POWER OR RIGHTS OF THE COMPANY AUDITOR:–

• Right to access at all the times to the books and accounts and vouchers of the company whether kept
in head office of the company or elsewhere and shall be entitled to require from the office of the
company such information and explanation as the auditor may think necessary for the performance
of his duties as auditor.
• The auditor shall make a report to the members of the company on the accounts audited by him and
on every balance sheet or profit and loss account which are laid before the company
in general meeting. The said accounts give the information required by the act in the manner so
required by and gives a true and fair view.
• Right to receive notice of and to attend every general meeting of the company.
• Right to speak to such general meeting when the accounts are being discussed.
• He has right to be indemnified for any liability incurred by him in defending himself against civil and
criminal proceedings by the company.
• Right to visit branches of the company to audit the accounts if no other auditor has been appointed
to audit branch accounts.
• Right to take legal and technical advice wherever necessary.
• Right to receive remuneration for the work done by him.
• Right to sign the report.
• Right to keep the working notes with him. .
 LIABILITIES OF AN AUDITOR:-
• If an auditor is guilty of negligence in the execution of his duty, he may be held liable to make good any damage resulting
from that negligence.
• An auditor is appointed to detect frauds, errors etc. He is responsible on account of negligence in performance of his duties.
• Any clause in the agreement between the company and the auditor whereby the auditor is freed from liability has been
declared void.
• If in the course of the winding up of a company it appears that the auditor has been guilty of any misfeasance or breach of
trust in relation to the company, he may be held liable as an officer of the company. The court may examine into his conduct
and compel him to contribute such sum to the assets of the company by way of compensation in respect of the breach of the
trust as the court thinks fit.
• If the dividends have been improperly declared and paid of the accounts audited by him and which did not show a true and
fair picture and were incorrect and misleading, he will be liable to refund such an amount.
• Where a prospectus is issued inviting persons to subscribe for shares or debentures of a company, an auditor is liable in
respect of an untrue statements which is made by him as an expert, to pay compensation t every person who subscribes for
any shares or debentures on the faith of the prospectus for any loss or damages, he may have sustained by reason of untrue
statements included therein.
• If an auditor makes a false statements, particularly knowing it to be false or omits any material fact, knowing it to be
material, he may be punishable with imprisonment or a fine.
• If an auditor is a party to a untrue statements in prospectus, he shall be punishable with imprisonment or fine or both.
• Under Indian Penal Code – whosoever issues or signs any certificate required by law to be given or signed or relating to any
fact which such certificate by law, admissible by evidence. Knowing or believing that such certificate is false in any material
point, shall be punishable in the same manner as if he gives a false evidence.

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 DUTIES OF COMPANY AUDITOR
• To make the report to the members of the company on the accounts examined by
him which should contain all the matters as the companies act.
• Auditor should perform his duties as per articles of association of the company.
• He should certify the statements included in prospectus whenever the same is
issued.
• He should certify the contents of the statutory report.
• To comment on all such material violations of the law or sound accounting
practices which can reasonably effect directly or indirectly the fortune of the
accounts of the company.
• An auditor must know the provisions of memorandum and articles of association
of the company.
• He not only should verify the arithmetic accuracy of the accounts but should
check the fairness of accounts as well. .
 Professional Ethics of an Auditor
Rules of Conduct
1. Integrity
auditors:
1. Shall perform their work with honesty, diligence, and responsibility.
2. Shall observe the law and make disclosures expected by the law and the profession.
3. Shall not knowingly be a party to any illegal activity, or engage in acts that are discreditable to the
profession of internal auditing or to the organization.
4. Shall respect and contribute to the legitimate and ethical objectives of the organization.
2. Objectivity
auditors:
1. Shall not participate in any activity or relationship that may impair or be presumed to impair their
unbiased assessment. This participation includes those activities or relationships that may be in
conflict with the interests of the organization.
2. Shall not accept anything that may impair or be presumed to impair their professional judgment.
3. Shall disclose all material facts known to them that, if not disclosed, may distort the reporting of
activities under review.
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3.Confidentiality
auditors:
1. Shall be prudent in the use and protection of information acquired in the course of their
duties.
2. Shall not use information for any personal gain or in any manner that would be
contrary to the law or detrimental to the legitimate and ethical objectives of the
organization.
4. Competency
auditors:
1. Shall engage only in those services for which they have the necessary knowledge,
skills, and experience.
2. Shall perform internal audit services in accordance with the International Standards for
the Professional Practice of Internal Auditing.
3. Shall continually improve their proficiency and the effectiveness and quality of their
services.
4. Conduct themselves with the utmost of professionalism and without bias or prejudice at all
times when conducting audits.
5. Shall Commit to honest, thorough and straightforward communication in the performance of
audit activities;
5. Professional behaviour - to comply with relevant laws and regulations and avoid any action that
discredits the profession.

