DISBURSEMENT

The Expenditure Process

 Those activities/systems that acquire goods, services, labour and property; pay for them; and classify, summarise and report
what was acquired and what was paid.
 ensuring that suppliers are stable, reliable and able to provide the appropriate
 goods/services on time, at the right price and to the required quality;
 the requisitioning of goods, services, corporate assets and labour;
 receiving, securely storing and correctly accounting for goods;
 all the activities associated with accounts payable (e.g. matching orders to suppliers’ invoices and confirming the accuracy of
pricing, etc.);
 recruiting and correctly paying staff;
 ensuring that all taxes due are correctly calculated and disbursed;
 ensuring that all the related accounting records are accurate, up to date and complete.
The Production/Conversion Process
 the utilization and management of various resources (inventory stock, labour, etc.) in the process of creating the goods and
services to be marketed by the organization.
 include accountability for the movement and usage of resources up to the point of supply which is then dealt within the
revenue cycle.
 Conversion cycle activities include product accounting/costing, manufacturing control, and stock management.

The Treasury Process

This process is fundamentally concerned with those activities relating to the organization's capital funds, such as:
 the definition of the cash requirements and cash flow management;
 allocation of available cash to the various operations;
 investment planning;
 the outflow of cash to investors and creditors (i.e. dividends).

Audit of Insurance Companies

Risk and Uncertainty in Insurance Industry

Risk
 endemic to life and business and something that risk-averse individuals and firms have good reason to manage.
 a condition in which more than one outcome is possible.

Uncertainty
 perception of risk, which may or may not correspond closelyto reality.
 situations in which the possibility of one or more negative outcomes may or may not occur.

Peril
 an event that causes a loss

Examples
 hostile fires,
 earthquakes,
 Windstorms; and
 premature death

Pure Risk and Speculative Risk

Pure Risk

 involves no chance of economic gain and uncertainty about whether a financial loss will occur and possibly how much that
financial loss will be.

Example:

 chance of damage to one’s home from a fire or storm is an example of a pure risk

Speculative Risk
 involves the chance of gain or loss and, in theory, is not insurable.

Example
 Gambling

Principles Underlying Risk

1. Indemnity
 insureds should not profit from a covered loss but should be restored to no better than their financial position prior to the loss.
 objective is to ensure that insureds do not gain financially from losses and, in turn, reduce moral hazard.
 If insureds could profit from insurance coverage of a loss, they would have an incentive to cause losses and a disincentive to
take precautions to avoid losses.
 Most property and liability contracts are contracts of indemnity.

 Losses in such contracts are typically settled on the basis of actual cash value (i.e., replacement cost less depreciation) or fair
market value.

2. insurable interest
 the insured must suffer some form of loss or harm if the insured event occurs.
 The nature of the loss or harm could be financial or psychological, as in the case of the death of a family member.
 is necessary to prevent gambling, reduce moral hazard and measure the insured loss.

Industry Growth, Consolidation and Financial Risk

 The emergence of fewer, larger insurers presents advantages and disadvantages for regulation.
 less efficient and weaker insurers are culled from the market, regulators will be responsible for monitoring a smaller group of
more robust insurers.
 insurers, presumably, will require less oversight with respect to preventing simple management errors and will have more
capital to sustain short-term fluctuations in operating results.
 insurers may still be highly leveraged and are likely to have more complex financial structures.
 events suggest, even large, “well established” insurers may engage in questionable transactions and accounting practices that
could potentially harm the interests of their policyholders.
 the risk of financial impairment and insolvency will still be present with higher potential losses because of insurers’ greater size.
 even just poor performance and erosion of capacity could have a negative effect on the supply of insurance.
 Hence, regulators may wish to increase the depth and sophistication of their monitoring activities, with an emphasis on
assessing the overall financial risk of a company and uncovering major accounting misstatements, rather than seeking to
enforce detailed rules governing every transaction and investment.
 This risk-based approach is more akin to the “prudential solvency regulation” model employed in some foreign countries with
more concentrated markets.

Types of Insurance Where Insurance Audits Applies

 Property insurance that can be of stock, buildings, reserves, home.

