CA Intermediate · Auditing and Ethics · Special Features of Audit of Different Type of Entities
CA Rohan is the auditor of Shree Ganesh Cooperative Credit Society. While testing loans, he finds several loans sanctioned to committee members that appear to be above the limit set in the society's bye-laws. The society's management says the committee has the discretion to relax the limits. Which is the most appropriate response by the auditor?
The auditor should compare the loans with the bye-laws and the governing cooperative law and report the breach if limits are exceeded. Management's claim of discretion cannot override the bye-laws, and the auditor neither resigns automatically nor rewrites the financial statements.
- AIgnore the matter because committee discretion overrides bye-laws
- BVerify the bye-laws and applicable cooperative law, and report the non-compliance in the audit report if the loans exceed the permitted limitsCorrect
- CResign immediately because loans to members are prohibited by law
- DRemove the loans from the balance sheet and restate the financial statements himself
Explanation
A cooperative society's audit includes checking compliance with its bye-laws and the governing cooperative statute. If the loans exceed the permitted limits, the auditor should report the non-compliance. Management's claim of discretion must be tested against the bye-laws, not accepted blindly, and the auditor does not alter the financial statements himself.
Did you get it right without looking?
One question tells you little. A timed set on Special Features of Audit of Different Type of Entities shows your real accuracy, how long you take and where you lose marks.
More Special Features of Audit of Different Type of Entities questions
- CA Kunal is auditing Lotus Partners, a partnership firm, whose partnership deed provides that interest on capital is payable at 9% p.a. and …
- Vihaan & Co., Chartered Accountants, are appointed auditors of Sundaram Charitable Trust, which runs a hospital in Madurai. The trust receiv…
- CA Rohan is auditing Bharat Gramin Sewa Samiti, an NGO that receives grants from a state government for a specific rural sanitation project.…
- CA Rohan is the auditor of Vidya Charitable Trust, a public charitable trust registered under the State Public Trusts Act. While planning, h…
- CA Meera is the auditor of Shree Annapurna Charitable Trust, which runs a free meal service funded mainly by public donations. Many donation…
- CA Prakash is appointed auditor of Sunrise Educational Society, a registered society that runs a school. He notices that fees received in ad…