1.15 Query
Amendment in the profit and loss account and the balance sheet after they are signed by the internal auditors but before they are issued to any third party
1.A Co-operative society registered under the Maharashtra Co-operative Societies Act, 1960, is involved in the business of procuring the oilseeds through the member co-operative societies from the farmers, convert the oilseeds to oil and sell the same in the open market as well as to the member societies. The society also purchases the donated oil from the National Dairy Development Board and sells it in the open market. It also deals in fertilizers.
2.The querist’s firm has been appointed as internal auditors by the society by their letter dated February 12, 1985. The auditors accordingly audited the accounts of the society for year ending 31st October, 1985 and signed the profit and loss account and the balance-sheet on August 9, 1986. The report on the above is yet to be given.
3.The said society now proposes certain adjustments/changes in the profit and loss account and balance-sheet for the year. The proposed adjustment is to transfer the profit on purchase and sale of donated oil from N.D.D.B. to the Project Development Fund. The querist is of the view that the said adjustment would considerably affect the profit and loss account and the balance-sheet.
4.The society has offered to give an indemnity in writing that the said profit and loss account and the balance sheet have not been published yet and submitted at any level.
5.Taking into consideration the facts and circumstances of the query, the querist has sought the opinion of the Expert Advisory Committee as to whether the internal auditors can sign the profit and loss account and the balance sheet after incorporating the proposed adjustments and whether the fact of the previous certification should be mentioned in the audit report.
Opinion June 18, 1987
1. The Committee is of the view that the company is within its powers to amend its profit and loss account and balance sheet before they are released for use by a third party or adopted in general body meeting. The Committee is further of the view that the amended profit and loss account and the balance sheet are in substitution of the profit and loss account and the balance sheet signed by the internal auditors before amendment and unless all copies of the original accounts are returned to the internal auditor, such substitution is not possible. The Committee is therefore of the opinion that the internal auditors can sign the amended profit and loss account and the balance sheet after satisfying themselves that all copies of the original accounts have been obtained by them from the company. If this is done, no disclosure is necessary of the fact of earlier certification in their report or in the notes to the accounts. However, in case the internal auditors are not satisfied in this regard, they may insist on including the facts of the said amendment by way of a note to the accounts, particularly where the profit and loss account and the balance sheet are to be published, inter alia, under the internal auditors’ signatures. If the company does not agree to include the appropriate note to the accounts, the internal auditors may refuse to sign the accounts.
2.The Committee does not offer any opinion on the appropriateness of the method of accounting as indicated in para 3 of the query since it has not been raised by the querist. The querist will, therefore, have to apply his own mind in this regard. ____________________________ |