 Liability Insurance such as employer’s liability, public liability, professional indemnity, environmental liability, product liability,
etc.
 Business Interruption as well as employee embezzlement insurance.
 Insurances related to the theft of money and property.
 Transit Insurance that includes sea, air, or land.
 Life Insurances such as Permanent Insurance, Term Insurance, etc.
 Health Insurance that is individual or group insurance.
 Employees benefit Insurance Plan that includes life, accident, and health.
 Pension Insurance that includes individual or group pension insurance.
 Vehicle Insurance consisting of individual and vehicle fleet.

Role of Insurance Auditors in Insurance Audit

 The Central and Branch Auditors of an insurance company is appointed at the Annual General Meeting of the Company.
 Before making the appointment an appointment from the Comptroller and Auditor General must be received.
 The insurers as per the guidelines of the Insurance Act, 1938, and the Companies Act, 2013 must comply with the provisions
with regard to the appointment of auditors.
 As per the recommendation of the Audit Committee, the board appoints the statutory auditors, subject to the shareholder's
approval at the general meeting of the Indian Insurance Company.
 The appointment of branch auditors is made to conduct the audit of the divisions having the same rights and obligations as per
the statute. The branch auditors submit their report to the statutory auditors.
 However, at the division level, the branch auditors certify the Trial balance and incorporate the financial statements of the
branches under the divisions.

 The insurer does not have the power to remove the statutory auditor without taking the approval of the authority.
 An audit firm cannot audits of more than three insurers (Life insurance or Health Insurance or Reinsurer or Non-Life Insurance)
at a time.
 They made an appointment that can be canceled if it is found that the appointment of auditors by the insurers is not as per the
proposed guidelines.

What are the Essential Points Checked in a Profit & Loss Account During Insurance Audit?
The essential points to look in Profit and Loss Account while conducting insurance Audit are as follows:
Verification of Premium

 In a separate bank account, the premium collections are credited. No withdrawals are generally permitted from that
account for the purpose of a general expenditure.
 As prescribed in the policy of insurance company, the collections are transferred to the Regional Office or Head office.
 According to Section 64VB of the Insurance Act, 1938, the insurer shall assume no risk without the receipt of premium.
 It is of utmost importance to an auditor to verify a premium because the insurance premium is collected upon issuing
policies.
 It is a consideration for bearing the risk of the insurance company.

The auditor shall apply the below-mentioned procedures:

 Before starting the verification of premium income, the auditor must look into the internal controls and compliance, which
is laid down for the collection and recording of premiums.
 The cover notes must be numbered serially.
 The auditor needs to check if the premium registers are maintained chronologically, providing complete details including
GST charged according to the acceptance advice daily.
 The auditor must verify if they figured the premium amount mentioned in the register tally with those shown in General
Ledger.
 The auditor will also verify that the installments that are due on or before the balance sheet date has been received or not,
have been accounted as premium income for the year under audit.

Verification of Claims

The auditor from each division or branch must obtain the information for all classes of business.

The auditor shall determine the total number of documents that is to be checked, providing due importance to claims of higher
value.
The claim account gets debited with all the payments that include the repair charges, survey fees, photograph charges etc. The
auditor shall verify:

 Check the provision for unsettled claims.

 Check if the provision is made for such claims for which the company is legally liable.
 Check if the provision that is made is not more than the insured amount.
 Check the Co-insurance arrangements; the company has made provisions with respect to its own share of anticipated
liability.

Verification of Commission

The remuneration paid to an agent is made through commission. The remuneration amount is calculated by applying a percentage
to the premium collected by the agent.

The commission is paid to the agents for the business procured, and it is then debited to commission on Direct Business Account.
Insurance agents usually solicit the insurance business. The auditor shall verify:

 Voucher disbursement entries with regard to the disbursement vouchers with the copies of commission bills and
statements.
 Check if the vouchers are authorized by the officers-in-charge as per the rules and also income tax is deducted at source.
 Check the amount of commission allowed.
 Check the accounting period of commission.

