Audit Programme is prepared before the actual auditing procedure starts. it is essential for Auditors. There are numerous things that need to be considered while making an audit programme.
Internal Audit is a tool of control to measure and evaluate the effectiveness of the working of an organization primarily with accounting, financial and operational matters.
Internal Audit plays a constructive role by rendering service to the management with objective appraisal of systems, procedures, practices, compliance with policies.
LetzConsult presents a smarter ways for companies to find the most relevant Consultant for their business needs. Find the right consultants for your Company on LetzConsult.com
Audit Programme is prepared before the actual auditing procedure starts. it is essential for Auditors. There are numerous things that need to be considered while making an audit programme.
Internal Audit is a tool of control to measure and evaluate the effectiveness of the working of an organization primarily with accounting, financial and operational matters.
Internal Audit plays a constructive role by rendering service to the management with objective appraisal of systems, procedures, practices, compliance with policies.
LetzConsult presents a smarter ways for companies to find the most relevant Consultant for their business needs. Find the right consultants for your Company on LetzConsult.com
Large Bank Borrowers - Are they willful defaultersNeha Sharma
The RBI advisory for mandatory provisions of Non-Performing Assets and inclusion of most of the top borrowers in the list of 150 groups covering lakhs of crores of borrowings has brought to surface a very major issue.
RBI GUIDELINES: GUIDELINES FOR COMPROMISE SETTLEMENT OF DUES OF BANKS AND FIN...GK Dutta
As you are aware, the Indian Banks’ Association (IBA) has been issuing guidelines to member institutions for taking up of cases for settlement through Lok Adalats. The position
was reviewed and it was observed that banks have not taken adequate advantage of the Lok Adalats for compromise settlement of their NPAs. There are certain advantages in using the forum of Lok Adalats by banks and financial institutions in compromise settlement of their NPAs. There are no court fees involved when fresh disputes are referred to it. It can take cognizance of any existing suit in the court as well as look into and adjudicate upon fresh disputes. If no settlement is arrived at, the parties can continue with court proceedings. Its decrees have legal status and are binding. It has, therefore, been decided that with a view to making increasing use of the forum of Lok
Adalats to settle banking disputes involving smaller amounts, banks and financial institutions should follow the following guidelines for implementation.
The Reserve Bank of India had recently directed to Public Sector Banks as well as Private Sector Banks to downgrade the asset classification of more than 150 borrower accounts, based upon Asset Quality review, to Non- Performing Assets (NPAs). The exposure of banking sector to such borrower accounts was in the range of ` 1,50,000 Crores to ` 2,00,000 Crores.
This article tells you about how the Audit to Enterprises of all sizes is an important aspect.
With essential features of auditor like independence,
professional skepticism, documentation skills, and continuous knowledge up-gradation any
Chartered Accountant can make a name for himself in the field of the Audit profession.
Thinking of getting a dog? Be aware that breeds like Pit Bulls, Rottweilers, and German Shepherds can be loyal and dangerous. Proper training and socialization are crucial to preventing aggressive behaviors. Ensure safety by understanding their needs and always supervising interactions. Stay safe, and enjoy your furry friends!
This slide is special for master students (MIBS & MIFB) in UUM. Also useful for readers who are interested in the topic of contemporary Islamic banking.
Read| The latest issue of The Challenger is here! We are thrilled to announce that our school paper has qualified for the NATIONAL SCHOOLS PRESS CONFERENCE (NSPC) 2024. Thank you for your unwavering support and trust. Dive into the stories that made us stand out!
Safalta Digital marketing institute in Noida, provide complete applications that encompass a huge range of virtual advertising and marketing additives, which includes search engine optimization, virtual communication advertising, pay-per-click on marketing, content material advertising, internet analytics, and greater. These university courses are designed for students who possess a comprehensive understanding of virtual marketing strategies and attributes.Safalta Digital Marketing Institute in Noida is a first choice for young individuals or students who are looking to start their careers in the field of digital advertising. The institute gives specialized courses designed and certification.
for beginners, providing thorough training in areas such as SEO, digital communication marketing, and PPC training in Noida. After finishing the program, students receive the certifications recognised by top different universitie, setting a strong foundation for a successful career in digital marketing.
