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Important Points and Sample Questions On Audit of Specialized Industries
Important Points and Sample Questions On Audit of Specialized Industries
Definition
Cooperative is “an autonomous and duly registered association of persons, with a common
bond of interest, who have voluntarily joined together to achieve their social, economic, and
cultural needs and aspirations by making equitable contributions to the capital required,
patronizing their products and services and accepting a fair share of the risks and benefits of the
undertaking in accordance with universally accepted cooperative principles.” (Philippine
Cooperative Code of 2008 – RA 9520)
No Allocation of interest on share capital shall be made without the approval of the Board of
Directors
Sec. 10 Withdrawal of Share Capital – for any valid reason withdraw by giving 60-day notice to
the Board of Directors. Withdrawing member shall be entitled to a refund of share capital
contribution and all other interests in the cooperative
Sec. 11 Patronage Refund –minimum of 30% and should not be more than twice the rate of interest
on share capital
Principle of Equity – Net Surplus shall not be construed as profit, but as excess payments
made by them from the cooperative and which shall be deemed to have been returned to
them if the same is distributed as prescribed by the Code and by this Rule
Sec. 12 Accounting Procedure – shall be in accordance with the generally accepted accounting
principles and practices, taking into consideration cooperative principles and practices. The
cooperative shall use the Standard Chart of Accounts and its accompanying Accounting
Manual prescribed by the Authority.
Investments
Deposit Liabilities
Special accommodation such as special interest rates. Too high interest rates given as
accommodations can decrease net income ratio of the cooperatives in order to favor special
members/vips.
Dormant accounts
Compare SL vs. GL balances for potential losses. When SL is bigger than GL, it means you
have to pay more than what is stated in your GL. That is a potential loss.
Loans and Borrowings
Loan must always be in the name of cooperative
Share Capital
1. Which among the following is not a part of practical tips in gathering audit evidence for cash and cash
equivalents?
a. Examining bank reconciliations for abnormal reconciling items
b. Performing cash related transactions cut-off procedures to ascertain completeness
c. Ascertain that cash and cash equivalent balances represent cash balances which can be withdrawn
anytime
d. Physically determining investment papers
D
Examining bank reconciliations for abnormal reconciling items, performing cash related
transactions cut-off procedures to ascertain completeness, and ascertaining that cash and cash
equivalent balances represent cash balances which can be withdrawn anytime are all part of
practical tips in gathering audit evidence for cash and cash equivalents. Physically determining
investment papers on the contrary is related to the audit of investment account which is closely
associated with the process of making sure that these investment papers are in the name of the coop
and are properly authorized by the board and the resolutions properly ratified by a general
assembly.
2. Which among the following is not a part of practical tips in gathering audit evidence for property,
plant and equipment?
a. Conducting ocular inspection of property and equipment
b. Ascertain authorization by the board of directors of the fixed asset sale which should be in arms-
length transactions
c. Proper charging to the statutory funds which should be up to the extent of the depreciation of the
assets
d. Proper treatment of donations
Conducting ocular inspection of property and equipment, ascertain authorization by the board
of directors of the fixed asset sale which should be in arms-length transactions, and proper charging
to the statutory funds which should be up to the extent of the depreciation of the assets are
procedures on gathering audit evidence for property, plant and equipment. On the other hand,
proper treatment of donations is a consideration the auditor must take note with regards to
donations or grants. The proper treatment of donations is always as equity except when there is an
expected return of the donation which in such case should be a liability.
3. All of the following are procedures undertaken to obtain sufficient appropriate audit evidence
regarding inventory except
a. Observe inventory count for existence of ending inventory
b. Securing an ending inventory listing signed counted by the accounting staff/ audit committee
c. Assess ownership of inventory on hand.
d. If not possible to observe, automatically consider the account materially misstated
D
One of the procedures undertaken to obtain sufficient appropriate audit evidence regarding
inventory is the observation of inventory count for existence of ending inventory. This is due to the
risk that the cooperative may place a big ending inventory balance in order for the coop income to
increase, but in reality, ending inventory does not exist, or may have been obsolete or spoiled. This
is in line with the logic that a high balance in ending inventory derives a low cost of goods sold.
When netted with the sales, income is high as compared to a high amount of cost of goods sold
deducted from the same amount of sales. In such case, impairment losses should be recognized.
Only the question (A) “Did they go through the review of Credit Committee?” is relevant in
auditing the Loans and Receivables. This is due to the risk of existence where loans and receivables
may have been given to a different member raising issues of fictitious loans and dosri, unauthorized
extension of loans and the collectability. Concerns on application for an increase in share capital,
classification of deposit for share capital subscription (part of equity) or a liability, and analyzation
of the movements in share capital and withdrawals are significant points for the audit of the
cooperative’s share capital.