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 The step for audit of educational institutions
• Study of the trust deed or regulations.
• Examine the previous financial statements.
• Noting of provisions applicable.
• Evaluation of internal control system.
• Examine the minute of the meeting and resolution.
• Verification of students fee register.
• Authorization for fee concessions .
• Verification of cashbook with respect of counterfoils of receipts and
payments.
• Examination of capital fund regarding admission fees.
• Verify free studentship and concessions.
.
 The step for audit of educational institutions
• Confirmation of fines for late payment or absence.
• Check hostel dues recovery.
• Verification of rental income or expenses.
• Examine the bank pass book of different nature.
• Verification of investment register and also ask about any interest and dividend
from investment if any.
• Verify grants from any local bodies or Government with reference to memo or
sanction letter.
• Reporting of any arrears.
• Vouch counterfoils of receipts taken from donors.
• Confirmation of any deposits and caution money and its treatment.
• Examination of expenses for library books and sports equipments.
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The step for audit of educational institutions
• Checking of acknowledgement letter if any with regards to scholarship.
• Examination of payments with respect to prizes if any.
• Examine the salary register.
• Verify the Provident Fund Register.
• Check annual report with accurate supporting documents.
• Vouching of all establishment expenses.
• Vouch payment for electricity and water bill.
• Examination of payment for hostel maintenance and any other miscellaneous expenses.
• Inspection of facilities given to students under any schemes associated with Government.
• Verification of Fixed Assets Register.
• Verify ownership and existence of Fixed Assets .
• Confirmation of statutory compliance i.e. P.F., Income Tax etc.
• Verification of separate statements of accounts for different funds.
• Checking of calculation of salary payable and deductions.
• At last, cross check all procedure. .
 Maintenance of Accounts of Educational
Institutions
• A large number of educational institutions are registered under the India
Society Registration Act, 1860. The purpose behind the formation of
educational institutions is to spread education and not just earn profits.
The following table lists out the sources for collection of amount and also
the different types of expenses incurred by the educational institutions −

• Main Source of Collection

• Admission fees, tuition fees, examination fees, fines, etc.
• Securities from students.
• Donations from public
• Grants from Government for building, prizes, maintenance, etc.
.
Types of Expenses / Payments
• Salary, allowances and provident fund
contribution for teaching and non-
teaching staff.
• Examination expenses
• Stationery & printing expenses
• Distribution of scholarships and
stipends
• Purchase and repair of furniture &
fixture
• Prizes
• Expenses on sports and games
• Festival and function expenses
.
• Library books
• Newspaper and magazines
• Medical expenses
• Audit fees and audit expenses
• Electricity expenses
• Telephone expenses
• Laboratory running & maintenance
• Laboratory equipment
• Building Repair & maintenance
Preliminary Audit of Educational Institutions
• Following points need to be considered by an Auditor while conducting audit of educational
institutions −
• It is to be confirmed whether the letter of his appointment (the Auditor’s) is in order.
• The Auditor should obtain a list of books, documents, register and other records as maintained by
the educational institutions.
• He should examine the audit report of last year and should note down the observation and
qualification, if any.
• He should note down the important provisions regarding to accounts and audit from the Trust
Deed, Charter of Regulations.
• He should examine the Minutes of Meetings of the Board of Trustee or the Governing Body for
important decisions regarding the sale or purchase of fixed assets, investments or delegation of
finance power.
• In case of colleges and university, the Grants Commission provides Grants to them subject to
certain conditions. The Auditor should study all the conditions concerning grants.
• The Auditor should examine the Code of State regarding grant-in-aid.
• He should be aware of all the provisions and rules of related laws concerning books of account
and audit.