MATATAG CURRICULUM: ASSESSING THE READINESS OF ELEM. PUBLIC SCHOOL TEACHERS I...NelTorrente
In this research, it concludes that while the readiness of teachers in Caloocan City to implement the MATATAG Curriculum is generally positive, targeted efforts in professional development, resource distribution, support networks, and comprehensive preparation can address the existing gaps and ensure successful curriculum implementation.
Macroeconomics- Movie Location
This will be used as part of your Personal Professional Portfolio once graded.
Objective:
Prepare a presentation or a paper using research, basic comparative analysis, data organization and application of economic information. You will make an informed assessment of an economic climate outside of the United States to accomplish an entertainment industry objective.
A review of the growth of the Israel Genealogy Research Association Database Collection for the last 12 months. Our collection is now passed the 3 million mark and still growing. See which archives have contributed the most. See the different types of records we have, and which years have had records added. You can also see what we have for the future.
Introduction to AI for Nonprofits with Tapp NetworkTechSoup
Dive into the world of AI! Experts Jon Hill and Tareq Monaur will guide you through AI's role in enhancing nonprofit websites and basic marketing strategies, making it easy to understand and apply.
Delivering Micro-Credentials in Technical and Vocational Education and TrainingAG2 Design
Explore how micro-credentials are transforming Technical and Vocational Education and Training (TVET) with this comprehensive slide deck. Discover what micro-credentials are, their importance in TVET, the advantages they offer, and the insights from industry experts. Additionally, learn about the top software applications available for creating and managing micro-credentials. This presentation also includes valuable resources and a discussion on the future of these specialised certifications.
For more detailed information on delivering micro-credentials in TVET, visit this https://tvettrainer.com/delivering-micro-credentials-in-tvet/
A Strategic Approach: GenAI in EducationPeter Windle
Artificial Intelligence (AI) technologies such as Generative AI, Image Generators and Large Language Models have had a dramatic impact on teaching, learning and assessment over the past 18 months. The most immediate threat AI posed was to Academic Integrity with Higher Education Institutes (HEIs) focusing their efforts on combating the use of GenAI in assessment. Guidelines were developed for staff and students, policies put in place too. Innovative educators have forged paths in the use of Generative AI for teaching, learning and assessments leading to pockets of transformation springing up across HEIs, often with little or no top-down guidance, support or direction.
This Gasta posits a strategic approach to integrating AI into HEIs to prepare staff, students and the curriculum for an evolving world and workplace. We will highlight the advantages of working with these technologies beyond the realm of teaching, learning and assessment by considering prompt engineering skills, industry impact, curriculum changes, and the need for staff upskilling. In contrast, not engaging strategically with Generative AI poses risks, including falling behind peers, missed opportunities and failing to ensure our graduates remain employable. The rapid evolution of AI technologies necessitates a proactive and strategic approach if we are to remain relevant.
The simplified electron and muon model, Oscillating Spacetime: The Foundation...RitikBhardwaj56
Discover the Simplified Electron and Muon Model: A New Wave-Based Approach to Understanding Particles delves into a groundbreaking theory that presents electrons and muons as rotating soliton waves within oscillating spacetime. Geared towards students, researchers, and science buffs, this book breaks down complex ideas into simple explanations. It covers topics such as electron waves, temporal dynamics, and the implications of this model on particle physics. With clear illustrations and easy-to-follow explanations, readers will gain a new outlook on the universe's fundamental nature.
How to Add Chatter in the odoo 17 ERP ModuleCeline George
In Odoo, the chatter is like a chat tool that helps you work together on records. You can leave notes and track things, making it easier to talk with your team and partners. Inside chatter, all communication history, activity, and changes will be displayed.
