Takeaways from Nepalese Cooperative Audit Directive, 2075 effective 2075/05/07

Ministry of Agriculture, Land Management and Cooperatives issued a directive to better manage and bring quality and consistency in Audit of Cooperatives in Nepal. The government of Nepal approved the directive effective 2075/05/07 i.e. August 23, 2018. This is pretty important given the fact that Nepal Government has recognized co-operatives one of the pillars for country's development. Not only that, per data published by the Department of Co-operatives, almost 6 million Nepalese people are beneficiary of the co-operative with 34,512 registered and employing more than 60,517 people which is pretty significant.

We have tried to present few key takeaways/ highlights of the directive for Nepalese, foreigners and those who are engaged with Cooperatives in one form or another. Hope this article will assist you in compliance and better manage the audit.

1) Furnishing information on Auditor's appointment must be done within 3 days and the following documents must be attached:

• Auditor's Name and Address
• Name and Address of Auditor appointed in three prior years
• Copy of the Certificate of Practice
• Terms of Reference of Audit
• Copy of the Annual General Meeting minute deciding Auditor's fee/remuneration
• Tax clearance certificate of the appointed auditor
• Disclosure certified by Auditor that S/he is not ineligible for appointment as an auditor

Note: Actual Registration date or the date of postal registration will be counted as a submission for the prescribed 3 days.

The directive has also made it clear that Co-operatives can now appoint Alternative Auditor through Annual General Meeting (AGM) to be used only in case the originally appointed auditor is not available for audit.

2) Auditor's Responsibility: Express an opinion on the financial statements maintaining a professional code of ethics, independence, and objectivity while adopting a risk-based audit approach and testing compliance. Besides following the procedure prescribed by Nepal Standards on Auditing, an auditor should review and report compliance with:

• Principle and Values of Cooperative
• Accounting Standards, Accounting Format, Terms and conditions per Section 74.
• Prevailing Cooperative and other laws during the financial transaction
• Funds prescribed by Section 68, 69 and 70 has been created out of the Net savings of the concerned Fiscal Year

The auditor must also ensure the provision of taxes has been done by the Co-operatives which are currently attracting conflicting tax status so that later, such provision can be adjusted when there is clarity.

3) Auditor's Report:

• Preliminary Audit Report must be submitted within 15days of completion of the audit.
• Final Audit Report, reviewed after receiving management feedback must be submitted within 7 days of the Preliminary Audit Report submission to the Co-operative. Same must be endorsed by Annual General Meeting and submitted to concerned regulatory authority within 15 days of endorsement.

Note: For co-operatives having savings over NRs. 50 crore, both preliminary and final audit report shall also be submitted to concerned regulatory authority. 

4) Long Form Audit Report:

Auditor must complete a long form audit report prescribed in Annex-3 format for co-operatives having saving over NRs. 50 crore. It will be auditors responsibility to submit it within 21 days of submission of final audit report. Long Form Audit Report must include:

• Membership detail
• Internal Controls
• Income & Expenditure regularity
• Financial Position
• Compliance
• Audit test subjects

5) Cooperative cannot schedule Annual General Meeting without completion of Audit.

6) Cooperative must publish Auditor's report as part of the Annual Report. For those having savings less than 50 crores, Cooperative must ensure some other means for the availability of auditor's report in case same has not been published.

7) Disclosure: Auditor must disclose if S/he has not received any assistance during the period of an audit or was not furnished documents required for the audit as part of the report.

8) Office bearer of the government institution or member of the parliament or any other government bodies or regulatory authorities shall not be eligible for appointment as an Auditor.