1

MAHATMA EDUCATION SOCIETYS

PILLAI COLLEGE OF ARTS COMMERCE AND
SCIENCE
NEW PANVEL
RE-ACCREDITED BY NAAC WITH A GRADE


A PROJECT
ON
THE ACCOUNTS AUDIT OF CO-OPERATIVE SOCIETY
In the subject Advance Financial Accounting


SUBMITED TO
UNIVERSITY OF MUMBAI,
FOR SEMISTER-II OF
MASTER OF COMMERCE
BY
Parsiya Nita.
1914
UNDER THE GUIDENCE OF
PROF.FARHAT SHAIKH
YEAR-2013-2014

2



MAHATMA EDUCATION SOCIETYS
PILLAI COLLEGE OF ARTS COMMERCE AND
SCIENCE
NEW PANVEL
RE-ACCREDITED BY NAAC WITH A GRADE


DECLARATION BY THE STUDENT



I, Miss. Nita Parsiya student of M.Com Part-I Roll number 1914 hereby declare
that the project for the Advance Financial Accounting titled,
THE ACCOUNTS AUDIT OF CO-OPERATIVE SOCIETY
Submitted by me for Semester-II during the academic year 2013-2014, is based on
actual work carried out by me under the supervision of
Prof.Farhat Shaikh.
I further state that this work is original and not submitted anywhere else for any
examination.




Signature of student




3

MAHATMA EDUCATION SOCIETYS
PILLAI COLLEGE OF ARTS COMMERCE AND
SCIENCE
NEW PANVEL
RE-ACCREDITED BY NAAC WITH A GRADE


EVALUATION CERTIFICATE


This is to certify that the undersigned have assessed and evaluated the project on
THE ACCOUNTS AND AUDIT OF CO-OPERATIVE SOCIETY
Submitted by Miss. Nita Parsiya Student of M. Com Part-I.
This project is original to the best of our knowledge and has been accepted for
Internal Assessment.








Internal Examiner:- Principal:-
Prof.Farhat Shaikh Dr.Dephne Pillai

4

MAHATMA EDUCATION SOCIETYS
PILLAI COLLEGE OF ARTS COMMERCE AND
SCIENCE
NEW PANVEL
RE-ACCREDITED BY NAAC WITH A GRADE


ACKNOWLEDGEMENT


The successful completion of project involved the contribution of time and
efforts. This project would never have been completed without the valuable help
extended to us by the subject teacher and project guide Prof.Farhat Shaikh.

Secondly would like to thank our Principal Dr. Daphne Pillai and Vice
Principal Mr. A. N. Kutty for providing us such a prestigious institution.

Last but not least I would like to thank our Parents for making us capable in
doing this project and giving their continuous support and guidance.

5

INDEX
CHAPTER
NO.
NAME OF THE TOPIC PAGE
NO.
1. INRODUCTION
- MEANING
- DEFINITION
- OBJECTIVES
6
2. ACCOUNTING AND FINANACES OF CO-
OPERATIVE SOCIETY
10
3. REDRESSAL OF COMPLAINTS IN CO-OPERATIVE
HOUSING SOCIETY
12
4. CHARACTERISTICS OF CO-OPERATIVE HOUSING
SOCIETY
16
5. ADVANTAGES AND DISADVANTAGES OF CO-
OPERATIVE HOUSING SOCIETY
18
6. AUDIT OF CO-OPERATIVE HOUSING SOCIETIES
- TYPES OF AUDIT
SPECIAL FEATURES OF AUDIT
22
7. ANALSIS OF INCOME STATEMENT AND
BALANCESHEET
26
8. SUGGESTIONS AND CONCLUSION 34


6

CO-OPERATIVE SOCIETIES

CHAPTER 1. INTRODUCTION

Co-operative Societies as form of organization doing the business is assuming a growing
importance, next to corporate sector on the Indian economic scene. Co-operative Society is a
collective effort of large number of people, operating in various fields of activities such as Co-
operative Sugar Factories, Spinning and Weaving Mills, Co-operative Credit Societies, Urban
Co-operative Banks, Consumer Co-operative Societies, Industrial Co-operative Societies,
Housing Co-operative Societies and so on. Maharashtra is considered as a most progressive state
in the development of Co-operative Societies. The Accounting Procedures and Final Accounts
Formats differ from State to State as each State in India has its own Co-operative Act. Let us
study the main provisions of the Maharashtra Co-operative Societies (MCS) Act, 1960 and the
Maharashtra State Co-operative Societies Rules, 1961.

The Meaning of co-operative society.

A co-operative society is a voluntary association started with the aim of service of its
members. It is a form of business where individuals belonging to the same class join their hands
for the promotion of their common goals. These are generally formed by the poor people or
weaker section people in the society. It reflects the desire of the poor people to stand on their
own legs or own merit. The philosophy of the formation of co-operative society is "all for each
and each for all".