1. 1
INTRODUCTON
This project is to view the task perform by an auditor while
conducting the audit of bank deposit and loans & advances. It
explains the role played by different types of auditor, effect of Non-
Performing Asset on the asset of a bank. The auditor needs to be
familiarizing with the direction of RBI affecting the sanctioning and
disbursement of advances. The auditor has to ensure that documents
are executed as per the terms of sanction. The auditor examine the
procedure for review of advances laid down by the authorities bas
been complied with or not. Basel II Recommendations affecting the
capital adequacy norms advocated by the year, which perhaps is the
beneficial fall-out from the tightening of the prudential norms. The
auditing not only provide true and fair value but it also helps us to
financial position and internal control system of a bank
2. 2
It is well known that Banking is such a unique industry that
persons from all walks of involved with Banks in any relation whether
as an operational banker, trainer, auditor or even a support service
person such as a security printer and even a hardware and software
supplier make Banking their only sphere of activity for their full life
in the constant endeavor to master in their for this Industry. In India
various types of audit are normally carried out in banking companies
such audit are statutory audit, revenue/income expenditure audit,
concurrent audit, computer and system audit etc.
the above audit is mainly conducted by the banks own staff or
external auditors. However, the rules and the regulation relating to the
conduct of various types of audit or inspection differ from a bank to
bank except the statutory audit for which the RBI guidelines is
applicable for that.
In this project I give more important on the concurrent and computer
audit and its internal controls in the banks today’s scenario. Today
audit is form in the various organizations it is basically form for
investor because investor investing decision is depend on that
particular concept if auditor has expressing his view about particular
organization is true and fair that investor has get idea about how much
should invest in particular securities or not. In public sector banks
multiple firms including central auditors and branch auditors
generally conduct the audit.
3. 3
In case of private sector banks and foreign banks, a single firm due to
centralised database conducts the audit. Consequently, the
responsibilities of auditors in such banks are much wide
4. 4
TYPES OF AUDITS:
It is well known that no any day of the year, there will be at least one
auditor working in the bank branch. The following are the popular
types of audits conducted in a bank branch. The titles may be
modified in some banks especially for Internal Audit and system
Audit but the content remains the same.
I. Statutory Audit:
This is an annual audit determined by statute and done
normally at the end of the financial year while some of the larger
branches are similarly audited half yearly. A bank’s statutory audit is
essentially a balance sheet audit including the Long Audit Report
though there is no scope restriction of the statutory auditor to perform
certain actions of other auditors as part of his duty or if some findings
lead him into the domain of the auditors such as Revenue, inspector
and even concurrent. The statutory auditor performs the following
functions.
Verifies the classification of items of the Balance Sheet to assure their
correct placement Basel II accord, which has influenced the
prudential norms, has included the statutory auditor as an active
member to assure the proper execution of the prevailing prudential
norms. The direct result of an accurate classification is the
appropriateness of income recognition and thus the effect on the
profitability of the Bank.
II. Concurrent Audit:
In the beginning of the 1990’s, the Great Banking Scam
or the Harshad Mehta Scam rocked the nation. This brought into
limelight special category of audit called concurrent audit or
continuous audit. This stemmed from the need of filling in the gap
between the annual statutory audits and the intervening period
between two inspections, which is a period sufficiently large to cause
damage to the Bank. Now, RBI who insisted that at least 50% of the
business of the Bank should be covered under concurrent controlled
the spotlight of the concurrent audit. While some Banks covered very
large branches under the umbrella of concurrent audit. Some banks
took the excurse for improvement by including weak branches though
5. 5
having low volume of business. Concurrent audit in one sentence will
mean checking yesterday’s transactions today. Let us see the broad
areas covered by the Concurrent Auditor.
A. Revenue Aspects:
1. Interest earned and service charges earned by the Bank
2. Interest Paid
3. All charges paid like cancellation charges, compensation under
Court Directive etc.
B. Expenditure:
1. Salary payments
2. Branch expenses like printing and stationary, temporary
employees etc.
3. Rent of premises etc.
C. Documentation and other aspects of advances department:
1. Documentation correctness of ALL new advances granted
during the period
2. Validity of all old advances to ensure that they are not time
barred.
