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

CA Rohan is auditing Vikas Co-operative Credit Society for the year. During the audit he finds that the society has advanced loans to members beyond the limit fixed in its bye-laws, though all loans are properly recorded in the books. What is the most appropriate audit response?

The auditor should report the breach of the lending limit in the audit report. Co-operative society audits require checking compliance with the Act, rules and bye-laws, and accurate recording of loans does not excuse exceeding the bye-law limit. Silence or a blanket disclaimer would be inappropriate.

  1. ATreat the matter as irrelevant because the loans are properly recorded
  2. BReport the violation of bye-laws and the applicable co-operative law in the audit report, since the auditor must examine compliance with the bye-laws and the ActCorrect
  3. CQuietly advise the managing committee and omit any mention from the report
  4. DDisclaim an opinion on the entire financial statements solely because of this breach

Explanation

A co-operative society's auditor must check that transactions comply with the society's Act, rules and bye-laws. Proper recording does not cure a breach of the lending limit, so it must be reported. Omitting it hides a compliance failure, and a disclaimer is disproportionate for a matter that is identifiable and not pervasive.

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