BVSS Webinar - 12.04.2020

1. Audit Planning and Documentation (from Peer Reviewer’s point of view)
Speaker:
CA. Shashi Gupta, ICAI Faculty
Discussion Points:
1. BASIC CHALLENGES
2. STANDARDS ON AUDIT – with reference to Bank Branch Audit
3. ICAI Advisory to all Banks / Auditors for Remote Auditing (COVID-19)

2. 1. BASIC CHALLENGES
• Efficient Laptop with Web Cam
• Dedicated Data Stick with sufficient capacity of Data Pack
• Valid DSC
• Email Account
• Smart Phone with Scanning App / Good Camera
• Person (Auditor) to person (Auditee) contact with video camera
• To Exchange of data on email
• Increased risk of compromising on data confidentiality and cyber security - written
detailed standard procedures to all audit staff to ensure that flow of information and
work is happening with minimised information technology risks.
• Skilled / Experienced Audit Staff
• Analysis of data – Analytical Review Procedures – Financial Ratios – Comparison with
Critical values – Significant Variances
• Give running serial number to each observation – send observation – receive comments
– draw conclusions – save record.
• Ensure that data provided is reliable
• Effective System Audit of the Bank Branch
• Scope Limitation in Audit Report (COVID-19) – Appropriate guidelines from ICAI required

3. 2. STANDARDS OF AUDITING
• SA 210 Agreeing the Terms of Audit Engagements:
• Disclosure that bank branch audit is subject to Peer Review.
• SA 230 Documentation:
• Covering all Audit Standards
• SA 250 Consideration of Laws & Regulations:
• Banking Regulation
• RBI Circulars
• GST Provisions
• Income Tax TDS Provisions
• Powers of Branch Manager
• SA 260 - Communication with those charged with governance:
• Audit Requirements
• Auditors Observations & MoC _ Timely sharing with comments
(Proof in writing must)
• SA 315 - Identifying and Assessing the Risk of Material Misstatement
through Understanding the Entity & its Environment:
• CBS System
• Branch Manager Power
• Internal Controls:
• Rotation of Duties
• Joint Custody
• Operation in Inoperative Accounts
• SA 320 Materiality:
• Definition - Misstatements, including omissions, are considered to
be material if they, individually or in the aggregate, could
reasonably be expected to influence the economic decisions of
users taken on the basis of the financial statements
• transactions of a nature not usually undertaken by the
branch
• Circumstances of an exceptional or non–recurring nature
• Debit (Charges) or Credits relating to Prior Years
• Changes in Accounting Policies
• MoC’s ( no small amount )

4. • Matters reported in LFAR
• For Statutory obligations under IT and GST – say any
amount exceeding Rs 100
• SA 500 Audit Evidence:
• Physical Verification:
• Cash, Inward Bills Purchase
• Advances Checked
• MoC – NPA:
• Appraisal Note; Sanction Letter; Ledger Account; Stock
Statements; Audited FS
• SA 505 External Confirmations ( on email or address of Auditor)
• Bank Balance with other banks
• SA 520 Analytical Procedures:
• Comparison of PL / Balance Sheet items
• Ratio Analysis
• SA 530 Sampling:
• All Large accounts. ( Lt. Rs. 2.00 crores or 5% of the Portfolio,
whichever is less )
• Top 10 borrowers by outstanding
• Top 5-10 accounts sanctioned during the year
• Accounts with adverse comments in Concurrent Audit
• Accounts with adverse comments in Last LFAR
• Credit Summations not in correlation with Turnover
• Upgrading of SMA-2 accounts
• List of Irregular accounts in Dec becoming regular in Mar
• Fresh NPAs identified by the Branch
• NPA accounts `upgraded’ to Standard during the year.
• SA 570 Going Concern:
• Substantial operating losses.
• Increasing level of non-performing assets
• High concentration of exposure to certain borrowers or industries
showing credit weakness
• SA 580 Written Representation from Branch Management:
• Provision made in accounts for all known losses and claims of
material amounts.