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 Internal Control System
The Auditor should independently check the internal control system regarding authorization procedures, record
maintenance, safeguarding of assets, rotation and division of staff duty, etc. Following are some of the important
aspects that need to be considered by an Auditor to keep a check on the internal control system −

1. Whether internal control and internal check system is
working, if yes, how effectively.
2. Is there is any system to physically verify the fixed
assets, stores and consumables at regular interval.
3. An Auditor should verify the control system
concerning proper authorization, obtaining
quotations, proper maintenance of accounts and
record regarding purchase of fixed assets, purchase of
material, investment, etc.
4. Whether bank reconciliation statement is prepared at
regular intervals and what kind of action is taken for
uncleared cheque which were pending since long.
5. Whether waiver of fees is properly sanctioned by
appropriate authorities.
6. The person who is collecting fees and the cashier
should not be the same person.
6. Class wise fees receivable and the actual fees
received reconcile or not.
7. Whether collected fees is deposited in bank on a daily
basis.
8. Fees collection register should be maintained on a
daily basis.
9. Whether approved list of supplier of sports material,
stationery, lab items are readily available.
10. Whether control system for payment is adequate or
not.
11. The system of letting out conference hall and class
rooms, etc. for seminars and conventions.
12. Whether fees structure is properly authorized along
with change in fee structure if any.

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Audit of Assets and Liabilities
The following points need to be
considered while conducting an audit
of Assets and Liabilities −
• Verification of Assets register should
be done considering grants on
purchase of assets, if any received
from State Government/ University
Grant Commission (UGC).
• Verification of depreciation is very
important; it should be according to
useful life of assets or as per the
Companies Act, whichever is
applicable.
• If donation is received in the form of
investment, an Auditor has to check
all related correspondence with the
donor.
.
• If educational institution is running
under Indian Public Trust Act, it is
must for an Auditor to check, where
investments have been made,
because as per the Indian Public Trust
Act, investment can be made in
specific securities only.
• All the applicable requirements of law
should be fulfilled for the purchase of
investments and fixed assets.
• An Auditor should read and note
down the state code and provisions
relating to the conditions and
procedures of Grants. He should also
verify the requirements of State/UGC
which are to be fulfilled by
educational institutions for receiving
Grants and also for continuations of
Grants.
Audit of Income of Educational Institutions
• The following points need to be considered
by an Auditor while conducting audit of the
Income of Educational Institutions −
• Fees and charges received on account of
admission fees, tuition fees, sports fees,
examination fees etc. should be verified
based on the approved fees structure.
• Verification of counterfoil copies of fees
receipt with fees received register should be
done.
• Prescribed conditions by the State
Government and the University Grants
Commission should be verified whether
fulfilled or not.
• Cash book should be verified with counterfoil
of receipt book and fees register.
• Fees receivable and actual fees received
should be reconciled.
.
• Charges and fees received and receivable
should be examined on account of hostel
accommodation, mess, housekeeping and
clothing, etc.
• Cash book should be verified with the
donation received register.
• Donation received should be accounted for
according to the nature of donation means
careful distinction should be there for
revenue nature donation and capital nature
donations; the same procedure is to be
followed for Grants received.
• The purpose and utilization of grant should be
same.
• Investment register and cash book should be
verified for income received on account of
interest on investment and dividends, etc.
Audit of Expenses of Educational Institutions
• The following points need to be considered
by an Auditor while conducting audit of
Expenses of Educational Institutions −
• Electricity expenses, telephone expenses,
water charges, stationery and printing,
purchase of sports items should be properly
verified with quotation, purchase bills, inward
register and Bills received from service
providers, etc. All purchases should be
authorized by appropriate person.
• In case where hostels purchase food items,
provisions, clothing, etc. should be properly
verified.
• Verification of Tax Deducted at Source,
Employee State Insurance and Provident Fund
should be checked. It is also very important
that all deducted amount should be
deposited in appropriate Government
accounts well within time without any
default. These can be verified from relevant
bank challans.
.
• Payment made on account of salary should be
verified from terms of appointment and
increment policy. Auditor should verify the
computation of salary and check whether all
required deductions are made out of it or not
like advance salary, loan installment, absence
from duty, ESI (Employee State Insurance), PF
(Provident Fund), etc. The Net Salary Payable
amount will be verified from cash book and
bank pass book for salary paid.
• Terms and conditions, cash book, voucher and
receipts should be the basis for the
verification of scholarship paid.
• Appropriate provision should be made on
account of outstanding payments
 AUDIT OF CO-OPERATIVE SOCIETY
Section 17 of the Co-Operative Societies Act, 1912.