7

Definition of Co-Operative Society:
The following are the some of the definitions of cooperative organization.
1. International Labour Organization-
"Cooperative is an association of person usually of limited means, who have voluntarily
joined together to achieve a common economic, end through the formation of a democratically
controlled business organization, make equitable contribution to the capital required and
accepting a fair share of risks and benefits of the undertaking."
2. Hubert Calvest-
"Cooperative is a form of organization wherein persons voluntary associates together as
human beings on the basis of equality for the promotion of the econo interests of themselves."
3. Mr. Talmaki
"Cooperative society is an association of the weak who gather together for a common
economic need and try to lift themselves from weakness into strength through business
enterprise."

Definition Under Maharashtra Co-Operative Societies Act

1. Co-operative Society:
Under section 2(27) of the Act, Society means a Co-operative Society registered or
deemed to be registered under this Act. Co-operative Society is corporate body distinct from its
members. Section 167 of Co-operative Societies Act state that provisions of Companies Act are
not applicable to Co-operatives.
2. Working Capital:
Under Section 2(31) of the Act, Working Capital means funds at the disposal of society
inclusive of paid up share capital, funds built up out of profits and money raised by borrowing
and other means. The definition of the term is difference as generally working capital means Net
Current Assets represented by current less current liabilities. The audit fees of certain types of
societies such as Urban Co-operative Banks, Salary Earners Credit Societies are related to the
amount of the working capital.

8

3. Auditor:
Rule No. 69 of Co-operative Societies Rules states that the audit of Co-operative
Societies shall be conducted either by departmental auditor or certified auditors. The term
certified auditor includes the following:
a. Chartered Accountant
b. A person who holds a government diploma in Co-operative accounts and audit
c. A person who has served as an auditor in the Co-operative department of the State
Government (Retired Officers of the Co-operative Department).
4. Bye-Laws:
Under Section 2(5) Bye-laws registered under this Act and for the time being in force,
and includes registered amendments of such bye-laws. Bye-laws of a Co-operative Society may
be compared with the articles of a company. The provisions in the bye- laws cannot be contrary
to the provisions of the Co-operative Societies Act. The bye-laws generally include the following
clauses for internal management of Co-operative Society.
i. Name and address of society
ii. Area of operation
iii. The manner in which, and the limits upto which the funds of the society should
raised.
iv. Objects of society
v. Maximum amount of share capital that may held by a member
vi. Terms and qualifications for admission of membership
vii. Rights, duties and liabilities of members
viii. Maximum loan admissible to a member
ix. Disposal of net profit
Rule no. 8 of Maharashtra State Co-operative Societies Rules, 1961 give the various
detailed of the items in the bye-laws of the society. Any amendments, changes or deletion in bye-
laws shall have to be approved by a resolution at special general meeting and also a written
approval from the District Deputy Registrar is necessary. The first bye-laws of the society are
required to be approved by the Registrar, as Rules No. 9.
5. Co-operative Year:
The act has fixed 31
st
day of March as the balancing the account of balancing the
accounts of the society. However, any other day can be fixed by the society for this purpose with
the prior approval of the registrar. It means that the co-operative year need not necessarily be
from 1
st
April to 31
st
March. Normally, now-a-days societies follow 31 March as the year-ending
to conform with the Income-tax Act.
9

6. Member:
Under Section 2(19), a member of a Co-operative Society means a person joining in an
application for the registration of a Co-operative Society, which is subsequently registered, or a
person duly admitted to a membership of Society after registration and includes and associates,
nominal or a sympathizer member. Following are different types of members-
a. Associate Member:
Associate Member means a member who holds jointly a share of society with others, but
whose name does not stand first in share certificate.
b. Nominal Member:
Nominal Member means a person admitted to membership as such after registration in
accordance with its laws.
c. Sympathizer Member:
Sympathizer member means a person who sympathises with aims and objects of the
society and who is admitted by society as such member.


Objectives of co-operative society:

A co-operative society has been formed behind the following broad objectives.
To render service to its members instead of making profits.
It encourages a state mutual help in the place of competition.
It assures a state of self-help in the place of dependence.
It develops a state of moral solidarity in the place of unfair business activities.

10

CHAPTER -2. ACCOUNTING AND FINANACES OF CO-
OPERATIVE SOCIETY

1. Books of Accounts and Records
According to Section 79(1) of M.S.C.S. Act, the Registrar may direct to keep proper
accounts in relation to:
1) All sum of money received and extended by the society and the matters in respect of
which receipts and expenditure take place.
2) All sales and purchases of goods by the society, and of the stock in hand and its
valuation.
3) The assets and liabilities belonging to the society.
4) He may call the society to furnish such statements and returns and to produce such
returns as he may require from time to time.
Rules No. 65 of M.S.C.S. Rules give a specific list of the following books to be
maintained by the society:
1. Cash Book
2. General Ledger and personal Ledger
3. Stock Register
4. Property Register
5. Register of audit objection and their rectifications
6. Such other accounts and books as from time to time b specified by the government.
Broadly speaking, books of accounts should be so maintained as to give necessary
financial statistical and other information.

2. Statutory Registers
Under Section 38 of the Co-operative Societies Act read with Rule No. 32. A Co-
operative Society shall have to maintain a Register of Members in 1 From. Nominations should
be obtained from the members. According to Rule No.33 read with section 39 the list of
members shall have to be maintained in U form.