3. Currency of insurance cover of stock machinery etc.
4. Whether the inspections of units and stock have been carried out
at the pre-set intervals.
D. Administrative and other aspects:
1. Correctness of attendance and leave records
2. Cash Department working including security aspects with
periodic surprise inspection by the auditor
3. Stock check at regular intervals of all security documents like
Blank chequebooks, Demand Drafts, Pay orders, Pass Books etc.
III. RBI Audit:
The Central Bank of the country also sends its own auditors
to the Banks for their own inspection. Their actions cannot be covered
in this project because it is more of a supervisory implementation of a
Government Policy existing from time to time. The primary aim of
this audit is as follows.
6. 6
Overall assessment of the assets and liabilities of the Bank, whether
its financial position is satisfactory, whether it is in position to pay its
depositors in full as and when their claims accure, and in the event of
loss, whether it has sufficient cushion of owned funds to safeguard the
interests of depositors.
Soundness of Bank’s policies and procedures and effectiveness of the
management to safeguard point No.1 mentioned above as also
whether they are on approved lines and in conformity with socio-
economic objectives.
Principal Enactments Governing Bank Audit:
♦ Banking Regulation Act, 1949
♦ State Bank of India Act, 1955
♦ Companies Act, 1956
♦ State Bank of India (Subsidiary Banks) Act, 1959
♦ Banking Companies (Acquisition and Transfer of Undertakings)
Act, 1970
♦ Regional Rural Banks Act, 1976
♦ Banking Companies (Acquisition and Transfer of Undertakings)
Act, 1980
♦ Information Technology Act, 2000
♦ Prevention of Money Laundering Act, 2002
7. 7
♦ Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002
♦ Credit Information Companies Regulation Act, 2005
♦ Payment and Settlement Systems Act, 2007
8. 8
STAGES IN AUDITING
1)Preliminary work:
a) The auditor should acquire knowledge of the regulatory
environmentin which the bank operates.Thus,the auditor should famili
arizehimself with the relevant provisions of applicable laws and
ascertain the scope of his duties and responsibilities in accordance
with such laws. He should be well acquainted with the provisions of
the Banking Regulation act, 1956 in the case of audit of a banking
company as far as they relate of preparation and presentation of
financial statements and their audit.
b)
The auditor should also acquire knowledge of the economicenvironm
ent in which the bank operates. Similarly, the auditor needs to acquire
good working knowledge of the services offered by the bank. In
acquiring such knowledge, the auditor needs to be aware of the many
variation in the basic deposit, loan and treasury services that are
offered and continue to be developed by banks in response to
market conditions. To do so, the auditor
needs to understand thenature of services rendered through instrumen
ts such as letters of credit, acceptances, forward contracts and other
similar instruments.
c)
The auditor should also obtain and understanding of the nature of boo
ks and records maintained and the terminology used by the bank to
describe various types of transaction and operations. In case of joint
auditors, it would be preferable that the auditor also obtains a general
understanding of the books and records, etc, relating to the work of
the other auditors, In addition to the above, the auditor should
undertake the following:
I.Obtaining internal audit reports, inspection reports, inspectionr
eports and concurrent audit reports pertaining to the bank/branch.
II. Obtaining the latest report of revenue or income and
expenditure audits, where available.
In the case of branch auditors, obtaining the report given by the
outgoing branch manager to the incoming branch in the case
9. 9
of change in incumbent at the branch during the year under audit,
to the extent the same is relevant for the audit.
d) RBI has introduced and offsite surveillance system for
commercial banks on various aspects of operations including
solvency,
liquidity,asset quality, earnings, performance, insider trading etc., and
hasindicated that such reports shall be submitted at periodic intervals
from the year commencing 1-04-1995.It will be appropriate to be
familiar with the reports submitted and to review them to the event
that they are relevant for the purpose of audit.
e)
In a computerized environment the audit procedure may have toappro
priately tuned to the circumstances, particularly as the books are not
authenticated as in manually maintained accounts and the auditor may
not have his in-house computer facility to taste the
software programmes. The emphasis would have to be laid on internal
control procedure related to inputs, security in the matter of access to
EDP system, use of codes, passwords, data inputs being prepared by
person independent of key operators and other build-in procedure for
datavalidation and system controls as to ensure completeness andcorr
ectness of the transaction keyed in.
system documentation of the software may be obtained and examined.
f) One set of tests that the auditor at both the branch level and
headoffice level may apply for audit of banks in analytical procedure.
