Norms of Auditing Co-operative Housing Societies in Maharashtra.
Laws Applicable to Co-op. Housing 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.
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.
Types of Audit
Specific Features of Audit
Note: [All sections / rules stated herein below pertain to MCS Act and rules unless otherwise stated].
Chapter VIII of the MCS Act and Chapter VII of the MCS Rules deal with Audit, Inquiry, Inspection and Supervision.
1) Appointment and Fees
2) Rights, Duties and Reporting
3) Books / Registers required to be maintained [in addition to regular books of accounts]
Sec.79 & Rule 65 :
4) Audit of Statement of Accounts
General
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.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.
· 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.
· Sec.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.
· Sec.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 month’s notice.
· Sec.35, Rule 28 – A member can be expelled from society by a resolution passed by not less than ¾ of members, which may also involve forfeiture of his shares.
(ii) Reserve Fund & Other Reserves :
(a) Statutory Reserves :
(b) Education Fund of State Federal Society:
Sec.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 utilizes 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.
(c) Sinking Fund
Rule 51(I) – A fund created to ensure due fulfillments of Major repair & (if guarantee given by Government in respect of loans raised by the society.)
(i) 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.
(ii) Deposits and Other Accounts :
· Under this head, deposits from “Individuals” means all deposits excluding those from central co-operative banks and other societies.
(iii) Borrowings :
· Sec.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.
Assets
(i) Cash:-· Rule 107C – Maximum cash holding limits prescribed for certain societies. Excess cash has to be deposited in an approved bank within 3 days. limits prescribed for Co-op. 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.
(v) Fixed Assets :-No specific provision for depreciation and its rates under the Act. However, Sec.65(1), read with Rule 49A under point (vi) states that for calculating net profit, depreciation has to be deducted from gross profit.
Profit & Loss Account
· Sec.65 – Net Profits to be determined after deducting exps. as provided in Rule 49-A.
· As per Accounting Standards, mercantile system of accounting to be followed, but Act is silent on this aspect. However reading Rule 49A regarding depreciation, various provisions for income tax, bad and doubtful debts, investment fluctuation, retirement benefits etc., Form ‘N’ of MCS Rules and Form ‘A’ & ‘B’ of B.R. Act, it implies that accounts have to be maintained on mercantile basis.
· Rule 107-A – Maximum rates of travelling and daily allowance and sitting fees for committee members.
· Sec.68 – Compulsory provision for payment of Education Fund to State Federal Society to be made, which is a charge on Profit & Loss Account and has to be paid within 3 months after the close of the co-operative year (Rates given in Rule 53).
5) Rectification:- Sec.82, Rule 73 – Within 3 months from the date of the statutory audit report, the society has to submit a Rectification Report in Form ‘O’.
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knowledge provided by you is very helpful
The information provided by you is very helpfull.Thanking you.
I do not get the circular dated 7th Jan.2005 ,regarding audit classification.
very useful info Our Auditor was requested to inform us the Criteria for A classification which he has not provided Our soc 1st time is given A classification after completition of 25 yrs -Members found some questionable entries in book of A/C -
Is there provision of REVIEW OF AUDIT If yes what's the procedure
An asset which the society DOES NOT POSSESS as on date is sold through a registered agreement, with NO TIME LIMIT for the transaction to be executed. The rate / value of the asset is correct as per the present market rate. The purchaser of the asset is given a free hand to complete the transaction any time in future, at the rate already frozen. The purchaser also is given free hand to deal with the asset at any time in future, in any manner he desires, at the market rate which would be prevalent at that time in future. Is such an agreement legal? How can such agreement be cancelled? Has the society suffered financial loss? How is the financial loss calculated in this case?
Our society's balance sheet was not approved in the AGM as there was mistake in balance sheet and Auditor report was not given by auditor. I want to know in how many days revised balance sheet to be placed in fron of general body in special general body meeting.
Balance sheet and Profit & Loss been audit without treasure signature. Is this audit statement is valid under society act?.