was reached, it there was a surplus, the price of gas was to be reduced ; there was also a provision for a Reserve or Contmgent Fund, to be limited to £5,000 ; afterwards the dividends and interest thereon were to be no longer invested, but applied to any of the general purposes of the undertaking to which the profits of the Company were applicable. By another section of the Act it was enacted that if in any year after the passing of the Act the profit should not amount to 10 per cent, per annum on the amount paid on the shares (whether such deficiency should have occurred before or subsequent to the formation of the contingent fund), such a sum might be taken irom the contingent fund as, with the actual divisible profits of such year, would enable the Company to make a dividend of 10 per cent, per annum. The Company sought to apply a sum of £3,990, the amount raised of the contingent fund, to the payment of back dividends of past years. It was held that as long as the Company paid 10 per cent, they ct)uld not touch the contingent fund, and that they were not entitled in any one year to divide more than 10 per cent., whether from profits or contingent fund, and were not entitled to apply the fund in makhig up the dividends of past years to 10 per cent. — Chamberlain v. Neic Worcester Gaslight Co., "Journal of Gas Lighting," 8th June, 1875. AiTcars of By an Act of Parliament it was enacted that it should be lawful for any shareholder who should have paid up one-half the amount of any share or shares of the G-.N.R. Co. to require each share to be converted into two half- shares, whereof the one half which should be so full}- i)aid up should be denominated " guaranteed " half- share, and thenceforth in respect of each whole share so divided the whole of the interest and dividends which would in each year have accrued, should be applied in or towards pay- ment, in the first })lace, of interest or dividend after the rate of £6 per cent, per annum on the amount paid up on the half-share so denominated " guaranteed," and the PROFITS AVAILABLE FOR DIVIDEND. 365 remainder, if any, should alone be payable to the half- share so denommated " deferred," provided that the Company should not pay any other or greater • amount of interest or dividend upon the two half- shares than was for the time being paid on each undivided share. It was held, u})on the construction of this section, that the holders of guaranteed half-shares were entitled to be paid their £6 per cent, in each }'ear, not only out of the dividends accruing in that year, but out of all subsequent dividends ; and, therefore, if in any year the dividends were more than sufficient to pay £6 per cent, on the guaranteed half- shares, the surplus must be applied in payment, in the first place, of all arrears due on those half-shares m respect of past deficiencies before any dividend could be declared on the deferred half-shares. — Maifhews v. Great Northern Piailway Co. [28 L.J.] Ch. 375. \Yhere by agreement between a Company and the income on Local Government, second mortgage Bonds were to be Half-yearly issued with the interest (non-cunuilative) dependent on ^oii^is. the }'early earnings, then, by a law passed to give effect thereto, the bonds were treated as half-yearly bonds with interest contingent on half-yearly profits ; then bonds were issued in terms of the agreement and not the law ; and then, by a Certificate of the Local Government, the bonds were erroneously certified to be according to the law, it was held, in a suit by the holders of the said bonds to expunge certain items debited against the half-year's income, to the prejudice of the claim for half-yearly interest, that, readino' the a^Teement and the law too-ether, the intention was that the Account should be taken at the end of each year, and not upon the footing that there was to be a rest at the end of every half-year ; also that the costs of issuing the bonds could not be charged against income to the prejudice of their holders ; and that, with regard to the expenditure on stores, the amount chargeable to any one year must be regulated by what is fair m the interest of all concerned. — Jamaica Railway Co. v. Attorney- General of Jamaica [1893] A.C. 127. ?,66 AUDITORS. Dividends. Differences Where the Articles of Association of a Company made declaring HO provision for the payment of Dividends other than this : " The Directors may declare and divide an interim dividend out of the profits and pay the same to the members in proportion to the capital held 1)}' each," and when the Directors were further empowered to receive advances from any member of any sums due upon the shares held by him beyond what was actually called up, and to pay interest " in lieu of dividends " thereon, and " capital " was not defined in the Articles, it was held that the dividends fell to be apportioned accordhig to the amount of the paid-up capital of each shareholder. — Hoc/c/an V. Thar sis Sulphur <^' Copper Co., 9 C of S. Cas. 1191 (Sc). Where the Articles of Association provided that the Directors may " declare a dividend to be paid to the members in proportion to their shares," and by the defini- tion clauses the word " capital " was declared to mean the capital for the time being of the Company, and the word " shares '' the shares into which the capital is divided, it was held that all the shares were entitled to participate equally in dividend, without regard to the amount paid up upon each, — Oalihank Oil Co. v. Crum, 8 A.C. 65. The value of the gas supplied by a Local Authority for public lighting was held not to be "profit" within the meaning of a Statute which limited the amount of profit that they might make from this Gas undertaking. — Chadderton and other Local Boards v. Oldham Corpo- ration, " Local Gov. Chron.," 16th January, 1892, p. 48. Should buildings be destroyed by fire and the Company receive from the Insurance Co. a sum which is in excess of the cost of rebuilding the premises destroyed, the surplus is not a profit which can be used for purposes of dividend. The profit made through debenture-holders cancelling their debentures, and accepting a loAver sum than the amount they originally lent to the Conii)any, would be a profit available for dividend. In the same way, should the depositors of a banking or other Company agree to accept a lower sum in consideration of their behig paid off, the Profit on Insurance On Cancelled Debentures. PROFITS AVAILABLE FOR DIVIDEND. 367 Auditor could not object to tlie Directors treating the balance as profit. Where the Articles of Association of a Limited Company Realised provided that no dividends should be })ayal)le except out of " realised profits," it was held that " realised profits " must be taken in its ordinary commercial sense, as mean- ing at least the profits tangible ft)r the purpose of division, and that the Directors, having treated estimated j^rofits as realised profits, and having in fact paid dividends out of cjipital, on the chance that sufficient profits might be made, were held generally and severally liable. — In re Oxford Benefit Building and Investment Society^ 35 Ch. D. 502. In another case the Memorandum of Association pro- Founders' vided that " As between the holders of the ordinary shares Reserve, and the holders of the founders' shares the profits from time to time available for dividend shall be applicable as follows : (1) To the payment of a non-cumulative preferen- tial dividend of 15 per cent, per annum on the capital paid up on the shares other than the founders' shares. (2) Of the surplus, two-thirds shall be applicable to the payment of a further dividend on the capital paid up on the shares other than the founders' shares, and the remaining third shall be applicable to the payment of dividend on the founders' shares rateably. The Articles of Association provided that, so far as they do not exclude or modify the regulations contained in " Table A,' the last-men- tioned regulations shall, so far as the same are applicable, be deemed to be the regulations of the Company." Clauses 11 and 12 contained provisions in substance equivalent to those of Paragraphs 1 and 2 of Clause 5 of the Memorandum. By Clauses 44 and 50 of the Articles some specified clauses of Table A were expressly excluded, but Clause 74 of Table A was not expressly excluded. The Accounts for the year ending the 31st July, 1900, showed a profit (after deducting an interim dividend of two and a-half per cent, on the ordinary shares which had been already paid) amounting to ,^13,225 lis. 4d. Out of this sum the Directors by their Report proposed to 368 AUDITORS. pay a dividend of twelve and a-half per cent, on the ordinary shares, amounting to .=£5,721 17s. 4d., to carry £7,000 to a Reserve Fund, and to carry over £503 14s., thus paying no dividend to the holders of founders' shares. The Court of Appeal held that Clause 74 of Table A was not in toto excluded by implication, and that " profits available for dividend " meant the net profits after making any deductions which the Directors could properly make before declaring a dividend, and that the Directors were justified, after paying a dividend of 15 per cent, to the ordinary shareholders, in setting aside as a Reserve Fund to meet contingencies so much of the surplus of the profits of a year as they thought fit. — Fisher v. Bhick tf- White PuhUshing Co. [1901] 1 Ch. 174. There can be no doubt that, for the purpose of the pre- servation of the shareholders' capital, that the Single Account system, or the first t)f the systems referred to in this chapter, is preferable, and for many years the Accounts of Companies registered under the Act of 1862 were Auditor's always prepared on this system. Upon which, however, of the systems the Accounts are prepared, if the Auditor believes them to be prepared not only strictly in accord- ance with fact, but also in accordance with one of the legal views referred to, it is unlikely that for certifying them he would be held liable. " It is nothing to him " {i.e. the Auditor) " whether dividends are properly or improperly declared, provided he discharges his own duty to the shareholders. His business is to ascertain and state the true financial position of the Company at the time of the audit, and his duty is confined to that." — In re London and General Bank (No. 2) [1895] 2 Ch. D. 682. Duty. FURTHER REMARKS. 369 CHAPTER XIY. FURTHER REMARKS ON THE DUTIES AND RESPONSIBILITIES OF AUDITORS. Auditors should be trained for their duties — Fallacy of insisting on a Share Qualification — Liability of Auditor for assenting to improper ijayment of dividends — Definition of Auditor's Duties by Court of Appeal — Liability of Auditor for Calls in winding up— Auditor should be able to suggest improvements in mode of keeping the books— An efficient audit shoiild embrace all the transactions of the Comj^any — Auditor may rely on the opinion of an Expert— Necessity for providing against bad debts — Inspection of the securities —Audit of a Companj' having branches — Power of Auditor to employ a professional Accountant- Directors of a Company, and not the Auditor, are its Managers. It must be evident, after a careful perusal of the fore- Auditors going pages, that the duties of an Auditor are not only trained for grave and responsible, but especially so when acting for *^^®"' duties. a Public Company or Society registered under an Act of Parliament, as guarding the interests of a number of shareholders or members who rely on his ability and honesty. In order to fulfil these duties properly he requires, beyond the possession of these necessary quali- fications, a perfect knowledge of book-keeping and Accounts, also an acquaintance with business matters generally, which can only be possessed by those whose training have been directed to this especial object. For many years, however, the absence of these quali- fications was, strange to say, not considered an objection by a meeting of shareholders, when making an election to the important appointment of Auditor of their Company's Accounts. One of the most absurd qualifications, and yet the one FaUacy of most frequently put forward by a candidate, used to be candidate the fact of his being a shareholder, and for this reason J^J'j^"J^*^ ^^^ ^^ alone most incompetent persons were frequently, and holder. occasionally still are, selected to fufil the ofiice. BB 370 AUDITORS. Assuming that those thus elected perform their duties with their utmost care and dihgence, and to the best of their abiUty, what will tliat avail them when they have to deal with Statements of Accounts wilfully and fraudu- lently misrepresented ? They are amateurs pitted against professionals, the book-keeper and manager being from the nature of their occupation the latter, while Auditors of the above description must most certainly be classed among amateurs. To insist on each Director holding a minimum stake in a Company is undoubtedly a wise provision, but to make it a sine qua non for an Auditor to be a shareholder is certainly a mistake. It is true that the possession of an interest in the Company is an incentive to him to look carefully into its Accounts ; but, as just shown, his ability may not be equal to allowing him to carry out his intentions, and, moreover, it does not follow that he will use any know- ledge gained during his investigation for the benefit of his CO -partners. An Auditor if For example, an Auditor having a very large interest hoidfr mry^' ^^^ ^ Company whose Accounts, as presented to him for dutiS ^"'^ confirmation, show its afiairs to be in a very satisfactory through condition, but which on close examination into the bt)oks motives. he finds is not the case, and that the Accounts have evidently been prepared with the intention of causing the shareholders to believe their property to be so far more valuable than it really is, that he knows it is his duty to refuse to certify the Accounts, may fail in his -duty through selfish motives. He knows that in the event of his refusino- to sig'n the Accounts as they are presented to him, in consequence of which they would be altered to show an honest statement of the Company's afiairs, the market price of the shares will fall and his own holding be thus depreciated. If, on the other hand, he certifies the Accounts as placed before him, the market price of the shares may be kept up or even rise, and he may then realise those standing in FURTHER REMARKS. 371 his name, with the exception of his qualification. He knows that in the event of the faihire of the Company he will not be severely blamed, he will at once plead that he did his best, and that the shareholders knew he was not a professional Auditor. In 1887 an Auditor was, for the first time under the Auditor held Companies Act, 1862, made a defendant to an action to J^^^l^^^^j^J^^ ^.^ hold him liable for breach of duty in makino- payment of payment of T • T 1 r • ^ 1 • ' 1 1 T 1 n • 1 • T 1 dividends out dividends out oi capital, and it was held by btirlmg, d., that of Capital, it is the duty of an Auditor of a Company's Accounts not to confine himself to verifying the arithmetical accuracy of the l>alance Sheet, but to inquire into its substantial accuracy, and to ascertain that it contains the particulars specified in the Articles of Association and properly drawn up so as to contain a true and correct representation of the state of the Company's afiairs, also that as, in this particular matter, improper payments b}' Directors was the natural and immediate consequence of breach of duty on the part of the Auditor, he was liable in damages to the amount so paid, except so much thereof as was covered by the Statute of Limitations. — Leeds Estate Builditu/ and Investment Company v. Shepherd, 36 Ch. D. 787. An Auditor was first made liable in 1864 for dividends paid away without the same having been legitimately earned, as already referred to in Chapter IX., but this was under a former Act. Since the Leeds, tfc, Co. v. Shepherd Auditors have been held liable for dividends declared to have been improperly paid out of capital under the Com- panies (Winding-up) Act, 1890, and in the leading case under this Statute the following remarks were made in the judgment of the Court of Appeal : — " His (the Auditor's) business is to ascertain and state the Definition of true financial position of the Company at the time of the duties by audit, and his duty is confined to that. But then comes J^"^^*^^* the question : How is he to ascertain that position ? The answer is : By examining the ])Ooks of the Company. But he does not discharge his duty by doing this without inquiry, and without taking any trouble to see that the bb2 872 AUDITORS. Books themselves show the Company's true position. He must take reasonable care to ascertain that they do so. Unless he does this his audit would be worse than an idle farce. Assuming the ]>ooks tt) be so kept as to show the true position of a Company, the Auditor has to frame a Balance Sheet showing that position according to the Books, and to certify that the Ixalance Sheet presented is correct in that sense. But his first dut}' is to examine the Books, not merely for the purpose of ascertaining what they do show, but also for the purpose of satisfying himself that they show the true financial position of the Company," — In re London and General Bank (No. 2) [1895] 2 Ch. 683. The following is an example of the method adopted by dishonest Officials to deceive their employers and Auditors : — Sudbiiry In the Report of the Commissioner appointed 23rd gare""' ^''''^ N'ovember, 1893, under the Trustee Savings Banks Act, 1887, to inquire into the defalcations committed by the Manager of the Sudbury Trustee Savings Bank, he states that the Manager adopted four separate methods. In the case of withdrawals : (1.) By inserting in the Cash Book a fictitious with- drawal entry to an account from which no withdrawal was made by the depositor. (2.) By falsify mg in the Cash Book the amount of a genuine withdrawal by the alteration or addition of a figure. In the case of deposits : (3.) By making no entry in the Cash Book of the amount deposited ; and (4.) By entering in the Cash Book a smaller sum than that actually deposited. Auditors can, of course, be held criminally liable under the Larceny Act, 1801, or the Companies Act, 1900, for wilfully making false statements in a lialance Sheet, Certificate or Report, and under Section 221 of the Criminal Code, 1872, of the Isle of Man, which is FURTHER REMARKS. 