11

3. Financial Statements
According to Rule No. 61 of M.S.C.S. Rules, the society will have to prepare, within 45
days of the close of accounting year, the following financial statements.
1) The profit and loss account for the year (or Income and Expenditure A/c).
2) The Balance sheet as on that date of accounting year i.e. 30
th
June.
Rule No. 62 of M.S.C.S. Rules deals with the prescribed form of Balance Sheet and
Profit & Loss account (form N). The financial statements duly prepared in this from are to be
laid down before the Annual General Meeting, which is to be held within three months from the
end of accounting year. The registrar may permit a particular society to prepare their financial
statements in some other form as per the provision of this Rule.

4. Ascertainment & Appropriation Of Profits:

Class of Society Rate
1. Primary consumers Society 2 Paise per Rs. 100 of the working capita subject to a
maximum of Rs. 1000.
2. Urban Credit Society 10% of the working capital in respect of those which
have earned profit during the previous year subject to
maximum of Rs. 500.
3. Co-Operative Sugar Factories 25 paise per ton of sugarcane crushed subject to
maximum of Rs. 25000
4. Housing Society Backward Class
Housing Society.
Rs. 1 per member having a tenement Rs. 10.
5. Urban Credit Banks 1/10% of working capital subject to a maximum of Rs.
1000.


12


CHAPTER-3 REDRESSAL OF COMPLAINTS IN CO-
OPERATIVE HOUSING SOCIETY
Following are the authorities as prescribed under Maharashtra Co-operative Societies Bye
Laws to whom you can approach for redressal of your complaints and disputes. Approach the
right place with right complaint, if your complaint has merit. Do not waste time and money with
irrelevant departments other than those mentioned below:


(A) Complaints to be made to the Registrar
(B) Complaints to be made to the Co-operative Court
(C) Complaint s to be made to the Civil Court
(D) Complaints to be made to the Corporation / Local Authorities
(E) Complaints to be made to the Police
(F) Complaints to be made to the General Body of the Society
(G) Complaints to be made to the Federation

Member / Members shall submit their complaint application to any of the Office bearers
Complaint application of the society, in writing, giving thereby the details of the complaint to be
submitted to the society.

After receipt of such, complaint application, the committee shall take decision thereof, in
the coming Managing Committee meeting. Such decision shall be communicated to t he
concerned member, within 15 days thereafter.

If the Member/ Members are not satisfied by the decision of t he Committee, or does not
receive any communication from the committee within the time specified above, he / they may
approach the Competent Authorities, depending upon the nature of the complaints, as
enumerated below:-

13

(A) ASST. REGISTRAR / DEPUTY REGISTRAR:

Matters pertaining to following issues:-
a) Registration of Society on Misrepresentation,
b) Non-issuance of the Share Certificates,
c) Refusal of Membership,
d) Non registration of Nomination by the society,
e) Non Occupancy charges,
f) Demand of excess premium for transfers,
g) Non supply of the copies of record and documents,
h) Tampering, suppression and destruction of the records of the society,
i) Non acceptance of the cheques or any other correspondence by the committee.
j) Non maintenance or incomplete maintenance of record s and books of the society,
k) Non preparation of the annual accounts/reports, within the prescribed period,
1) Misappropriation/Misapplication of the funds of t he society,
m) Defaulter/Disqualified member on t he committee,
n) Investment of Funds without prior permission,
o) Reconciliation of Accounts,
p) Audit,
q) Non conducting of election before expiry of the term of the committee,
r) Rejection of Nomination,
s) Non calling of General Body meetings within prescribed period,
t) Non calling of Managing Committee meeting as prescribed in Bye laws,
u) Resignation by the Committee,
v) Any other, like, matters which falls within jurisdiction of the Registrar.

(B) CO-OPERATIVE COURT:

Disputes between the members and / or the members and society, which fall under Section 91 of
the Act, such as:-Disputes pertaining to :-
a) Resolutions of the Managing Committee and General Body.
b) The elections of the Managing Committee, except the Rejection of
Nominations, as provided under section 152-A of the Act,
c) Repairs, including Major Repairs, internal repairs, leakages,
d) Parking,
e) Allotment of Flats/Plots,
f) Escalation of construction cost,
g) Appointment of Developer/ Contractor, Architect,
14

h) Unequal water-supply,
i) Excess recovery of dues from the members,
j) Any other, like, disputes which fall within jurisdiction of the Co-operative Court.

(C) CIVIL COURT:

Disputes pertaining to: Complaints to be
a) Non compliance of the terms and conditions of the Agreement, by and made to the Civil
between the Builder/ developer, Court.
b) Substandard Constructions,
c) Conveyance,
d) Escalation of construction cost,
e) Any other, like, disputes which fall within jurisdiction of the Civil Court.

(D) CORPORATION / LOCAL AUTHORITY:

Matters pertaining to:-
a) Unauthorized constructions / additions / alterations, made by builder / member occupant of the
flat,
b) Inadequate Water supply to the society,
c) Change of use by the members/occupants.
d) Buildings structural problems.
e) Any other, like, matters which fall within jurisdiction of the Corporation / local authority.

(E) POLICE:

Matters pertaining to:-
a) Nuisance carried by the Unauthorized use of the Flat / Shop / Parking Space / Open space in
the society, by the members, builder, occupants or any other persons ,
b) Threatening / Assault by or to the members of the society,
c ) Any other , like , matters which fall within jurisdiction of the Police.


