Co-operation · Ch 5 — Accounts and Audit of Co-operative Societies
Meaning and Importance of Accounts and Audit in a Co-operative Society
Meaning and Importance of Accounts and Audit in a Co-operative Society
A co-operative society handles other people's money. Its funds come from the share money, entrance fees, deposits and hard-earned savings of ordinary members, and every rupee it spends or lends must ultimately be answered for to those members. This is exactly why the law does not leave the keeping of accounts and their checking to the good sense of the office-bearers alone — it makes both compulsory. In Maharashtra, this discipline flows from the Maharashtra Co-operative Societies Act, 1960 and the Rules made under it.
Two related duties are placed on every registered society. First, it must keep proper books of account that record all its dealings truthfully and up to date. Second, it must get those accounts audited at least once every year by a competent, independent auditor. Accounting is the writing up of the society's financial story; audit is the independent checking of that story to see whether it is true, complete and lawful.
Accounting vs. Audit — Two Different Jobs
Accounting is done by the society's own staff throughout the year: it records transactions, prepares the trial balance, the trading and profit & loss account, and the balance sheet. Audit is done afterwards by an outside auditor: it examines those very records to certify whether they show a true and fair picture and whether the society has obeyed the Act, the Rules and its own bye-laws.
Sound accounts and honest audit matter for several reasons. They protect members, who can see how their money has been used. They build public confidence, without which people will not deposit their savings in the society. They help management by revealing the true financial position and guiding decisions. They detect and prevent fraud, errors and misuse of funds, which are the commonest causes of the collapse of small societies. And finally, they satisfy the law and keep the society in good standing with the Registrar of Co-operative Societies, who supervises the whole movement. In this chapter we study the books a society must keep, the statutory audit prescribed by the Act, the classification of societies by audit grade, the auditor's report and its rectification, and the rules that govern how a society may distribute its profits.
The systematic recording, classifying and summarising of a co-operative society's financial transactions and the preparation of its final accounts (trading and profit & loss account and balance sheet).
The independent examination of a society's books of account and vouchers by a qualified auditor to certify whether they show a true and fair view of its affairs and whether it has complied with the Act, Rules and bye-laws.