373 j)ractically to the same effect, the three Auditors of Dumbell's Banking Co,, Limited, which failed on the 3rd February, 1900, were, on the 19th November foliow- ino-, sentenced to hard hibour on conviction of havinsf been parties to the publishing of Mse Balance Sheets. An Auditor is presumed to have knowledge of what Liability of is contained in tlie books of the Company, and cannot ^Jjf^!^ "^p. plead ignorance of entries or of omission of entries in the l)ooks affecting himself in order to escape liabilitv in a winding uj). In LSGo the Secretary of the Company arranged with W. that some work connected Avith some buildings to be erected by the Company should be dcme by W., and that W. should be paid as to 20 per cent, in paid-up shares, and the balance in cash. On a rough estimate this would have given W. thirty £10 shares, and these were put down to his name in the books of the Company. In 186G AV. was appointed Anditor, and he audited the books of the Company in 1867 and 18G per share, Oil allotment £ per share. On the day of £ per share, and the residue, viz., shares, have been cc2 388 AUDITORS. Certificate of Auditor on Balance Sheet. allotted, credited as lully p^iid up, in part con- sideration for the goodwill, lands, buildings, stock- in-trade, and other assets of Messrs. pui'chased by the Company, as in the Company's Prospectus mentioned. 3. The total amount of cash received by the Comjmny in respect of the said shares is £ , and it has received no cash in respect of the said shares. 4. The following is an Abstract of the Receipts and Payments of the Company on Capital Account to the date of this Report : — Receipts. £ s. d. Payments. £ s. d. Note. — Here follows the rest of the Directors' Report, with which the Auditors are not concerned. " We, the undersigned, being the Auditors of the above-named Company, hereby certify that the above Report is correct as to the shares allotted by the Company and as to the cash received in respect of such shares, and as to tlie Receipts and Payments of the Company on Capital Account." " Auditors of the Company." The affixing of his Certificate to the Balance Sheet and issue of his Report is the conchision of the Auditor's functions. It is true he may, in tlie case of a Company or Society registered under an Act of Parliament, attend the meeting of Members, to which the Accounts, as audited by him, are presented, and, if necessary, address the meeting THE auditor's OERTrFICATE AND REPORT. 389 upon them. ' Or, in the case of a private audit, it may be necessary for him to explain to his Chents something not quite clear to them on the face of the Accounts ; but, strictly, his duties are completed on signing his Certificate and Report. For many ^-ears, a sim])le Certificate affixed to the Simple form of Certificate Accounts of a Company was deemed sufficient, such as " Audited," " Aiidited and found correct ; " and no more comprehensive one could be adopted, as it implied (although, perhaps, not always meant to do so) that everything possible in the prosecution of an audit had been done. Other forms of Certificate, such as " Examined with the Books and Vouchers, and found to be correct ; " " I have examined the above Accounts with the Books and Voiichers, and certify the same to be correct," were also considered sufficient for a Company, and in the case of private audits may still be adhered to, unless the client wishes for a more extended one. The Companies Act, 1900, enacted as follows : — " Sectiox 23. — The Auditors shall sign a Certificate at the foot of the Balance Sheet, stating whether or not all their requirements as Auditors have been complied with, and shall make a Eeport to the Shareholders on the Accounts examined by them, and on every Balance Sheet laid before the Company in General Meeting during their tenure of office ; and in every such RejDort shall state whether, in their opinion, the Balance Sheet referred to in the Report is properly drawn up so as to exhibit a true and correct view of the state of the Company's affairs, as shown by the Books of the Company, and such Report shall be read before the Company in General Meeting." The provisions contained m this section are supplemental to, and not in substitution for, provisions as to audit contained in Articles of Association, or Regulations of a Company registered under the Companies Act, 1862, or to those contained in Clause 94 of Table A for Companies registered without Articles of Association. Where, however, the Act of 1900 is inconsistent with the clauses of Articles or of Table A the Act prevails. 390 AUDITORS. Cei-tificate suitable to Companies Act, 1862. To Companies Act, 1879. interpreta- tion of "As shewni by Books, &c." The. word " requirements " is, it is presumed, used in its popular sense, and not as referring* merely to what the Auditor is entitled to require under the preceding words of the section. In order to fulfil the strict conditions of the first Schedule of the Companies Act, 1862, and in all Companies whose Articles of Association have been (so far as the duties of Auditors are concerned) drawn up on the same lines, the following Certificate should be affixed : — "In accordance with Section 23 of the Companies Act, 1900, I certify that all my requirements as Auditor have been complied with. I have examined the above Balance Sheet and Accounts with the Books of the Company, and certify that in my ojiinion the Balance Sheet is a full and fair Balance Sheet, containing the particulars required by the Memorandum and Articles of Associa- tion of the Company (or the first Schedule of the Companies Act, 1862), and properly drawn up so as to exhibit a true and correct view of the state of the Company's affairs." Should the Auditor have called for explanations or information from the Directors which have been withheld or have not been deemed satisfactory, the above Certificate should be amended as follows : — " I certify that all my requirements as Auditor have not been complied with, inasmuch as the Directors have refused to {here state the facts).'''' The following Certificate would satisfy the requirements of the Companies Act, 1879, where the Auditor is satisfied with the Accounts : — "In accordance with the Companies Act, 1900, 1 certify that all my requirements as Auditor have been complied with, and in accordance with the Companies Act, 1879, I further certify that I have examined the above Accounts and Balance Sheet, and in my opinion the Balance Sheet is a full and fair Balance Sheet, and properly drawn up so as to exhibit a true and correct view of the state of the Company's affairs, as shewn by the Books of the Company." The last eight words are very frequently introduced into the clause of the Articles of Association t)f limited Companies which refer to the Auditor's Report or Certificate, and the following explanation of Rigby, L.J., THE auditor's CERTIFICATE AND REPORT. 391 is of interest: *' The words, 'as shewn by the Books of the Company,' seem to me to be introduced to relieve the Auditors from any responsibility as to affairs of the Company kept out of the books and concealed fi-om them, but not to confine it to a mere statement of the corres- pondence of the Balance Sheet with the entries in the ]x)oks." — In re London and General Bank (Xo, 2) [1895] 2 Ch. 092. Tiie following form of Certificate might be used for a Certificate for Banking or other Company having branches abroad : — Companies. "lu accordance with Section 23 of the Companies Act, 1900, I certify tliat all my requirements as Auditor have been complied with, and I report that I have verified the Cash, Investments, Bills of Exchange, and other Assets in London, and have had access to the Accounts sent to London from the various branches in the Colonies, and, having examined the same, and the Books and* Accounts of the London office, I am of opinion that the above Balance Sheet is a full and fair Balance Sheet, properly drawn up so as to exhibit a true and correct view of the state of the Comj)any's affairs as shewn by the Books of the Company." When the Auditor of a Company, Institution, or any Report in Association not registered under the Companies Acts, certificate. 1862 to 1900, is satisfied that the x\ccounts are practically correct, but considers it desirable that some further in- formation should be afforded to the Members than is disclosed in the Accounts, but which, if included in the Certificate, would make it too lengthy, he should address a Report to the Members or Subscribers, and call attention to its existence by means of a short i)aragraph in the Certificate itself :- " and certify them, in my opinion, to be correct, in accordance with my Eej)ort of this day's date, addressed to the Members for Subscribers]." or " and certify them, in my opinion, to be correct, subject to my Eeport of this day's date, which Report fonns part of this Certificate." The words, " in accordance with," in the first of these examples may be used when the Auditor is either satisfied the Accounts are absolutely correct, or when, although not 392 AUDITORS. quite satisfied, for example, as to the values put upon Assets or other items on the credit side of the Balance Sheet, he feels he has no valid ground for raising any objection. The words, " subject to," may be used when the Auditor is satisfied the Accounts are correct, sul)ject to the special items referred to in the Report being ultimately ascertained to be also correct. In a Memorandum handed by Mr. Whinney, a past President of the Institute of Chartered Accountants, to the Companies Acts Amendment Committee, which sat in 189o, were the following remarks : — Mr. " It should be borne in mind that, in the case of the audit remarks'oii of Banks, it is neccssary that Auditors should be especially Bank^'^^*^ ^°^ guarded hi their Certificates. The very existence of a Accounts. Bank depends iKjt only upon its assets, but also up(jn its audit. An Auditor takes a very serious step by putting into his Certificate anything which may affect the stabilitv of the Bank. " In most Banks the Auditor is required to keep its secrets. It therefore requires careful consideration how far Auditors would be justified in pointing out to Share- holders in General Meeting many matters which they might very properly bring to the attention of the Directors. This question is complicated by considerations affecting the confidential relations of a Company and its customers, and the interests of shareholders themselves, as regards any prejudicial effect on Assets inider con- sideration." These remarks of an Auditor of experience are indicative of the difficulty Auditors of Companies registered under the Companies Act, 1862, used frequently to find them- selves ill, when, although they were satisfied that the Directors had been perfectly honest in their transactions with the funds of Shareholders aiidN)tliers intrusted to them, yet felt they had not disclosed the exact position of affairs to the Shareholders, not for the purpose of deceiving the latter in any way, but because they knew that whnt THE AUDTTOr's CERTIFICATE AND REPORT. 393 tliey published to tlie Sluireliolders must necessarily have been made public generally. In order to meet this difficulty Auditors frequently Certificate adopted a form of Certificate which, although not giving shai"ifoiders the information to the world which might, in their opinion, "" J"4»ii7- be prejudicial to the interests of their clients, the Share- holders, yet afforded them the opportunity of putting- questions to the Directors at the Annual General Meeting at which the Accounts are presented. The risk of so acting was, however, pointed out in the following remarks of Lindley, M.R. : — "A. person whose duty it is to convey information to Danger of ■' such Certifi- others does not discharge that duty by simply giving them cate. so much mformation as is calculated to hiduce them, or some of them, to ask for more. Information and means of information are by no means equivalent terms. Still, there may be circumstances under which information given in the shape of a printed document, circulated amongst a large body of shareholders, would, by its consequent publicity, be \ ery injurious to their interests, and in such a case I am not prepared to say that an Auditor would fail to discharge his duty if, instead of publishing his Report in such a way as to insure publicity, he made a confidential Report to the Shareholders and invited their attention to it, and told them where they could see it." . . . . " An Auditor who gives Shareholders means of information, instead of informa- tion, respectmg a Company's financial position, does so at his peril, and runs the very serious risk of being held judicially to have failed to discharge his duty." — In re London and General Bank (No. 2) [1895] 2 Ch. 684, 685. The difficulties, however, referred to, which were experienced by Auditors of Companies registered under the Act of 1862, were disposed of by the Act of 1900 enacting a Report shall be presented as referred to hereafter. Having regard to the preceding statement of Lindley, M.R., it is quite clear that when an Auditor is of opinion any of the Assets are not likely to ultimately realise the value put upon them by the Directors, he 394 AUDITORS. Misfeasance. Auditor not au Insurer. Auditor's Report. does not discharge his duty to the shareholders by stating in liis Certificate — " The value of the Assets as shown on the Balance Sheet is dependent upon realisation." "It is a mere truism to say that the vahie of loans and securities depends on their realisation." — In re London and General Bank (No. 2) [1895] 2 Ch. 685. The giving of a Certificate, assuming it to he to the knowledge of an Auditor a misleading Certificate, is a misfeasance within the meaning of the Companies (Wind- ing-up) Act, 1890, Section 10, and is not a mere act of neo'lio-ence : but where the Auditor believes that what he certifies is true, he fulfils his duty. " An Auditor may certify the Accounts as correct, and be perfectly honest in the full discharge of his duty, yet the Accounts, nevertheless, may not truly represent the position of the Company." — In re Kingston Cotton Mills Co., II. Manson 631. " He is not an insurer ; he does not guarantee that the Books do correctly show the true position of the Company's affairs ; he does not even guarantee that his Balance Sheet is accurate according to the Books of the Company." — In re London and General Bank (No. 2) [1895] 2 Ch. 683. The Companies Act, 1900, introduced a very important addition to the duties of Auditors of Companies registered under the Act of 1862 by enacting that, in addition to the Certificate to be affixed by them to the Balance Sheet, they shall make a Report to the shareholders on the Accounts examined by them, and on every Balance Sheet laid before the Company in General Meeting during their tenure of office ; and in every such Report shall state whether, in their opinion, the Balance Sheet is properly drawn up so as to exhibit a true and correct view of the state of the Company's affairs as shown by the Books of the C()m[)aiiy ; the Act also further enacted that this Report sliall be read before the Company in General Meeting. (Companies Act, 1900, Section 23, vide Chapter III.) THE auditor's CERTIFICATE AND REPORT. 395 This Report, while not relieviii<:( tiie Auditor of any of his responsibilities, enables him to make a communieation to the shareholders without in any way having to consider whether his remarks will be prejudicial to their interests. It is quite evident that the Legislature intended the Report to be a confidential document, the contents of which were to be communicated direct to the shareholders by their representative, duly appointed to examine on their behalf the Accounts showing the result of the management of the Directors, The Report is not referred to in the Certificate, and is, therefore, not to be open to those to whom the Accounts with the Certificate attached may be shown, and, unless the Auditor wishes to qualify his Certificate, he should not in the body of it refer to the Report, which is enacted shall be merely read in General Meeting. It is quite clear that the Certificate and Report must be separate, and separately signed, even though both be placed on the Balance Sheet. An Auditor is, of course, at liberty, should he so desire, to connect the Certificate with the Report by inserting in the Certificate a reference to the '' subjoined " or "accompanying" Report, but unless he wishes to specially call the attention of the shareholders to some inaccuracy in the Balance Sheet he loses one of the advantages the Act gives him by so doing-. The following form of Report may be adopted : — "The Comp.vny, Limited. "Auditor's Eeport. " To the Shareholders, " I have audited the Balance Sheet, dated the day of ,190 , and in my opinion such Balance Sheet is properh' drawn up so as to exhibit a ti'ue and correct view of the state of the Company's affairs as shown by the Books of the Company." The meaning of the last eight words has already been given in this Chapter. If, in the opinion of the Auditor, the Accounts and 396 AUDITORS. Balance Sheet are so explicit that no further information need be given to the shareholders, his Report may consist solely of the above paragraph, but should he consider it his duty to call their attention to any matter not specifically referred to in the Accounts or his Certificate, he should add the necessary paragi'aphs, for example : — " No amount has been written off for depreciation of the lease of , which expires in 190 ." "No amount has heen charged against the Profit and Loss Account in respect of the Patents, wliich still remain on the credit side of the Balance Sheet at £ ." " Nothing has been written off the Patents for mam' years, and I am unable to express anj^ opinion as to their value." " No depreciation has been written off this 3'ear in respect of the lease of the Factory or of Machinery, &c,, the Directors having considered this unnecessary in the first year's Accounts, on the ground that, on the reconstruction of the Company, these assets were acquired by the present Company at less than one-half of the amount at which they stood in the Books of the old Company. In our opinion the shareholders may assent to this." " Included in the amount due from debtors is one of £ from Mr. , one of the Directors of the Company." "The amount taken credit for in tlie Balance Sheet in respect of Capital Expenditure on the Mine, &c., includes all the expenses at the Mine and the London Office Expenses to the , 190 ." "I have been unable to inspect the title deeds of the property, as I am informed thej^ are in the hands of Messrs. , your local Bankers [or Solicitors]." It must, however, be clearly understood that an Auditor does not discharge his duty by referring in his Report to something which affects the accuracy of the Balance Sheet or other Statements presented to the shareholders. An Auditor cannot certify that all his recjuirements have been c()in})lied with if, in his opinion, expenditure has been omitted from the Revenue Account, and consequently from the liabihties in tlie Balance Sheet, if due provision THE auditor's cp:rtificate and report. 