Capital structure auditing involves verifying long-term liability lines, debt covenants, and equity accounts to confirm that funding activities are authorized, recorded accurately, and compliant with statutory requirements.

To verify long-term debt lines, auditors analyze agreements using a structured verification process:

Net Borrowing Balance = Original Loan Capital + Amortized Issuance Discounts - Principal Repayments

Auditors review debt profiles to confirm compliance with financial covenants, such as debt-to-equity ratios or minimum interest coverage limits. A covenant breach can trigger immediate repayment clauses, creating liquidity risks for the organization.

For equity lines, auditors review board minutes to confirm authorizations for share issuances or buyback plans, cross-reference outstanding share records with external transfer agents, and recalculate dividend payouts to confirm accurate distribution.