15

(F) GENERAL BODY:

Matters pertaining to:-
a) Non maintenance of the property of the society by the managing committee,
b) Non display of Board of the name of the society,
c) Levy of excess Fine, by the managing committee for act o f the member which is in violation
of the Bye -laws,
d) Not allowing the authenticated use of t he available open spaces of t he society, by the
managing committee.
e) Non Insuring the property of t he society, by the managing committee,
f) Appointment of Architect,
g) Al l other, like, matters which fall within jurisdiction of the General Body.

(G) FEDERATION:

Matters pertaining to:-
a) Non allowing of the entry to the secretary of the society, by the member .
b) Non acceptance of any communication by the member / managing committee.
c) Convening Special General Meeting provided under the Bye law no. 97 and Managing
Committee meeting provided under Bye-l aw No. 133.
d) All other like matters.
16

CHAPTER-4. CHARACTERISTICS OF CO-OPERATIVE
HOUSING SOCIETY
Following are the characteristics of co-operative housing society.
1. Voluntary association:
Everybody having a common interest is free to join cooperative society. There is no
restriction on the basis of caste, creed, religion, colour, etc. Anybody can also leave it at any time
after giving due notice to the society. That is specialty of any cooperative society. There should
be minimum of 10 members to for cooperative society but there is no maximum limit for the
membership.
2. Separate legal entity:
A cooperative society after registration is recognized as separate legal entity by law. It
acquires an identity quite distinct and independent of its member can purchase, dispose its own
assets, can sue and also can be sued. The income of cooperative society is legally taxable as per
the Income Tax Act, 1961.
3. Democratic management:
Equalities is the essence of cooperative enterprises, governed by democratic principles.
Every member has got equal right over the function management of that society. As such each
member has only single voting right irrespective of the number of shares held or capital
contributed by them. In case of cooperative society, no member detects the terms and conditions
of the functioning because "one man one vote" is the thumb rule.
4. Service motive:
The main objective being formation of any cooperative society is for mutual benefit
through self-help and collective effort. Profit is not at all in the agenda of the cooperative society.
But if members so like, they can take up any activities of their choice to generate surplus in order
to meet the day-to-day expenses.
5. Utilization of surplus:
The surplus arising from the operation of business is partly kept in a separate reserve and
partly distributed as dividend among the members. According to Indian Cooperative Societies
Act - 1912, each society must transfer at least one-fourth of its profits to general reserve. It may
distribute maximum upto 90 per cent of its surplus as dividend to its members and can spent
another 10 per cent for the welfare of the members.
17

6. Cash trading:
One exception in the cooperative society is that like other business if never go for credit
sales. It sells the goods on the basis of cash only. Hence, the cooperative society hardly come
across with the financial hardship because of non-collection of sales dues. Members can only
purchase on the basis of credit, which is an exception to the present rule.
7. Fixed rate of return:
All members are supposed to contribute capital for the formation of a cooperative society
or at the time of joining as a member of the cooperative ^society. In return to the capital
invested, the members are assured of a fixed rate of return maximum to the extent of 9 per cent
per annum on the sum deployed by them. This amount is being paid from the surplus generated
by the society on that year. This is an incentive extended by the society to its members.
8. Government control:
All the cooperative societies of the country are regulated by the Government through its
different rules and regulations framed from time to time. Cooperative societies of the country are
required to register themselves as per the Indian Cooperative Societies Act, 1912. Sometimes
different State Governments also frame laws regarding the registration and functioning of
cooperative societies for their states.
9. Capital:
The capital of the society is raised from its members by way of share capital. However,
the major part of finance is raised by the society through taking loan from the Government or by
accepting grants and assistance from the Central or State Government or from the apex
cooperative institutions like state and central cooperative banks operating in that state.

18

CHAPTER-5. ADVANTAGES OF CO-OPERATIVE
HOUSING SOCIETY

1. Easy to form:
The formation of a cooperative society is very simple as compared to the formation of any
other form of business organizations. Any ten adults can join together and form a cooperative
society. The procedure involves in the registration of a cooperative society is very simple and easy.
No legal formalities are required for the formation of cooperative society.
2. No obstruction for membership:
Unless and otherwise specifically debarred, the membership of cooperative society is open to
everybody. Nobody is obstructed to join on the basis of religion, caste, creed, sex and colour etc. A
person can become a member of a society at any time he likes and can leave the society when he does
not like to continue as ; member.
3. Limited liability:
In most cases, the liabilities of the members of the society is limited to the extent of capital
contributed by them. Hence, they are relieved from the fear of attachment of their private property,
in case of the society suffers financial losses.
4. Service motive:
In Cooperative society members are provided with better good and services at reasonable
prices. The society also provides financial help to its members the concessional rates. It assists in
setting up production units and marketing of produces c small business houses so also small farmers
for their agricultural products.
5. Democratic management:
The cooperative society is managed by the elected members from and among themselves.
Every member has equal rights through its single vote but can take active part in' the formulation of
the policies of the society. Thus all member are equally important for the society.
6. Stability and continuity:
A cooperative society cannot be dissolved by the death insolvency, lunacy, permanent
incapability of the members. Therefore, it has stable life are continues to exist for a longer period. It
has got separate legal existence. New members m< join and old members may quit the society but
society continues to function unless are otherwise all members unanimously decided to close the
same.
19