897 has not been made for loss on realisation of debts, if assets liave been over- valued, or the Accounts are inaccurate for any otlier reason. Such inaccuracies are matters for liis Certificate and not for his Keport. One of the most unpleasant situations in whicli an rosition of Auditor of a Company can be i)laced is when he feels liheu tile "^ tliat he cannot append his Certiiicate to the Accounts he A<2^o""t^ ^^^ i ^ ^ ^ ^ incorrect. has audited without qualiiication. Of course, in those cases where they are i^'rossly inaccurate, whether so prepared unintentionally, ov for the purpose of misleading the shareholders or tlie customers of the Company, or with a view to induce the public to take u[) additional shares, then the duty of the Auditor is clear. He must positively refuse to give his unqualified Certiiicate, but at the same time may intimate his willingness to do so provided the Accounts be re -drawn so as to present an honest and correct statement of the transactions and position of the Company. It frequently happens that Directors, owing, perhaps, to depression in trade, which they have reason to believe is only temporary, will, without any intention of acting dishonourably, present a Revenue Account showing a profit equal to that of preceding years, while, in fact, it is considerably less. To any one not versed in Accounts this may appear impossible, but it is, undoubtedly, of very frequent occurrence. When a Compan}^ is prosperous, an Auditor has usually very little trouble in arranging for a proper allowance for depreciation of stock-in-trade, plant, machinery, &c., to be charged against the Revenue Account, but \\lien a period of depression in trade arises, there is frecpiently great difficulty in persuading the Directors to continue this wholesome practice. A variety of excuses are made for its discontinuance, and if the Auditor receives an actual refusal to amend the Accounts, it is not always easy to resolve on what course to pursue. 398 AUDITORS. His difficulty It may be argued that, as each shareholder is a partner wharcoiirse ^^ ^he Undertaking, they should be informed by their to adopt. Auditor that the profits of the period referred to are not calculated on the same strict basis as hitherto, but the fact must not be overlooked that this information may be so made use of by a single shareholder as to depreciate or even totally destroy the future of the Company. To refuse to sign the Accounts, or tu insert in the Certificate that they are incorrect, might, therefore, be followed by results very disastrous to the Company, and, consequently, to the shareholders, whose representative the Auditor is. May be The bcst plan an Auditor can adopt under these circum- meausof a stanccs is to adopt the suggestion given by Lindley, M.K., Keport to the ^^^^i ^^ addition to the Report requireTl by the Act of 1900, Members. make a confidential Report to the shareholders and inform them in his Certificate where such Report can be seen. Such Certificate might be worded as follows : — "We have examined the above Balance Sheet with the Books and Vouchers of the Company, and certify the same to be correct. "We think it desirable on this occasion to make a confidential Report to the shareholders, which Report must be considered as forming part of this Certificate, in connection with certain matters which have come under our notice during the audit, and this Report can be seen on application at the offices of the Company." Shareholders, on reading such a Certificate, will, after they have called at the office of the Company and seen the Report, have the opportunity of considering what steps they shall take at the meeting, and, on being brought together, will decide whether to adopt the Accounts as presented by the Directors, or to reject them and pass a resolution that they be amended as recommended by their Auditor in his Report. The Auditor must, of course, use his discretion as to the necessity of issuing a special Report of this nature. As long as the assets are not over-estimated in the Accounts he has not any right to insist on the Directors continuing a practice of charging the Revenue Account THE auditor's CERTIFICATE AND REPORT. 399 AA-itli allowances for depreciation, which, perliaps, although not ahvays necessary, they had no objection to do out of large profits. Should, however, he feel sure the assets have really depreciated in value since the last Balance Sheet was taken out, then it is clearly his duty to acquaint the shareholders with this fact, should it not be disclosed in the Accounts. There can be little doubt that an action for libel will not Libel Action lie in respect of statements used in the Certificate and respe'ct of ^ " Eeport of an Auditor, if made in a bond fide manner. A c^rtifica'te Company whose head office w^as at Manchester, with factories in Egypt, received from their Manager in Egypt Accounts of purchases made, quantity of Cotton and Oil in stock, and the expenses incurred. In the Revenue Account submitted to the' Auditors, the last item entered on one side of the Account was " Deficiency in Stock, £1,306 Is. 7d." It was explained to the Auditors that this last item, though entered as deficiency, was, in truth, only a depreciation in the value of the stock, for wdiich the Manager was not answerable ; but the Auditors, notwithstanding, affixed the following Certifi- cate : — "We certify that the Accounts as above stated are correct. Shareholders will observe that there is a charge of £1,306 Is, 7d. for deficiency of Stock, which the Manager is responsible for. His Accounts have been badly kept, and have been rendered to us very irregularly." This Report, together with that of the Directors, was submitted to the Ordinary General Meetuig of the Share- holders of the Company, according to the usual practice, and it was resolved by the meeting that the Report should be printed and sent to the shareholders. The Reports (including the above statement) were accordingly sent to a prmter, printed and circulated among the shareholders, and used at an adjourned meeting of the shareholders. The Manager brought an action for libel against the Company, when it was held that, as it was the duty of the Directors 400 AUDITORS. Certificate for Railway Companies. to communicate the Report of the Auditors to the share- holders, and it was for the interest of all the share- holders to be informed of the Report, the printing and publication of the Reports were priynd facie privileged, and that there was no evidence of expressed malice for the jury. — Lawless v. Amilo- Egyptian Cotton and Oil Co., 4 Q.B. 20,2. The requirements of the Railway Companies Act, 1867, would be satisfied by the following Certificate : — " AVe hereby certify that the above Half-yearly Accounts contain a full and true statement of the financial condition of the Company ; and that the Dividends proposed to be declared on the several Stocks and Shares are hond fide due th ereon, after charging the Revenue of the Half-year with all expenses which ought in our judgment to be paid thereout." In the Copy of Form prescribed by the Chief Registrar of Friendl)" Societies, under the Building Societies Act, 1894, the following Certificate for Auditors is given. The form is not compulsory, but it fulfils the requirements of the Act : — "We, the undersigned, , being a person who publicly carries on the business of an Accountant at No. Street, , and , residing at , the didy appointed Auditors of the above-mentioned Society, do hereby attest the foregoing Accounts and Statements, and certify that they are correct, duly vouched, and in accordance with law, and we certify that we have, and each of us has, at this audit actually inspected the Mortgage Deeds and other Securities belonging to the Society, in respect of each of the Properties in mortgage to the Society referred to in the foregoing Accounts and Statements." For Savings Banks the following Form of Certificate is recommended : — "Having examined the Books and Accounts of the Savings Bank for the past year, certify that the foregoing extracted list of Depositors' balances, made up to the 20th November , is a correct statement of the number of open Accoimts, viz., , and of the amount due in respect of them severally and in the aggregate, the total amount being " (in words and figures). THE AUDITOR S CERTIFICATE AND REPORT. 401 For a Society registered under the Friendly Societies Friendly Act, 1896, and the Collecting Societies and Industrial ^°'^"^^''' ^'• Assurance Companies Act, 189G, the following form is recommended by the Chief Registrar : - - "The undersigned, having had access to all the Books and Accounts of the Society, and having examined the foregoing General Statement, and verified the same with the Accounts and Vouchers relating thereto, now sign the same as found to he correct, duly vouched, and in accordance with law." If in any respect the xVccounts are incorrect, unvouched, or not in accordance with law, the Auditors are not to give the above Certificate, but are to make a Special Report to the Societv, of which a copy is to be sent by tlie Society to the Registrar with the Statement. DD APPENDIX. 403 APPENDIX. Balance Sheet prescribed by Companies Act, 18(32, Table A . . 404 Form of Accounts prescribed by Eegulation of Eailways Act, 1868 405 Form of Annual Accounts prescribed by Gasworks Clauses Act, 1871 411 Form of Annual Accounts prescribed by Life Assurance Companies Act, 1870 415 Form of Accounts for Building Societies prescribed by the Chief Eegistrar of Friendly Societies untder Building Societies Act, 1894 421 Form of Accounts for Electric Lighting Companies . . . .427 Annual Eeturn as prescribed by the Chief Eegistrah under the Friendly Societies Act, 1896 437 Annual Eeturn prescribed by the Chief Eegistrar for a Eegistered Collecting Society under the Collecting Societies and Indus- trial Assurance Companies Act, 1896 443 Annual Eeturn prescribed by the Chief Eegistrar for Societies Carrying on Industries and Trades under the Industrial and Provident Societies Act, 1893 446 Eeceipts and Payments Account of a Mining Company (Pro FormA) 449 Eevenue Account of a IMining Company (Pro Forma) .... 450 Balance Sheet of a Mining Company (Pro Forma) .... 451 foitm required to be made annually by every company registered under the companies act, 1862, having a capital divided into Shares 452 Form of Statement required to be made twice a year by every Limited Banking or Insurance Company, ^vnd every Deposit, Provident, or Benefit Society registered under the Companies Act, 1862 453 Form of Statement prescribed by the Industrial and Provident Societies Act, 1876, for every Society carrying on the Business OF Banking 453 Conditions under which Public Auditors hold their Appointments UNDER the Friendly Societies Acts, and the Industrial and Provident Societies Act, 1876 454 Table for ascertaining the Amount to be written off a Lease Account annually, in order to exhaust the same at the Expiration of the Lease, also for ascertaining the present value of a Lease. . 456 Ledger Account (Fro Forma) of a Lease from Date of Purchase until its Expiration 457 Model Clauses for Articles of Association 461 DD 2 404 AUDITOKS. •ts ri 00 1 «« I • • • o t5 2 ^ S a a 5? o <4H O '3 (a.) btock 111 irade . {e.) Plant . The cost to be stated with dedi tions for deterioration in va as charged to the Eeserve Fit or Profit and Loss. o . o fH !^ ci P^ 'w c:; O o fcc o II Ol CO QO 1—1 o Ph P '^? B 1— 1 o ^ 2 CI > o Shewing : Debts consiclcre pany hold Bi Debts considere pany hold no Debts considere P S » < o ■4-1 'A o H s ^' p P cc S 'S t<, I— 00 05 o 1— 1 CQ CO ■o T-l T-H l-H r-i ^ p-i-^ a OQ O • s^a P n 6 o O w o H 5i^ O +2 ^ ■r. s^ ,Q p, ^•o^P. > »-H s 1— 1 1— 1 ^ -« 5r^ ca <-c> 1^ ^. «' Si o Eh CO h- 1 H 1— 1 1— 1 2 o 1 I to li =tH =tH O K ■to ms on ISIortgagcs or ts owing by the Com- ing- CO o 1 CJ o 1 1 given. lesmenfor supplies of o t ip cP rt p O Ph S o jO 4H o s O o o ^ .3 p -tf p p ^ o u ^ '^ - 1 1 ^ Ph O O ID o P ^ C3 o 1° Shewing : Amount of Lot jbenture Bonds Amount of Deb ny, distinguish t+H SH^gg ■— o .;:; t+H !4H ii eS 0. c3 P5 d :n r2 "o . <1 H Ph -^1 .. c p. ^ S o s § s §■3.1 ^ St: 7: P OJ +^ >^ cc ■J'i <^ a +2 o O IB |c| 'S p< Dividends, & Claims against ledged as De Moneys for wh gently liable w O HH C3 ■4-1 1— 1 II H H a H i-i(M eo ■^ lO «o 4 H O ?2 A 2 S S <: H o S ^^ « »-• o E H 03 1^ IE ft Ph t-i o < 2 S o APPENDIX. 405 Forms of Account prescribed by Regulation of Railways Act, 1868. Railway. Half-year eudiiig 18 [No. 1.] Sr.^TEMEN'T.OF CAPITAL AUTHORISED, AXD CREATED KY THE CoMPAXY. Capital authorised. Capital created or sanctioned. Balance. Acts op Parliament, or Certificates of the Board of Trade. 03 o 1 Stock and Shares. Loans. 3 ^ i 3 "3 1. 2. 3. 4. 5. [Except where Capital Powers are comprised in u Con- solidation Act, each Act or Certificate anthorizing Capital to be stated here separately in order of date.] j £ £ £ £ £ £ £ £ £ Total [No. 2 ] Statement of Stock and Share Capital created, shewing the Proportion Received. Description. £ II £ 1 -A £ 1 « • g IB 11 [State each class of Stock or Shares in order of date of creation, showing the preniinni or disconnt, if an}', at which it was issued, the preferential or fixed dividends, if any, to which it is entitled, and any other conditions attached to it.] £ £ Total ... 40« AUDITORS. [No. 3.] Capital haised by Loans and Debenture Stock. Eaised by Loaxs. Raised by Issue of Debenture Stocks. 1 1§s . B a a a 13 2 *n a ■a<,U <<-> < ^u ^ i 1 tc < g p< . Amount pendcd d Half-y( "o H c 3 1 £ *■. d. £ s. d. £ s. d. £ s. (1. £ s. d. £ s. d. To Expenditure — By Receipts — (Ju Lines open for Shares and Stock, Traffic (No. 5) ... per Account On Lines in course No. 2 of Construction Loans, per Account (No. 5) No. 3 Working Stock Debenture Stock, (No. 5) per Account Subscriptions to No. 3 other Railways Sundries (in detail) (No. 5) Docks, Steamboats, and other special Items (No. 5) ... ,, Balance - - APPENDIX. 407 [No. 5.] Details of Capital Expenditure, for Half- Year endmg 18 Lines open for Traffic — \ [Shewing under separate Heads, Amount paid\ Particulars — for l^and (Purchase and Compensation), ] I Construction of Way and Stations, including Lines in course of Con-/ Pails, Chairs, Sleepers, ire, Engincerhij. struction — and Surveying, Law Charges, Parliamentary Particulars — ■ / Expenses, Interest, Commission, &c.] ■\Vorking Stock — Particulars— Shewing each Description of Stock Subscriptions to other Railways- Particulars — Stating Lines ... ... ... Docks, Steamboats, and other special Items — Particulars Total Expenditure for Half- Year, as per Account No. 4 [No. 6.] Eetuun of "Working Stock. MOTIVE. Coaching. JNIkuciianuisk and Minkuai,. 1 S ,; ^ & to 5" iA ;m i 2 o £3 w o G T3 a o a 1 3 t 8S s o 3 1 1 w H Ph 03 H C5 o O O iA Stock on the — — — 18 Ditto on the 18 Increase during the Half- Year Decrease during the Half -Year [No. 7.] Estimate of Fcrtheu Expexwture o\ Capitai . Account. FURTHEK E.\.PJiNDITURK. Durins the In subse- Half-Year quent Half- •B. ending Years. H Ijines open for Traffic (Particulars showing principal Items.) Lines in course of Construction (Details of each Line.) Working Stock (Particulars.) Subscription to other Railways (Specifying Lines.) Docks, Steamboats, and other Special Items (Particulars.) Works not yet commenced and in abeyance (in detail) Other Items (in detail) Total estimated further Expenditure of Capital [No. 8.] Capital Powers and other Assets available to meet further Expenditure, as per No. 7. Share and Loan Capital authorised or created but not yet received Any other Assets (in detail) Total 408 AUDITORS. [No. D.] 7>*-. Revenue Account. Cr. ^1 EXPENUITIKE. £ s. d. ^ a Receipts. £ s. d. £ s. d. w To Maiutenauce j ^ ofWayWorks < ^^;^;«^,A_ and stations . . . ; w By Passengers „ Parcels, Horses, Carriages, &c. ,, Locomotive Power... do. B. ,, Mails ,, Carriage and Wag-) , (-, gon Repair's ... j ,, Merchandise ,, Traffic Expenses ...do. D. ,, Live Stock ,, General Charges ...do. E. ,, Minerals ,, Law Cliarges , , Parliamentary Expenses . . . ,, Special and Miscel- ,, Compensation (Accidents laneous Receipts — and Losses) Such as Naviyations, „ Rates and Taxes Steamboats, Rents, , , Government Duty ... Transfer Fees, ^-c. ,, Special and Miscellaneous Expenses (if any) ,, Balance carried to Net Details. Revenue Account £ £ [No. LO.] Dr. Net Revenue Account. Cr. £ s. d. £ s. d. W w To Interest on Mortgage and Debenture Loans , , Interest on Debent ure Stock , , Interest on Calls in Advance , , InterestonTemj^orarj^Loans ,, Interest on Lloyd's Bonds ,, Interest on Banking Balances ,, General Interest Account (if in Debit) ,, Rents of Leased Lines, Guarantees, «Scc Details. ,, Special and Miscellaneous Payments (if any) Details. ,, Balance, being Payment By Balance brought from last Half- Year's Account ,, Ditto, Revenue Account, No. 9 ,, Dividends on Shares in other Companies ,, Bankers & General Interest Account (if in Credit) ... ,, Special and Miscellaneous Receipts (if an}') {Details to he given.) available for Dividend . . . \_See No. 13.] £ £ [No. 11.] Proposed Appropriation of Balance available for Dividends. Balance available for Dividend as per Account No. 10 Preference Stock Ditto Ditto Ordinary Stock (being at the rate of per cent.) to be stated in order of creation, with rate of dividend. Balance to next Half -Year.. APPENDIX. 