In banking, insurance, mutual fund, stock exchange, peer review system, management audit etc.

1. Contemporary Issues in
Auditing PRESENTED BY
BHAGYA L. B. NARZARY
PADUM CHETRY
RITURAJ BORA

2. AUDIT OF BANKS
Legislation Relevant to Annual Accounts of
Banks
Preparation of Annual Accounts
Signature of Financial Statement
Applicability of the Companies Act, 2013
Format of Balance Sheet

3. AUDIT OF BANKS
Legislation Relevant to Audit of Bank
 Reserve Bank of India Act,1934
 Banking Regulation Act,1949
 State Bank of India Act,1955
 Companies Act, 2013
 State Bank of India (Subsidiary Banks) Act, 1959
 Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970
 Regional Rural Bank Act, 1976

4. AUDIT OF BANKS
Legislation Relevant to Audit of
Bank
 Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980
 Information Technology Act, 2000
 Prevention of Money Laundering Act, 2002
 Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002
 Credit Information Companies (Regulation) Act, 2005
 Payment and Settlement System Act, 2007

5. Approach to Bank Audit
Preliminary Work
Evaluation of Internal Control System
Substantive Testing
Finalisation of Report

6. Procedure for Conducting Bank
Audit
 Evaluation of Internal Control System
 Checking of Advances
 Verify major Items of Assets
i. Physical Verification of Cash Balances
ii. Balance with Reserve Bank of India
iii. Balances with other Banks
iv. Money at Call and Short Notice
v. Ownership of Investment and Valuation of Investment
vi. Loans and Advances
vii. Valuation of Fixed Assets

7. Procedure for Conducting Bank
Audit
 Checking of Liabilities
i. Capital
ii. Deposits
iii. Borrowings
iv. Accrued Interest
v. Provisions
vi. Other Liabilities
vii. Contingent Liabilities
 Verification of Profit and Loss Account
 Making Audit Report

8. Non-Performing Assets
Different Kinds of Credit Facilities
Term Loans
Cash Credits and Overdraft
Bills Purchased and Discounted
Securitisation
Agricultural Advances
Credit Card Accounts

9. Types of Non-Performing
Assets
 Sub- standard Assets
A general provision of 15 % on the total outstanding should
be made without making any allowance for ECGC
guarantee cover and securities available. The ‘unsecured
exposures’ which are identified as substandard would attract
additional provision of 10%, i.e, a total of 25% on the
outstanding balance

10. Types of Non-Performing
Assets
 Loss Assets
Loss assets should be written off. If loss assets are permitted
to remain in the books for any reason, 100 percent of the
outstanding should be provided for.
 Doubtful Assets
100% of the extent to which the advance is not covered by
the realizable value of the security to which the bank has a
valid recourse and the realizable value is estimated on a
realistic basis

11. Long Form Audit Report of Banks
Important aspects
 Internal Control System
 Accounting Policies
 Profitability
 Financial Position
Contents
 Capital
 Liabilities
 Assets
 Profit & Loss Account
 General

12. AUDIT OF INSURANCE COMPANIES
Features of Accounting System of Insurance Companies
 Applicability of Accounting Standards
 Premium
 Premium Deficiency
 Acquisition Cost
 Claims
 Procedure to Determine the Value of Investments
i. Real Estate Investment Property
ii. Debt Securities
iii. Equity Securities and Derivative Instruments that are traded in Active
Markets
 Loans

13. Legislation Relevant to Audit of
General Insurance Company
 Insurance Act, 1938
 General Insurance Business Nationalisation Act, 1972
 Insurance Regulatory and Development Authority Act, 1999
( IRDAAct, 1999)
 Companies Act, 2013

14. Review of Internal Control of
Insurance Companies
Underwriting
Premium
Commission
Reinsurance
Claims

15. Audit Procedure of Insurance
Companies
 Review of Internal Control
 Receipts of Premium
 Verification of Cancelled Policies
 Accounting Treatment of Policies
 Accounting Treatment of Claims
 Payment of Commission
 Income from Investment
 Remuneration of Employees
 Management Expenses

