Auditing Audit of Co Operative Societies – tryspring

By | May 13, 2019

Auditing – Audit of Co-Operative Societies

Any ten persons who are competent to enter into contract may make
an application to the Registrar of Co-operative Societies as per
section 6 of the Co-operative Societies Act, 1912. By-laws may be
framed by each society and should be registered with Co-operative
Societies. Effectiveness of change in by-laws of societies is
applicable only when changes are approved by Registrar of
Societies. There are two types of society’s, limited liabilities
and un-limited liabilities societies. Any member is not liable to
pay more than the nominal value of share held by them and no
member can own more than 20% of shares of societies.

Government is encouraging co-operative societies to help society.
Co-operative societies are operative in various sections like
consumer, industrial, service, marketing, etc.

Under accounting system of Co-operative societies, the terms
receipt and payment are used for two-fold aspect of double entry

Members are elected at the annual general meeting of the society.
Day-to-day work of cooperative society is managed by the managing

Audit of Co-operative Society

Let us now discuss the provisions for Audit as Per Section 17 of
the Co-operative Society Act, 1912 −

  • The Registrar shall audit or cause to be audited by some
    person authorized by him by general or special order in
    writing on his behalf, the accounts of every registered
    society once at least every year.

  • The Audit under sub-section (1) shall include an examination
    of overdue debts, if any, and a valuation of the assets and
    liabilities of the society.

  • The Registrar, the Collector or any person authorized by
    general or special order in writing on his behalf by the
    Registrar, shall at all-time have access to all the books,
    accounts, papers and securities of a society, and every
    officer of the society shall furnish such information
    concerning the transactions and working of the society as the
    person making such inspection may require.

Qualification of Auditor

  • A chartered accountant within the meaning of the Chartered
    Accountant Act-1949, Or,

  • A person who holds a government diploma in Co-operative
    Accounts or in Cooperation and Accountancy; or,

  • A person who has served as an Auditor in the co-operative
    society department of the State Government and whose name has
    been included by the Registrar on the Panel of Certified
    Auditors maintained and published by him in the official
    Gazette at least once every year.

Appointment of Auditor

The appointment of an Auditor is done by Registrar of
Co-operative Societies. The Auditor conducts his audit on behalf
of the Registrar. The Audit fees is paid by co-operative society
according to the statutory scale of fees prescribed by the
Registrar in this regard according to the category of society.
The Auditor is required to submit his audit report directly to
the Registrar and one copy of the audit report is submitted to
the concerned society.

Rights of an Auditor

  • As per Section 17, an Auditor can access all the books,
    accounts, documents and securities of the society.

  • He has to see that Balance-sheet of the society shows a true
    and fair view of a business according to information and
    explanation given to him.

  • Every officer of the society is bound to give all information
    regarding working and transactions of the society.

Duties of An Auditor

An Auditor needs to consider the following points to be able to
perform his duties in an efficient way −

  • An Auditor should be well-versed with the Co-operative
    Society Act, 1912 and the by-laws of the society.

  • If there is any type of irregularities and improprieties
    found by an Auditor during his audit regarding Co-operative
    Societies Act, 1912 and by-laws, he should immediately point
    out the same.

  • An Auditor should ascertain that how many shares are held by
    each member of the society; for this, he should check the
    member ship registers.

  • An Auditor should be well aware of power of officers
    regarding loan, investment, borrowings, advancing of the

  • He should thoroughly check and vouch the cash book and bank

  • An Auditor should check all the receipts and payments of the
    society according to standard auditing practice.

  • He should go through the agreements between society and
    borrower to check the interest due on loan and repayment
    schedule. An Auditor should also check and compare the actual
    interest received and the repayment of loan received with
    dues from them.

  • He should carefully vouch and verify that loan given to
    members of the society is according to agreement, regulation
    and resolution passed by the Managing Committee of the
    society or not.

  • An Auditor has to assure that a loan given to a non-member is
    not without the permission of the Registrar.

  • He should verify the loan given by Co-operative bank should
    be according to the prescribed limit.

  • An Auditor should physically examine and verify the assets of
    a society.

  • He should adopt different methods for different kind of

  • Balance-sheet, profit and loss account and Auditor report
    should be according to the proforma given by the Chief
    Auditor of the Co-operative Society of the State.

  • Accounts should be according to the Co-operative Society Act
    and also with the provision of Income Tax Act.

  • All the assets, expenses, income, cash-in-hand, etc. should
    be vouched and verified according to standard accounting
    procedures and principles.

Books, Accounts and Other Records of the Society

Under Section 43(h) of the Co-operative Society Act, 1912, the
Government of a state can frame rules prescribing the books of
accounts to be kept by a Co-operative society. Following books
and accounts are prescribed by the Maharashtra Government.

  • Cash Book
  • General Ledger
  • Stock register
  • Personal Ledger
  • Register of Members
  • Register of Shares and debentures
  • Minutes books of general body meeting and committee meetings
  • Property Register
  • Register recording loan applications
  • Maintenance of register of audit objections and their

Special Features of Co-Operative Audit

The checking of posting, arithmetical accuracy, vouching,
verification of assets and liabilities and scrutiny of balance
sheet are same as Auditor do in any other case. We will now
discuss a few important aspects related to the Audit of
Co-operative societies.