409 [No. 12.] Abstracts. A. Maintenance of Way, Works, &c. Salaries, Office Expenses and General SujDerin- tendeuce Maintenance and Re- newal of Permanent Way Wages Materials Repairs of Roads, Bridges, Signals, and Works Repairs of Stations and Buildings Special Expenditure (if any) Miles Maintained: Double Single £ s. a. Total Total. B. Locomotive Poweb. ■3 fl Salaries, Office Expenses and General Superin- tendence Running Expenses: Wages connected with the working of Loco- motive Engines Coal and Coke Water Oil, Tallow, and other Stores Repairs & Renewals: Wages Materials Speciixl Exxienditure ... Repaius and Renewals of Carriages and Waggons. Carriages : Salaries, Office Ex- penses and General Superintendeuce . . . Wages Materials Waggons : Salaries, Office Ex- penses and General Superintendence . . . Wages Materials Total £ s. d. £ s. d. Traffic Expenses. and Salai-ies and Wages, «&:c.., Fuel, Lighting, Water, ! General Stores [Clothing 1 Printing, Stationery, and I Tickets '. |Horses, Harness, Vans, Pi'o vender, &c Waggon Covers, Ropes, &c. .. Joint Station Expenses Miscellaneous Expenses Special Expenditure (if any) . . s. d. General Ch.\rges. !^1 Directors Auditors and Public Account ants (if any) Salaries of Secretary, General Manager, Accountant, and Clerks Office Expenses ditto ditto Advertising Fire Insurance . Electric Telegraph Expenses... Railway Clearing House Ex- penses Special Expenditure (if any) . . . £ s. d. 410 AUDITORS. [No. 13.] Br. Genekal Balance Shekt. Cr. £ s. d. 1 £ s. d. To Ciapital Account, Balance at By Cash at Bankers — Current Credit thereof, as -per Account Account No. 4 ,, Cash on Deposit at Interest ,, Net Revenue Account, Balance ' ,, Cash invested in Consols and at Credit thereof, as per Ac- count No. 10 1 Government Securities ,, Cash invested in Shares of other ,, Unpaid Dividends and Interest Railway Companiesnotcharged ,, Guaranteed Dividends and In- as Capital Expenditure terest payable or accruing and ,, General Stores — Stock of provided for Materials on hand ,, Temporary Loans „ Traffic Accounts due to the ,, Lloyd's Bond and other Obliga- Company tions not included in Loan ,, Amounts due by other Com- Capital Statement, No. 3 panies ,, Balance due to Bankers ,, Do. Clearing House ,, Debts due to other Companies... Do. Post Office ,, Amount due to Clearing House ,, Sundry Outstanding Accounts ,, Sundry Outstanding Accounts... ,, Suspense Accounts (if any) ,, Fire Insurance Fund on Sta- To he enumerated. tions, Works, and Buildings ... , , Special Items ,, Insurance Fund on Steamboats ,, Special Items £ £ 1 1 [No. 14.] Mileage Statement. Hdlf- Year ended. Lines owned by Company Miles authorised. Miles con- structed. Miles con- structing or to be con- structed. Miles worked by Engines. Do. parti J' owned Do. leased or rented Total Do. worked Foreign Lines worked over Total [No. 15.] Statement of Train Mileage. Half- Year ended. Passenger Trains Goods and Mineral Trains.... Total. (Signed) Chairman or JDepaly - Chairman of Companij. Secretary or Accountant of Company. Certificate respecti.vg the Permanent Way, &c. I hereby certify that the whole of the Comj)any's Permanent Way, Stations, Buildings, Canals, and other Works have during the past Half-year been nuuutained in good Working Condition and Repair. Date 18 . Enyineer. Certificate respecting the Rolling Stock. I hereby certify that the whole of the Company's Plant, Engines, Tenders, Carriages, Waggons, Machinery, and Tools, also the INIarine Engines of the Steam Vessels, have during the past Half-year been maintained in good Working Order and Repair. ( Chief luigineer, or Date 18 . ) Locomotive Superintendent. Auditor's Certificate. As prescribed by Act 30 and 31 Victoria, Cap. 127, to folloir. Forms of Accounts peescribed by Gasworks 411 Clauses Act (1871). The Gas Company. — Year ended 31st December, 18 A. — Statement of Share Capital on the 31st December, 18 1 Descrip- tion of Capital. 2 Maximum Dividend authorised. 3 Number of Shares issued. 4 Nominal Amount of Share. up per Share. 6 Total paid up. ( Amount issued but not paid up. 8 Remain- ing to be issued. 9 Total Amounts authorised . B. — Statement oi- Loan Capital on the 31st December, 18 1 Description of Loan (Mortgage, Bond, Debenture, Stock. &c.). Rate per Cent, of Interest. Total Amounts borrowed at 31st December, 18 . Remaining to be borrowed. Total Amounts authorised. Total Share Capital paid up (see A) £ Do. Loan do. borrowed (see B) £ Total Capital received £ C. — Capit.\l Account, for the Y'ear c 'uded 31st December, 18 . W2 2 p. Total to 31ft Dec, 18 . 1. 2. 3. 4. 5. 6. Itj >>< "o tu 1. To Expenditure to 31st December, 18 Sl/ice that date. £ s. d. £ s. d. £ s. d. By Ordinary Shares of £ each £ s. d. ? s. d. £ s. d. 2. To Lands aequired,iu- cludiu"' Law Charges By ditto of £ each 3. To New Buildings, ilauuf act aring Plant, Machines, Storage By Preference Shares of £ each Works, and other Structures connected -vvith Manufactiu'e ... 4. To new jMains and Service Pipes (not being in place of old ones) including lay- \r\cr same Paving and By Debenture Stock By aiortgages and Bonds By Amount received in anticipation of Calls other works connected with distribution 5. To new Meters (not in place of old ones), including fixing t). To Costs of promot- ing Special Act 7 . To Special Items (if any) Total Expenditure To Balance of Capi j?i\ Account . . . Total £ \ £ 412 AUDITORS. p. — Revenue Account, for the Year ended 31st December, 18 « £ s. d.& s. To Manufacture of Gas. 1. Coals, including Dues, Car- riage, Unloading, and all Expenses of depositing same on Works 2. Purifying Materials, Oil, Water, and Sundries at Works 3. Salaries of Engineers, includ- ing Chief Engineer (if any), Superintendents, and Officers at Works 4. Wages and Gratuities at Works 5. Repairs and Maintenance of Works and Plant (includ- ing Renewal of Re tori s), Machines, ApparatuSjTools, Materials, and Labour .. £ Less Old Material sold £ To Bistribution of Gas. 6. Salaries of Surveyor, Chief Inspector, Inspectors, Assis- tant Inspectors, and Clerks in Light Office 7. Repair, ilaintenauce, and Renewal of ISIains, and of Service Pipes, including ilaterials, Laying and Paving, and Labour 8. Repairing, Renewing, and Refising Meters 7b Pahlic Lamps. 9. Lighting and Repairing To Rents, Mates, and Taxes. 10. Rents 11. Rates and Taxes To Management. 12. Directors' Allowances 13. Salaries of Secretary, Ac- countant and Clerks, Office Keepers, and Messengers 14. Collectors' Commission or Salaries 15. Stationery and Printing IG. General Establishment Charges and Incidentals ... 17. Auditor To Law and Parliamentary Chargex. 18. Law 19. Parliamentary (oppositions) 20. To Depreciation Fund for Works on Leasehold Lands (if any) 21. To Bad Debts To otlier Items (if any) Total Exi^enditure Eahmce carried to Profit and Loss Account, £ , £ s. d.\£ s. d. By Sale of Gas. 1. Common Gas ( cubic feet), at / jjer 1000 cubic feet 2. Canuel Gas ( cubic feet), at / per 1000 cubic feet 3. Public Lighting and under Con- tracts 4. Rental of Meters . . By liesidual Products. 5. Coke, less Labour and Cartage ... . 6. Breeze, ditto 7. Tar, ditto 8. Ammoniacal Li- c[Uor, ditto 9. By Rents 10. By Transfer Fees By other Items (if any) Total Receipts ... APPENDIX. 413 -Profit akd Loss Account (Net Hevenue), for the Year ended 31st December, 18 . Br. Cr. 1. To amount carried to Reserved Fund Account, F (if any), from Profits of 18 2. ,, Interest on Temporary Loans, and [Moneys received in antici- pation of Calls Ditto on INIortgages and Bonds accrued to 31st December, 18 Ditto on Debenture Stock to ditto Half-year's Dividend on 1st Preferential to 30th June, 18 Ditto, 2nd Preferential to ditto Ditto on Ordinary Shares at per Cent 3. „ 5. ,, Balance of Net Profit to be , carried to next Account, subject I to Half-year's Dividends to 31st December, 18 1. By Balance of Net Profit brought from last Ac- count (31st December, 18 ) 2. ,, Amount drawn from Reserved Fund (if any) Less Dividend paid for the Half-year ended 31st December, 18 . 3. Balance brought from Revenue Account, D, being Profit for Year to December, 18 . 4. Interest on Moneys deposited. . £ s. d. F. — Reserved Find Account, for the Year ended 31st December, 18 1. Amount (if any) carried to Profit .and Loss Account (E) to make up deficiencies of Dividends to 31st December, 18 2. Amount Paid for Extraordinary Claim or Demand (if any) 3. Amount of Balance to be carried to next Account £ £ s. dJ By Balance brought from last Account , , Balance brought from profit and Loss Account (E) ,, Interest on Amount In- vested £ s. d. Like Accounts must be given for Depreciation Fund for Works on Leaseholds (if any). G. — Statement of Coals, during the Year ended 31st December, 18 Description of Coal. In Store, 31st December, 18 . Received during Year. Carbonized or used during Year. In Store, 31st December, 18 . Common Tons. Tons. Tons. Tons. Cannel 414 AUDITORS. H. — Statement or Residual Products, for the Year ended 31st December, 18 . In Store, 31st Description of Residual. December, 1 Estimated. Made during Year. Estimated. Used in Manufacture during Year. Estimated. Sold during Year. In Store, 31st Decem- ber, 18 . Estimated. Coke, Common, chaldrons of 36 bushels Caiinel , , , , Breeze ,, ,, Tar, gallons Ammoniacal Liquor, butts of 108 gallons I. — Gexekal Balance Sheet, ou 31st December, 18 Dr. Cr. 1. To Cajntal Accotuit — Balance at Credit thereof (Account C) 2. ,, Profit and Loss Account — Balance at Credit thereof (Account E) 3. ,, Reserved Fund — Balance at Credit thereof (Account F) 4. , , Depreciation Fund (for Works on Leasehold Lands) — Balance at Credit thereof (Account ) 5. , , Unpaid Di\'idends 6. ,, Interest accrued and unpaid on Mortgages, Bonds, and Debenture Stock, and other Loans, to 31st December, 18 7 ,, Sundry Tradesmen and others, for Amount due for Coals, Stores, (fee, to 31st Decem- ber, 18 8. ,, Wages and Contingencies — Amount due to 31st Decem- ber, 18 ,, Other Items (if any) £ £ s. d. 1. By Cash at Bankers 2. , , Cash on Deposit or at Interest 3. ,, Coals for Stock on hand, 31st December, 18 4. ,, Coke and Breeze, 31st December, 18 5. ,, Tar and other I'ro- ducts, 31st Decem- ber, 18 6. ,, Sundry Stores, 31st December, 18 Gas and Meter Rental; Balance of this Account due to the Company ou 31st December, 18 , less Deposits and Prepayments Coke and other Re- siduals, 31st Decem- ber, 18 £ s. d. Sundry Accounts, 31st December, 18 ,, Special Items (if anj-), in- cluding Investments Form of Annual Accounts prescribed by Life 415 Assurance Companies Act, 1870. FIRST schedule. Revenue Account of the for the Year ending 18 . 18 ' (Date) Funds at the |£ s. d. of the Year . Amount of beginninj^ Premiums Consideration for Annuities granted Interest and Dividends Other Receipts (Accounts to be specified) 18 (Date; Claims under Policies (after '£ s. d. deduction of Sums Re- assiircd) Surrenders Annuities Commission Expenses of Management... Dividends and Bonuses to Shareholders (if any) Other Payments (Accounts to be specified) I Amount of Funds at the end of the Year, as per second Schedule £ Xoti 1.— Companies having separate Accounts for Annuities to return the particulars of their Annuity business in a sejiarate statement. Xotc 2. — Items in this and in the Accounts in the Third and Fifth Schedules should be the net aniovmts after deduction of the amounts paid and received in respect of Re-assurances. B.\LANCE Sheet of the SECOND SCHEDULE, on the 18 Liabilities. Shareholders' Caijital paid up (if any) £ Assurance Fund £ s. d. - Assets. Mortgages on Property within the LTnited Kingdom £ s. d. Mortgages on Property out of the United Kingdom Loans on the Company's Policies. . Investments— In British Government Securities Indian and Colonial Govern- ment Securities Annuity Fund (if any) Other Funds (if any) to be specified Total Funds, as per First Schedule Claims admitted but not paid* Other Sums owing by the Company* (Accounts to be specified) Foreign Government Securities Railway and other Debentures and Debenture Stocks — ... Railway Shares (Preference and Ordinary) House Prof)erty Other Investments (to be specified) Loans upon Personal Security Outstanding Premiums Do. Interest Cash— On Deposit £ In hand and on Cur- rent Account Other Assets (to be specified) £ £ * Xcte.— These items are included in the corresponding items in the First Schedule. 416 AUDITORS. THIRD SCHEDULE. Revenue Accounts of the for the Year ending No. 1. — Life Assurance Account. (Date) Amouut of Life Assurance Fund at the beginning of the j^ear Premiums, after deduetion of Re-assurance Pre- miums Consideration for Annui- ties granted Interest and Dividends Other Receipts (accounts to be specified) (Date) Claims vinder Life Policies (after deduction of sums Re-assured) Surrenders Annuities Commission Expenses of Management... Other Payments (accounts to be specified) Amount of Life Assurance Fund at the end of the year, as per Fourth Schedule £ s. d. Note. — Companies having separate accounts for annuities to return the particulars of their Annuity business in a separate statement. No. 2. — Fire Account. Amount of Fire Insurance Fund at the beginning of the year Premiums received, after deduction of Re-assur- ances Other R(;ceipts to be speci- fied Losses by Fire (after deduc- tion of Re-assurances) ... Expenses of ]\Ianagement . . . Commission Other Payments to be spe- cified Amount of Fire Insurance Fund at the end of the year, as per Fourth Schedule Note. — When IMariue or any other branch of business is carried on, the income and expenditure thereof to be in like manner stated in a separate account. No. 3. — Profit and Loss Account. Balance of last year's Ac- count Interest and Dividends not carried to other Accounts Profits realised (accounts to be specified) Other Receipts. Di^^dends and Bonuses to Shareholders Expenses not charged to other Accounts Loss realised (accounts to be specified) Other Payments Balance as per Fourth Schedule Note. — This Account is not required if the items have been incorporated in the other Accounts of this Schedule. APPENDIX. 41 FOURTH SCHEDULE. Balance Sheet of the oil the 18 Liabilities. & s. d.\ Assets. £ s. (1. Shareholders' Capital Mortgages on Property within General Reserve Fund (if any) . . . the United Kingdom Life Assurance Fund* Do. out of the United Kinsrdom Annuity Fund (if any)* Loans on theComiDany's Policies Fire Fund Investments — Marine Fund In British Government Securities Profit and Loss (if any) Indian & Colonial do. Other Funds (if any, to be Foreign do. specified) Railway and other Debentures £ .1. d. Claims under LifePolicies anA rioVinnfm.,^ Cf^r.to Do. Shares (Preference and admitted, but not : Ordinarj') yet paid* House Property Outstanding Fire Losses Other Investments (to be Do. Marine Losses specified) ... Other sums owing by the Loans upon Personal Security . . . Company (accounts Agents' Balances to be specified) Outstanding Premiums Do. Interest Cash— On Deposit . . . 6 In hand and on Cur- rent Account Other Assets (to be specified) ... £ * If the Life Assurance Fund is, in accordance with Section 4 of this Act, a separate trust fund for the sole secui-ity of the Life Pohcy holders, a separate Balance Sheet for the Life Branch may be given in the form contained in Schedule 2. In other respects the Company is to observe the above form. See also note to Second Schedule. FIFTH SCHEDUIiE. Statement respecting the Valuation of the Liabilities undeh Life Policies and Annuities of the , to be made by the Actuary. The answers should be numbered to accord with the numbers of the corresponding questions) . 1. The date up to which the valuation is made. 2. The principles upon which the valuation and distribution of profits among the Policy-holders arc made, and whether these principles were determined Vjy the in- strument constituting the Company, or by its Regulations or Bj'e-laws, or otherwise. 3. The Table or Tables of :Mortality used in the valuation. 4. The Rate or Rates of Interest assumed in the calculations. 5. Tlie proportion of the Annual Premium Income (if any) reserved as a provision for future expenses and profits. (If none, state how this provision is made.) 6. The Consolidated Revenue Account since the last valuation, or, in case of a EE 418 AUDITORS. Company which has made no valuation, since the commencement of the business. (This return should be made in the Form annexed.) 7. The liabilities of the Company under Life Policies and Annuities at the date of the valuation, sho'wing the number of Policies, the amount assured, and the amount of Premiums payable annually under each class of Policies, both with and without participation in profits ; and also the net liabilities and assets of the Company, with the amount of surjslus or deficiency. (These returns should be made in the Form annexed.) 8. The time durmg which a Policy must be in force in order to entitle it to share in the profits. 9. The results of the valuation, showing — - (1) The total amount of profit made by the Com^iany. (2) The amount of profit divided among the Policy-holders, and the number and amount of the Policies wliich participated. (3) Specimens of Bonuses allotted to Policies for £100 effected at the respective ages of 20, 30, 40, and 50, and having been respectively in force for five years, ten years, and upwards, at intervals of five years respectively, together with the amounts apportioned under the various modes in which the Bonus might be received. (FoHM referred to under heading No. 6, in the Fifth Schedule.) for Consolidated Revenue Account of the commencing and ending years £ s. d. £ s. d. Amomit of Funds on 18 , Claims under Policies (after de- the beginning of duction of sums Re-assured) Premiums (after deduction of Surrenders Re-assurance Premiums) ... Annuities Consideration for Annuities Commission granted Interest and Dividends Expenses of Management Dividends and Bonuses to Share- Other Receipts (accounts to be specified) holders (if any) Other Payments (accounts to be specified) Amount of Funds on 18 , the end of the period, as per First (or Third) Schedule ... £ £ APPENDIX. 