16. Audit Report of Insurance Companies
(Matters as per IRDA)
 Examination of Books of Accounts
(i) Auditor should obtain all the information and explanations which, to the best of their
knowledge and belief were necessary for the purposes of their audit and whether they
have found them satisfactory.
(ii) Auditor should check whether proper books of accounts have been maintained by the
insurer so far as appears from an examination of those books.
(iii) Auditor should examine whether proper returns, audited or unaudited, from branches
and other offices have been received and whether they were adequate for the purpose of
audit.
(iv) Auditor should check whether the Balance Sheet, Revenue Account and Profit and loss
Account dealt with by the report and Receipts and Payments Account are in agreement
with the books of account and return.
(v) Auditor should verify whether the actual valuation of liabilities is duly certified by the
appointed actuary including to the effect that the assumption for such valuation are in
accordance with the guidelines and norms, if any issued by the Authority, and/ or the
Actual Society of India in concurrence with the authority.

17. Audit Report of Insurance
Companies (Matters as per IRDA)
 The auditor shall express their opinion on whether
i. The Balance Sheet
ii. The Revenue Account
iii. The P&LAccount
iv. The Receipts and Payments Account
v. The Financial Statements
vi. The Investments
vii. The Accounting Policies
 The auditor shall further certify that
(i) Management report and Financial statements.
(ii) Conditions of the registration

18. Audit Report of Insurance
Companies (Matters as per IRDA)
 A certificate signed by the auditors
(i) They have verified the cash balances and the securities relating to the
insurer’s loans, reversions and investments.
(ii) To what extent, if any, they have verified the investments and transactions
relating to any trusts undertaken by the insurer as trustee.
(iii) No part of the assets of the policyholder’s fund has been directly or indirectly
applied in contravention of the provisions of the Insurance Act, 1938 relating
to the application and investments of the policyholder’s funds.

19. AUDIT OF CO-OPERATIVE
SOCIETIES
Procedures
 Constitution
 Share Capital
 Cash Receipt
 Loans to Members
 Shares Transfer
 Loan from non-members
 Taxation
 Maintenance of Reserve
 Valuation of Assets and Liabilities
 Investment
 Maintenance of Books and Accounts
 Preparation of Financial Statement
 Disbursement of Loans

20. AUDIT OF MEMBERS OF
STOCK EXCHANGE
 As per the explanation of SEBI (security and exchange
board of India) guideline active member means who has
done business transaction in stock exchange in a single
day or a single transaction.
 No special provision but general rule of audit process for
companies audit will apply.
 Requires to maintain book for the period at least four
years.

21. Details of audit report Members
(i) We have obtained all information and explanation which are required for the
process of audit and to the best of our knowledge and belief.
(ii) In our opinion proper books of accounts are maintained as per requirement of
Rule 15 of securities contract rules, and the same were provided to us for
verification purpose.
(iii) Auditee has complied with the requirement of the stock exchange so far as it
relate to maintenance of books of accounts. The stock broker is regular in
providing all required information to stock exchange regulatory body within
the time limit frame for it.
(iv) Statements of accounts, balance sheet and profit & loss account are reported
with connection of books of accounts maintained.
(v) As per the information and explanation provided to us and according to the
best of our knowledge and belief given balance sheet and profit & loss
account of stock broker give a true and fair view

22. Time limit to complete the
work of Audit
 Completion time period
 Addressed to
 Number of copy to be submitted.

23. AUDIT OF NBFC
• Definition of NBFC
Section 45 I(f) of Reserve Bank of India (Amendment) Act, 1997 defines a non-
banking financial company as:
a. A financial institution which is a company;
b. A non banking institution;
c. Such other non-banking institution or class of such institutions.
• Difference between Banks and NBFC
a. demand deposits
b. payment and settlement system and cheques
c. deposit insurance facility of Deposit Insurance and Credit Guarantee
Corporation (DICGC)