Verification of Operating Expenses

The auditor must check the following operating expenses:

 Expenses that are more than Rs. 5 lakhs or 1% of the net premium, whichever is higher. This must be shown separately.
 Expenses that are not directly related to insurance business must be shown separately, for example, costs made in the
investment department or bank charges etc.,

What Is Checked During Insurance Audit in the Company Balance Sheet?

The essential points considered during an insurance audit in the Balance Sheet of Company are as follows:

Investments

The auditor must follow the following prescribed provisions with regard to the investments of the Insurance Act, 1938, at the
time of the inspection of the investments of the insurance company:

 An insurance company can invest only in approved securities. However, it can also invest in securities other than approved
securities if the following conditions are satisfied:

a) The investments made must not exceed 25% of the total investments made.
b) The investment must be made with the consent of the board of directors.

 An insurer must not invest in shares or debentures of an insurance or investment company over least of the following:

a) 10% of its own total calculated assets.

b) 2% of the subscribed share capital or debentures of the investee.

 An insurance company must not invest in the shares or debentures of a company other than an insurance or investment
company above at least the following:

a) 10% of its own total calculated assets.

b) 10% of the subscribed share capital or debentures of the investee.

 An insurance company is not allowed to invest in the shares and debentures of a private company.
 The insurance companies are not permitted to invest in funds of their policyholders outside India.

Cash and Bank Balances

 The auditor shall during insurance audit prepare Bank reconciliation statements.
 The auditor must obtain the confirmation of Bank Balances for all the operative and inoperative accounts.
 The auditor shall physically verify the Term Deposit Receipts that is issued by the bankers. Generally, it is all cash that is
deposited as term deposit with the bank at year-end.
 The auditor shall verify the deposits and withdrawal transactions and also check if the account is operated by authorized
persons only.
 In case of funds, that is in transit, and the auditor must verify that the same is appropriately reflected in a reconciliation
statement.

Outstanding Premium and Agents’ Balance

The audit procedures that may be followed in an agent’s balance are as follows:

 Verify whether the agent's balances, as well as outstanding balances in the outstanding premium account, have been listed,
analyzed, and reconciled for the purpose of audit.
 Verify whether the recoveries of large and outstanding deposits have been made post-audit period.
 Check if there are any old outstanding debts or credit balances at the year-end which need adjustment. A written
explanation that is obtained from the management must be done.
 Check the agent’s balances that do not include employees’ balances as well as balances of other insurance companies.
 Verify that there is no credit of commission is given to agents for businesses.

What are the Legislations or Guidelines of Regulators for Performing Insurance Audit?

There are several Legislations with regard to life insurance and general insurance companies. The essential statutory provisions
relevant to the audit of life insurance companies are mentioned in the following acts and rules.
  The Insurance Act 1938
 The Insurance Rules 1939
 The Income Tax Act of 1961
 The Companies Act 2013
 The Life Insurance Corporation Act 1956.
 In the case of General insurance, in addition to the above mention, there shall be the applicability of Employees State
Insurance Act 1948.
 Along with the acts and rules, there are guidelines for Corporate Governance for the insurers in India. The regulator IRDAI
had issued Guidelines on Corporate Governance for the insurance companies on 5th August 2009 which have been
amended in 2016.

Why is the Audit Committee Mandatory for Insurance Audit?

According to the guidelines, insurance companies must form the following mandatory committees such as:

 Audit Committee,
 Investment Committee,
 Risk Management Committee,
 Policyholders Protection Committee,
 Nomination and Remuneration Committee,
 Corporate Social Responsibility Committee,
 Profits Committee.

