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

While auditing Shree Mahila Sahakari Credit Society, a cooperative society, auditor CA Ravi finds that the society's bye-laws require the managing committee to approve loans to members above a certain limit. He notices several large loans were sanctioned by the secretary alone, without committee approval. What is the most appropriate audit response?

The auditor should report the non-compliance with the bye-laws and the applicable cooperative societies law. Sanctioning large loans without committee approval breaches the society's rules. Post-facto approval or silent withdrawal does not discharge the auditor's duty to report the deviation.

  1. AIgnore the matter because cooperative societies are exempt from internal approval rules
  2. BReport the non-compliance with the bye-laws and the applicable cooperative societies law as required in the audit reportCorrect
  3. CQuietly advise the secretary to obtain post-facto approval and take no further action
  4. DWithdraw from the audit immediately without reporting

Explanation

A cooperative society's audit is governed by the state Cooperative Societies Act, rules and bye-laws. Loans sanctioned without the required approval breach the bye-laws, so the auditor should report the non-compliance. Post-facto approval does not remove the breach, and resigning silently is not a proper response.

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