24. AUDIT OF NBFC
• Audit procedure
1. Ascertaining the Business of the
Company
2. Evaluation of Internal Control
System
3. Registration with the RBI
4. NBFC Public Deposit Directions
a. Credit Rating Agencies
b. Interest and brokerage payments
c. Written application from depositors
d. Deposits register
e. Investment with scheduled
commercial banks
f. statement of accounts, auditor’s
report & director’s report
g. Annual returns
h. NBFCs not accepting/holding public
deposits
i. Group Holding Investment
Companies
5. NBFC Prudential Norms Directions
a. income recognition, income from
investments, accounting
standards, accounting for
investments, asset classification,
provisioning for bad and doubtful
debts, capital adequacy norms,
prohibition on granting of loans,
prohibition on loans and
investments for failure to repay
public deposits and norms for
concentration of
credit/investments.
b. policy for the company
c. assess of examinations
d. Non-Performing Assets

25. AUDIT OF MUTUAL FUNDS
• Regulatory Framework
1. Security Exchange Board of India (SEBI)
2. Securities and Exchange Board of India (Mutual Fund) Regulations, 1996
3. Indian Trusts Act, 1882.
• Conduct of Audit of Mutual Funds
1. AMC
2. Verification records maintained for the Fund, the AMC and the Trustee
Company/ board of trustees
3. Forward his report to the trustees
a. A certificate- Balance Sheet and Revenue account in accordance with the Ninth
Schedule
b. The auditors opinion
4. Review of valuation policies and procedures
5. Internal Financial Controls

26. AUDIT OF MUTUAL FUNDS
• Inspection
1. Regulation 61 of SEBI (Mutual Fund Regulations), 1996, SEBI may appoint
one or more persons as inspecting officer.
a. books of account;
b. the provisions of the Act;
c. the systems, procedures and safeguards;
d. violation of the provisions of the Act or any rules or regulations
e. investigation of complaints received
f. conduct of affairs in the interest of the investors or the securities market.
2. Regulation 63, access to the premises and submit a report to the Board.

27. AUDIT OF DEPOSITORIES
• Regulatory Framework
a. The Depositories Act, 1996
b. The SEBI (Depositories and Participants) Regulations, 1996
c. Bye-laws of Depository
d. Business Rules of Depository.
• Documents that required be maintained by Depositories
a. records of securities dematerialised and rematerialised;
b. the names of the transferor, transferee, and the dates of transfer of securities;
c. a register and an index of beneficial owners;
d. details of the holding of the securities of beneficial owners as at end of each year.
e. records of instructions received from and sent to participants, issuers, issuers’ agents and
beneficial owners;
f. records of approval, notice, entry and cancellation or pledge or hypothecation;
g. details of participants;
h. details of securities declared to be eligible for dematerialisation in the depository; and
i. such other records as may be specified by the Board for carrying on the activities as a
depository.

28. AUDIT OF DEPOSITORIES
• Board's right to Inspect (Regulation 59)
1. appoint one or more persons as inspecting officer
2. books of account
3. complaints
4. provisions of the Act, the Depositories, the bye-laws, agreements and
regulations
5. systems, procedures and safeguards
6. conduct of affairs in the interest of the investors or the securities market.
• Notice before Inspection and Investigation (Regulation 60)
1. give not less than 10 days notice
2. an order in writing
3. be bound to discharge his obligation as provided in regulation 61

