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CMA Intermediate · Corporate Accounting and Auditing · Auditing of Different Types of Undertakings

Which of the following is a primary duty of the auditor of a not-for-profit company registered under Section 8 of the Companies Act, 2013, regarding its objects?

The auditor must verify that the company's income and property are applied only to promote its stated objects and that no dividend is paid to members. This is the defining restriction on a Section 8 company, so compliance with the memorandum is a central audit check.

  1. ATo ensure the company earns the maximum profit
  2. BTo verify that income and property are applied towards the promotion of the stated objects and that no dividend is paid to membersCorrect
  3. CTo verify that shares are issued at a premium
  4. DTo ensure directors are paid commission on profits

Explanation

A Section 8 company must apply its profits to promote its objects and cannot pay dividends to members. The auditor checks the application of income against the memorandum. Profit maximisation, share premium and commission are not the focus.

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