5. • Provision for non–performing assets, depreciation, provision for
income tax, provision for bonus, gratuity, etc. are made at the
Head Office.
• Financial statements are free of material mis–statements,
including omissions.
• No plans or intentions that may materially affect the carrying
value or classification of assets and liabilities reflected in the
financial statements at amounts other than what stated.
• No irregularities involving management or employees who have a
significant role in the system of internal control that could have a
material effect on the financial statements.
• Branch has not received any notice, show cause, inspection
advice, etc. from Government of India, Reserve Bank of India or
any other monitoring or regulatory authority of India that could
have a material effect on the financial statements of the branch
during the year.
• Reply of management on observations of auditor.
• All Expenses / Losses booked
• Prudential Norms followed (IRAC & Provisioning) including effect
of latest RBI circulars
• No Fraud reported / under knowledge
• All Contingent Liabilities disclosed and none will result in loss
• All returns/reports filed
• SA 700 Auditor’s Report:
• Online Audit Report – Space only for upto 500 words – Physical
report to follow.
• Matters dealt at HO:
• Bonus, Terminal Benefits, Arrears of salary,
• Contractual Obligations
• Interest on Overdue Term Deposits
• Depreciation
• Auditors Fee
• Taxation
• Opinion Para – Read with MoC
• Sufficient & Appropriate `Audit Evidence’ obtained ( SA 500 )
• Reasonable assurance that FS are `free from Material
Misstatement’

6. • `Professional Judgment’ and `Professional Skepticism’:
• In case BG invoked and paid, where amount is debited ?
• For DP – Valuation of stock at Market Price
• For DP – Raw Material received for Job Work, added
• Limit Renewed but no financials on record
• CC Account regularized near balance sheet date with
credits `not’ out of business activity
• Sudden increase in activity in an account
• Entries with no Economic Rational, Relevance
• No Bonafide `reported business purpose’
• Multiple accounts of common holder
• Communication with those charged with governance ( SA 260 )
• Transactions at branch within power of the BM
• Review of Work by Audit Team ( SQC 1)
• UDIN – Two – Tax Audit and Branch Auditors Report
• SA 701 Key Audit Matters ( KAM ):
• Identification of NPA through CBS
• Classification & Prov. through another Application
• Judgment required in estimating provisions
• All depend on data punched in the system
• Limitation aspect on the basis of BC letters on record ( in case of
Term Loan)
• SA 705 Modification in AR:
• MoC
• SA 706 Emphasis of Matter:
• Issues highlighted in LFAR (other than those for which need MoC)
• SQC 1 :
• Ethical Responsibilities ( CA Act )
• CA Act:
• NoC - First Sch., Part 1, Clause 8
• Does not exercise Due Diligence or Grossly
Negligent ( Sec. Schd, Part 1, Cl 7 )
• Fails to obtain Sufficient Information ( Sec. Schd,
Prt 1, Cl 8 )
• Independence - Acceptance of Unusual Hospitality

7. • KYC:
• Understanding the Entity & its Environment ( SA
315 )
• Consideration of Laws & Regulations ( SA 250 )
• Significant Accounting Policies – Pr Published FS
• Branch Orientation - Depositors and Borrowers
• Human Resources
• Engagement Performance
• Monitoring

8. 3. ICAI Advisory
4.
ICAI has issued an advisory for the Bank Branch Auditors for initiating
the process of Statutory Bank Branch Audit remotely to ensure timely
and effective Bank Audit. (15.04.2020)
ILLUSTRATIVE COMMUNICATION SUGGESTED BY PDC, ICAI
3.1 Preliminary records required for verification, which can be shared with us either by
way of email or remote access to cloud data
a) GL / PL / Trial Balance as on 31.03.2019, 30.06.2019, 30.09.2019, 31.12.2019 and 31.03.2020;
b) Advances and Deposits as on 31.03.2019, 30.06.2019, 30.09.2019, 31.12.2019 and 31.03.2020;
c) Status of the web-based (and manual) returns and certifications which are compiled and ready
for audit at your end and copies of the same, including annexure s LFAR, Tax Audit Report, etc.
d) Broad composition of Advances (Commercial & Industrial, Personal segment in terms of no.
of accounts and amount outstanding)
e) Details of the accounts above Rs. 2 crores of exposure;
f) No. of new accounts sanctioned during the financial year 2019-20 (data required is no. of
accounts and amount sanctioned and details of new accounts sanctioned / renewed or enhancement
in limits for accounts. The data should be provided separately for accounts with exposures below
Rs. 2 crores and with exposures above Rs. 2 crores);
g) Jotting of new advances accounts sanctioned, renewed, enhanced during the financial year 2019-
20;
h) Details of all the Exceptional Reports generated through CBS system;
i) NPA report of 2018-19 and 2019-20;
j) Advances report 2018-19 &2019-20
k) List of accounts wherein the deferment of installments / Interest is availed by the borrowers as
per COVID-19 Regulatory package declared by RBI vide its circular dated March 27, 2020
l) List of accounts wherein the MSME Relief was granted vide RBI circular dated January 01,
2019 and Februar y 11, 2020