29. AUDIT OF DEPOSITORIES
• Obligations on Inspection by the
Board (Regulation 61)
1. books, securities, accounts, records
and other documents in its custody
2. reasonable access to the premises and
copies of documents or other
materials
3. examine or to record the statements
of any director, officer or employee
4. all assistance
• Auditors and its power
1. The SEBI has power to appoint an
auditor to inspect or investigate
2. The same powers of the inspecting or
investigating officer as stated in
regulations 59, 60 and 61.
• Return of deposits to be filed with
the Registrar
1. Rule 16 of the Companies (Acceptance
of Deposits) Rules, 2014
2. on or before the 30th day of June of
every year, file with the Registrar
3. a return in the prescribed Form along
with the specified fee and furnishing
the information contained therein as
on 31st day of March of that year
• Inspection Report
1. Executive Summary
2. Observations
3. Checklist
4. Annexure

30. SOCIAL AUDIT
• Definition
‘Social Auditing’ is a process that enables an organization to assess and
demonstrate its social, economic, and environment benefits and limitations.
• Differences between Financial Auditing, Operational Auditing and Social
Auditing
1. Scope
2. Coverage
3. Objective
4. Deals with
• Social Auditing in India
1. Government Scenario- CAG’s Audit and Social Audit
2. Corporate Scenario

31. COST AUDIT
• Definition of Cost Audit (Institute of
Cost and Management Accountants of
England)
1. Verification of cost accounting
records such as the accuracy of
the cost accounts, cost reports,
cost statement, cost data and
costing techniques, and
2. Examination of these records to
ensure that they adhere to the
cost accounting principles, plans,
procedure and objectives.
• Difference between Financial
Audit and Cost Audit
1. Meaning
2. Objective
3. Nature
4. Compulsion
5. Appointment
6. Qualification
7. Report
8. Principles

32. COST AUDIT
• Legal Provisions regarding Cost Audit
Section 148 of the Companies Act, 2013
1. Regulated Sectors
2. Non-regulated Sectors
• Companies (Cost Records and Audit) Rules, 2014
a. Rule-1 Short title and commencement
b. Rule-2 Definitions
c. Rule-3 Application of Cost Records
d. Rule-4 Applicability for Cost Audit
e. Rule-5 Maintenance for Cost Records
f. Rule-6 Cost Audit

33. COST AUDIT
Applicability for maintenance of cost records
Domestic or foreign company
Listed in table of Rules 3
Engaged in production of goods or providing services
Overall turnover from all of its products and services ≥ Rs. 35crore (preceding
financial year)
Regulated Non-regulated
Rule-3 Maintenance of Cost Records

34. COST AUDIT
Applicability of Cost Audit
Regulatory sectors Non-regulatory sectors
Overall annual
turnover during
immediately
preceding financial
year ≥ Rs 50 crore
If revenue from
export (foreign
exchange) ≥
75% of total
revenue
If operating
from
special
economic
zone (SEZ)
Rule-4 shall not
apply, only Rule-3
will apply
Aggregate
turnover of the
individual product
or products or
service or services
≥ Rs. 25 crore
Aggregate turnover
of the individual
product or products
or service or
services ≥ Rs. 35
crore
Require cost audit under Rule-4
If revenue from
export (foreign
exchange) ≥
75% of total
revenue
If operating
from
special
economic
zone (SEZ)
Overall annual
turnover during
immediately
preceding financial
year ≥ Rs 50 crore
Rule-4 Applicability of Cost Audit

35. COST AUDIT
• Appointment and Remuneration of Cost Auditor
1. Audit Committee is required
a. The Board shall appoint an individual, a cost accountant
b. The remunerations recommended by the Audit Committee approved by the BoD and
ratified by shareholders.
2. Audit Committee is not required.
• Qualification, Disqualification, Rights, Duties and Obligations of Cost Auditor
1. cost auditor appointed under Section 148
2. all assistance and facilities
3. report

36. COST AUDIT
• Penal Provision in Case of Default
• Submission of Cost Audit Report
within 30 days
The company and every officer of the company Sub-section (1) of Section 147
The cost auditor of the company Sub-section (2) to (4) of Section 147
Company
Central
Government
Form CRA-4 Companies Rules, 2014

