The Auditor's Responsibilities Related to Reports to Members (1996)

    This document has been made available in electronic format
         by the International Co-operative Alliance ICA 
                         December, 1996

          (Source: Review of International Co-operation
                    Vol.89, No.4/1996, pp.25-26)

               The Auditors' Responsibilities Related to
                         Reports to Members

                        by Andreas Nicolaisen*

It is a great pleasure and honour for me to have this opportunity
to address you on this topic. This issue is very simple, and, at
the same time, very complicated. Simple because the message from
the auditors is very much like the message we get in Walt Disney's
Christmas programs. It is the same message from all of us
(Auditors) to all of you (Members) in all companies
(co-operatives and limited companies), all over the world. 

You will be convinced by looking in the ICA-annual accounts in
front of you. The auditors' opinions are equal to what you find
as a statement in your local co-operatives.

It is complicated because this standardized message is the only
communication to the members from the auditors of the

Let us put the problem into a question, How is it possible for
the members to get more value out of the auditor and his work?
- and his fee? 

I want to illustrate some key concepts and key facts about the
auditor, his election, his work, and his reporting activities.

The auditing concept is based on the fact that a company's
financial reporting system is a matter of responsibility for the
management. The following statement is internationally accepted.

Financial reporting should provide information that is useful to
present and potential members in making rational decisions. This
information should be comprehensible to those who have a
reasonable understanding of business and economic activities and
are willing to study the information with reasonable diligence.

The auditor is responsible for making his independent opinion and
put it on the company's Annual Account. His election, the
engagement of a possible internal auditor, the external auditor's
opinion (EA) on the management's annual account, and the external
auditor's reporting by management letter to the board of
directors can be illustrated as follows.

Members Annual Meeting
It is very important to distinguish between the auditor's work
as the elected auditor and his consultancy work. The statutory
auditing work is based on international guidelines for
professional auditors and the result is an opinion placed on the
annual account, and a management letter to the board of
directors, pointing out some essential malfunctioning
management control systems or even irregularities. But nothing
about the management's performance or its ability in running the

Of course, it is obvious that the auditor's know-how can be
useful to the management and therefore the management is often
seen giving the auditor a lot of consultancy work. In most
countries combining these matters is allowed but caution must be
taken. It is important to make specified agreements about the
purpose, the dimension and perhaps the fee.

Auditor's Role
The external Auditor is independent, professional and competent.
His position is one of confidentiality and he, therefore, cannot
answer questions directly from the members. If a company has an
internal audit department we can illustrate the auditor's
different communication levels.

My first conclusion about the auditor's reports to members is
that the members only get a world wide - standardized opinion
once a year.

Please discuss in your own company the help you can get from the
auditors in your organization, suitable to your company. I can
recommend the use of Audit groups or committees. It is important
for you to get use of the auditor's know-how.

Let the auditor together with a few members of the board - for
example, twice a year - discuss details in management control

We are discussing Corporate Governance & Management Control
Systems and it must be on the agenda in every co-operative
company at least once a year. 

The board/the management shall always be aware of the problem.

"Is our company in good shape for the future?" Because of the
changing world we have to move the co-operative companies. Will
the company meet the members' needs in an appropriate way?

Moving the Company
"Corporate Governance is a moving activity". In moving the
company you need a factual BASIS and VISIONS. If you want it you
can make a useful agreement with the auditor eventually in
co-operation with an audit committee to secure that your decision
about the future is based on reliable economic facts. It is up
to the members to force the board of directors to use the
auditors in a useful way.

* Mr. Nicolaisen is the Managing Director of RVT Auditing
Company, Denmark.