2) Evaluation of internal control system:
It may be noted that transaction in banks are voluminous and
repetitive,
andfall into limited categories/heads of account. It may, therefore, be
moreappropriate that the evaluation of the
internal control is made for each class/category of transaction.
If the exercise of internal control evaluation is properly carried out, it
assist the auditor to determine the effectiveness or otherwise of the
control systems and accordingly enable him to strengthen his audit
procedures, and lay appropriate emphasis on the risk prone areas.
Internal control would include accounting control administrative
controls.
10. 10
a) Accounting controls:
Accounting controls cover areas directly concerned with recording
of financial transactions and maintenance of such registers/records as
to ensure their
reliability.Internal accounting controls are also envisaging such proce
dures aswould determine responsibility and fix accountability with re
gard tosafeguarding of the assets of the bank.
It would not be out of place of mention that there is a distinction
between accounting system and internal accounting controls.
Accounting system envisages the processing of the
transaction and events, their recognition, and appropriate recording.
Internal controls are techniques, method and procedures so designed
and
usually built into systems, as would enable prevention as well as
detection of errors, omissions or irregularities in the process of
execution and recording of transaction/events. The internal
accounting controls as would ensure prevention of errors, omissions
and irregularities would include following:
I. Notransaction can be registered/recorded unless it is
sanctioned/approved by the designated authority
II. Built- in dual control/supervisory procedures ensure that
there is an independent automatic check on input/vouchers.
III. No single person has authority to initiate transaction and
record through all stages to the general ledger. Each day
transactions are accurately and promptly recorded, and the
control and subsidiary records are kept balanced through
personnel independent of each other. The auditor would be
well advised to look into other areas may lead to
detection of errors, omissions and irregularities, inter alias in
the following:
a) Missing/loss of security paper, stationery forms.
b) Accumulation of transactions/balances in nominal heads of ac
counts like suspense, sundries, inter-branch accounts, or
other nominal head of accounts particularly if there accounts
particularly if these accounts are extensively used to balance
books, despite availability of information.
11. 11
c) Accumulation of old/large unexplained/unsubstantiated entrie
s inaccounts with Reserve Bank of India and other banks and
institutions.
d) Transaction represented by mere book adjustments noteviden
ced/substantiated or upon non-
honoring of contracts/commitments.
e) Origination debits I head office accounts/inter-branch
accounts.
f) Analytical review procedure.
g) Serious irregularities pointer out in
internal audit/inspection/special audit
h) Complaints/matters pending in the
vigilance/grievances cell, as regards discrepancies in
accounts of constituents, etc.
i) Results of periodic analytical review, if observed as adverse.
b) Administrative control:
These are broadly concerned with the decision making
process and laying down of authority/delegation of powers by the
management. It may be noted that in the normal course, the head
office use the zonal/regional offices
donot conduct any banking business. They are generally responsible f
or administrative and policy decisions which are executed at the
branch level.
3) Preparation of audit programme for substantive testing and its
execution
Having familiarized him the requirements of audit, the auditor should
prepare an audit programme for substantive testing which should
adequately cover the scope of his work. In framing the audit
programme, due weightage
should be given by the auditor to areas where, in his view, there arewe
aknesses in the internal controls. The audit programme for the
statutory auditors would be different from that of the branch auditor.
12. 12
At the branch level, basic banking operation are to be covered by the
audit. On the other hand, the statutory auditors at the head office (
provisions for gratuity, inter-office accounts, etc.). The scope of the
work of the statutory auditors would also involve dealing with
various accounting aspects and disclosure requirements arising out of
the branch returns.
