Page 274 - DCOM204_AUDITING_THEORY

Auditing Theory

Notes 3. Valuation of assets and Liabilities and Verification of Cash Balance and Securities.

4. Verification of balances of Depositors and Creditors.
5. Examination of overdue debts and classification of bad debts.
6. Personal verification of members and examination of their pass books.
7. Discussion of draft audit report with Managing Committee.
8. Audit classification of society.
9. Examination of the working and other prescribed particulars of the society.
Apart from the general processes of auditing like posting, vouching, verification of assets and
liabilities etc., the special features of Co-operative Audit are briefly mentioned below.

13.2.8 Examination of Overdue Debts

Overdue debts affect the working of a society seriously. They affect the Working Capital position
of the society. As such it is necessary to make a detailed analysis of the overdue debts with a view
to ascertaining the chances of their recovery and classifying them as good or bad. It is also necessary
to compare the percentage of overdue debts to working capital and loans and advances with that
of last year and ascertain whether the trend is decreasing or increasing, whether adequate action is
being taken for recovery, and whether necessary provision is being made for doubtful debts.

Adherence to Co-operative Principles

It has to be ascertained in general whether and if so, to what extent the objects for which the
society was set up have been fulfilled. The assessment need not be only in terms of profit made.
It could also be in terms of benefits given to members. The benefits could be in terms of sales
effected at lower prices to members, economy achieved in operations, avoidance of wastage of
funds, avoidance of middlemen in purchases etc.

Observance of the provision of the Act and Rules

Infringement of the provisions of the KCS Act and Rules and the bylaws of the society, if any,
should be pointed out in audit. Financial implications of the infringement should also be assessed
and indicated. As per Section 57(2A) of the KCS Act and Rule 22(2) of the KCS Rules, the
maximum dividend a society can pay to a share holder is 25 percent.

Personal Verification of Member’s Loan and Examination of their Pass Books

This is necessary in Co-operative Societies in order to ensure that books of accounts are free
from manipulation, since in many Rural and Agricultural Societies a considerable number of
members could be illiterate and as such personal verification provides a safeguard against any
manipulation. Personal verification will however be on the basis of a test check.

13.2.9 Audit Classification of Society

Audit classification made by the Auditor indicates the overall performance of the society.
Discussion of the Draft Audit Report with Managing Committee

The draft audit report should be discussed by the Auditor with the management before finalizing
the Audit Report. If the management desires.

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