9. m) SMA reporting all quarter end 30.06.2019, 30.09.2019, 31.12.2019 and 31.03.2020
n) Last year statutory audit report and LFAR
o) Concurrent Audit Reports 2 months along with pending compliances as at March-end
p) Internal audit report (last 2) along with pending compliances as at March-end
q) Forex and other audit reports
r) BG balancing report
s) LC Balancing Report
t) Bill Balancing Report
u) Balance Sheet and P & L / Trial Balance generated from system
v) GL report from 23rd March till 4th April (for the purpose of review of unusual transactions )
w) Status of Contingent Liabilities as per last financials as well as current year contingent liabilities
x) Details of Suits Filed with current status
y) Details of Fraud if any detected and reported
z) Prevention of Money Laundering Act, 2002 (PMLA):
• Cash Transactions Reporting (CTR)
• Counterfeit Currency Reporting (CCR)
• Suspicious Transaction Reporting
aa ) RBI Annual Financial Inspection (AFI) Observation w.r.t. branch
bb) In case of Forex transactions:
1. Export bills outstanding more than one-year report
2. Export Advance outstanding more than one year
3. Import Advance outstanding more than one year
4. Outstanding merchant trading transact ions and it's status
5. Outstanding Bills of Exchange (BOE) more than one year
3.2 We will require following basic documents ready when our audit team visits the branch:

10. a) Last two Statutory Audit reports (FY: 2017-18 and 2018-19) along with all annexure,
certificates, Tax Audit Report and LFAR along with compliance report thereof
b) Following reports for the audits conducted during the FY: 2019 -20:
a. Concurrent Audit Reports
b. Internal Inspect ion Report
c. Credit Audit Reports
d. Stock Audit Reports
e. RBI Inspect ion Reports
f. Revenue Audit Reports
g. IS / IT / EDP / System Audit Reports
h. Special Audit / Inspect ion Reports
In case if any of the above audit / inspection is not conducted during the FY: 2019-20, kindly make
the last report w.r.t. the same available ;
c) Files (includes document file) of new loans (Above Rs. 2 crores) and enhancements in old loan
accounts with total exposure above Rs. 2 crores
d) Credit Information System (CIS) Data of Feb’20 and Mar’20
e) Statement of Income and Expenditure, Balance Sheet as at March 31, 2020
f) Statement of Depreciation along with vouchers related to additions / deletions including transfer
of assets, if any
g) Movement of NPA and NPA Statement along with the documents supporting security value of
the NPA Accounts
h) Capital Adequacy Returns along with the supporting related to ratings of accounts
i) Details of Letters of Comforts which are outstanding as on March 31, 2020 and details of Letters
of Comforts issued and settled during the financial year along with relevant documents executed
by the customer with bank and details of payment of principal and interest component on Buyer’s
Credit
j) Details of Accounts restructured during the financial year 2019-20 along with working of
sacrifice
k) List of Accounts, if any, wherein the bank is holding any security issued by the borrower in
Treasury Department of the bank and status of the said security (PA / NPA)

11. l) System generated Overdue Report of borrowers as at 31.03.2019, 30.06.2019, 30.09.2019,
31.12.2019 and 31.03.2020 duly authenticated
m) Details of Adjusting Entries passed for yearly closing of 31.03.20 20
n) System generated NPA marking report (specifying the accounts which are considered as NPA
by the automated NPA marking mechanism) as at 31.03.2019, 30.06.2019, 30.09.2019, 31.12.2019
and 31.03.2020
o) System-generated CIS related Audit Trail related only to (i) revocation of NPA status, (ii)
changes made in limit master, (iii) changes made in date of expiry of loan for the period
01.03.201 9 to 31.03.2020
p) Details of Overdue Time Deposits , if any
q) Details of inoperative (dormant) accounts with details of date from which the account is
marked as dormant
r) If the branch has been designated for gold demonetization scheme, the details of the gold
demonetized
Name of the officer of the bank nominated by the branch for compiling the above-mentioned
requirements related to annual audit
THANK YOU