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CA Intermediate · Auditing and Ethics · Special Features of Audit of Different Type of Entities

CA Nisha is auditing Gokul Sahakari Dairy, a cooperative society, for the year. She notices that the society's accounts are prepared as per the state Cooperative Societies Act, and that the bye-laws prescribe a particular manner of appropriation of profits. As the auditor, what is the correct response to this feature of the engagement?

The auditor should verify that profit appropriation follows the cooperative societies Act, rules and bye-laws, including the transfer to the statutory reserve and other funds, and report any non-compliance. The Companies Act does not govern the society, and the auditor does not decide the appropriation.

  1. AVerify that profits have been appropriated to statutory reserve and other funds in accordance with the Act, rules and bye-laws, and report any non-complianceCorrect
  2. BIgnore the bye-laws since only the Companies Act applies to audit of every entity
  3. CAppropriate the profit on her own discretion because the auditor decides the allocation
  4. DRefuse the audit because a cooperative society cannot be audited by a chartered accountant

Explanation

The audit of a cooperative society is governed by the state Act, rules and bye-laws, and the auditor must check that profit appropriation complies with them, including transfer to the statutory reserve. The Companies Act does not govern societies. Auditors do not decide appropriation, which is the society's responsibility. A chartered accountant can be appointed as auditor if the state law permits.

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