4) Preparation and submission of audit report
The branch auditor forwards his report to the statutory auditors who
have to deal with the same in such manner, as they considered
necessary. It is desirable that the branch auditors’ reports are
adequately in unambiguous terms. As far as possible, the financial
impact of all qualification or adverse comments on the
branch accounts should be clearly brought out in the branch audit
report. It would assist the statutory auditors if a standard pattern of
reporting, say, head wise, commencing with assets, then liabilities and
thereafter items related to income and expenditure, is followed. In
preparing the audit report, the auditor should keep in mind the
concept of materiality.
Thus, items which do not materially affect the view presented by the
financial statements may be ignored. However, in the judgement of
the auditor, an item though not material, is contrary to accounting
principles or any pronouncements of the Institute of Chartered
Accountants of India or in such as would require a review of the
relevant procedure, it would be appropriate for him to draw the
attention of the management to this aspect in
his long form audit report. In all cases, matters covering the statutory
responsibilities of the auditor should be dealt with in the main report.
The LFAR should be used to further elaborate matters contained in
the main report and as substitute thereof. Similarly while framing his
main report, the auditor should consider, wherever practicable, the
significance of various comments in his LFAR, where any of the
comments made by the auditor threr in is adverse, he should consider
13. 13
whether qualification in his main report is necessary by using his
discretion on the facts and circumstances of each case.
In may be emphasized that the main report should be self-contained
document
14. 14
Provisions Relating to audit
1. Appointment of the auditors;
The auditor of a banking company, a nationalized bank or a
regional rural bank hasto be a person who is duly qualified under law
to be an auditor of companies. Thus,the auditor of the companies
under sec 226 of the companies Act 1956, and who does not attract
any disqualification laid down therein. The auditor of a nationalized
bank is appointed by the board of directors of the bank concerned,
whereas the auditor of a banking company is appointed by the
shareholder at the annual general meeting. Previous approval of
RBI for appointment of the auditor is required in the both cases.
The auditors of the state bank of India are appointed by RBI
in consultation of the Central government. The auditors of
the subsidiaries of the state bank of India are
appointed by the state bank of India. It may be mentioned in the State
bank of India Act 1955, specially provides for the appointment of the
‘two or more auditors’. The auditors of the regional rural banks
concerned with the approval of the Central Government. The
appointment of auditor of a co-operative bank is governed by the
relevant Co-operative bank is governed by the relevant Co-operative
Societies Act. Procedure for the Appointment in the case
of nationalized banks:-The statutory central auditors are appointed by
15. 15
the bank concerned on the basis of the names recommended by the
RBI from out of panel of auditors. For this purpose, the RBI
formulates detailed norms on the basis of which a panel is created by
the Comptroller and Auditor General of India. Generally,
each nationalized bank appoints 4-6 statutory central auditors. As per
the norms prescribed by the RBI, to be eligible for empanelment, a
firm should, as on January 1 of the relevant year, minimum eligibility
norms relating to;
I.Nu mber o f fu llti me part ners,
II.Nu mbers o f F CA partners,
III. Number of years the firm has been existence,
IV. Period of minimum continuous association of partners with the
firm,
V.Number of fulltime charted accountants,
VI.Number of professional staff,
VII.Experience of statutory audit of public sector banks having
deposits of at leastthe prescribed sum,
VIII .Experience of statutory audit of public sector undertakings.
Atleast one partner should have qualifications in computer audit.
2. Powers of the Auditor
The auditor of a bank has same powers as those of company
auditor ,except that the power the auditor of a co-operative are
governed by the relevant Co-operative Societies Act in matter of
access to the books of accounts, documents, and vouchers. He is also
entitle to require from the offices of the bank such information and
explanation as he may think necessary for the performance of his
duties. In case of Banking Company, he is entitle to receive notice
relating to any general meeting. He is also entitle to attend any
general meeting and to be heard there at on any part of the business,
which concern him as auditor. It is important to note that the auditor
of nationalized bank may employ accountants or other person at the
16. 16
expenses of bank to assist him in audit of accounts. Thus auditor of
these banks can appoint the auditor of Branches.