The purpose of the audit committee for the purpose of an insurance audit is explained below:

 Every insurer must constitute an Audit Committee according to Section 177 of the Companies Act, 2013.
 The committee shall look at the financial statements, statements of cash flow, financial reporting both on an annual and
quarterly basis.
 The Chairperson of the Audit Committee shall be an Independent Director of the Board with an accounting or finance or
audit experience and maybe a Chartered Accountant or a person with a strong financial analysis background.
 The association of the CEO in the Audit Committee must be limited to occasions where the Audit Committee requires
eliciting any specific information concerning audit findings.
 As required under Section 177 of the Companies Act, 2013, the Audit Committee shall comprise of a minimum of three
directors, the majority of whom shall be Independent Directors.
 The Audit Committee will oversee the efficient functioning of the internal audit department and review its reports.
 The committee will additionally monitor the progress made in the rectification of irregularities and changes in processes
wherever deficiencies have come to notice.
 The Audit Committee shall have the oversight on the procedures and processes established to look after the issues relating
to maintenance of books of account, administration procedures, transactions, and other matters having a bearing on the
financial position of the insurer, whether raised by the auditors or by any other person.
 The Audit Committee shall discuss with the statutory auditors before the audit commences, about the nature and scope of
audit as well as have post-audit discussions to address areas of concern.

How will Enterslice Help You in Insurance Audit?

Our professionals in Enterslice will provide you with Insurance audit services in the following ways:

 During the audit process, we test the internal control system. We will also assess its effectiveness and offer a set of
measures for upgrading it that will help in detecting the potential errors.
 In the accounting system, the insurance company will provide some adjustments to the accounting reports for significant
deviations from the current laws.
 We will give recommendations after analyzing the tax system and the fairness tax base to avoid tax sanctions.
 During the detailed analysis of financial activity, measures are offered for increasing the effectiveness and to use internal
reserves for managerial decisions.

What is insurance auditing?

An insurance audit is a proper way of determining how much risk the insurer is insured over the past year. The company can have undergone a drastic change over

that whole year your policy was in effect.

How do you audit insurance premiums?

The auditor shall check if the figures of premium mentioned in the register tally with those in General Ledger. The auditor will verify whether installments falling due

on or before the balance sheet date, either received or not, have been accounted for as premium income as for the year under audit.

Who appoints auditor of the insurance company?

The provisions of the companies Act 2013 applies for the appointment of an auditor. The auditor of an insurance company is generally appointed at the annual

general meeting of the company, and the approval of the authority is required before making the appointment.

How do you audit a claim?

The claim is audited in the following ways:

• Determine the criteria for defining errors.

• Choose a sampling method.

• Identify the time period to sample.

• Choose the number of claims to review.

• Identify the critical data sources.

• Review documentation and assess findings.

• Perform a 'reverse' audit.

• Quantify findings.

How would you conduct the audit of the insurance company?

Audit of insurance companies involves conducting an independent examination of books of accounts to evaluate their accuracy.

When will the audit be done?

Within 90 days after the expiration dates of the policy period so that any premium adjustments may be processed into your premium billing cycle. The auditor will

notify you by mail or telephone shortly after the policy expiration date to schedule a convenient time for the audit.

What is a car insurance audit?

The insurance audit is a process typical to the insurance industry. An audit is an examination of your operation, records and books of account to discover your actual

insurance exposure, including premium basis, classifications and rates that apply, for a specific period coverage was provided.
ACCREDITATION OF EXTERNAL AUDITORS
FOR COOPERATIVES

Accreditation
 the act of giving official authorization or approval to a qualified auditor to conduct financial audit to cooperatives.

COOPERATIVE DEVELOPMENT AUTHORITY or CDA

 government agency granting juridical personality to cooperatives, herein referred to as the
Authority

AUDITING FIRM
 refers to either the partners of a firm providing audit services or a sole practitioner providing audit services, as appropriate.

AUDITOR-IN-CHARGE
 Team leader of the audit engagement.

COOPERATIVE EXTERNAL AUDITOR

 an independent Certified Public Accountant (CPA) accredited by the CDA, whose relationship to the client is to express an
opinion on the financial statements. He/she may be the signing partner in an auditing firm or a sole practitioner.

FRAUD
 intentional act by one or more individuals among management, employees, or third parties that result in a misrepresentation
of financial statements. It may involve:

– Manipulation, falsification or alteration of records or documents.

– Misappropriation of assets.
– Suppression or omission of the effects of transactions from records or documents.
– Recording of transactions without substance.
– Intentional misapplication of accounting policies.
– Omission of material information
– And any other instance/factor which may be classified as fraud.