7. Economic operations:
The operation carried on by the cooperative society economical due to the eliminations of
middlemen. The services of middlemen are provided by the members of the society with the
minimum cost. In the case of cooperative society, the recurring and non-recurring expenses are very
less. Further, the economies of scale-ma production or purchase, automatically reduces the
procurement price of the goods, thereby minimises the selling price.
8. Surplus shared by the members:
The society sells goods to its members on a nominal profit. In some cases, the society sells
goods to outsiders. This profit is utilized for meeting the day-to-day administration cost of the
society. The procedure for distribution of profit that some portion of the surplus is spent for the
welfare of the members, some portion kept reserve whereas the balance shared among the members
as dividend on the basis of this purchases.
9. State patronage:
Government provides special assistance to the societies to enable them to achieve their
objectives successfully. Therefore, the societies are given financial lo< at lower rates. Government
also extends many type of subsidies to cooperative societies strengthening their financial stability
and sustainable growth in future.

20


DISADVANTAGES OF CO-OPERATIVE HOUSING
SOCIETY:
Despite many an advantages, the cooperative society suffer from certain limitations &
drawbacks. Some of these limitations, which a cooperative form of business has are as follows:
1. Limited resources:
Cooperative societies financial strength depend on the cap contributed by its members
and loan raising capacity from state cooperative banks. The membership fee is limited for which they
are unable to raise large amount of resources as their members belong to the lower and middle class.
Thus, cooperative^ are not suitable for the large scale business which require huge capital.
2. Inefficient management:
A cooperative society is managed by the members only. They do not possess any managerial
and special skills. This is considered as major drawback of this sector. Inefficiency of management
may not bring success to the societies.
3. Lack of secrecy:
The cooperative society does not maintain any secrecy in business because the affairs of the
society is openly discussed in the meetings. But secrecy is very important for the success of a
business organization. This paved the way for competitors to compete in more better manner.
4. Cash trading:
The cooperative societies sell their products to outsiders only in cash. But, they are usually
from the poor sections. These persons require to avail credit facilities which is not possible in the
case of cooperatives. Hence, marketing is a shortcoming for the cooperatives.
5. Excessive Government interference:
Government put their nominee in the Board of management of cooperative society. They
influence the decision of the Board which may or may not be favourable for the interest of the
society. Excessive state regulation, interference with the flexibility of its operation affects adversely
the efficiency of the management of the society.
21

6. Absence of motivation:
The members may not feel enthusiastic because the law governing the cooperatives put some
restriction on the rate of return. Absence of relationship between work and reward discourage the
members to put their maximum effort in the society.
7. Disputes and differences:
The management of the society constitutes the various types of personnel from different
social, economical and academic background. Many a times they strongly differs from each
other on many important issues. This becomes detrimental to the interest of the society. The
different opinions and disputes may paralyses the effectiveness of the management.
22

CHAPTER-6. AUDIT OF CO-OPERATIVE HOUSING
SOCIETIES
Various Laws Applicable to Co-op. Societies
1) The Maharashtra Co-op. Societies Act, 1960 (MCS Act) - having 167 sections
effective from 26/1/1962 and The Maharashtra Co-op. Societies Rules, 1961 - having 110 rules
effective from 23/12/1963. Or The Co-operative Societies Act and Rules of the respective state
in which the society is registered (Bihar-1935, Orissa-1935, Assam-1950, Karnataka-1959,
Madhya Pradesh-1961, Tamil Nadu-1961, Gujarat-1962, Andhra Pradesh-1964, Rajasthan-1965,
Kerala-1969, Himachal Pradesh-1971, Delhi-1972, West Bengal-1973).
or
The Co-operative Societies Act, 1912 and Rules
or
The Multi-State Co-op. Societies Act, 2002 and Rules (applicable to all societies whose objects
are not confined to one state).
2) The Income Tax Act, 1961 and Rules
3) The Service Tax Act and Rules
4) The Bombay Stamp Act
or
The Indian Stamp Act
5) The Indian Contract Act 1872, Transfer of Property Act 1882 & Sale of Goods Act 1930
6) Law of Limitation
7) Circulars, Notifications and directives issued from time to time by the respective departments
of co-operation
8) Byelaws of the Society
9) Accounting Standards - Policies & Guidelines
23

TYPES OF AUDIT
1. Statutory audit u/s.81(1)
2. Cost or Performance audit u/s. 81(2A)
3. Flying Squad audit u/s. 81(3)(b)
4. Test audit u/s. 81(3)(c)
5. Re-audit u/s. 81(3)(c)
6. Internal audit
7. Stock & Book Debt audit (provided under NPA norms)
8. Revenue / Concurrent audit