37. PEER REVIEW SYSTEM
• Peer Review System (PRS) is a mechanism of evaluating the professional/audit and
assurance activities/services carried out by a Firm by peers by looking into the
systems and procedures adopted and records maintained while carrying out
professional/audit and assurance activities with the objective to evaluate and suggest
improvements of systems, procedures and quality of reporting.
Peer
Review
PU
Reviewe
r

38. • Objective
(a) comply with Technical, Professional and Ethical Standards as applicable including
compliance of other regulatory provisions and requirements thereto and
(b) have in place proper systems including documentation thereof, to adequately exhibit the
quality of the professional/audit and assurance activities/services.
• Definitions
Peer Review Board –
– Means a Board established by the Council in terms of Guidelines to conduct peer review.
Peer Review Period –
– Means 3 years preceding the year in which the Firm is selected or such other period or any
period as may be prescribed by the Peer Review Board for conducting a Peer Review
Conti….

39. Practice Unit –
– Means a sole practitioner, partnership including LLP or any other entity of professional
Chartered/Cost Accountants, whether practicing individually or a firm of Chartered/ Cost
Accountants.
Regulator –
– Means Government or any regulatory body constituted by the Parliament or State
Legislature who is/are empowered to regulate the acts which include various
professional/audit services which the Council may, from time to time, prescribe to cover as
professional/audit services for the purpose of peer review
Conti….

40. • Authority of the Peer Review System
Conti….

42. Powers of the Council
– To constitute and empower the Board and to fill in the vacancies arising in the Board from time to
time.
– Consideration, review and approval of the overall Peer Review System, including its budget.
– To authorize the Board to formulate and suggest the amendment in the Peer Review System and
mechanisms of Peer Review System and the procedures framed there under including the power of
the board and/ or Reviewer, for approval of the President and submitted to the Council for
ratification.
– To seek information from the Board regarding the peer review status and the details relating Firm as
well as Reviewer.
– To refer such matters to the Board relating to a Firm as the Council may deem fit.
Conti….

43. Peer Review Board
A Peer Review Board shall be formed and empowered by the Council which will formulate, implement
and oversee the Peer Review System under the overall supervision of the Council.
Duties and power of the Board
• To call for information from a Firm in such form as
it deem fit.
• To maintain a panel of Reviewers.
• To define the terms of appointment of the
Reviewers.
• To examine the aspects of basis of selection of
records pertaining to the professional / audit and
assurance services in terms of the appropriate
Technical, professional and ethical Standards.
• To arrange for such training programs for
reviewers as may be deemed appropriate.
• To guide the members on best practices on peer
review.
Conti….

44. The mechanism of Peer Review System
• Selection of Practicing Member to be Peer Reviewed
• Selection and appointment of Reviewer:
• Planning the Review:
• Board --> List of Documents to be submitted
• Executing the Review:
• Adherence to Standards and qualitative aspect
• Reporting:
• Interim and final report
• Issue of Peer Review Certificate:
Conti….

45. FORENSIC AUDIT
• Forensic means “suitable for use in the court of law.” Bologna said that it is the application
of financial skills and investigative mentality to unresolved issues, conducted within the
context of the rules of evidence.
• Significance of Forensic Audit

46. • Techniques and tools of forensic audit
• Benchmarking
• Ratio analysis
• System analysis
• Specialist software- like audit tools for data matching analysis
• Exception reporting –Generating automatic unchangeable reports
that to find out deviation from the norms.

47. DIFFERENCE BETWEEN FINANCIAL AUDIT
AND FORENSIC AUDIT
Objective
Techniques
Accounting period
Dependency on Management
Reports
Adverse findings
Conti….