• Audit to be carried out by the Registrar, or any person authorized by the Registrar through either a general or special
order, of every registered society at least once a year.

• Further its accounts are to be audited by a Chartered Accountant u/s 44AB, in addition to the audit that is carried
out by the administrative department (Directorate of Co-Operative Audit) as provided in the State Cooperative Laws.

• A Co-Operative Society u/s Section 44AA is required to maintain its Books of Accounts and any other relevant
documents as per the provisions of the Income Tax Act.

 A co-operative society shall get its accounts audited annually by an auditor selected from the panel prepared by the
Registrar in the prescribed manner within the period of sixty days from the close of co-operative year.

• The person auditing the accounts of a co-operative society shall have free access to the books, accounts, papers,
vouchers, stock and other property of such co-operative society and shall be allowed to verify its cash balance and
securities. .
 AUDIT OF CO-OPERATIVE SOCIETY

 The directors, managers, administrators and other officers of the co-operative society shall
furnish to the person auditing the accounts of a co-operative society all such information as to its
transactions and working as such person may require.

 It shall be the duty of the committee of the co-operative society to ensure that its accounts are
audited annually and the Audit Report presented for consideration in Annual General Body
meeting of the co-operative society as provided in Section 31 and a copy of the Audit Report shall
also be forwarded by the co-operative society to the Registrar for his information and record.

 On failure to get the audit of the co-operative society conducted in time, the Registrar shall get the
audit conducted and fee paid shall be a charge against the delinquent officers of the committee and
shall be recoverable from them as an arrears of land revenue as provided in Section 111.

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 BOOKS OF ACCOUNTS
Under the purview of Section 43(h) of the Co-Operative Societies Act, the respective State Government
has the authority to formulate rules regarding the Books of Accounts to be maintained by the entity.
Generally the following statements and records need to be maintained :-
 Receipts & Payments Statement for the accounting period.
• Accurate and updated Sales, Purchases and Stock records (wherever applicable).
• Statement of Assets & Liabilities
• Property and Investments Register
 Fixed Assets Register.
• Fixed Deposits Register.

 Any additional records maybe maintained by the management if it ensures greater clarity of the
financial position of the entity
.
 AREAS OF AUDIT CHECK

• Posting Checking
• Casting Checking
• Ledger Scrutiny
• Vouching
• Verification of Assets & Liabilities
• Review of Balance Sheet

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 Special Areas of Examination
Examination of Overdue Debts:-
Overdue Debts have to be classified and reported by the auditor into 2 categories, i.e.
between 6months to 5years (and) above 5years.
Possibility of recovery of Overdue Debts, adequate provisions for doubtful debts and
variances with respect to the preceding years should be assessed.
Overdue Interest:-
Overdue Interest is the interest accrued or accruing in the accounts, the amount of
which the principle is overdue.
Overdue Interest should be excluded from interest outstanding and accrued due while
calculating the profits.
.
 Special Areas of Examination
Bad Debts:-
Writing off of bad debts must be authorized by the managing committee
or certified by the auditor (wherever the law so requires) as
irrecoverable losses.