PARTNER
 refers to all members of a partnership or an audit firm but not necessarily conducting audit to cooperatives.

PARTNERSHIP
 a professional partnership engaged in the practice of public accountancy duly registered with the Securities and Exchange
Commission. [Art 1, Sec 1(g), Board of Accountancy Resolution No. 69, Series of 2003]

AUDIT ENGAGEMENT LETTER

 a letter that informs the cooperative of an upcoming audit. It details the audit objectives, the timeline, and the audit team
members. It also covers the pre-audit meeting, expected deliverables, and the audit team’s mission.

Application Requirements for Initial Accreditation

1. For Individual CPA

i. Letter application (Annex 1.1)
ii. Profile of the Applicant with attached 2 x 2 colored ID picture; (Annex 2.1)
iii. Valid Professional Regulation Commission Identification Card (PRC ID);
iv. Valid Certificate of Accreditation with the Professional Regulation Commission – Board of
Accountancy (PRC-BOA);
v. Current Professional Tax Receipt (PTR) issued by the local government;
vi. Valid Certificate of Membership in Good Standing with the Philippine Institute of Certified Public Accountants (PICPA); or
Certification of Life Sustaining Membership issued by the PICPA
vii. Certificate of Attendance to training equivalent to a minimum of 24 hours of required training as provided in Section 4 of this
Guidelines; and
viii. Other documents that may be required by the CDA in case of inconsistencies in the submitted documents.

Application Requirements for Renewal of Accreditation

 Interested party must accomplish the following documents and file application for renewal directly to the CDA EO where such
CPA/Partnership/Auditing Firm is based:
1. For Individual CPA
i. Application letter (Annex 1.3)
ii. Updated profile of the applicant with updated 2 x 2 colored ID picture (Annex 2.1)
iii. Valid PRC ID;
iv. Valid Certificate of Accreditation with the PRC-BOA;
v. Current PTR issued by the local government;
vi. Valid Certificate of Membership in Good Standing with PICPA or its Chapter;
vii. Certificate of Training equivalent to 24 hours of required training for renewal as provided in Section 4 of this Guidelines;
viii. Previous Certificate of Accreditation issued by the CDA;
ix. List of cooperative-clients and years audited (Annex 3.1)
x. Sworn statement by the cooperative external auditor that she/he has engaged in Cooperative External Audit or Preparation of
financial statement to at least one (1) micro cooperative that is free of charge as part of his/her social responsibility, duly
supported with Certification from cooperatives that received such services; and
xi. Sworn statement by the Cooperative External Auditor that he/she has observed the conditions prescribed under Sec. 9 of these
guidelines.

2. For partnership/Firm

i. Letter application (Annex 1.4);

ii. Updated profile of the audit firm (Annex 2.2);
iii. Updated profile of the individual signing partners with updated 2 x 2 colored ID picture (Annex 2.3);
iv. SEC Registration Certificate;
v. Articles of partnership and/or its amendment;
vi. Partnership’s valid Certificate of Accreditation with the PRC BOA;
vii. Current PTR of signing partners;
viii. Certificate of Membership in Good Standing with PICPA of the signing partners;
ix. Certificate of Training of signing partners equivalent to 24 hours of required training for renewal as provided in
Section 4 of this Guidelines;
x. Latest Certificate of Accreditation issued by the CDA;
xi. List of cooperative-clients and years audited (Annex 3.1)
xii. Sworn statement by the cooperative external auditor that she/he has engaged in Cooperative External Audit or Preparation of
financial statement to at least one (1) micro cooperative that is free of charge as part of his/her social responsibility, duly
supported with Certification from cooperatives that received such services; and
xiii. Sworn statement that the partnership/firm has observed the conditions prescribed under Section 9 of this Guidelines.

 requirements for accreditation either for initial or renewal, shall be submitted in complete set with presentation of ORIGINAL
COPIES, for authentication. Otherwise, applications will not be accepted/processed.