Examination of Overdue Debts

An Auditor has to examine and classify overdue debts

  • from six months to five years and,

  • overdue above five years in two categories and shall have to
    report it in his audit report.

Overdue Interest

While calculating the profit of Co-operative society overdue
amount of interest outstanding should be excluded.

Valuation of Assets and Liabilities

General principles of accounting and auditing conventions and
standard are adopted at the time of valuation of assets and
liabilities. No specific provisions or instructions under the Act
and Rules are provided.

Adherence to Co-operative principles

An Auditor should ascertain how far the objectives, for which the
Co-operative society is set up, have been achieved in course of
its working. It is not necessarily in terms of profit, but in
terms of extending of benefits to members who have formed the

Certification of Bad-debts

As per Rule No.49 of the Maharashtra State Co-operative Rules,
1961, it is very interesting to note that no bad debts can be
written off unless they are certified as bad debts by the
Auditor. Where no such requirement of law exists, the managing
committee of the society must authorize the write-off.

Observation of the Provisions of the Act and Rules

An Auditor should be well versed with the Provisions of the Act
and Rules of the Cooperative Society and the by-laws thereof. If
the Auditor finds any irregularity, it should be immediately
assessed and reported to the next level.

Verification of Members Register and Examination of their Pass

This is essential especially in rural and agricultural credit
society where members are illiterate, the Auditor should verify
the pass book and members register to verify the amount of loan
granted and their repayments. It will help to ensure that the
books of accounts are free from any manipulation.

Special Report to the Registrar

During audit if any irregularities are found by the Auditor that
should be reported to the Registrar and an appropriate action may
be taken by the Registrar against the society.

Audit Classification of Society

After assessing the overall performance, an Auditor has to award
a class to the society. Judgement of Auditor should be based on
the criteria fixed by the Registrar. The Auditor should be very
careful when making decisions related to the classes in the
society; if management is not satisfied by the award he may file
an appeal to the Registrar and the Registrar may direct to review
the audit classification.

Discussion on Audit Draft

After completion of audit, minor irregularities may be settled
and rectified; matters concerning policies should be discussed in
detail. The audit report can never be finalized without
discussing with the managing committee.


Each registered society is required to frame its own by-laws
which have to be registered with the Registrar of Co-operative
societies. According to Section 11 of the Act, the amendment of
the by-laws of a registered society shall not be valid until the
same has been approved by the Registrar of the Co-operative

Investment of Funds

A registered society can invest or deposit its funds only in −

  • Saving bank account of Government Banks.

  • Any of the securities specified under Section 20 of the
    Indian Trust Act, 1882.

  • The shares or in the security of any other registered

  • Any bank or person carrying on the business of banking
    approved for this purpose by the Registrar.

  • Any other mode permitted by the Section 32 of the
    Co-operative Societies Act.

Restriction on Co-operative Society

Let us now understand the restrictions that are imposed on
co-operative society.

Restriction on Shareholding

According to Section 5 of the Act, where liabilities of the
members of a society is limited, no member other than a
registered society can hold more than 20% of the shares capital
or shares of the society worth more than Rupees one thousand.

Restriction on Transfer of Share

A member of registered society with unlimited liability, cannot
transfer any shares held by him or his interest in the capital of
the society unless −

  • He has held that share for at least one year, and

  • The transfer and change is made to the society or to a member
    of the society.

Restriction on Loan

  • According to Section 29 of the Act, a registered society
    cannot advance any loan to any person other than a member
    except with the prior permission of the Registrar.

  • A society with unlimited liability cannot lend money on the
    security of a movable property except with the sanction of
    the Registrar of Co-operative society.

  • The State Government has the power and can prohibit or
    restrict loans against mortgage of immovable property by any
    registered society or class of registered societies.

Restriction on Borrowings

A registered society can receive deposits and loans from persons
who are not members of the society, only such an extent and under
such condition as may be prescribed by the rules of the
Co-operative Societies Act or by-laws of the concerned society.


According to Section 28 Central Government may exempt any
registered societies or class of registered societies from Income
Tax (Payable on the profits of the society or on dividends or
other profit related to payments received by the members of the
society). Stamp duty or registration fees.

Reserve Fund, Contribution to Charitable Funds and Distribution
of Profit

  • According to Section 33, the first 25% of the net profit
    earned during the year should be transferred to a Reserve

  • 10% of Balance amount of net profit after transferring 25% to
    Reserve fund, a registered society can contribute for
    charitable purpose with the sanction of Registrar.

  • Under such conditions as may be prescribed by the rules or
    by-laws, the balance amount of current profit plus past years
    profit can be distributed to members of the society.

  • Dividend can be distributed according to rules and by-laws
    but cannot be more than 6.25%.

Only after special order of the State Government, unlimited
liability society can distribute his profit otherwise not.

‘; (vitag.displayInit = window.vitag.displayInit ||
[]).push(function () { viAPItag.display(ad_id); }); }())