Audit Features

Cooperatives March 08, 2011 Print Friendly and PDF


Authors: Phil Kenkel, Oklahoma State University, phil.kenkel@okstate.edu, and Bill Fitzwater,
Oklahoma State University


The term "audit" refers to actions that can be either internal or external in nature. The internal auditing function of a business is performed by an internal auditor to determine conformity in record keeping and operations with predetermined standards, such as inventory valuation, appropriate issuance of transportation contracts, etc. While this is an important function for cooperative businesses, in this article, we are concerned with the external audit function.


The audit consists of:

  1. A review of the balance sheet, income statement and statement of cash flows
  2. A review of the underlying documents supporting the information given in these financial statements
  3. Verification of accounts receivable and payable balances with cooperative customers
  4. A review of inventory quality, quantity, valuation, records and procedures
  5. Verifying the existence of recorded securities
  6. Reviewing justification for judgment decisions and estimates
  7. Sampling accounting records
  8. Reviewing minutes of the board of directors' meetings for policy changes and instructions to management


Recommendations from other cooperatives in the region should be helpful in the selection process.


Some characteristics of auditors that should be considered when making a selection include:

  • Professional competence
  • Ability to maintain independence and a high degree of integrity
  • Understanding of cooperative law, philosophy and methods
  • Familiarity with cooperative accounting practices and the industry in which the cooperative operates
  • Ability to develop and conduct an efficient audit program
  • Ability to communicate with the board and management
  • Ability to provide competent suggestions for improving financial accounting practices
  • Understanding the responsibility of their reporting directly to the board
  • Willingness to correct any oversights occurring during the audit program

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This work is supported by the USDA National Institute of Food and Agriculture, New Technologies for Ag Extension project.