Training Requirements
 minimum of 24 hours of training both for initial and renewal.
 trainings shall be conducted by the PICPA in coordination with CDA in accordance with the prescribed training course
 training attended by the CPA is valid for five (5) years from the date of issue of the Certificate of Attendance to Training
 Certificate of Training for renewal can only be used once by the applicant

Accrediting Body
 approved by the CDA Board of Administrators (CDA-BOA) upon recommendation of the CRITD/IDD of the CDA-CO through the
Executive Director.

Accreditation Validity
 accreditation of external auditor shall be valid for a period of three (3) years from the date of issue

Renewal of Accreditation
 renewal of their accreditation within three (3) months prior to the expiration.

Accreditation Fees
For Initial

Individual – Two Thousand Pesos (P2, 000.00)

Partnership or Firm – Five Thousand Pesos (P5, 000.00)

For Renewal

Individual – One Thousand Pesos (P1, 000.00).

Partnership or Firm – Three Thousand Pesos (P3, 000.00)

For Re-application

Individual – Two Thousand Pesos (P2, 000.00).

Partnership or Firm – Five Thousand Pesos (P5, 000.00)

In case of denial/non-approval of application, any fees paid shall be non-refundable.

Audit Coverage

 Accredited cooperative external auditors may accept audit engagement from cooperatives in different regions and are not be
limited to the region where he/she applied for accreditation.

Conditions for Engagement of an External Auditor

a) No external auditor may be engaged/qualified in the audit of a cooperative and any of its subsidiary if he/she or any member of
his/her immediate family had or has committed to acquire any direct or indirect financial interest in the cooperative, or if his/her
independence is considered impaired under the circumstances specified in the Code of Professional Ethics for Certified Public
Accountants.

 In the case of a partnership, this limitation shall apply to all the partners, associates, and the auditor-in-charge of the
engagement and members of their immediate family up to 3rd degree of consanguinity or affinity.

b) The external auditor and the members of the audit team do not have/shall not have outstanding loans or any credit
accommodations with the cooperative at the time of signing of the engagement and during the engagement. In the case of
partnership, this prohibition shall apply to all the partners and the auditor-in-charge of the engagement.

c) The external auditor must not be currently engaged nor was engaged during the past 3 years in providing the following services to
the Cooperative:

i. Internal audit functions;

ii. Information systems design, implementation, and assessment; and
iii. Such other services, which could affect his/her independence as, may be determined by
the CDA.

d) The external auditor, auditor-in-charge, and members of the audit team must adhere to the highest standards of professional
conduct and shall carry out services in accordance with relevant ethical, auditing and reporting standards, such as the Code of
Professional Ethics for Certified Public Accountants; Philippine Standards on Auditing (PSA); and the Philippine Financial Reporting
Framework for Cooperatives

e) For the immediate past three years, the external auditor must not have held a position relevant to the conduct of audit such as,
but not limited to, Chief Executive Officer, Chief Financial Officer, Comptroller, Accountant, Bookkeeper, Audit Committee, etc;

f) For the immediate past three years, the external auditor must not have been a member/officer of the cooperative or
employee/officer of a federation/union to which the cooperative being audited is affiliated;

g) The external auditor must not be related to any officer and employee of the cooperative up to the fourth degree of consanguinity
or affinity; and
h) The external auditor, whether on his/her individual capacity or as partner of a firm, may undertake the external audit of the
concerned cooperative for five (5) consecutive years, provided that the external auditor may be allowed to audit the same client
after a rest period or cooling off of two (2) years. Provided further that in case of the firm/partnership, rotation among the signing
partners is not allowed.

Reportorial Requirements

a) The External Auditor shall prepare the audited financial statements in accordance with Philippine Financial Reporting Framework
(PFRF) for Cooperatives taking into consideration cooperative laws, rules and regulations. At the minimum, the report shall meet the
following requirements:

a.1) Standard presentation of the audited financial statements with comparative figures of the
immediately preceding year, which will include the following:

