Preliminary Expenses

The expenditure incidental to the creation and floating of a company includes stamp duties, registration fees, legal costs, accountant’s fees, cost of printing, etc. The contracts relating to preliminary expenses should be examined. If preliminary expenses incurred by promoters have been reimbursed to them by the company, the resolution of the Board of Directors and the power in the Articles to make such reimbursement should be seen. The bills and statements supporting each item of preliminary expenses should be checked. It should be seen that no expenses other than those which constitutes preliminary expenses are booked under this head. The auditor can cross check the amount of preliminary expenses with that disclosed in the prospectus, statutory report and the balance sheet. Any amount paid in excess of the amount disclosed in the prospectus should have been approved by the shareholders. Expenditure in connection with the preliminary expenses so far it has not been written-off should be separately disclosed under the head miscellaneous expenditure. Underwriting commission and brokerage paid for shares and debentures should not be included under the head preliminary expenses.