419 (Form referred to under heading No. 7 in Fifth Schedule.) SUMMAKY AND VALUATION OF THE POLICIES of the aS at 18 Description of Transactions. Particulars of the Policies for Valvation. ^1 Assurances. I. With participation in Profits. For wliole term of life Other Classes (to be specified) ... Extra Premiums payable Total Assurances with Profits II. Without participation in Profits. For whole term of life Other Classes (to be specified) . . . Extra Premiums payable Total Assurances without Profits Total Assurances Deduct Re-assurances Net Amount of Assurances... Adjustments (if any) 1-1 Valuation. Value by the Table, Interest per Cent. S o a g ti o Annuities. Immediate Other Classes (to be specified) Total of the Kesults 11 O -£28 The term " extra Premium " in this Act shall be taken to mean the charge for anj' risk not provided for in the Slinimum Contract Premium. If Policies are issued in or for any country at Kates of Premium deduced fi-om Tables other than the European Mortality Tables adopted by the Company, separate Schedules similar in form to the above must be furnished. (Form referred to under heading Xo. 7 in Fifth Schedule.) Valuation Balance Sheet of as at 18 Dr. Cr. To Net Liability under Assurance ami Annuity Transactions (as per Summary Statement pro- vided in Schedule 5) Surplus (if any) £ By Life Assurance and Annuity Funds (as per Balance Sheet, j under Schedule 2 or 4) ,, Deficiency (if any) £ £ ee2 420 AUDITORS. SIXTH SCHEDULE. Statement of the Life Assurance and Annuity Business of the on the 18 (The answers should be numbered to accord with the numbers of the corresponding questions. Statements of Re-assurances corresponding to the statements in resjiect of Assui-ances under headings 2, 3, 4, 5, and 6 are to be given.) 1. The published Table or Tables of Premiums for Assm-ances for the whole term of life which are in use at the date above mentioned. 2. The total amount Assured on lives for the whole term of life, which are in existence at the date above mentioned, distinguishing the portions Assiu'ed with and without Profits, stating sei^arately the total Reversionary Bonuses, and specifying the sums Assm-ed for each year of life from the youngest to the oldest ages. 3. The amount of Premiums receivable annually for each year of life, after deducting the abatements made by the application of Bonuses, in respect of the respective Assurances mentioned under heading No. 2, distinguishing ordinary from extra Premiums. 4. The total amount assured under classes of Assurance Business other than for the whole term of life, distinguishing the sums Assiu'ed under each class, and stating separately the Amount Assm-ed with and without Profits, and the total amount of Reversionary Bonuses. 5. The amount of Premiums receivable amiually in respect of each such special class of Assurances mentioned under heading No. 4, distinguishing ordinary from extra Premiums. 6. The total amount of Premiums which has been received fi-om the commencement upon aU Policies under each special class mentioned under heading No. 4, which are in force at the date above mentioned. 7. Tlie total amount of immediate Annuities on lives, distinguishmg the amounts for each year of life. 8. The amount of all Annuities other than those specified under heading No. 7, distuiguisliing the amount of Annuities payable mider each class, the amount of Premiums annually receivable, and the amount of consideration-money received in respect of each such class, and the total amount of Premiums received from the com- mencement upon all Deferred Annuities. 9. The average rate of Interest at which the Life Assurance Fund of the Company was invested at the close of each year dm-ing the period since the last investigation. 10. A Table of Minimum Values, if any, allowed for the surrender of Policies for the whole term of life, and for Endowments and Endowment Assurances, or a state- ment of the method pursued in calcidating such Surrender Values, with instances of its application to Policies of different standing, and taken out at various interval ages fi'om the youngest to the oldest. Separate statements to be fvu-nished for business at other than European rates, together with a statement of the manner in which Policies on unhealthy lives are dealt with. APPENDIX. 421 ft 6C rf^ X! I— 1 (D o or sa ^ ■n 0) iJ ^ ^ aj 6n CO O) !-t TJ bJD i3 sl H 3 H 60 S3 c 3 O .3 ==' P3 I—' "3^ C5 !>> r* t*H r^ u « 5 >^ m 422 AUDITOKS. •a -^ ' oo iS a a a. "••« f m ^ 2 . nd of abilit pcounl £ ; V- 1 1-1^ ■ P u < '^ .■so 'o O Ph^ : o a* ?^ F « 11" o Qj o — m " 02 o «> "^ &-»^ o : P c ^ '^ 3 3 3 O t -ga e S "^"S ■ rf. 'A u s dur • cad the ■add X _o s Q " 1 liminution: ting undei 111, and nut over 1 7C 1^ '3 '^ I ■^ -g 1 ^ 1 O 2.3 1 r-' r4 O 15 O N ^•p! f^ Hi O n ►:; Q ^ ,^- ^ ^ ^o s 3 o 3 5 o X » o j: o' 3 ^ ■=+« H -^o-S CJ '3—3 £ S"c =fH • *. r. «(-i , — ^ c : v: X : o « 1 ^■='" o O " — ■ 3 o S E *' 2 cl ■^ ^ 'S i o 9 ■ = g-Ss ^ I— ^ ■r! •s '* 'S 3 •■g O 1— ( •rt o T3 c3 1 1^ c3 A. [Stati amount ad £ .rr' oj 1 (X) N P s CC' M "^ M o S O «• <=*? •^ fc^ ♦* If 1 i f be P = r. O^^ 1 ^ fcf ' ,_„ ■^ 5 -g ,j J5 5 '^ o S • .-go < balances Year, as Annual 'o 5 d STo : P-^ V- o O* CD o o 2 Q P ta -^ APPENDIX. 423 — \ ■ — \ — ££S o : ^ ; p'i ^-e CO — ' — 3 O " S-l n 73 o : g f^ 5i S^ % ■ §1 o ?i o ?-( rt >i 2^ 3 "^ ^ ^ fl — pq 1 - < > ct ^ r-< Stt vT ^ r- 5 o o : +^ ■ Ph 1 t: "i:^ li S ?^ ct — =fH .2 & -M ^ 1 s '^ cc b2 s ^ § r. X c s 2 ^ :; ^^ ^ ^ ^ ■^ — >^o 1 1 "S : 5 : ■1. ^ en ■ •/. ^ r> o f^ a ."ti ^ Tj 1— 1 "^ c • ':3 s ;-o 1 cc g ■ 'i 1^ 1 1. 1 1 1.5 +3 r. Si S 1 ^ .s <) h- 1 o ^ * a1 Ph El < +i o fcc t5 : o <1 S3 fi O 23 — s 2 H 5 S to -3 424 AUDITORS. ff 0; li •^ cj (-1 si SIZ'H s O) a3 m _: oj £ c o Ci fcpS^ |t-a 03 O ^2^10 pq -tj "m fi 4) -/2 7! _• 1> Cj O O ^ Oi ^3 O ■e o pq +j ^ s O ^ m^ .H^ h APPENDIX. 425 bo 2 P ^ 426 AUDITORS. SCHEDULE Part I. Particulars to be set forth in the case of every Mortgage where the Repayments are not upwards of Twelve Months in Arrears, and the Property has not been upwards of Twelve Months in the possession of the Society, and where the present Debt exceeds £5,000. Date of Advance. I. Whether subject to any prior Mortgage or Charge; if so, what Amount ? Whether Freehold, Copyhold, or Leasehold. 3. Original Valuation of Property. 4. Amount of Advance. .5. Present Debt.' v>. Amount of Payments in Advance. Amount of Payments in .\rrear. 8 Observations. Total .. £ £ £ i i. 1 Wheu the Mortgagor is not a member of the Society, an asterisk is to be placed against the amount of present debt. Part II. Particulars to be set forth in the case of Property of which the Society has been upwards of Twelve Months in possession. subject to when any prior Possession Mortgage was or Charge ; taken. if so, what Amount. 3. 4. Whether Freehold, Copyhold, lAdv Original Valuation of Property. Debt Present when Amount Possession included was in taken. Assets. 8. il. £ £ Gross Income for the Year. 10 Outgoings for the Year. H £ £ Observa- tions. Part III. Particulars to be set forth in the case of every ISIortgage when the Repayments are upwards of Twelve Months in Ai-rear, and the Property has not been upwards of Twelve Months m possession of the Society. Date of Advance. 1. Whether subject to any prior Mortgage or Charge ; if so, what Amount? 2- Whether I'l'eehold, Copyhold, or Leasehold. 3. Number of Months in Anear. 4. Original A'aluation of Property. .5. Amount of Advance. fi. Present Debt. Amount of Payments Arrear. 8. Observations. 9. Total . £ £ £ *. Forms of Accounts Lighting PRESCRIBED FOR ElECTRIC 427 Undertakings. o ^ ^ H ^ C « ^ 5> „ .s H 'S ^ e ^ Q CO i-i O W (-4 :^ td ^ II 1? •Si Issued not Paid up. 1 ■3° . .Sag sir si 11 00 1 1 a •43 .& I— I P^ O S4 H < I— I M <1 P^ P O =:5 00 00 ti m O « g 1 Ph P3 r" M S H . = 1 11 a < "3 \ 1 in a 2 iao .S a 1 S ^ 1 ■p. ^ ^ ^ .1-1 tS I— I . © '^ o ® (D O fH (X) OD ^H CQ - ci ^3 B Q ^ 9 O 428 AUDITORS. HO CO g bo O S -5 -IS ■^ 2 • |S SO By Ordinary Shares of £ . . . ,, do. do. of£... ,, Preference do. of£... ,, Debentm-e Stock ,, Mortgages and Bonds... ,, Amounts Received in anticiijation of Calls ... ,, Sale of Patents or Patent Rights, «S:c. ... ,, Other Receiists (to be Specified) •=+i 6t a =rt P. • P goo ^3 o fie To expenditure to'dlDec.,18 . Expenditure since that date 1. To Lands, including Law Charges incidental to acquisition. 2. To Buildnigs 3. To Machinery 4. To Accumidators at Generating and Dis- tributing Stations 5. To Mains, including cost of la.^-ing the Mains 6. To Transformers, Mo- tors, &c. 7. To Meters, and Fees for certifying under the Act 8. To Electrical Instru- ments, &C, 9. To General Stores (Cable, Mains, Lamps). 10. To purchase of Patents or Patent Rights 11. To Cost of Licence, Provisional Order, &c. 12. To Special Items Total Expenditure ... To Balance of Capital Account APPENDIX. 429 o H rJ= "^ pi P o O o C ) -IJ < eo H bXl p fl ^ W ;> ^ w ci M >^ o ti - «« '«■ «0 «fl 1 • ;h - , . t I * ^ * C I '^ ; S-l r^ ^ -^ ^ H u '~^ .^ Oh ^ c3 : : : ^^ >. t^ >."^ t*.^ >.^ fc*^ (>5 >5 >. pq n P5 Ph W pq ffi P5 P5 25 I-i ">) CC -T o '-^ t-^ X c ■i -« « «rt -« CO- =rt i%l i :2~^§' :i :^ ~; WW of Electricity . Fuel, including Du oading. Storing, a of placing the sai Water, and Engir Salaries of Enginee its, and Officers, e Managing Direct Engineer Gratuities at Gei id Maintenance, =i^ ■rs iters.Trans- :ors, &c. ... inery, In- =2 —To gencrat )als or other rriage, Unl Expenses the works. •il. Waste, )in Stores . oportionof pcrintender •tified by th airman, or Vages and ;iug Station; Rejiairs ai lows : — Buildings ... Engines, Boilc Uynamos.Exc lormers, Mot Other Much lis 11 s =2 2 1 1— 1 '0 ^ o o o o o :a -• c^' « ■* m ■£ '-C i S : Re- el's, ira- «.§ ft"? g 1-^ o : o o 1 2 m 1 _s •S rtion of Salaries of ts and Officers, as naging Director, C ineer .2 £ •C si II irs. Maintenance, L'neAvals of Mains classes, including lis and laying the 1 tin OS rs, Maintenance, of Transformers, es, Fuses, and othei Consumers' premise ii's, Maintenance, of Apparatus at ations i s s e5 Attending and Repairs Renewals of Lamps... CaiTied forward . . . 1 1 O C :: cc p. eg n £1 « P- i. ;r- ^ 7Z r^ 'r* c Q ^ K C i«=H CO aj S CO -J3 fi '-H o 1— ( H H H H-J H H HH o -I <>» cc "* ui i-i c^ APPENDIX. 431 o ^ ^ ft k O ai o, <1^ T "^ ,5 .2 !^ t^4 O H m m ^ '^ ^ - - ?i O O r^ S "^ -f, o CO .^ K rS r^ C^ o o o ,.„ r! -j^ ^ o ■■*3 ^? ^ 2 ■P P P-=4H ci tfH c3 ^ M ^ C3 f-i !7? IP 1 -t-- Ti 'JJ < ^ cc <1 a P H H H H Tj( O O t- 432 AUDITORS. > l-H d , f^ I, «rt o > o t o 1= -« » «« ■M Brought over G. — To Law and Parliamentary Charges. 1 . To Law Expenses H. — To Depreciation. 1. To Depreciation in respect of Lease- hold Works 2. 'J'o Depreciation in respect of Build- ings 3. To Depreciation in respect of Plant, Machinery, &c I. — To Special Charges. 1. To Insurances, Superannuation, &c. 2. To Expenses for Certification of Meters Total Expenditure . . . Balance carried to Net Revenue. . . APPENDIX. 438 •« =^ ■=rt -«■ ■- =tj - -« > Q +2 +i ' -I, «t? _ p P ^ = J^ -g z rn 12 r-; -w > >3 ' — > ,:::; w .i; tc — ;:i -J a 's^ '^ -■ '^i w 3 s 5, f^ ^ O ■■^ S ^ fM '^ -*^ 3 o ^^-^ O p. ^ 'A ^ s O o ^ 5 rvi — ^ w s -ll ;::;; ij ^ "S -7 r^ s >5 ^"^ ►^ - - pq a pq p- H T-l CI cc- IS ■i «*? ^ •/: t: ^ «»? O t; ^ g S O '^ O o w h^ § 05 ^ >^ "> p 6C 1 p 3 ■r. 5 Q X ,Q tc -g o ^ ^ rH 3J H =^ o S ^ - 3 ?-t _3 Cj -4^ o o j^ ^ !^ ^ x r^ -i-:j J^ ■^ ^ r^ >. .0 _3 1 5.^ "y w c2 O o 1— 1 s ;! ^ O — ^0 p^ H H H H H 6 T-H oi to ■^ KF 434 AUDITORS. Q o o o p cc 2 M a < O o c -p u ^ o h-l p t^, « fi ^ I-H -tJ +i cc s r/; Fi Ol o ^ o P o ^ e qn o 1 -+^ 1^ +2 to ^ fl a I— 1 O W o g O ^ > o 6 t 1 =^ ^ o a 52i 0) m l-H > >i t^. ^-' ' pq ^ o l-H * EH ^ O rr! P4 ft !^ APPENDIX. 435 Exiieiided for I. £ ,v. d. 3 o . +^ . . «« Assets. 1 . By Capital Account : Amount Works, as per Account No. I^ 2. By Stores on Hand at 31st December, 18 : — Coal Oils, Waste, & c. General 3. By Sundiy Debtors, for Amoi account of Contracts in course 4. By Preliminary Expenses ■"). By Sundiy Debtors, for curren 31st December, 18 (!. By Other Debtors 7. By Cash at Bankers : — ... Messrs Mes.srs Messrs. (Amount on deposit) 8. By Cash in Hand 1 ! Liabilities. 1. To Capital Account: Amount Received, as per Account No. III. 2. To Sundiy Tradesmen and others, due on Construction of Plant and Machinery, Fuel, Stores, &c., to 31st December, 18 3. To Sundiy Creditors on Open Accounts 4. To Net Revenue Account : Balance at Credit thereof 5 . To Reserve Fund Account G. To Depreciation Fund Account S ^ FF 2 APPENDIX. 437 Friendly Societies Act, 1896. 59 & 60 Vict., c. 25. ANNUAL RETURN PRESCRIBED BY THE CHIEF REGISTRAR FOR A REGISTERED FRIENDLY SOCIETY'. Year ending 31st December, 190 \_The Societifs Balance Sheet cannot be accepted as a substitute for this Return.'] This Return is to be sent to the Registrar not later than the 31st of May. A copy of the Auditors' Report, if any, should also be sent. Name of Society Date of commencement of Society When first Enrolled, Certified, or Registered ^ .• \ 9. Names and addresses of Trustees / Ph i I , ' ^ Name and Address of Treasurer pq Amount of Security given by him ... ... r; Number of Benefit ^Members at the beginning of the year o pti Number of Benefit Members admitted during the year ... u o g Number of Benefit Members who died during the year . . . o Niimber of Benefit INIembers who left from other causes ^ Total number of Benefit Members at the end of the year 18 18 Residing at Residing at Residing at Residing at Together ) "S Of whom a, were under 16 years of Age. between 16 and 20 years of Age. ,, 20 and 50 ,, „ 50 and 65 ,, ^ over 65 years of Age. The Benefits the ■^ Members over 65 are entitled to are o "t^ Average amount of Funds per Member [that is, the total Fmids '2 on the 31st December, 19 , divided by the total number of o +3 Benefit IMembers] £ p^ The Audit for the year has been conducted by Mr. , Public ■^ Auditor, [or by , who were appointed Auditors by ^ under the authority of Rule No. ]. Registered Office of the Society* in the county of Date 19 * State fuU postal address. 438 AUDITORS. ^'-ill ^2 1 1 1 1 1 1 - &C PhS^ r3 fc^ t» ■ ■2 ""^ : : 03 Qj "S -e '"S a5 c»PhP-iO =t-i cS rj ^J . • • S3 fe s : :cB :;iH D +J •■:< S -u ^ ^ -ij g rt ^^ '■■% 2^& 'vS c3 :^ +5 : ? -ii H S '^ S o r^ >..^ ctH : ^ fH fl CO • C M ; — ^ rs.§ — ' c3 '^ O -^ -M X "^P-^—t^ 1 '** 1 1 «rt 1 ^_» ate cent, teres ded. p^g.S.a P,=M >. o ■^ ■ S : "!^ : r* : '^ ^ ^ ^ ^ ai . o -^ :i . M c3 be .cS 0.3 : •4^ 1^ =3 ■ P m • 08 V ^^.^ p |c =3 S 2-1^ ^ 3 a b • § 3 S 3 s o IB •l-H CO +3 >% cS ts— licl Co; oft ■mm Irel ■J} O Q cr •+H ^ vestmen the the Pub th the iduction on Gove itain or o o "+3 % xi 1 en ^^«^«P^ P o H^ 6 'jj cS c3 53 j 1-5 (>il eo •^' lO CO t-^ OO ■^ -^ 1 i 1 =fl : : a ■ : : o • • ■ m ii .2 >, SH 3 ^ § 3 § P.d Pi . 02 j3 !» g ^53 -^ «> i'S 2-5 6D 3 9 5 ^ ^ -^ > . '- g_ i^^ P. ^ P. P. n of of M s of a id 10 ^ o^ 3 ti"^ Si.'O ■< ^ .^3^^ CJ.O S : : S •rCl 1^ o s » P22 •; r" « ft C3 O) H -p CO r^ ^■1^; ^w >-i O O O) >H 03 ;::! ?5 ;::3 r-' rrt [^ -3 'o c* "^ '^ -4= rt CO Qi O c5 2 !>= jC^assauJiotgqj'Bacn'Bsnms '^'^"'^^l-li^'-' O < -^ II 1 1 «f! 1 1 3 . — -4-3 teg ill O QJ •- 'q3 p^ o S " '"' r^ : : fH O) 03 rH -,- CI M cS 6C^ :tp! ft+= = s ^-5 -< ^--^"oooooooo O 2 P> 03 % 03 •^^ o 03 "Ss S H 03 3^ ^ -f-i C» PhP^O ! 'e « «rt Ti -i^ o a> S .^ w Ot-^&qfM APPENDIX. 441 tx u 3 p< !/J a 1 1 — 1 1 1 j; : ^ ' +3 o !^ +3 S +^ 1 1 iJ o iT^ -5!^ r^ H ^ O +j t: ' 0^ 6 a; be W m CJ !==( !« ;o q; a 3 ci a 0) FQ = -r- n" Ti 1 1 : 60 t^ 1=1 •U s a 0) • +3 a ■-e CS ~ !:3 p ^ P^ ..^ . 5 ^ "3 § ^1 2!. ^pSg^ s-.^ S ^ ^ '^ JA S n;^^-^ -^ l3 5^ o "S Oi ^ "^-^ T-l i '»''' &i fs -2 Si S-d ^.§ C5 o ^l 60 Si C3 .3 8 o « * 6D(i> ^g-^ a^ 60=2 3 ^ +3 '^ flj T^ o 3 s « c3 P 2 -yi 4-r S +3 la III CD 03 3 2 > +3 ons, at the A Statei 2 p! '^ to i^ c3 qs -^•^ s ^ .2 o" . ^ 3 C3r^ -IJ +-' ! c3 60 « 2 S C :3 ^ •|'^"60 1^ -5 " o Q '~ 'M m 5 00 'S c3 <; o 5 aj o -a "D tc I o ^ S^ S o - ^ fe 'd 2 c3 q c3 ^ to y a; o -^ '^ ■ii < o 1 2 i i ; T3 -p ;;^ O) O -ti ? So b 03 I 1 ^H .3 a2 a f^ ^- cj 02 aj ^■§'^ rt o -'- o O CD cs aj o , . ^ "*^ "S 2-e «5§ £4^ ft ci o aj 3 aj o3 8 '^'o <; q ft o 03 fZ2 :5 d =3 1-1=*-!^ I— I o3 a ArPENDlX. 443 Collecting SociF/riEs and Industrial As.surance Companies Act, 1896. 59 & 60 Vict., c. 26. ANNUAL return PRESCRIBED BY THE CHIEF REGISTRAR FOR A REGISTERED COLLECTING SOCIETY. Year encliug 31st December, 190 . This Return is to be sent to the Eegistrar not later than 31st May following. A copy of the Auditors' Report, if any, should also be sent. Name of Society Date of commencement of Society When first Enrolled, Certified, or Registered 18 18 Residing at Residing at Residing at Names and addresses of \ Trustees j Name and address of i Treasiirer and of any I Residing at other Officer in receipt ] Residing at or charge of money... I Amount of Security given by him or them Number of Benefit Members at the beginning of the year Number of Benefit Members admitted dimug the year [If the names are more than can be convcDicully in- serted here, they may be added (with the amount of securitj- given) on. a separate sheet.l Together Number of Benefit Members who died during the year Number of Benefit Members who left from other causes Total number of Benefit Members at the end of the year Average amoimt of Funds per Member [that is, the total Funds on 31st December, 1900, divided by the total number of Benefit Members] Number of Notices of forfeiture during the year Number of cases of forfeiture of benefit after notice Dates of the General Meetings held during the year Number of transfers to the Society of which it has given notice to the Society from which the transfer was sought Nimiber of transfers from the Society of which it has received notice from the Society by which the transfer was sought The Audit for the year has been conducted by Mr. Auditor, [or by who were appointed Auditors bl- under the Authority of Rule No. ]. Public Registered Office of Society* of Date , in the County 1901. N.B. — The Society's Balance Sheet cannot be accepted as a substitute for this return, although, if made up to the 31st December, the items composing it may, if applicable, be inserted in the return. * State full poptal address. 444 AUDITORS. '^• « «rt ,0 O C3 >^"S O r1 ^ m S g o ^ -rt ^ 7i y 3 g ^ :5 03 Q W I— I ^^ -^ " goo w ^ =4-( Lw c ■r: 1 en QJ Pi 1— t s OJ .