– Auditors’ Report
– Statements of Financial Condition
– Statements of Operations
– Statements of Cash Flows
– Statements of Changes in Equity (to include changes in Statutory Funds)
– Notes to Financial Statements

a.2) Statement of Management Responsibility

a.3) Statement of representation of the external auditor to the Authority
a.4) Audit findings and recommendations
a.5) Ratios using Cooperative Financial Standards (STEPS/PESOS)

b) Disclosure of external auditor’s adverse findings

b.1. To enable timely and appropriate remedial action, the external auditor must report to the CDA EOs
where the cooperative being audited is registered, within thirty (30) calendar days after discovery, the
following cases:

b.1.1. Any material findings involving fraud or dishonesty including cases that were resolved during the
period of audit;

b.1.2. Any potential losses the aggregate of which amounts to at least five percent (5%) of the total asset;
and

b.1.3. Insufficiency of the cooperative’s assets to cover claims of creditors.

b.2. The external auditor shall report directly to the CDA EO where the cooperative

b.2. The external auditor shall report directly to the CDA EO where the cooperative being audited
is registered, within fifteen (15) calendar days after the occurrence of the following:

b.2.1. Termination or resignation as external auditor, prior to the completion of audit engagement,
and stating the reason thereof;
b.2.2. Discovery of a material breach of cooperative laws or these rules and regulations such as,
but not limited to;
b.2.2.1. Net worth to risk assets ratio; Loans and other risk assets review and classification using
portfolio at risk; and
b.2.2.2. Findings on matters of cooperative governance that may require urgent action by the
Authority.

b.3. The external auditor shall inform and/or discuss with the management of the cooperative
details of the adverse findings with the corresponding corrective measures.

Signing of Audit Report done by an Audit firm/Partnership

 For financial audit conducted by an Accredited Audit firm/partnership, only the partner/s of the audit firm/partnership who
have attended the training requirements and have submitted the necessary documents to the CDA shall sign the audit report of
the cooperatives to ensure that the requirement of the Authority on financial audit of cooperatives are substantially complied
with.

Working Paper Retention

 accredited external auditor shall maintain the audit working paper for a minimum period of
seven (7) years.

Updating of Records
 Records of the Accredited Cooperative External Auditors submitted to the CDA shall be valid/updated at all times. In case the
effectivity/validity of these records have lapsed, the cooperative external auditor must submit the valid documents to update
his/her records to the CDA. Failure to do so shall prompt the CDA to suspend/invalidate his/her accreditation.

Grounds for Non Approval of Renewal

1. Non-conduct of audit service or preparation of financial statement to at least one (1) micro cooperative
free of charge as part of his/her social responsibility;

2. Non-observance of the five (5) year limitation of audit engagement to a particular cooperative as
provided in Section 9 of this Guidelines and further clarified in MC 2014-02;

3. Conduct of audit with invalid accreditation with CDA and PRC BOA, and with expired PRC ID;

4. Failure to adopt of the Standard Chart of Accounts, Philippine Financial Reporting Framework for
Cooperatives and other standards for cooperatives; and

5. Non-disclosure of adverse findings to cooperatives as provided in Section 10 (b) of this Guidelines.

 The External Auditors who have committed the above violations may re-apply for accreditation after a period of three (3) years
following the initial accreditation process.

Revocation/Cancellation of Accreditation

1. Misrepresentation of Financial Statements which are used by the cooperatives in

fraudulent acts;

2. Allowing the use of Accreditation number by any unauthorized external auditor; and

3. Other acts analogous to the foregoing.

 The procedures for revocation/cancellation of accreditation shall be in accordance with the rules of procedure to be
promulgated by the Authority.
 An external auditor who found to have committed the above mentioned violations which resulted to the detriment of the
cooperatives shall be barred from conducting audit to cooperatives.

Six Ubiquitous Processes

 The Revenue Process

 The Expenditure Process
 The Production/Conversion Process
 The Treasury Process
 The Financial Reporting Process
 The Corporate Framework Process

The Revenue Process

 Related to those activities that exchange the organisation’s products and services for cash
 credit granting;
 processing orders;
 delivery and shipping;
 billing to customers;
 maintaining accurate and reliable inventory records;
 the activities associated with accounts receivable;
 bad debt (including pursuing debtors and writing off balances);
 reflecting the related transactions correctly in the accounting systems.