Adherence to Co-Operative Principles:-

The Auditor needs to assess the extent of achievement of the objects of
the co-operative society, not in terms of profits, but in terms of social
benefits to its members.
Various tools and techniques such as Cost Accounting, Store Controls,
Standard Costing, Budgetary Control etc.
The principles of proprietary audit must
. be employed in this case.
 Special Areas of Examination

Provisions of the Act & Rules:-

The auditor has to ensure that all the rules & regulations and bye laws of the
Co-Operative Societies Act have been followed.
If any deviations exist, their financial implications have to be reported by the
Auditor.

Member’s Register & Passbooks:-

The Auditor has to examine the passbooks of the members in order to verify
the loans given, repayment made, and confirmation of loan balances.
Test-checks to be carried out based on the Auditor’s discretion, in order to
safeguard the interests of the members and to mitigate frauds.
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 Key Areas of Concern
Restrictions on Shareholdings (Section 5 of the Cooperative Societies Act):-
In case of a society where the liability of a member is limited, no member of the
society (other than a registered society), can hold more than 20% of the total
number of shares (or) value of shareholdings greater than Rs. 1,000/-

Restrictions on Loans (Section 29):-

No loans can be made to any person other than a member.
With the special sanction of the Registrar, loans may be issued to other Registered
Society (subject to the State Government’s discretion)

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 Key Areas of Concern

Restriction on Borrowings (Section 30):-

Loans can be accepted from members or others subject to the bye-laws of the society.

Investment of Funds (Section 32):-

A society may invest its funds in any one of the following:
 Central/State Co-operative Bank
 Securities specified in Section 20 of the Indian Trusts Act, 1882.
 Shares/Securities/Bonds/Debentures of any other society with limited liability
 Co-operative Banks approved by the Registrar
 In any other monies subject to the approval of the Central/State Government

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 Key Areas of Concern
Appropriation of Profits (Section 33):-
25% of Profits to be transferred to the Reserve Fund, prior to distribution
of bonus or dividend to its members.
In certain cases, at the discretion of the Registrar, the percentage of Profits
to be transferred may be reduced, but never to be less than 10% of Profits.
Contribution to Charitable Purposes (Section 34):-

A society may contribute an amount not exceeding 10% of the Net

Profits for any charitable purpose, remaining after the compulsory
transfer to the Reserve Fund under Section 33(subject to the sanction of
the Registrar).
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 Key Areas of Concern
Investment of Reserve Funds Outside the Business or Utilization as Working Capital:-

Some State Acts enable co-operative societies to utilize the Reserve Funds in the following manner:
 In the business of the society as Working Capital
 Invest as per provisions of the Act.
 May be used for public purposes that may enable the promotion of the organization’s objects.

Contribution to Education Fund:-

 Some State Acts provide for annual transfer of Profits towards the Education Fund of the State Federal
Society at the prescribed rate which depends on the class of the given society.
 Contribution to the Education Fund is a Charge on the Profits and not an Appropriation of Profits

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 Key Areas of Concern
Appropriation of Profits:-
 The Auditor has to scrutinize the provisions in the Rules and Regulations of the given society regarding the
appropriation of profits.
 The Auditor needs to ensure that all appropriation of profits is carried out with the prior approval of the
General Body of the society.
 The Auditor also needs to ensure that the necessary appropriation entries have been passed after the date
of approval by the General Body.

 In case of certain State Acts, Dividend Equalization Reserve and Share Capital Redemption are stated as
Charges against Profits. However in the case of generally accepted accounting principles these items are
treated as Appropriation of Profits.
 It is the Auditor’s responsibility to point out any areas where the statutory provisions of any law are in
contradiction with any of the generally followed accounting principles.

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 DISCLOSURES IN THE AUDIT
REPORT

 Any transactions or actions of the entity that are not in conformity with the provisions, rules,
regulations or bye-laws of the society.
 Any material, property, debts of the society that may be perceived as doubtful by the auditor.
 Any material irregularity or misstatements in the case of conduct of transactions.
 Any specific matters as may be prescribed by the Registrar.