-) :1h-^ .fc^. • •-1 S-i CJ '+-I 'Cf'rt 0) CD ^-4 h^ Qi s 03 2 .0 !-< Hi ■—^ f^ t^ft h-l h^ 03 'S &I ■§c^ <- ^ ^ ^ O rH C3 O !» X O H r^ ^ s-l : fl :^ : «fj riil a ."t^ ^ a • W .>^ . cq CO n 1 tS bn 1 JO •• u O rH a 1 Ti a H ^ • O -3 • "^ ^~> • • o 5:5 o ^ » o ebt nt Securities in ities in Great Bri of land ... f offices and bui ies (specify then Savings Bank . pecify them) :— T H O F a < a +2 fa 3 si so a oj +2 -1^ the National D Upon Governme or Ireland . . . Upon Eeal Secur In the purchase O 4^ .2 g O to CD +3 ° he Post Office and of sets (if any) (^ <1^ -1 fl^ ^O ) ?o -^ LO «0 t-^ CO rM a C3 cS +^ a '^ o f- -xs W K a 7j H «rt /^ < • =4H : : ^ fP j. ■G fa ft += • 3 ..13 . . •• o s t^ a; r--'* 'c!'^ a cq s 3 * =« • a ft -g '^ a ,a --M o fa r^'— ' -t^ f^ C : c: ^ =f-i H ^ r^ a +i tS 3 ^ fa CO a fa fa_t- S -< a o a^.^ a a •-' : fH .r" CD OT a "S be 00 >5 CO — c2 1^ ki F=i a 7j o^ q_i q_^ HH =4-1 ^+-1 -+H « . +^^ o o o O O -!.:> -t^ 4^ -4^ *J~L ra <^ -^ 3 ^ ^ ^ a ^"^ H n o o o o o a ^ a S a a a a '•" •^ .a S sw; :3 +-" " f. ■g " s ■^.S; M *-! ° sis 03 M 2 O) pi 6< .go 03 a g-S o II i "Too a! o ^ 8 446 AUDITOES. Industrial and Provident Societies Act, ]4 o 3 -3 ra .jo ^ ^ ^ ar thereto as circumstances will admit) to be made b}' every Limited Bankiup Compaiij', Insurance Company, and Deposit, Provident, or Benefit Society, under this Act, before they commence business, and the tirst Monday in February and August, and a copy of which has to be put up in a conspicuous place in the registered office and in every branch oiRc(! or plac-e of business. (See Section 41.) * The Capital of the Company is divided into Shares of each. The number of Shares issued is Calls to the amount of pounds per Share have been made, under which the Suva, of pounds has been received. The lifibilities of the Company on the first day of January (or -Tuly) were — Debts owing to Sundry persons by the Company On judgment £ On speciality £ On notes or bills £ On simple contracts £ On estimated liabilities £ The Assets of the Company on that day were — Government Securities [stating them], £ Bills of Exchange and Promissory Notes, £ Cash at the Bankers, £ Other Securities, £ * If the Company has no capital divided into Shares, the portion of the Statement relating to Capital and Shares must be omitted. The Industrial and Provident Societies Act, 187G. FORJI OF STATEMENT TO BE MADE OUT BY A SOCIETY CARRYING ON THE BUSINESS OF BANKING. (See Section 10.) 1. Capital of the Society : — ((/.) Amount of each Share. (b.) Number of Shares issued. [e.) Amount paid up on Shares. 2. Liabilities of the Society on the first day of January (or July) last previous : — {a . ) On j udgments . (b.) On speciality, (c.) On notes or bills. {(L) On simple contract. (e.) On estimated Liabilities. 3. Assets of the Society on the same date : — («.) Government Securities (stating them). (i.) Bills of Exchange and Promissorj' Notes. (c.) Cash at the bankers. ((/.) Other secui-ities. 454 AUDITORS. Conditions under which Public Auditors will hold their Appointments under the Friendly Societies Act, 1896, and the Industrial and Provident Societies Act, 1893. t 1. Public Auditors are appointed to act in England and Wales, Scotland or Ireland. They will not, however, be ranked as public servants, and will have no salaries, nor any claim to i^ension or gratuity. Nor are they to assume the title of "Government Auditors" or any similar one ; but are simply to describe themselves as "Public Auditors under the Friendly Societies Act, 1898J and the Industrial and "Provident Societies Act, 1893." Public Auditors are not permitted to make use of the Eoyal Arms. 2. The Public Auditor is bound to accept for audit (except as hereinafter mentioned) the account of any Society within that portion of the United Kingdom for which lie is appointed, registered either under the Friendly Societies Act or the Industrial and Provident Societies Act, which ajjplies to him (the term "Society" to include a branch of a Society), for the fees hereafter mentioned, the Society complying with the terms of these instructions. But no Public Auditor can audit the accounts, balance-sheet, or annual return of any Society of which he is Accountant, or any account, balance-sheet, or annual return which he has himself prepared. 3. A Society desh-ous of submitting its accounts to a Public Auditor must forward all the necessary materials to his office or place of residence, in order to save travelling expenses and loss of time. It will be the duty of the Auditor, when applied to, to imjiress this uj)on the Society. He is not bound to leave his office for the purpose of the audit. 4. The Society must, at the same time, forward to the Auditor the annual return or general statement of the receipts and expcnditm'e, funds and effects of the society, made up in the form for the time being required under the Friendly Societies Act, 1896, or the Industrial and Provident Societies Act, 1893, as the case may be. 5. The Auditor is to verify the annual return with the accounts and vouchers relating thereto, and either to sign the same as found by him to be correct, duly vouched, and in accordance with law, or specially to report to the Society in what respects he finds it incorrect, unvouched, or not in accordance with law. 6. The work of the Auditor will be strictly confined to auditing, but he has under the Acts a right of access to aU the books and accounts of the Society. In the event of his discovering errors in the annual return, or the books, accounts, or vouchers submitted to him, they are to be returned (at the cost of the Society) for correction, unless the Auditor be requested by the Society to correct the inaccuracies, in which case he is entitled to claim an additional fee, to be arranged between him and the Society. 7. The Auditor shall, in all cases, make a Report to the Society upon the accounts and other documents submitted to him, and, in case he has called for explanations or information from the Directors or Committee of Management, he shall state whether such explanations or information have been given, and whether they have been satisfactory. 8 & 9. Rates of payment :— (See Pages 34 and 35). 10. Auditors shall hold their appointments fi'om year to year, beginning on the first day of January in each year. The Treasury reserves to itself entire discretion as to re-aijpointing them. 11. They shall send in half-yearly to the Chief Registrar of Friendly Societies a list containing the names of the Societies audited by them dm-ing the previous half-j'ear, and the fees received fi-om each Society, distinguishing Societies under the Friendly Societies Act from Societies under the Industrial and Provident Societies Acts. 12. The scales of fees above laid down will only remain in force from year to j^ear. At the end of any year they may be confirmed or altered in such manner as the Treasury may dii-ect. APPENDIX. 455 13. Auditors are requested to make themselves acquainted with the provisions of the Friendly Societies Act, 1896, and of the Industrial and Provident Societies Act, 1893, which affect the exercise of their functions. Their attention is particularly directed to Sections 26, 27,81 and 88 of the Friendly Societies Act, 1896, and to Sections 13, 14, 62 and 65 of the Industrial and Provident Societies Act, 1893. 14. Apart fi-om the above arrangement, the Auditors of the Local Government Board are authorised to exercise, subject to the sanction of that Board previously obtained, the functions of public Auditors in their respective districts, but are not bound to accept any accounts for audit. 15. The Treasiu-y reserves to itself the right of appointing additional Auditors if required. 16. The appointment of public Auditor does not qualify the holder for undertaking valuation business, and it must not be used for obtaining such work. A public Auditor, not being also a jiublic Valuer, who desii-es to value Societies mider the Friendly Societies Acts, must be either an Associate or Fellow of the Institute of Actuaries in England, or a Fellow of the Faculty of Actuaries in Scotland ; and if a public Auditor is found, after the issue of the present conditions, to have valued any such Society without being so qualified, he will be struck oft' the list of public Auditors. A public Auditor qualified ixnder these conditions to value Societies under the Friendl}' Societies Acts must in every case strictly conform to instructions Nos. 5-13, botli inclusive, of the nistructions issued by the Treasury to public Valuers appointed under the above Acts, and in making valuations for Societies shall not describe himself otherwise than as Associate or Fellow of the Institute of Actuaries, or as Fellow of the Faculty of Actuaiies, as the case may be. A public Auditor who has been found to have solicited business, whether in the shape of audits or valuations, by offering commission or any other pecuniary induce- ment, either to officers or members of Societieji, or to other persons, will be struck ott' the list of public Auditors. 456 AUDITOKS. TABLE For ascertaining the amount to be charged annuallj' against the Revenue Account and written off a Lease Account in order to exhaust the same at the expiration of such Lease, with interest at 3, 4, 5, G, 7, 8, 9 or 10 per cent, per annum. Also for ascertaining the value of a Lease at the above several rates of interest. The rate per cent, is of course contingent upon many circumstances, but it may be a guide to state that in cases of compensation the IMetropolitan Board of Works allow interest to be calculated at the rate of 6 per cent, per annum. EXAMI'LES. 1. A Company purchases the seven years' Lease of its business premises for £.3476 10s'. Required the sum which should be charged annually against the Revenue Account until the expiration of the Lease. LiteresI; at 6 per cent, per annum. £3476 10s. = JE3476-5. Divide 3476"5 by 5'582, the number in the 6 per cent, column on the same line with 7 in the years column in the table. This gives 622"805, or £622 16s. Id., the sum required. The Lease Account as it should appear in the Ledger is given on p. 460. 2. A Lease for fourteen years to make 7 per cent, and to get back the Principal is worth S-745 or 8J years' purchase of the Clear Annual Rent. The C'ear Annual Rent is ascertained by deducting from the estimated or improved Rent the reserved Rent, if any, and all Taxes and other annual charges. APPENDIX. TABLE. 457 Years. Ykars' P UKCHASE. Years. 3 per cent. 4 per cent. 5 per cent. 6 per cent. per cent. 8 per cent. 9 per cent. 10 per cent. * •489 -485 -482 -479 -475 •472 -469 -465 h 1 •971 •962 -952 -943 •935 •926 -917 -909 1 U 1^446 1-428 1-411 1 -395 1-379 1-363 1-347 1 -332 n 2 1-913 1-886 1-859 1-833 1-808 1-783 1-759 1-736 2 n 2-374 2-335 2-297 2-259 2-223 2-188 2-154 2-1-20 21 3 2-829 2-775 2-723 2-673 2-6-24 2-577 2.531 2-487 3 31 3-276 3-207 3-140 3-075 3-012 2-952 2-893 2-836 ■Sh 4 3-717 3-630 3-546 3-465 3-387 3-312 3-240 3-170 4 4i 4-152 4-045 3-942 3-844 3-750 3-659 3-572 3-488 ^ 5 4-580 4-452 4-329 4-212 4-100 3-993 3-890 3-791 5 5| 5-002 4-851 4-707 4-570 4-439 4-314 4-194 4-080 5^ 6 5-417 5-242 5-076 4-917 4-767 4-623 4486 4-355 6 H 5-827 5-6-26 5-435 5-255 5-083 4-920 4-765 4-618 6^ 7 6-230 6-002 5-786 5-582 5-389 5-206 5-033 4-868 7 T| 6-628 6-371 6-129 5-901 5-685 5-482 5-289 5-107 T* 8 7-020 6-733 6-463 6-210 5-971 5747 5-535 5-335 8 8h 7-406 7-087 6-789 6-510 6-248 6-002 5-770 5-552 8* 9 7-786 7-435 7-108 6-802 6-515 6-247 5-995 5-759 9 91 8-161 7-776 7-419 7-0^5 6-774 6-483 6-211 5-956 n 10 8-530 8-111 7-722 7-360 7-024 6-710 6-418 6-115 10 lOi 8-894 8-439 8-018 7-627 7-265 6-929 6-616 6-324 101 11 9-253 8-760 8-306 7-887 7-499 7-139 6-805 6-495 11 IH 9-606 9076 8-588 8-139 7-724 1-341 6-987 6-658 lU 12 9-954 9-3S5 8-863 8-384 7-943 7-536 7-161 6-814 12 12iT 10-297 9-688 9-132 8-622 8-154 7-723 7-327 6-962 m 13 10-635 9-986 9-394 8-853 8-358 7-904 7-487 7-103 13 13| 10-968 10-277 9-649 9-077 8-555 8-077 7-640 7-238 13| 14 11-296 10-563 9-899 9-295 8-745 8-244 7-786 7-367 14 14,\ 11-619 10-843 10-142 9-507 8-930 8-405 7-926 7^489 14| 15 11-938 11-118 10-380 9-712 9-108 8-559 8061 7-606 15 15i 12-252 11-388 10-612 9-912 9-280 8-708 8-189 7-717 15| IG 12-561 11-652 10-838 10-106 9-447 8-851 8-313 7-824 16 ICJ 12-866 11-911 11-059 10-942 9-608 8-989 8-431 7-925 16| 17 13-166 12-166 11-274 10-477 9-763 9-122 8-544 8-022 17 IT^ 13-462 12-415 11-484 10-655 9-914 9-249 8-652 8-114 in 18 13-754 12-659 11-690 10-828 10-059 9-372 8-756 8-201 18 181 14-041 12-899 11-890 10-995 10-200 9-490 8-855 8-285 18^ 19 14-324 13134 12-085 11-158 10-336 9-604 8-950 8-365 19 191 14-603 13-364 12-276 11-316 10-467 9-713 9-041 8-441 19^ 20 14-877 13-590 12-462 11-470 10-594 9-818 9-129 8-514 20 20i 15148 13-812 12-644 11-619 10-717 9-919 9-212 8-583 20| 458 AUDITORS. TABl.'E— continued. Years. Years' Purchase. Years. 3 per cent. 4 per cent. 5 per cent. 6 per cent. 7 per cent. 8 per cent. 9 per cent. 10 per cent. 21 15-415 14-029 12-821 11-764 10-836 10 017 9-292 8 649 21 21i 15-678 14-242 12-994 11-905 10-950 10 111 9-369 8 712 21i 22 15-937 14-451 13-163 12012 11-061 10 201 9-442 8 772 22 221 16-192 14-656 13-328 12174 11-168 10 288 9-513 8 829 22| 23 16-444 14-857 13-489 12-303 11-272 10 371 9-580 8 883 23 23^ 16-691 15-054 13-645 12-429 11-372 10 451 9-645 8 935 23^ 24 16-936 15-247 13-799 12-550 11-469 10 529 9-707 8 985 24 24i 17176 15-436 13-948 12-669 11-563 10 603 9-766 9 032 24| 25 17-413 15-622 14-094 12-783 11-654 10 675 9-823 9 077 25 202 17-647 15-804 14-236 12-895 11-741 10 744 9-877 9 120 25i 26 17-877 15-983 14-375 13-003 11-826 10 810 9-929 9 161 26 261 18-104 16-158 14-511 13-108 11-908 10 874 9-979 9 200 26i 27 18-327 16-330 14-643 13-211 11-987 10 935 10-027 9 237 27 27i 18-547 16-498 14-772 13-310 12-063 10 994 10-072 9 273 2T| 28 18-764 16-663 14-898 13-406 12-137 051 10-116 9 307 28 281 18-978 16-825 15-021 13-500 12-209 106 10-158 9 339 28i 29 19-188 16-984 15-141 13-591 12-278 158 10-198 9 370 29 291 19-396 17-139 15-258 13-679 12-344 209 10-237 9 399 •in 30 19-600 17-292 15-372 13-765 12-409 258 10-274 9 427 30 301 19-802 17.442 15-484 13-848 12-471 305 10-309 9 454 30i 31 20-300 17-588 15-593 13-929 12-532 350 10-343 9 479 31" 31J 20196 17-732 15-699 14-008 12-590 393 10-375 9 503 3H 32 20-389 17-874 15-803 14-084 12-647 435 10-406 9 526 32 321 20-579 18-012 15-904 14-158 12-701 475 10-436 9 548 m 33 20-766 18-148 16-003 14-230 12-754 514 10-464 9 569 33 33^ 20-950 18-281 16-099 14-300 12-805 11 551 10-492 9 589 33i 34 21-132 18-411 16-193 14-368 12-854 587 10-518 9 609 34 34^ 21-311 18-539 16-285 14-434 12-902 621 10-543 9 627 341 35 21-487 18-665 16-374 14-498 12-948 655 10-567 9 644 35 351 21-661 18-788 16-462 14-561 12-992 686 10-590 9 661 35-1 36 21-832 18-908 16-547 14-621 13-035 717 10-612 9 677 36 36i 22-001 19-027 16-630 14-680 13-077 747 10-633 9 692 36| 37 22-167 19-143 16-711 14-737 13-117 775 10-653 9 706 37 37i 22-331 19-256 16-791 14-792 13-156 803 10-672 9 720 37i 38 22-492 19-368 16-868 14-846 13-193 829 10-691 9 733 38 38^ 22-652 19-477 16-943 14-898 13-230 854 10-709 9 745 38| 39 22-808 19-584 17-017 14-949 13-265 879 10-726 9 757 39 39^ 22-963 19-690 17-089 14-998 13-299 902 10-742 9 768 39i 40 23-115 19-793 17-159 15-046 13-332 925 10-757 9 779 40 40| 23-265 19-894 17-228 15-093 13-363 946 10-772 9 789 m 41 23-412 19-993 17-294 15-138 13-394 11-967 10-787 9-799 41 APPENDIX. TABUE— continued. 459 Years. Years' Puiichase. Years. 3 per cent. 4 per cent. 5 per cent. 6 per cent. 7 per cent. 8 per cent. 9 per cent. 10 per cent. 4U 23-558 20 090 17-360 15 182 13-424 11 987 10 800 9 808 4U 42" 23-701 20 186 17-423 15 225 13-452 12 007 10 813 9 817 42 42^ 23-843 20 279 17-485 15 266 13-480 12 025 10 820 9 826 42J 43 23-982 20 371 17-546 15 306 13-507 12 043 10 838 9 834 43 43J 24-119 20 461 17-605 15 345 13-533 12 OCO 10 849 9 842 43^ 44 24-254 20 549 17-663 15 383 13-558 12 077 10 861 9 849 44 441 24-387 20 635 17-719 15 420 13-582 12 093 10 871 9 856 44i 45 24-519 20 720 17-774 15 456 13-606 12 108 10 881 9 863 45 ibk 24-648 20 803 17-8-28 15 491 13-628 12 123 10 891 9 869 451 46 24-775 20 885 17-880 15 524 13-650 12 137 10 900 9 875 46 461 24-901 20 965 17-931 15 557 13-671 12 151 10 909 9 881 46J 47 25-025 21 043 17-981 15 589 13-692 12 164 10 918 9 887 47 471 25-147 21 120 18-030 15 620 13-711 12 177 10 926 9 892 m 48 25-267 21 195 18-077 15 650 13-730 12 189 10 931 9 897 48 48^ 25-385 21 269 18-123 15 679 13-749 12 201 10 941 9 902 481 49 25-502 21 341 18-169 15 708 13-767 12 212 10 948 9 906 49 49* 25-617 21 413 18-213 15 735 13-784 12 223 10 955 9 911 49i 50 25-730 21 482 18-256 15 762 13-801 12 233 10 962 9 915 50 51 25-951 21 617 18-339 15 813 13-832 12 253 10 974 9 921 51 52 26-160 21 748 18-418 15 861 13-862 12 272 10 985 9 930 52 53 26-375 21 873 18-493 15 907 13-890 12 288 10 996 9 936 53 54 26-578 21 993 18-565 15 950 13-916 12 304 11 005 9 942 54 55 26-774 22 109 18-633 15 991 13-940 12 319 11 014 9 947 55 56 26-965 22 220 18-699 16 029 13-963 12 332 11 022 9 952 56 57 27-151 22 327 18-761 16 065 13-984 12 344 11 029 9 956 57 58 27-331 22 430 18-820 16 099 14-003 12 356 11 036 9 960 58 59 27-506 22 528 18-876 16 131 14-022 12 367 11 042 9 964 59 60 27-676 22 623 18-929 16 161 14-039 12 377 11 048 9 967 60 65 28-453 23 047 19-161 16 289 14110 12 416 11 070 9 980 65 70 29-123 23 395 19-343 16 385 14-160 12 443 11 084 9 987 70 75 29-702 23 680 19-485 16 456 14-196 12 461 11 094 9 992 75 80 30-201 23 915 19-596 16 509 14-222 12 474 11 100 9 995 80 85 30-631 24 109 19-684 16 549 14-240 12 482 11 104 9 997 85 90 31-002 24 267 19-752 16 579 14-253 12 488 11 106 9 998 90 95 31-323 24 398 19-806 16 601 14-263 12 492 11 108 9 999 95 100 31-599 24 505 19-848 16 618 14-269 12 494 11 109 9 999 100 Perp. 33-333 25-000 20-000 10-667 14-286 12-500 11111 10 000 Perp. The Table is taken from the twenty-third edition of " In wood's Tables," and is printed here with the kind permission of the Publishers, Messrs. Crosby, Lockwood & Co., 7, Stationers' Hall Court, London, E.G. 460 AUDITORS. O m A o O c3 O &4 o l^ ■^ CO a; ^ O) r-l ■^ n — 1 •4^ ^ r^ a> -M ci "1=! r^ ^ o ^ .2 H '^t; o (V) U ^ o -;m rS 02 « ^ w c3 c; . <^ >^ c/2 o H o o •^ r- 00 05 i «o »o •-( Cj^ (>l ^O rH CO t^ CO Ci lO CO O O -M CD CO CO Ol 1— I -# (M •»*< I CO CO r-( I l^ 1-1 (M CC CO ^ o o c3 Pnpq S 2 Pnpq pq - s g pq - >'3 pq ^ p^ ^ >> A W -^•OOi OS 00 00 ■* ceo 1-1 I-l o^ -* cc-* r~ COCS cc (M 00 o I-i • Oi-l •= i-( 1-1 1—1 1—1 o -*l- 1—1 CO Ci >-0 C» r- co o c; o •^ -^ 00 CO 00 o} 1- O cc 00 CO cc o _ O „ O „ H " H " Eh - H " H " H " CPh^ 0) 0) ■S O Ol Ph o «t-i 13 O S H H APPENDIX. 