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

While auditing Lakshmi Cooperative Society's accounts, CA Rohan finds that the society has granted loans to members above the limit fixed in its bye-laws. What is the most appropriate audit response?

The auditor should check compliance with the Cooperative Societies Act, its rules and the society's bye-laws, and report the excess loans as a violation in the audit report. Bye-laws bind the society, so breaches matter, and the auditor cannot adjust records or simply walk away.

  1. AIgnore it, because bye-laws are internal and not relevant to audit
  2. BVerify compliance with the Cooperative Societies Act, rules and bye-laws, and report the violation in the audit reportCorrect
  3. CReduce the loans to the limit by passing an adjusting entry in the auditor's own books
  4. DWithdraw from the engagement immediately without reporting

Explanation

A cooperative society auditor must check compliance with the governing Act, rules and bye-laws, including loan limits. Breaches must be reported as the statute requires. Bye-laws are not irrelevant. The auditor does not make entries in the client's books, and resignation without reporting does not discharge the duty.

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