## Audit of Multi-State Cooperative Society (MSCS)
Governed by the Multi-State Cooperative Societies Act, 2002.
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### Qualification of Auditor
- Only a Chartered Accountant within the meaning of the Chartered Accountants Act, 1949.
- (Stricter than ordinary cooperative societies where diploma holders may qualify.)
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### Disqualifications
The following persons are NOT eligible for appointment as auditor of an MSCS:
| Disqualification | Description |
|---|---|
| Body corporate | Any corporate entity |
| Officer/employee | An officer or employee of the MSCS |
| Member/employment-linked | A person who is a member of the MSCS, or in the employment of an officer or employee of the MSCS |
| Debtor/guarantor | A person indebted to the MSCS, or who has given a guarantee/security exceeding Rs. 1,000 |
> If an auditor becomes subject to a disqualification after appointment, they are deemed to have vacated office.
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### Appointment of Auditors
| First Auditor | Subsequent Auditor | |
|---|---|---|
| Appointed by | Board of Directors | MSCS in General Meeting (AGM) |
| When | Within 1 month of registration | At each AGM |
| Tenure | Until conclusion of first AGM | Until conclusion of next AGM |
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### Powers and Duties of the Auditor
- Right to access books and vouchers, whether kept at head office or elsewhere.
- Require officers/employees to provide information and explanations necessary for audit.
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### Mandatory Inquiries under Section 73(2)
The auditor shall make the following inquiries:
1. Whether loans and advances on the basis of security are properly secured and whether terms are not prejudicial to the interest of the MSCS.
2. Whether transactions represented merely as book entries are not prejudicial to the interest of the MSCS.
3. Whether personal expenses have been charged to revenue account.
4. If shares have been allotted for cash — whether cash was actually received, and if no cash was received, whether the position as stated in the books and Balance Sheet is correct, regular, and not misleading.
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### Contents of the Auditor's Report
The auditor's report must state whether the financial statements show a true and fair view.
Specifically, the report must state:
| Reporting Requirement | What to State |
|---|---|
| Information & Explanation | Whether all information and explanations necessary for audit were obtained |
| Books of Account | Whether proper books of account have been kept and proper returns received from branches not visited |
| Branch Audit Reports | Whether branch office audit reports by other auditors were forwarded to the principal auditor and how they were dealt with |
| Agreement with Books | Whether the BS and P&L are in agreement with the books of account |
> Items (iii) and (iv) above — if answered negatively — require reasons in the audit report.
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### Special Audit of MSCS
Trigger conditions (any one of the following):
1. Affairs not managed in accordance with prudent commercial practices or cooperative/sound business principles.
2. Managed in a way that would cause injury to the interest of trade, industry, or business.
3. Financial position is such as would endanger its insolvency.
Process:
- CG may at any time by order direct that a special audit be conducted for specified period(s).
- CG may appoint a CA or the existing auditor of the MSCS.
- CG shall order special audit only if the government or State Government(s) together hold 51% or more of the paid-up share capital.
- Special auditor has the same powers and duties as the regular auditor.
- Special auditor reports to the Central Government (not to members).
- Expenses of special audit are determined by CG and paid by the MSCS.
Action by CG after receipt of special audit report:
- CG may take action on receipt of the report.
- If CG does not take action within 4 months, it must:
- Send a copy of (or relevant extracts from) the report with its comments to the MSCS, and
- Require the MSCS to circulate it to members OR have it read before the next general meeting.