4(5] M()dp:l Clauses for Articles of Association, capital and shares. Upon any oftVr oi shares in the capital of the Company to (he piililic for subscrip- tion, the Directors sliall be at liberty to pay a commission to any person in consideration of his subscribing, or agreeing to subscribe, whether conditionally or unconditionally, or procuring or agreeing to procure subscriptions, whether absolute or conditional, for any of the shares so ottered, but so that the rate of such commission shall not exceed 10 per cent, of the nominal value of the shares in respect of which such commission is paid. ALLOTMENT OF SHARES. The Directors shall not make an Allotment of Shares until they liavc received a certificate from the Auditors named in the Prospectus that the application money on Shares has been duly lodged with and is in the possession of the Bankers of the Company. DIVIDENDS, RESERVE, AND KESERVE FUND. The Board may, with the sanction of the Company in General Meeting, declare dividends to be paid to the members in proportion to the amount called and paid up on their shares. No dividend, instalment of dividend, or bonus shall be payable except out of profits arising out of the business of the Company, as certified by the Auditors, or in excess of any amount recommended by the Board. All dividends shall be declared and jsaid according to the amount paid or credited as paid on the shares, subject, as to shares not fully paid up, to any sjjecial arrangement made as regards money paid in advance ( f calls. As regards shares not fully i:)aid up all dividends thereon shall be apportioned and paid pru rata according to the amounts called up thereon during any portion or jjortions of the year, save that as regards any shares contracted to be issued as fully or partly paid under any Agreement entered into by the Company, the same shall be entitled to rank for dividend as from such date as shall be provided by any such Agreement. The Dii'ectors may, if they think tit, fi-oni time to time determine on and declare and pay dividends yearly, half-yearly, or at shorter or longer intervals, and declare and pay interun dividends. The Dii-ectors may, before recommending any dividend, set aside out of the profits of the Company such sum as they think proper as a reserve, which may at the discretion of the Directors be employed in the business of the Comjjany or for meeting contingencies, for the gradual liquidation of any debt or liability of the company, for repairing or main- taining the works, plant and machinery of the Comjjany, or, mtli the sanction of the Company in General Meeting, for ec[ualising dividends, or for distribution by way of bonus among the members of the Company for the tune being, on such terms, and in such manner as the Company in general meeting shall from time to time determine, or they may, before reconunending any dividend, set aside out of the in-otits of the Company such sum as they think jjroper as a Reserve Fund for meeting contingencies for the gradual liquidation of any debt or liability of tlie Company, f(ir repairing or maintaining the works, plant and machinery of the Company, or, with the sanction of tlie Company in general meeting, for equalising dividends, or for distril)ution, by way of bonus, among the members of the Company for the time being, on sueli tenns, and in such manner, as the Comi^any in general meeting shall from time to time determini", to be invested upon such securities and in sucli manner as the Directors think lit, but no part of the said Reserve or said Reserve Fund shall be applied hi thei)urchase of or in loan upon the security of shares of the Company. 462 AUDITOKS. The Dii-ectoi's may deduct from any dividend payable to any such member all siich sums of money (if any) as may be due and payable by him to the Company on account of calls or otherwise. Notice of any dividend that may have been declared shall be given in manner here- inafter mentioned to such members as are under the provisions hereuiafter contained entitled to receive notices from the Company. No unpaid dividend, bonus, or interest shall bear interest as against the Company. Any dividend may be paid by cheque sent through the post to the registered address of the member or jierson entitled, and in case of joint holders to that one of them first named m the register in respect' of such shares. Every such cheque shall be made payable to the order of the person to whom it is sent. In case several persons are registered as the joint holders of any share, any one of such persons may give effectual receipts for all dividends and payments on account of dividends in respect of such share. No Shareholder shall be entitled to receive more than £ per cent. di\adend on the amoimt for the time being credited as paid on his shares, in any year untU the first Mortgage Debentures have been paid and satisfied. The siu-plus profits in each year over £ per cent, shall be can-ied to a special reserve fund, which shall be applied in redemption of the said fii'st Mortgage Debentures POLLS. If at any meeting of the Members a Poll be taken, the Auditors of the Company shall be appointed scrutineers, and they shall be paid for their services as such scrutineers on the scale usually charged by ilembers of the Institute of Chartered Accountants iu England and Wales. ACCOUNTS. The Board shall cause Accounts to be kept of the assets and liabilities, receipts and expenditui-e of the Company. The books of Account shall be kept at the registered office of the Company. The Books of Account shall be designed and opened by a Chai-tered Accountant (who may be the Auditor of the Company), who shall be paid for his services on the scale usually charged by Members of the Institute of Chartered Accomitants in England and Wales. Once at least in every year the Board shall lay before the Company in General Meetmg a proper Profit and Loss Account for the past year, and a Balance Sheet, showing the assets and liabilities of the Company, and the other debit and credit balances in abstract form of the Ledgers of the Company, made up to a date not more than four months before such meetmg, accompanied by a Report of the Board and of the Auditors on the position and transactions of the Company. Such Balance Sheet shall be signed by two Du-ectors and countersigned by the Secretary. The cost of establishing the Company may be treated as capital expenditui-e, and APPENDIX. 463 may be spread over a series of years, and the amount of such expenditure for the time being outstanding may, for the piu-poses of calculating the profits of the Company for the purpose of dividends, be reckoned as an asset. Any expenditm-e which has been incurred in any year, but whicli in the opinion of the Directors may in fairness be distributed over sevei-al years, may be so treated and the amount of such expenditiu-e for the time being outstanding may, for the purposes of calciUating the profits of the Company for the purpose of dividends, be reckoned as an asset. A printed copy of the Balance Sheet and Profit and Loss Account and of the Auditor's Report sliall, ten days previously to each meeting, be forwarded by post to every Member. AUDIT. Once at least in every year, that is to say, preparatory to the Ordinary General Meeting in each year, save and except the meeting dii-ected to be called withhi three months of the date at which the Company is entitled to commence business, the Accomits of the Company shall be examined, and the correctness of the Profit and Loss Account and Balance Sheet ascertained by one or more Auditor or Auditors. The first Auditors shall be iMessrs. & Co. Their names shall be printed as Auditors on the Prospectus of the Company, but they shall not be liable for any statement made in such Prospectus, except in respect of any Certificate given by them. The Auditors shall remain in office imtil the Ordinary General Meetmg of the IMembers at which the first Profit and Loss Account and Balance Sheet are presented. Subsequent Auditors shall be appointed by the Company in General Meeting, but no Auditors other than the retmng Auditors shall be elected unless their names shall have been forwarded to the Secretary at least three days before the meeting, with an intima- tion that they are willing to act if elected. The Auditors must be cither Fellows or Associates in Practice of the Institute of Chartered Accountants in England and Wales. Tlie Auditors may not be members of the Company ; and no Director nor other Officer of the Company is eligible during his continuance in office. The remuneration of the first Auditors shall be fixed by the Directors, that of subsec^uent Auditors shall be fixed by the Company in General Meeting ; but should the Auditors not be satisfied with the remuneration awarded, the matter shall be refeired to the President for the time being of the Institute of Chartered Accountants in England and Wales, or to a ^Member of its Council to be nominated by the said President, whose award shall be binding on the Company and the Auditors. Any Auditor shall be re-eligible on his quitting office. If any casual vacancy occurs in the office of any Auditor, the Dnectors shall forthwith appoint Auditors, who shall remain in office untQ the Ainiual General Meeting next ensuing; while any vacancy continues the surviving or continuing Auditor or Auditors (if any) may act. 464 AUDITORS. Every Auditor shall be supplied with a copy of the Balance Sheet and Profit and Loss Account, and it shall be his duty to examine the same, with the Accounts and Vouchers relating thereto. Every Auditor shall have a list delivered to him of all books kept by the Company, and shall at all reasonable times have access to the books and accounts of the Company. He may, at the expense of the Company, employ solicitors or valuers to assist him in his duties, and may, in relation to such Accounts, examine the Directors or any other ofhcer of the Company. Every Auditor shall have a right of access, at all times, to the Books and Accounts and Vouchers of the Company', and shall be entitled to require from the Directors and Officers of the Company such information and explanation as may be necessary for the performance of the duties of the Auditors, and the Auditors shall sign a Certificate at the foot of the Balance Sheet, stating whether or not all their requirements as Auditors have been complied with, and shall make a Eeport to the Shareholders on the Accounts examined by them, and on every Balance Sheet laid before the Company in General Meeting during their tenure of office, and in every such Rei^ort shall state whether, in their opinion, the Balance Sheet referred to in the Report is properly drawn up so as to exhibit a true and correct view of the state of the C^omijany's affairs, as shown by the books of the Company, and such Report shall be read before the Company in General Meeting. So long as any first Mortgage Debentures of the Company are outstanding, the Trustees for the debenture -holders shall be entitled to nominate the Auditor or one of the Auditors of the Company. The other Auditor or Auditors (if any) shall be aj)pointed by the Company in General Meeting. The Company shall pay to the Auditor nominated by the Trustees for the debenture - holders a fee of £ a year, payable quarterly. INDEX. 4Go INDEX A, TABLE, First Schediile to Companies Act, 1862, 47. ACCOUNTANTS, Chartered, 7. Professioual, Auditors have power to emj)loy, 382. Public, 5, 6. ACCOUNTS, Audited, opening of, 384. Building Societies, of, 249. Debenture Stock, 101. Electric Lighting Undertakings, of, 240. Executors, of, 252. Falsification of, 214. Form of, 244. Fraudulent, Penalty for keei^ing, 213. Fi'iendly Societies, of, 249. Gas Companies, of, 122, 246. Hospitals, of, 250. Industrial and Provident Societies, of, 249. Insjiection by Shareholders of, 94. Judicial Trustees, of, 201, 336. Life Assurance Companies, of, 136, 245. Loan Capital, of Railway Companies, 108. Slisdenieanour for keeping fraudulent, 49. Misfeasance for publishing false, 74. Oxford Colleges, of, 191. Oxford University Chest, of, 191. Penalty for falsifying, 114, 214. Preparation of, for i)urposes of audit, 216. Railway Companies, of, 108, 245. Sheriffs, of, 198. Stannaries Acts, under the, 131, 135. Submission to Auditor of, 229. Table A, Regulations of, as regards, 51. Trading, Preparation of, 224. Trustees, of, 252. Water Companies, of, 124, 125, 246. ACCUMULATED PROFITS, Return to Shareholders of, 57. ACTS OF PARLIAMENT, Apportionment Act, 1870, 203. Building Societies Act, 1874, 139. Building Societies Act, 1894, 142. Collecting Societies and Industrial Assurance Companies Act, 1890, 157. Colonial Stock Act, 1900, 212. Companies Act, 1862, 40. Companies Act, 1867, 54. Companies Act, 1879, 55. Companies Act, 1880, 57. Companies Act, 190O, 59. Companies Clauses Act, 1863, 96. Companies Clauses Act, 1869, 102. HH 466 INDEX. ACTS OF PARLIAMENT {continued). Companies Clauses Consolidation Act, 1845, 86. Companies (Colonial Registers) Act, 1883, 6v>. Companies (Winding-up) Act, 1890, 71. County Courts Act, 1888, 197. Electric Lighting (Clauses) Act, 1899, 128. Falsification of Accounts Act, 1875, 214. Friendly Societies Act, 1896, 149. Gasworks Clauses Act, 1847, 119. Gasworks Clauses Act, 1871, 122. Industrial and Provident Societies Act, 1893, 159. Industrial and Provident Societies Act, 1894, 165. Intestates Estate Act, 1890, 202. Judicial Trustees Act, 189t5, 199. Larceny Act, 1861, 213. Life Assm-ance Companies Act, 1870, 135. Metropolis Water Act, 1852, 125. Metropolis Water Act, 1871, 125. Mortgage Debentiu'e Act, 1865, 76. Mortgage Debentiu'e (Amendment) Act, 1870, 82. Railway and Canal TrafBc Act, 1888, 117. Railway Companies Act, 1867, 109. Railway Companies (Scotland) Act, 1867, 112. Railway Companies Securities Act, 1866, 107. Railways Construction Facilities Act, 1864, 104. Regulation of Railways Act, 1868, 113. Regulation of Railways Act, 1889, 118. Savings Banks Act, 1891, 174. Sheriffs Act, 1887, 198. Societies Borro^ving Powers Act, 1898, 157. Stannaries Act, 1869, 131. Stannaries Act, 1887, 133. Trustee Act, 1893, 206. Trustee Savmgs Banks Act, 1863, 165. Universities and College Estates Act, 1858, 179. Universities and College Estates Act, 1898, 183. Universities and College Estates Amendment Act, 1880, 182. Universities of Oxford and Cambridge Act, 1877, 190. Waterworks Clauses Act, 1847, 123. ACTUARLiL REPORT, Life Assm-ance Companies, of, 137. ADMINISTRATOR, Auditor appointed, 23. AGENT. Auditor as, of the Shareholders, 18. AGENTS, Remarks on Balances due from, 321. ALLOTMENT, Application for Shares and Allotment Book, 232. Letters of, 232. Restrictions as to, 60. Return as to the, 61. ANNUAL LIST OF MEMBERS, Particulars to be entered in, 42, 236. ANNUAL RETURNS, Building Societies Act, 1874, 143. Friendly Societies Act, 1896, 149. Industrial and Provident Societies Act, 1893. INDEX. 467 ANNUAL SUMSIARY, Additions to, by Act of 1900, 66. Particulars to be coutaiiied in, 42, 66, 236. APPENDIX, Contents of the, 403. APPLICATION FOR SHARES, Book for containing the, 232. APPOINTMENT OF AUDITORS, Board of Trade, by, 25, 28, 52, 67, 115. Building Societies Acts, under the, 29, 140. Companies Act, 1862, Table A, under the, 51. Companies Act, 1879, under the, 25, 55. Companies Act, 1900, under the, 67. Companies Clauses Consolidation Act, 1845, under the, 33, 91. Electric Lighting Acts, under the, 28, 129. Friendly Societies Act, under the, 29, 149. Industrial and Provident Societies Act, under the, 30. Judicial Trustees Act, 1896, under the, 200. Metropolis Water Act, 1871, under the, 126. Regulation of Railways Act, 1868, under the, 28, 115. Remarks on the, 24. ARTICLES OF ASSOCLVIION, Auditor should peruse, 258. Model Clauses for, 461. ASSETS, Remarks on, 300, 315. AUDIT, Banks, of, 55, 331. Building Societies, of, 335. Capital Account of a Company, of the. 260, 304. Clubs, of, 346. Collieries, of, 310. Colonial Banks, of, 332. Co-operative Stores, of, 341. Contmuous, 265. Discoimt Houses, of, 334. Electric Lighting Undertakings, of, 129. Executors and Trustees, of, 342. Friendlj^ Societies, of, 149. Industrial and Provident Societies, of, 159. Insurance Companies, of, 335. Judicial Trustees, of, 201, 336. Landed Estates, of, 341. Mines, of, 340. Natiu-e and Principles of an, 253. Newspapers, of 345. Oxford Colleges, of, 195. Oxford University Chest, of, 191. Preparation of a Company's Accounts for, 216. Railway Companies, of, 112. Savings Banks, of, 332. Schools, of, 346. Sheriffs' Accounts, of, 199. Single Ship Companies, of, 339. Solicitors, of, 337. Stockbrokers, of, 337. Theatres, of, 345. Thorough, should embrace examination of aU transactions, 374. Trustees, of, 342. Universities, of, 191 et seq. HII 2 46(S INDEX. AUDIT COMMITTEE, Companies limited by Guarantee, of, 53. AUDIT DEPAETMENT, Exchequer and, 5. AUDITED ACCOUNTS, Re-opening of, 348. AUDITOR, Accounts are inaccurate, position of, when, 397. Address of, to be stated on prospectus, 63. Administrator, aijpointment of, as, 23. Advice, no part of duty of, to give, 259. Agent of Shareholders, as, 18. Antiquity of Office of, 1 . Apijointment of. {See Appointment.) Book-keeping, should be understood by, 231. Certificate of, 387. Charities, of, 21. Charles II., under, 4. Claim against, sale by auction of, 75. Crown, of the, 3. Dnectors, not answerable to, 216. Dii-ectors, position of, as regards, 16, 397. Dividends, held liable for payment of improper, 371. Duties of, general remarks on, 253, 369. Elizabeth, under Queen, 3. Etymology of the word, 3. Examination of, in ■ninding-up, 72. Executors and Trustees, of, 23, 342. Expert, may rely on opinion of, 374. Failm-e to elect, 67. Imprests, of the, 3. Insurer, not an, 394. Liability of, 19. Member of a Company, may be, 51. Merchants' Accounts, of, 21. Misfeasance of, 74. Officer of a Company as, 20, 73. Official, of Electric Lighting Undertakings, 28, 129. Official, of Metropolitan Water Companies, 28, 126. Public, 35. Qualification of, 27, 92. Re-election of, 27. Remuneration of, 32 et seq., 67. Report of, to Statutory Meeting, 64. Report of, 68, 394. Report of, privileged, 399. Responsibility of, under Companies Winding-up Act, 1S90, 19, 73. Rights and Duties of, 67. Rotation of, 92. Shareholder, should not be a, 369. Shareholders, representative of the, 15. Trustee Savings Bank in Ireland, of, 172. Winding-Up, Liability of, in a, 373. BAD DEBTS, Provision for, 227, 375, BALANCE. Bank, at, 263, 322. Trial, Explanation of, 223. INDEX. 