"Those charged with governance" but could not get a fair idea of the
same. Can you guide them by explaining the same?
(5 Marks)
(c) Helping Hands Co-operative society is working for the welfare of its
members since last 10 years. Governing body observed that the society had
some idle funds during the F.Y. 2023-24 and considering the equity markets
growth, decided to invest the same in blue chip mutual funds. Decision
brought fortune and society earned handsome return on the investment
made. Auditor of the society however gave a qualified opinion. Management
has hired you to guide where they went wrong. Give your comments
considering section 32 of the Central Act?
(4 Marks)
Answer
(a) The auditor shall document:
(i) The overall audit strategy: The documentation of the overall audit
strategy is a record of the key decisions considered necessary to
properly plan the audit and to communicate significant matters to the
engagement team.
(ii) The audit plan: The documentation of the audit plan is a record of the
planned nature, timing and extent of risk assessment procedures and
further audit procedures at the assertion level in response to the
assessed risks. It also serves as a record of the proper planning of the
audit procedures that can be reviewed and approved prior to their
performance. The auditor may use standard audit programs and/or
audit completion checklists, tailored as needed to reflect the particular
engagement circumstances.
(iii) Any significant changes made during the audit engagement to the
overall audit strategy or the audit plan, and the reasons for such
changes: A record of the significant changes to the overall audit
strategy and the audit plan, and resulting changes to the planned
nature, timing and extent of audit procedures, explains why the
significant changes were made, and the overall strategy and audit plan
finally adopted for the audit. It also reflects the appropriate response
to the significant changes occurring during the audit.
AUDITING AND ETHICS
(b) Who are “Those Charged with Governance”:
•
The person(s) or organization(s) (e.g., a corporate trustee) with
responsibility for overseeing the strategic direction of the entity and
obligations related to the accountability of the entity. This includes
overseeing the financial reporting process.
•
For some entities, those charged with governance may include
management personnel, for example, executive members of a governance
board of a private or public sector entity, or an owner-manager.
•
Governance structures vary by entities, reflecting influences such as
different cultural and legal backgrounds, and size and ownership
characteristics. For example, in some entities, a supervisory board exists
that is separate from executive board.
•
In other entities, both supervisory and executive functions are performed
by a single board. In some entities, those charged with governance hold
positions that are an integral part of the entity’s legal structure. For
example, company directors. In some cases, some or all of those charged
with governance are involved in managing the entity. In others, those
charged with governance and management comprise different persons.
•
In most entities, governance is the collective responsibility of a governing
body, such as a board of directors, a supervisory board, partners,
proprietors, a committee of management, trustees, or equivalent persons.
•
In some smaller entities, however, one person may be charged with
governance, for example, the owner-manager where there are no other
owners, or a sole trustee.
•
Such diversity means that it is not possible to specify for all audits the
persons with whom the auditor is to communicate particular matters.
Also, in some cases, the appropriate persons with whom to communicate
may not be clearly identifiable from the applicable legal framework or
other engagement circumstances, for example, entities where the
governance structure is not formally defined, such as some family-owned
entities and some not-for-profit organizations.
•
In such cases, the auditor may need to discuss and agree with the
engaging party the relevant persons with whom to communicate. In
deciding with whom to communicate, the auditor’s understanding of an
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SUGGESTED ANSWER
entity’s governance structure and processes obtained in accordance with
SA 315 is relevant. The appropriate persons with whom to communicate
may vary depending on the matter to be communicated.
(c) According to section 32 of the Central Act, a society may invest its funds in
any one or more of the following:
(i) In the Central or State Co-operative Bank.
(ii) In any of the securities specified in section 20 of the Indian Trusts Act, 1882.
(iii) In the shares, securities, bonds or debentures of any other society with
limited liability.
(iv) In any co-operative bank, other than a Central or State co-operative
bank, as approved by the Registrar on specified terms and conditions.
(vi) In any other moneys permitted by the Central or State Government.
In the given case, Helping Hands Co-operative society invested the funds
in blue chip mutual funds due to which auditor gave a qualified opinion.
Helping Hands Co-operative society should invest the funds in accordance
with Section 32 of Central Act as investment in blue chip mutual funds is
not permissible.