SPECIFIC FEATURES OF AUDIT
Chapter VIII of the MCS Act and Chapter VII of the MCS Rules deal with Audit,
Inquiry, Inspection and Supervision.
1. Appointment and Fees:
Sec.81(1)(a) - Certain societies to be audited by the Registrars auditors.
Sec.81(1)(b) - Other societies to get accounts audited from panel of auditors maintained
by the Registrar or by a C.A. holding certificate in co-operative audit issued by ICAI.
Rule 69(1) - Audit to be conducted by Departmental Auditors or by Certified Auditors
which includes Chartered Accountants, certain diploma holders and ex-staff of co-
operative department.
Under Sec. 72(1) of the Multi State Co-op. Societies Act, only Chartered Accountants
can be appointed as Auditors.
Appointment is done by the Registrar or on behalf of the Registrar and report has to be
submitted to the Registrar.
Rule 74 - The scale of fees which are fixed by the Registrar (Order No. CC/ADT/Scale of
Fees of 92 date 15
th
May, 1992). The scale of fees which are fixed by the Registrar are
calculated based on working capital, which is defined as funds at the disposal of the
society including its paid up share capital. It is different from the normal concept of
working capital.
Under Sec. 70(9) of Multi-State Co-op. Societies, fees decided by the Registrar / Society
24

2. Rights, Duties and Reporting:
Section 81 and Rule 69 outline rights and duties of Auditor and report to be submitted by
him.
Sec. 81(5) - Auditor has right to receive notice of and attend Annual General Meeting.
Rule 69(2) - Audit to be conducted for all the previous completed years for which the
audit has not been done (provided no Auditor appointed or Auditor has resigned).
Sec. 81(5B) & Rule 69(3) - Besides audit report, Auditor to submit Audit Memorandum
in the prescribed format. Form 1 is a general format for all types of audit. In addition,
separate formats prescribed for each type of society (Form __ for Credit Society, Form 27
for housing society, etc.).
Rule 69(7) - Summary of Audit Memorandum prepared by the Auditors required to be
read in general meeting.
Rule 69(9) - Statutory Auditor to award audit classification (A, B, C, D) to Society based
on certain criteria. For this purpose, dept. has issued certain guidelines
(Cir.No.CC/ADT/A/UGB/A.B/ of 1992 date 29
th
July,1992) followed by Circular No.
CC/ADT/A/ACB/AC/15/2005 dated 7
th
January 2005 issued by Honorable
Commissioner of Co-operation of Maharashtra.
3. Books / Registers required to be maintained [in addition to regular books of accounts]
Section 79 & Rule 65:
Register of Members (Form I) - Sec. 38, Rule 32
List of Members in Form J - Sec.39, Rule 33
Register of shares
Register of debentures and bonds.
Minute books of general meetings and board meetings.
Surety Register.
Register of audit objections and rectifications in Form O - Rule 73
4. Audit of Statement of Accounts:
Rule 61 - Annual statement of accounts to be prepared within 45 days of the close of the
co-op. year.
Rule 62 - The Balance Sheet and Profit & Loss Account has to be prepared in Form N
by all the societies.

25

CHAPTER-7. ANALSIS OF BALANCESHEET

Balance Sheet
The Balance Sheet formats of a co-operative institution and commercial banks are quite
different.
In a co-operation institution, loan, other assets etc. are all shown at gross figures and the
over dues, NPA provisions, provision for other doubtful assets are reflected on the credit
side.

BALANCESHEET AAS ON 31/3/2012 FOR THE SOCIETY SAI
PRATIK CO-OP HSG. SOC.

LIABILITIES SIDE OF THE BALANCESHEET AS FOLLOWS:

1. Issued, subscribed and paid up share capital is Rs. 13500.
2. Reserves and surplues is to be maintaine by the society high reserves and surplues
indicates that a society is highly profitable. The reserves maintained by the
society are Reserve Fund, Members Contribution Fund, Sinking Fund, Transfer
Fund of this year is Rs. 14377857 were as in the last year it was 14360232.
3. Current liabilities and provision includes Accounting Charges payable, Education
Cess payable, Audit fees payable is Rs. 15710 were as in the last year it was Rs.
12548.

26

INFORMATION OF LIABILITIES

i. MEMBERSHIP, SHARE CAPITAL & VOTING :
Under this head, individuals means share capital of all excluding co-operative
institutions and State Government. Under Sec.22, a firm, a public trust, a local authority,
a society or any body corporate can become member. Sec.25 of Multi-State Act permits
any person competent to contract to become a member.
Sec.28 - Besides verifying the books stated hereinbefore, Auditor has to ensure that no
member holds shares exceeding 1/5 of the share capital of the Society or Rs.20,000/-
whichever is less. Under Sec. 33 of the Multistate Act, it is as per the limit provided in
the Byelaws, subject to a ceiling of 1/5 of the share capital.
Rule 20 - Shares can be issued in joint names. Minors and persons of unsound mind,
inheriting the share of a deceased member, can also be admitted as member through their
legal representatives or guardians.
Section 29(2)(a) - A member cannot transfer his shares until he has held it for one year.
Sec.30, Rule 25 - Nomination is permitted, including nomination of a minor or a person
of unsound mind.
Sec.29 - Society allowed to buy back its shares from its members on their resignation
etc., upto a maximum of 10% of the paid-up share capital every year.
Rule 23 - Amount to be paid back is based on the valuation of his share, which in no case
can exceed the amount paid for the purchase of those shares.
Section 27 - There is a principle of One Man One Vote.
Sec.27 - During meetings, no proxies are allowed except the ones that are specifically
allowed by the Registrar.
Rule 21 - A member can resign by giving 3 months notice.
Section 35, Rule 28 - A member can be expelled from society by a resolution passed by
not less than of members, which may also involve forfeiture of his shares.

