What the Cooperative Audit Should Include

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 cooperative audit should include a review of the balance sheet, income statement and statement of cash flows. The underlying documents supporting the information is given in these financial statements, along with verification of accounts receivable and payable balances with cooperative customers, and a review of the inventory quality, quantity, valuation, records and procedures. The auditor also will verify the existence of recorded securities and review justification for judgment decisions, estimates and review minutes of the board of directors’ meeting for policy changes and instructions to management.

Effective Audit Committees

Members want effective control of finances. The higher the cash inflow, the greater the need for an effective audit committee. An effective audit committee is an essential tool in overseeing the financial health of a cooperative. Some areas of common audit committee oversight include the following partial list:

  • Key areas of business and financial risk
  • Code of ethics at the top
  • Internal controls and systems
  • External audit activity and relationships
  • Periodic financial reporting
  • Internal audit activity
  • Key personal selection for critical financial/control positions

Expanded Role and Responsibilities

Although it does not directly apply to cooperatives, the Sarbanes-Oxley Act must be kept in mind and respected even in the non-corporate arena. The Sarbanes-Oxley Act contains a number of provisions affecting audit committees, including heightened independence standards for audit committee membership, audit oversight, audit committee financial experts, audit independence and auditor communications with audit committees. Basically, it is important to understand that no audit committee member from the board of directors is to have any special business arrangements with the party under audit or the cooperative. Before generating an audit committee, Sarbanes-Oxley should be comprehended and considered. For the full text of this act, refer to: http://cpcaf.aicpa.org/Resources/Sarbanes+Oxley/.

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  • Rural Cooperatives magazine, Rural Development, Business and Cooperative Programs, USDA - This bimonthly magazine contains articles and news items relevant to agricultural and non-agricultural cooperatives. An archive provides access to past issues of the magazine from 1998 to 2011.
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This work is supported by the USDA National Institute of Food and Agriculture, New Technologies for Ag Extension project.