This presentation would be helpful if you are seeking information regarding Statutory Bank Branch Audit under Banking Regulations Act, India.
This presentation was delivered by me at Institute of Chartered Accountants of India's program in our town during April 2014.
2. ELIGIBILITY OF BRANCH FOR
AUDIT
Total advances greater than `20.00 Cr
Branches with advances less than ` 20.00 Cr:
1/5th of such branches covering rural/semi-urban/urban and
metropolitan branches.
branches which are not subjected to concurrent audit
To cover 90% of total advances of bank
Where such branch is subject to concurrent audit, the Concurrent
Auditors will submit LFAR and other certificates.
3. APPOINTMENT OF SBA
ICAI prepares list of eligible firms as per RBI guidelines
RBI scrutinizes the above list for:
Identifying continued and rested firms
Excluding firms which have adverse remarks/disciplinary action pending against them.
Excluding firms who have been denied audit.
RBI forwards final list to PSBs
PSB will select required no. of firms.
One firm One PSB policy
Audit firm will give their consent in writing which would be irrevocable.
Maximum Tenure of SBA is 4 years.
4. LIST OF DOCUMENTS OF BANK
AUDIT
Bank closing set:
It contains Balance Sheet, Profit & Loss A/c and other annexures.
Audit Report
Statutory Audit Report
Compliance Certificate
Form 3CA
Form 3CD
Long Form Audit Report (LFAR)
Memorandum of Changes
Report on Ghosh and Jilani committee recommendations
Other Certificates
5. AUDIT PLANNING
Proper allocation of work among Audit Team should be done for smooth
performance of Audit.
A checklist of work to be done should be made with time frame, which
should be specifically adhered to.
Review latest available inspection report and concurrent audit report of
branch.
Review closing circular issued by HO
Study business Mix of branch to decide the sample size and mix.
Study of significant policies of the branch and computer system.
Study the previous year’s Statutory Audit Report and LFAR
Ask for ‘Stress List’ from Branch
Give special importance to clients whose names are in Stress List, or
which are highlighted in Concurrent Audit Report.
Keep a note of points you come across during audit, which are relevant
for LFAR.
6. STATUTORY AUDIT REPORT
It contains the following Paragharhs:
Report on Financial Statements
Management’s Responsibility for the Financial Statements
Auditor’s Responsibility
Opinion
Report on other Legal and Regulatory Requirements.
It is enclosed with a Certificate of Compliance of guidelines of Reserve
Bank of India on Income recognition and Asset qualification.
It is addressed to the Statutory Central Auditors
7. TAX AUDIT REPORT
Tax Audit Report is done under section 44AB of the IT Act
Form 3CA
Form 3CD
Annexure Part – A
All the annexure of Form 3CD are to be enclosed, even if they are NIL.
8. LONG FORM AUDOT REPORT
A questionnaire formulated by RBI.
To be filled by auditor after discussing the points with Branch Head.
It is advisable to cover LFAR and audit program simultaneously. This would
enable auditor to consider effect of matters on LFAR and audit report.
Format of LFAR form may be found online easily.
9. AUDIT ASPECT OF ITEMS OF
BALANCE SHEET
ADVANCES:
Check if proper documentation is done while sanctioning of loans.
Check income recognition, Asset classification and Provisioning for the advances.
An asset is said to Non Performing if:
Interest and/or Instalment remain overdue for more than 90 days.
If the account continuously remains in excess of sanctioned limit/drawing power.
No credit in account continuously for 90 days, or credits is not enough to cover the interest
debited during the period.
The instalment or interest remains overdue for 2 crop season for short duration crops.
The instalment or interest remains overdue for 1 crop season for long duration crops.
If credit facility is not renewed within 180 days from the due date.
Drawings are allowed against stock/book debt statement which are older than 180 days.
Income Recognition Policy:
Income recognition from NPA is to be based on recovery.
If an account turns NPA, branch should reverse the interest already charged and not Collected,
Such interest to be recorded in Dummy Legder.
10. Analysis of entries outstanding in:
Suspense Account
Sundry Debtors
Sundry Creditors
Sundry Deposits.
Check for addition/deletion of assets.
Check for balances held with other banks with certificate of closing
balance from respective banks.
Check provisioning of expenses as on cut-off date.
Deposits
Contingent Liabilities
Whether cash in Balance sheet tallies with physical Cash Book.
AUDIT ASPECT OF ITEMS OF
BALANCE SHEET
11. Check whether all income are properly accounted for.
Check if income on NPAs is not recognized.
Check if Bank has charges Penal interests on default cases.
Verify receipt of Locker Rent
Vouch for expenses.
Check if expenses are grouped in proper headings.
Check whether TDS is deducted on expenses as per applicable sections
and deposited to the credit of government.
Check items of ‘Misc Expenses’.
Whether Reverse Charge on Service Tax has been created?
AUDIT ASPECT OF ITEMS OF
PROFIT & LOSS
12. MEMORANDUM OF CHANGES
FORMAT
There should be clear justification for every change suggested by auditor
Debit and Credit side of MoC must tally.
Total of reclassification of assets should be brought out in MoC
For NO CHANGE, NIL MoC should be filed.
No. Dr Cr
In respect of Income & expenditure Yes/No xx xx
In respect of Balance Sheet Items Yes/No xx xx
In respect of classification of advances Yes/No xx xx
In respect of closing return where the effect to
be given is within the return itself other than
Income & Expenditure and Balance Sheet
Yes/No xx xx
13. Physical verification of cash on date of Audit. Also check if cash holding of
branch is within retention limit specified by HO.
Verify KYC Compliance of Bank.
Check whether any expense exceeding Rs 20000.00 is paid in cash. Get a
certificate for 40A(3) Compliance.
Physical verification of stationery and confirmation of balance as per CBS.
Obtain Management Representation Letter from Bank
Obtain Man-Days Certificate from Bank