469 BALA^X'E SHEET, Auditor has to be supplied ■with, 52, 93. Collectiug Societieti, of, 158. Credit side of, 315. Debit side of, 299. Directors not necessarily responsible for, 51. Explanation of the, 248, 299. Forms of, see Appendix. FuU and fair, 300. Liabilities and Assets, not a Statement of, 299. Table A, prescribed by, 404. Trial Balance, difference between, a:id, 223. BANK, Audit of, special points in, 331. Balance, reconcQiation of Cash Book balance with, 263. BANKING COMPANY, Audit of Accounts of, 55, 331 . Auditor's Certificate for, 391. Statement to be published by a limited, 45. BILLS OF EXCHANGE, Kemarks on, 239. BILLS RECEIVABLE, Balance Sheet, in, 321. Liability on, discoimted, 306. BOARD OF TRADE, Appointment of Auditor by, 25, 28, 52, 67, 115. Life Assurance Comi^anies must deposit Accounts wth, 138. Railway Companies must deposit Accounts with, 114. BOARD MEETING, Accounts of Companies must be passed by, 229. BONDS, Income on, 365. BOOKS, Auditor should be provided \vith list of, 258. Financial or Account, 230. Registry or Statistical, 232. Subsidiary, 238. BOOKS OF ACCOUNT, Executors and Trustees, of, 242. List of, of great assistance to Auditor, 258 . BORROWING, Building Societies, by, 139, 143. Friendly Societies, by, 157. Restriction on Railway Co., 105. Universities, by, 180, 184. BRANCHES, Audit of a Company having, 382. BRITISH GOVERNMENT SECURITIES, Remarks respecting, 317. BROKERAGE, Authorised by Companies Act, 1900, 62. Revenue Accoimt, in, 285. 470 INDEX. BUILDING SOCIETIES, Accounts prescribed by Chief Registrar of, 143. Accounts of, 143. Acts, 139. Appointment of Auditors of, 140, 145. Audit of, special points in, 33.5. Auditor of, one must be a Professional Accountant, 10, 145. Auditor's Certificate for, 400. Borrowing by, 139, 147. Inspection of Books of, 145. Investment of Surplus Funds of, 141. Investments of, 139, 141, 147. Legislation relating to, 11. Mortgages, may not advance on second, 146. Rules of, 142. BUSINESS, Purchase of, how treated in Balance Sheet, 324. CALLS, Members may pay in advance of, 47. Paid in advance, 47, 273. CAPITAL, Balance Sheet should contain details of the, 302. Dividends should not be paid out of, 355, 371. CAPITAL ACCOUNT, Audit of the, of a Company, 260, 304. Remarks on the, 303. CAPITAL EXPENDITURE, New, of Railway Companies, 118. CASH, Balance Sheet, in, 323. CASH ACCOUNT, Explanation of, 247. 269. Model, 449. Revenue Account, difference between, and, 269. Risk of relying solely on a, 248. CASH BOOK, Audit of the, 261. Bank Pass Book balance, reconciled with that of, 263. Explanation of the, 237. CERTIFICATE, Auditor's, issue of, 230. Auditor's, general remarks on, 3S7. Forms of, 389 et seq. Share, 260. CHARGES, Registration of, 64. CHARITIES, Audit of Accounts of, 21. CHARTERED ACCOUNTANTS, Institute of, 7. Power of Auditor to employ, 382. CHECKS, Internal, 254. INDEX. 471 CLAniS. Adniitted, how dealt with iu Balance Sheet, 309. Policies, under, 272. CLUBS, Audit of Accounts of, 346. COTiLEGES, Audit of Accounts of, 195, 346. Auditors of, 20. COLLIERIES, Audit of Accounts of, 340. COLONIAL BANKS, Audit of Accounts of, 332< COLONLiL REGISTER, Power for a Company to keep, 70. COLONIAL STOCK, Trustees may invest in certain, 212. COiOIISSION, Agent's, 278. Companies Act, 1900, authorises payment of, for placing Capital, 286. Errors of, 257. Revenue Account, in, 278. Shares, for placing, 62. COMPANY LAW, History of, 7. COMPANIES, Acts relating to. [See Acts of Parliament.) CONSERVATORS, Audit of Accounts of, 21. CONSOLIDATED STOCK, Register of Holders of, 234. CO-OPERATIVE STORES, Audit of the Accounts of, 341. COST BOOK, Explanation of, a 235. CREDITORS, Balance Sheet, in, 307. CROWN, Auditors of the, 3. DAY BOOK, Explanation of the, 237. DEAD RENT, Remarks on, 274. DEBENTURE STOCK, Interest on, a primary charge, 101. Register of, 235. Regulations aii to issue of, 100. Separate Accoimts to be kept of, 101. 472 INDEX. DEBENTURES, Balance Sheet, iu, 30-1. Definition of, 305. Discount, issued at a, 30.;. Interest on, 273, 308. Mortgage, List of, 81. Mortgage, Register of, 82. IMortgage, terms of issue of, 85. Nominal, definition of, 210. Railway, 305. Registration of, to bearer, 44. DEBTORS, Balance Sheet, in, 320. DEBTS, Bad and doubtful, 283. DEFERRED STOCK, Issue of, 116. DEPOSITORS, Balance Book, 236. DEPRECIATION, Amount written off for, 225, 280. Method of arriving at, 225. DEVELOPMENT, Expenditure on mining, 325. DIRECTORS, Auditor's position ^nth regard to, 16, 307. Duties of, 14. Fees of, 222, 276. Managers of Companies and Societies, are, 17, 386. Presents to, 276. Qualification of, 59. Register of, 45, 235. Report of, previous to Statutory Meeting, 63. DIRECTORS' LIABILITY ACT, 1890, Auditor's, liability under, 19. DISCOUNT, Debentures issued at a, 305. Shares issued at a, 303. DISCOUNT HOUSES, Audit of the Accounts of, 334. DIVIDENDS, Arrears of, 309, 364. Calls in arrear, should not be paid when, 96. Capital, not payable out of, 358. Declaration of, 48. Directors, not Auditors, declare the, 347. Interest, do not bear, 49. Interest, different meaning from, 47. Preference, in arrear, 309. Preference Shares, on, 289. Profits, only payable out of, 88. Scheme should be prepared preparatory to declaration of, 95. Unclaimed, 49. INDEX. 473 DOCUMENTS, Should be arranged for inspection by Auditor, the 219, 262. DOUBLE ACCOUNT SYSTEM, Explanation of the, 357. ELECTION OF AUDITOK, {See Appointment.) ELECTRIC LIGHTING UNDERTAKINGS, Accounts of, 129. Audit of, 129. Forms of Accounts for, 427. Restrictions on purchase of other undertakings, 129. ERRORS, Commission, of, 257. Omission, of, 2.56. Principle, of, 257. EXCHANGE, Revenue Account, in, 294. EXCHEQUER AND AUDIT DEPARTMENT, Creation of the, 5. EXECUTORS, Accounts of, 252. Audit of Accounts of, 23, 342. Books of Account for, 242. EXPENSES, Preliminary, of Company, 286. EXPERT, Auditor may rely upon opinion of, 374. FALSIFICATION OF ACCOUNTS, Act of 1875, 214. Illustration of, 372. FEES, Auditors, of, 32 el seq. Du-ectors, of, 276. FINANCIAL OR ACCOUNT BOOKS, List of, in general use, 236. FIRMS, Appointment as Auditors of, 31. FORFEITED SHARES, How to deal with, 98. Power to cancel, 97 . FOREIGN GOVERNMENT SECURITIES, Balance Sheet, in, 317. FORMS OF ACCOUNTS, Auditors, submitted to, 2-44. FOUNDERS' SHARES, Auditors on behalf of holders of, 30. Reserve in connection with, 367. HU* 474 INDEX. FREEHOLD PROPERTY, Balance Sheet, in, 319. FRIENDLY SOCIETIES, Accounts of, 249. Act, 1896, 149. Annual Return of, 149. Audit of, 149. Investments of, 152. Loans to Members of, 153. FULLY PAID-UP SHARES, Issue of, 303. FUND, Reserve, 311. Sinking, 313. FURNITURE, Balance Sheet, in, 324. GAS COMPANIES, Accounts of, 122, 246. Dividends of, 363. Profits of, 120. Reserved Fund of, 120. GENERAL EXPENSES, Revenue Account, in, 274. GENERAL MEETINGS, Companies Act, 1862. under, 45, 48. Companies Act, 1900, under, 63. GOODWILL, Fixed Capital, is, 281. Balance Sheet, in, 324. GOVERNMENT SECURITIES, Balance Sheet, in, 317. GUARANTEE, Company limited by, 68. HALF-YEARLY' ACCOUNT, Railways, of, 108. HIRING AGREEMENT, Pm-chases under, 327. IMPRESTS, Auditors of the, 3. INCOME, Investigation of the, of the Revenue Account, 290 INCOME AND EXPENDITURE, Statement of, 49. INCOME TAX, Directors' Fees, on, 277. Dividends, maximum, not payable in addition to, 120. INDIAN AND COLONIAL GOVERNMENT SECURITIES, Balance Sheet, in 317. INDEX. 475 INDUSTRIAL AND PROVIDENT SOCIETIES, Accounts of, IGO. Acts, 159 et seq. Annual Returns of, 160. Audit of Accounts of, 159. Auditors of, 35, 159. Investments of, 161. INSTITUTE OF ACTUARIES, Resolution of the Council of, respecting Expenses of Assurance Companies, 275. INSTITUTE OF CHARTERED ACCOUNTANTS. Incorporation of the, 7. INSURANCE COMPANY, Audit of, 335. Definition of, 41. Reserve in Balance Sheet of, 310. INSURE, Trustee permitted to, 212. INTEREST, Accrued, 322. BoiTowed money, on, 89. Debenture, 273. Dividend, different meaning from, 47. Investments, on, 293, 322. Mortgages and Bonds, on, 89, 273. Outstanding, in Balance Sheet, 308. Revenue Account, in, 293. Shareholders, paid to, 288. INVESTMENTS, Examination of, 376. Friendly Societies, of, 152. Interest on, 293. Trustees, of, 212. Trustees, should stand in names of, 318. INVOICE BOOK, Explanation of the, 238. JOURNAL, Examination of the, 264. Explanation of the, 239. JUDICIAL TRUSTEES, Accounts of, 201. Audit of, 21, 201, 336. Remuneration of, 200. LAND, Freehold and Leasehold, 319. LAND REGISTRY, Retm-n to be filed in, 83. LANDED ESTATES, Audit of, 341. LEASE, Asset, as an, 319. Revenue Account, amomit written off, in, 273. Table for calculating the amount to be written off a, 456. 476 INDEX. LEDGER, Balances of the, 264. Executors aud Ti'ustees, of, 242 Explanation of the, 240. LIABILITIES, Balance Sheet, in, 301. Bills Eeceivable discounted, on, 306. Omission of, 221. LIFE ASSURANCE COMPANIES, Accounts of, 136. Act, 1870, 135. Board of Trade, Statements to be deposited with, 138. Life Fimds of, 136. LIQUIDATOR, Audit of Accomits of, 75. LIST OF BOOKS, Auditor, of great assistance to, 258. LOANS, Balance Sheet, in, 320. Conversion of, into Capital, 89. Friendly Societies, to Members of, 152. MANAGEMENT EXPENSES, Revenue Account, in, 274. MEETINGS, Accounts of Companies usually submitted to, 15, 45. General, 45. Statutory, 63. aiEMBERS, Annual List of, 42, 236. Register of, 41, 232. MERCHANTS, Audit of Accounts of, 21. METROPOLIS WATER ACTS, Act, 1852, 125. Act, 1871, 125. MINES, Audit of, 340. Expenditure on Development of, 325. Stainiaries Acts, under the, 132. MINIMUil SUBSCRIPTION, Allotment by Limited Companies forbidden until there has been obtained the, 60. MINUTE BOOKS, Auditor may inspect, 45. Companies Act, 1862, to be kept under, 45. Companies Clauses Consolidation Act, 1845, under, 91. Particulars to be entered therein, 236. MISFEASANCE, Definition of, 74. MORTGAGEES, Amount due to, 306. INDEX. 477 MORTGAGES, Accounts, how treated in, 228. Balance Sheet, in, 319. Building Societies may not advance on Second, 116. Electric Lighting Undertakings, of, 1.30. Inspection of Deeds of, 378. Interest on, 273. Priority of. 109. Register of, 44, 64, 2-34. Registration of, 64. MORTGAGES AND BONDS, Register of, 88. MUTUAL COMPANIES, Register of Directors and ^Managers of, 235. NEWSPAPERS, Audit of Accounts of, 31.5. NOMINAL DEBENTURE, Definition of a, 210. OFFICE FURNITURE, Asset, as an, 324. OFFICER, Auditor as, of a Company, 20, 73. OFFICIAL RECEIVER, Report of, in Winding-up, 72. OFFICIAL YEAR, Building Societies, for 143. OMISSION, Errors of, 2.56. ORDER BOOKS, Explanation of the, 238. OXFORD UNIVERSITY, Statute concerning Forms of Accounts for, 191 ct seq. PARLIAIVIENT, Acts of. {Sco Acts of Parliament.) PARTNERS, Audit of Accounts of, 22. PATENTS, Inspection of, 382. PETTY CASH BOOK, Particulars to be entered in, 237. PREFERENCE SHARES, Classes of, 302. Creation of, 98. Dividend on, 289, 309. PREFERRED STOCK, Issue of, 116. 478 INDEX. PRELIMINARY EXPENSES, Balance Sheet, in, 327, Revenne Account, in, 286. PREMIUIMS, Revenue Account, in, 291. Shares, on issue of, 29.5. PRINCIPLE, Errors of, 257. PROFIT, De&iition of the term, -348. PROFIT AND LOSS ACCOUNT, Explanation of the, 269. PROFITS, Accumulated, .57. Dividend, available for, 347. Four systems of ascertaining, 353. Gas Companies, of, 120, Realised, definition of, 367. Water Comj)anies, of, 123. PROSPECTUS, Auditor's name on, 18, 63. Auditor at first audit of a new Company should peruse, 260. PROXIES, Issue of, at expense of Company, 285. PUBLIC AUDITORS, Fees of, 34. Friendly Societies, of, 149. Industrial and Provident Societies, of, 159. Treasuiy conditions as to appomtment of, 454 . PURCHASE OF BUSINESS, Balance Sheet, in, 324. PURCHASES, Revenue Account, in, 272. QUALIFICATION, Auditors, of. 27. Directors, of, 59. QUINQUENNIAL VALUATION, Friendly Societies, of, 150. RAILWAY COMPANIES, Accounts of, 108, 114. Acts, 104 et seq. Appointment of Auditors of, 115 Auditor's Certificate for, 399. Debentures of, 305. Loan Capital Accounts of, 108. (Scotland) Act, 1867, 112. Securities Act, 1866, 107. RATES, Revenue Account, in, 279. INDEX. 479 RECEIPTS AND PAYMENTS ACCOUNT, Exi^lanation of, 269. Model, 449. RE-ELECTION OF AUDITORS, Advantages of, 26. REGISTER, Consolidated Stock, of holders of, 234. Debeutm-e Stock, of, 235. Directors and Managers, of, 235. Directors or Managers, of, 45. Members, of, 41 ct seq., 232. Mortgage Debentures of, 82, 85. Mortgages, of, 44. 234. Mortgages and Bonds, of, 88. Securities, of, 81, 235. Shareholders, of, 8C, 234. Stock, of, 90. Transfers, of, 235. REGISTER OF ]MEI\IBERS, Particulars to be entered in, 41. Remarks on, 233. Trusts not to be entered on, 44. REGISTER OF SECURITIES, Mortgage Debentiu-e Act, 1865, under, 81. REGISTRAR OF FRIENDLY SOCIETIES, Building Societies, Form prescribed for, by, 421. Building Societies, power to appoint Inspector for, by, 14(). REGISTRY BOOKS, Explaaation of, 232. REGULATION OF RAILWAYS ACT, 1868, Accounts prescribed by, 405. Sections of the Act, 113. REMUNERATION, Auditors, of, 32, 51, 56, 67. Scale usually adopted by Chartered Accountants, 34. RENT, Revenue Account, in, 279. REPAIRS AND RENEWALS, Revenue Account, in, 279. REPORT, AUDITOR'S, Act, 1862, Table A, under, 53. Act, 1879, under, 56. Act, 1900, under, 391, 394. Electric Lighting imdertakings, of, 130. Privileged, 399. Special, 398. RESERVE Explanation of the tei'm, 309 et seq RESERVE FUND, Exi^lanation of the term, 311. 480 INDEX. RESERVED FUXD. Directors may set aside, 48. Gas Companies, of, 120. Water Companies, of, 123. RETURN", Allotments, of, 61. RETURNED GOODS, Revenue Account, iu, 291. REVENUE ACCOUNT, Balance of the, 298. Best method of stating a, 270. Cash Account, difference between, and, 217, 269. Expenditure side of the, 271. Explanation of the, 268. Income side of the, 290. Model, 4.50. ROTATION OF AUDITORS, Companies Clauses Consolidat'on Act, 184-5, 92. ROYALTIES, Revenue Account, in, 274. SALARIES, Revenue Account, in, 277. SALES, Revenue Account, in, 290. SAVINGS BANKS, Audit of, 332. Auditors' Certificate for, 400. Legislation relating to, 12. SCHOOLS, Audit of, 316. SECURITIES, Inspection of, 376. List of, 221. Loss on realisation of, 283. Mortgage Debentures may be founded, on which, 82. SHARE CERTIFICATES, Issue of the, 260. SHAREHOLDERS, Address Book of, 87, 234. Addresses of, 87. Auditors as agents of the, 18. Auditors shoiild not be, 369. Interest paid to, 288. List of, of Life Assurance Companies, 138. Meetmgs of, 14, 48, 63, 90, 135. Register of, 234. SHARES, Application for, 260. Conversion of Stock into, 69. Discount, issued at a, 62, 103, 303. Investment in Company's own, 321. New, issue of, 47. Preference, 289, 302. Premiums on issue of, 295. Stock, conversion of, into, 69. INDEX. 481 SHARES IN OTHER COMPANIES, How to treat profit consisting of, 292. SINGLE ACCOUNT, System for ascertaining Profits of a Company, 353. SINGLE SHIP COMPANIES, Audit of, 339. SINKING FUND, Exiilanaton of, 313. SOLICITORS, Audit of the Accounts of, 337. SPREADING EXPENDITURE, Balance Sheet, in, 329. STATUTORY MEETING, Auditor's Certificate prior to, 387. First, under Companies Act, 1900, 63. Regulations respecting, 63. STOCK, Conversion into Shares of, 69. Register of, 90. STOCK-IN-TRADE, Remarks on, 271, 295 et seq. STOCKBROKERS, Audit of the Accounts of, 337. SUBSIDIARY BOOKS, Examination of, 264. TABLE, Leases, for calculating the amount to be written off, 456. TABLE A. Application of, 41. Clauses of , 47 . TAXES, Revenue Accoimt, in, 279. TESTAMENTARY EXPENSES, Error in Intestates' Estates Act, 1890, regarding, 203 Remarks on, 313 et seq. THEATRES, Audit of, 345. TRADING ACCOUNT, Explanation of the, 269. Preparation of the, 224. TRAFFIC RECEIPTS, Revenue Account, in, 294. TRANSFER FEES, Revenue Account, in, 294. TRANSFERS, Register of, 235. 482 INDEX. TRIAL BALANCE, Explanation of the, 222. TRUSTEE SAVINGS BANKS, Audit of, 332. Auditors of, 167. Auditors in Ireland of, 172. Books to be kept by, 241. Inspection Committee of, 174. TRUSTEES, Appointment of, for Friendly Societies, 149. Audit of Accounts of, 342. Colonial Stocks, may invest in certain, 212. Judicial, 199, 336. TRUSTS, Register of Members!, may not be entered on, 44. UNCALLED CAPITAL, Mortgage of, 306. UNIVERSITIES, Audit of Accounts of, 20, 192. VACANCY, Auditor, in office of, how filled, 25. VOUCHERS, Arrangement of, 219. Examination of, 261, WAGES, Revenue Account, in, 277 Vouchers for, 263. WATER COMPANIES, Ai-bitration between Auditor and, 128. Accomits of, 124, 125, 126. Auditor of, 126. Dividends of, 48, 363. Profits of, 123, 121. Reserved Fund of, 123, 124. WINDING-UP, Auditor's examination in a, 72 WORKS IN PROGRESS, Balance Sheet, m, 323. WRITING-UP, Remarks on, 298. wo R KS BY FRANCIS W. PIXLEY, Of the Middle Temple, Barrister=at=Law, A Fellow of the Institute of Chartered Accountants in England and Wales. THE DIRECTOR'S HANDBOOK Third Edition. Revised to date of Companies Act, 1900. PRICE THREE SHILLINGS AND SIXPENCE NETT. THE PROFESSION OF A CHARTERED ACCOUNTANT AND OTHER LECTURES, DELIVERED TO THE INSTITUTE OF CHARTERED ACCOUNTANTS IN ENGLAND AND WALES, THE INSTITUTE OF SECRETARIES, Ac, &c. PRICE SIX SHILLINGS NETT. PUBLISHED BY HENRY GOOD & SON, 12, MOORGATE STREET, E.C, HENRY GOOD & SON, PUBLISHERS, y^tterpuBs k ^ithagraphii: printcvB, Works . Moor Lane and J2^ MOORGATE STREET, Sydney Avenue, E.C. Contractors to H.M. Stationery Office. BOOKS, NEWSPAPERS, MAGAZINES, TRADE CATALOGUES. Legal and General Printing of every description. COMPANIES' PRINTING.— Prospectuses, Articles of Association, Maps and Charts, Plans for Eaihvay and Engineering Work, &c., &c. SHARE CERTIFICATES.— Bonds, Cheques, &c., skilfully designed, engraved and printed. Sketches Furnished. 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