27

ii. RESERVE FUND & OTHER RESERVES :
a) Statutory Reserves:
Section 66 - Atleast 1/4 of the net profits to be transferred to Reserve Fund. Registrar has
power to reduce it upto 1/10 only. As per this section, subject to the rules and byelaws,
the Fund can be used in the business of the society.
Rule 54 - Reserve Fund in excess of the paid up share capital only can be used in the
business with the permission of the Registrar.
Reserve Fund has to be invested in modes specified in Section 70 read with Rule 54.
Rule 54(2) - These funds which are invested, cannot be drawn upon, pledged or used
except with the prior written permission of the Registrar.
b) Dividend Equalization Fund :
Rule 52(3):
A society may create Dividend Equalisation Fund and credit to it a maximum of
2% of the paid up share capital in any year until the fund amounts to 9% of paid up share capital.
The society may draw upon the fund in any year only when it is unable to maintain a uniform
rate of dividend it has been paying during the last preceding 5 years or more.
c) Bad & Doubtful Debt Reserve :
Rule 49
Bad debts have first to be written off against this fund before being written off
against Reserve Fund and Share Capital.
d) Investment Fluctuation Fund (Investment Depreciation Reserve):
Rule 55(3):
Investment Fluctuation Fund to be created to cover anticipated loss that may arise
on disposal of investments held by the society, if not less than 10% of the working capital
is invested in securities. This amount is a charge on Profit & Loss Account as per Rule
51(ii).

28

e) Bonus Equalization Fund:
Rule 52(1):
A fund created for payment of bonus to persons other than its paid employees,
who are not its members.
f) Education Fund of State Federal Society:
Section 68:
A fund created out of annual contributions given by societies to State Federal
Society at the rates specified in Rule 53. For Maharashtra, the federal society is
Maharashtra Rajya Sahakari Sangh Ltd., Pune, which utilises this amount for education
and training in co-operation. This amount is payable irrespective of whether the society
earns a profit or not and whether a society has declared a dividend or not. The amount has
to be paid within 3 months after the close of co-operative year.
g) Sinking Fund / Guarantee Fund:
Rule 51(I):
A fund created to ensure due fulfilment of guarantee given by Government in
respect of loans raised by the society.
h) Share Capital Redemption Fund
Rule 51(iii):
A fund created for redemption of share capital contributed by government or a
federal society.
Additional Funds (Optional):
Special Reserve Fund, Building Fund, Members Welfare Fund, Staff Welfare Fund,
Charity Fund etc. - For all these funds, rules have to be framed for its formation, additions and
use.

29

iii. DEPOSITS AND OTHER ACCOUNTS :
Under this head, deposits from Individuals means all deposits excluding those from
central co-operative banks and other societies.
iv. BORROWINGS:
Section 43:
In case of a society, which has taken any financial assistance from the Government in the
form of share capital, loan or guarantee, the amount such society can receive as deposits and
loans from its members and other persons is subject to restrictions laid down in Rule 35 and in its
byelaws. There are also restrictions on the society for acceptance of deposits from trust, local
bodies etc.
Rule 35:
A society without the previous sanction of the Registrar cannot incur liability exceeding
in total ten times the total amount of its paid up share capital, accumulated reserve fund and
building fund minus accumulated losses. Any excess liability incurred is to be deposited with
Central Banks and not used in business of society.
Rule 46A:
Restrictions on borrowings from non-members.

30

ASSET SIDE OF THE BALANCESHEET AS FOLLOWS:

1. Cash and Bank balance:
Cash balance is very less throughout the year as they were having three Bank A/Cs which
possesses good amount of balance and maintain some balance in one of their bank account for
future contingencies.
2. Fixed Assets:
In the premises a main fixed asset is Land and Building whivh is upto Rs. 13935250 and
furniture is Rs. 16245 after reducing depreciation.
3. Current Asset and Loans & Advances:
Here debtors would be members only they were not paid balance of Rs. 123318 for
Services and Maintainance in the society.
4. Income & Expenditure A/c:
This account shows that loss of the society is more than the profit.

INFORMATION OF ASSETS:
a. Cash:
Rule 107C - Maximum cash holding limits prescribed for certain societies. Excess cash
has to be deposited in an approved bank within 3 days. No limits prescribed for Co-op. Credit
Societies, but for housing societies, it is Rs.300/-.
ii. Balance with Other Banks:
Permission required to open bank accounts with other scheduled banks.
iii. Investments:
Investment of funds to be done only in modes specified in Sec.70 of the MCS Act, read
with Rule 55.
31

