Page 237 - DCOM509_ADVANCED_AUDITING

Advanced Auditing

Notes 9. Contributions to Charitable Purposes: According to Section 34, a registered society may,
with the sanction of the Registrar, contribute an amount not exceeding 10% of the net
profits remaining after the compulsory transfer to the reserve fund for any charitable
purpose as defined in section 2 of the Charitable Endowments Act, 1890.
10. Investment of Reserve Fund outside the business or utilisation as working capital: Some
of the State Acts provide that a society may use the Reserve Fund:
(i) in the business of a society, as working capital (subject to the rules made in this
behalf).
(ii) may invest as per provisions of the Act.
(iii) may be used for some public purposes likely to promote the object of the society.
The auditor should ensure strict compliance with the State Act and Rules in this
regard.
11. Contribution to Education Fund: Some of the State Acts provide that every society shall
contribute annually towards the Education Fund of the State Federal Society, at the
appropriate rate as per the class of the society. Contribution to Education Fund is a charge
on profits and not an appropriation.

Special features of Co-operative Audit

The general processes of auditing involved in audit work such as checking of posting,
ascertainment of arithmetical accuracy, vouching, verification of assets and liabilities and final
scrutiny of Balance Sheet are well known to the students, and the same are to be applied in co-
operative audit as well. It need not be discussed in detail. However, the special features of co-
operative audit, to be borne in mind in general while conducting the audit are as follows:
(i) Examination of overdue debts: Overdue debts for a period from six months to five years
and more than five years will have to be classified and shall have to be reported by an
auditor. Overdue debts have far reaching consequences on the working of a credit society.
It affects its working capital position. A further analysis of these overdue debts from the
viewpoint of chances of recovery will have to be made, and they will have to be classified
as good or bad. The auditor will have to ascertain whether proper provisions for doubtful
debts are made and whether the same is satisfactory. The percentage of overdue debts to
the working capital and loans advanced will have to be compared with last year, so as to
see whether the trend is increasing or decreasing whether due and proper actions for
recovery are taken, the position regarding cases in co-operative courts, District Courts etc.
and the results thereof.

(ii) Overdue Interest: Overdue interest should be excluded from interest outstanding and
accrued due while calculating profit. Overdue interest is interest accrued or accruing in
accounts, the amount of which the principal is overdue. In practice an overdue interest
reserve is created and the credit of overdue interest credited to interest account is reduced.

(iii) Certification of Bad Debts: A peculiar feature regarding the writing off of the bad debts as
per Maharashtra State Co-operative Rules, 1961, is very interesting to note. As per Rule
No. 49, bad debts can be written off only when they are certified as bad by the auditor. Bad
debts and irrecoverable losses before being written off against Bad Debts Funds, Reserve
Fund etc. should be certified as bad debts or irrecoverable losses by the auditor where the
law so requires. Where no such requirement exists the managing committee of the society
must authorise the write-off.

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