48. INVESTIGATION MECHANISM
• Step 1 – Accepting the Investigation
– A forensic audit is always assigned to an independent firm/group of investigators in order to
conduct an unbiased and truthful audit and investigation.
– whether or not they have the necessary tools, skills and expertise to go forward with such an
investigation.
• Step 2 – Planning the Investigation
Before planning the investigation, they should be clear on the final categories of the report, which
are as follows-
• Identifying the type of fraud that has been operating, how long it has been operating for,
and how the fraud has been concealed.
• Identifying the fraudster(s) involved.
• Quantifying the financial loss suffered by the client.
• Gathering evidence to be used in court proceedings.
• Providing advice to prevent the recurrence of the fraud.
Conti….

49. • Step 3 – Gathering Evidence
– Testing controls to gather evidence which identifies the weaknesses, which allowed the
fraud to be perpetrated
– Using analytical procedures to compare trends over time or to provide comparatives
between different segments of the business
– Applying computer-assisted audit techniques, for example, to identify the timing and
location of relevant details being altered in the computer system
– Discussions and interviews with employees
– Substantive techniques such as reconciliations, cash counts and reviews of
documentation.
Forensic Data Analysis (FDA)
– The process by which evidence is gathered, summarized and compared with existing
different sets of data.
– Three kinds of expertise
• Data analyst
• Team member with extensive experience
• A forensic scientist
Conti….

50. • Step 4 – Reporting
• Step 5 – Court Proceedings
The auditors are called to Court, and also included in the advocacy process.
Conti….

51. MANAGEMENT AUDIT
Meaning
Independent and systematic evaluation of
the management activities
Scope of Management Audit
• Evaluate the Efficiency of the
Management
• Implementation of Principles and
Policies of the Management.
• Find variances
• Analyze the reasons for variances
• Recommend Suggestions for
Improvement

52. Need and Objectives of Management Audit
• Verifying the efficiency
• Gives Suggestion for increase in
efficiency
• Asses the effectiveness of planning
and policies
• Helps to increase profitability
• Gives valuable advice
Conti….

53. ADVANTAGES OR IMPORTANCE OF
MANAGEMENT AUDIT
• Evaluates efficiency of the management
• Scrutiny of the plans, policies and procedure
• Helps for correction of plans, policies
and procedure (change)
• Aids for decision-making
• Helps to get loan
• Helps to get subsidy
• Helps to increase profitability:
Conti….

54. LIMITATIONS OF MANAGEMENT AUDIT:
• The management audit is audit of the management, by the management and for
the management - may or may not be able to handle the job assigned to them
• The personal aspects cannot be overlooked in such audits.
• May not probe into depth to investigate the matter any further.
• Time and cost constraints may limit the scope, operation and extent of such audits
.
• Conflicting interests, attitude and inclination may jeopardize the entire objective of
the audit.
.
Conti….

55. PROFESSIONAL ETHICS AND CODE OF
CONDUCT
Meaning
The purpose of the Code is to promote an ethical culture in the profession.
Conti….

56. FUNDAMENTAL PRINCIPLES AS PER CODE
OF ETHICS
• Integrity
• Objectivity
• Professional Competence and Due Care - Maintain professional
knowledge and skill
• Confidentiality
• Professional behavior - Comply with relevant laws and regulations
Conti….

57. Threats
Self-interest threats
financial or other interests
Self-review threats
previous judgment needs
to be re-evaluated
Advocacy threats
promotes a position or opinion
Familiarity threats
Too sympathetic to the interests of others
Intimidation threats
Deferred from acting objectively by threats, actual or perceived.
Conti….

58. PROFESSIONAL ACCOUNTANTS IN PUBLIC
PRACTICE
• Fees and Other Types of Remuneration
there may be threats to compliance with
the fundamental principles arising from
the level of fees quoted
• Marketing Professional Services
should not:
Make exaggerated claims for services offers, qualifications possessed
or Make disparaging references to unsubstantiated comparisons to the work of another.
• Custody of Client Assets
Should not assume custody of client money or other assets unless permitted to do so by law
• Non-assurance service
Conti….

59. CONCLUSION