iv. Advances:
Section 44: Credit Society cannot give loans to or accept guarantees of persons other than
its members. However, it can lend to non-members against their deposits.
Section 44: Loan against own shares not allowed. (Also Section 20(1)(a) of B. R.Act).
Rule 41 - Only specified portion of working capital can be used for lending.
Rule 42 - Various regulations in respect of loans granted by society
Rule 43 - A member applying for loan has to hold requisite number of shares.
Rule 45 - Restrictions on members to borrow from more than one credit society.
Rule 45A - Loan against pledge of FDR not to exceed 90% of the deposit amount and
period of loan not to exceed beyond maturity date of the deposit. If the borrower does not
repay the loan, principal and interest due can be adjusted against the deposit.
Rule 46 - Managing Comm. authorized to recall loans after giving one weeks notice.
The law of limitation does not apply to the loan documents executed by a borrower, as
long as he continues to be a member of the co-operative sector.
v. Fixed Assets:
No specific provision for depreciation and its rates under the Act. However, Section
65(1), read with Rule 49A under point (vi) states that for calculating net profit, depreciation has
to be deducted from gross profit.
32

Asset Classification & Provision for F.Ys. 2007-08 & 2008-09
Asset Classification Provision Required
** Performing (Standard) Asset (Overdue upto 9
months)
(proposed to be reduced to 2 quarters [6 months]
for F.Y. 2009-10 onwards & 1 quarter [3
months] from F.Y.2010-11 onwards)

Nil

** Non-Performing Asset (NPA) (Overdue > 9
mths)
(proposed to be reduced to 2 quarters [6 months]
for F.Y. 2009-10 onwards & 1 quarter [3
months] from F.Y.2010-11 onwards)

- Sub-Standard
(NPA upto 12 months)

5%

- Doubtful (NPA > 12 months) 10/15/ 20% for secured doubtful O/s
upto 2 years/ 2-3 years / > 3 years
resp. 50% for unsecured doubtful
advances
- Loss
(No chance of recovery)
100%

Note: NPA provision for small loans upto Rs.10,000/- per borrower need not be provided.

33

ANALYSIS OF INCOME AND EXPENDITURE
ACCOUNT FOR THE YEAR ENDED 31.3.11

DETAIL ANALYSIS OF THE EXPENDITURE
4. Salaries and wages has incresed from Rs. 10500 to RS. 17215.
5. Security charges has reduced from Rs. 76299 to Rs. 74770.
6. Electrictiy charges has increased comapre to last year by Rs. 27450.
7. Water proofing/ com.wall is the new expenses introduced tis year by Rs 79803.
8. Repaires and maintainance of electricity has reduced by 50 %.
9. Repaires and maintainance of civil work has reduced by Rs. 39054.
10. Repaires and maintainance of plumbing has reduced by 65 %.
11. Bank charges has increased by Rs.16.
12. Water tank cleaning is same as that of last year Rs 1700.
13. Audit fees payable is same comapre with last year Rs. 2000.
14. Accounting charges has inceased by Rs 500 comapre with last year.
15. Depreciation has fallen down by Rs. 200.
16. Office expenses has increased by 35%.
17. Printing and stationary has increased from Rs 639.50 to 2617.
18. Cleaning charges has reduced by Rs. 1010.
19. Education cess payable is Rs 162.
20. Festival expenses has increased by 60%.
21. Meeting expenses has fallen own by 40 %.
22. Water charges is Rs. 21000.
23. Conveyance deed expenses is fallen down by Rs 5000 comapre with Rs 25000.
24. Postages expenses is Rs 126.
25. Net profit of the society for the year 2010-11 as Rs. 22875. Seeing this we can
assume that society is profitable and the expenses they incurre are upto the limit.

34

DETAIL ANALYSIS OF THE INCOME

1. Service charges has increased by Rs. 19435.
2. Bank interest has reduced to Rs. 4830 from Rs. 6129.
3. Contribution of compound wall as the newly introduced revenue of Rs. 90000.
4. Parking charges of the society is Rs. 35920.
5. Interest on outstanding earned as Rs. 4182.

CHAPTER-8. SUGGESTIONS AND CONCLUSION:
Financial and organizational strength is necessary for co-operative societies to compete
successfully with private agencies in this changing scenario. However, co-operatives have to
required re-structure and re-orient and set up themselves as self-reliant in the context of
economic reforms.
Co-operative movement became a government agency. Co-operatives are working under
government policy and State or official control, it is necessary that official control (that
now exists i.e. the extension of the Banking Regulation Act, 1949 (as applicable to co-
operative societies) from 1
st
March 1966 and Maharashtra Cooperative Societies Act,
1960) should be slackened to a certain extent. In order to boost up the co-operative
movement it is necessary to encourage the responsibilities among the rural masses as a
member of the co-operative society.
In the reform policy procedure co-operative sector needs due consideration, it is not
possible to meet recent challenges without increase their competitiveness and strength.
Income recognition, asset classification, capital adequacy ratio, investment policies and
rigorous competition among various them in mobilization of funds and lending i.e.
commercial banks, private agencies, regional rural banks, money-lender and the co-
operative banks.
The processing units of co-operative societies have been suffering from various
difficulties i.e. most of the units are unable to work to their fullest installed capacity due
to inadequate supply of raw materials and wide fluctuation in the prices of raw materials,
inadequate finance, untrained managerial personnel, defective pricing policies,
unscientific planning of units, lack of cost realization, dominance of traders, etc. to
overcome on this problem thorough efforts should be done in this line.