3. Auditor’s Report
The auditor of the nationalized bank, State bank of India or its
subsidiary is required to report to the central government and has to
state the full in his report:
a) Whether, in his opinion, the balance sheet is a full & fair balance
sheet containing all the affairs of the bank, and in the case he had
called for any explanation or information, whether it has been given
and whether it is satisfactory.
b) Whether or not the transactions of the banks, which have
come to notice have been within the powers of the banks;
c) Whether or not the returns received from the offices and
branches of the bank have been found adequate for the purpose of
the audit;
d) Whether the profit or loss a/c shows a true balances of the profit or
loss for the period covered by such account; and
e) Any other matter which he considers should be brought to the
notice of the central government. The report of the auditor of the
nationalized bank is to be verified, signed, and transmitted to the
central government. The auditor has also to forward a copy of the
audit report to the bank concerned and to the RBI.
In addition to the matters which he is required to state in his
report under the companies Act, the auditor of banking company
incorporated in India has also to state the following in his report to the
shareholder:
a) Whether or not the information and explanations required
by him have been found to be satisfactory;
17. 17
b) Whether or not the transactions of the company which have come
to his notice have been within the powers of the company;
c) Whether or not the returns received from branch offices of
the company have been found adequate for the purposes of his audit;
d) Whether the profit and loss account shows a true balance of profit
or loss for the period covered by such account;
e) Any other matter which he considers should be brought to the
notice of the shareholders of the company.
It may be noted that in in the case of a banking company the auditor
has to specifically report whether, in his opinion, the profit & loss
account and balancesheet of the banking company comply with the
accounting standard referred to in sub- section (3C) of the sec 211 of
the Companies Act, 1956.
It may also be noted the Companies(Auditor’s Report) Order
[CARO] 2003 (Revised in 2005) is not applicable to Banking
Company.
18. 18
Approach to banks audits:-
The guidance note on the audit of banks issued by the ICAI, recognize
that the general approach to audit of banks involves essentially the
same stages as in any other audits. However at each stage, the auditor
has to take into the account the following special characteristics of
banks;
• Custody of large volumes of monetary items, thereby requiring
formal operating procedure, well-defined limits on the individual
discretions and rigorous internal control.
• Large volume and variety of the transactions and continuing
development of new products and services, many of which may
involve complex accounting.
19. 19
• Wide geographical dispersal of the operations with consequent
difficulties in maintaining uniform operating practices and accounting
systems, particularly in the case of the overseas operations.
• Significant commitments without transfer funds not requiring formal
recognitions in the books of accounts.
• Special nature of risk with operations.
• A strict legal and regulatory framework that inter alia, influence the
accounting and auditing.
LIST OF DOCUMENTS OF BANK AUDIT
Bank closing set:
It contains Balance Sheet, Profit & Loss A/c and other
annexures.
Audit Report
Long Form Audit Report (LFAR)
Memorandum of Changes
Report on Ghosh and Jilani committee recommendations
Other Certificates
20. 20
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.
21. 21
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.
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
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.
LONG FORM AUDOT REPORT
A questionnaire formulated by RBI.
To be filled by auditor after discussing the points with Branch
Head.
22. 22
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.
23. 23
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 Installment 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 installment or interest remains overdue for 2 crop season
for short duration crops.
The installment 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.
Analysis of entries outstanding in:
Suspense Account
24. 24
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
25. 25
AUDIT ASPECT OF ITEMS OF PROFIT & LOSS
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?
26. 26
MEMORANDUM OF CHANGES
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
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.
27. 27
Physical verification of stationery and confirmation of balance
as per CBS.
Obtain Management Representation Letter from Bank
Obtain Man-Days Certificate from Bank
STATUTORY AUDIT – CERTAIN ASPECTS
Item Important Audit Checks
A. Verification of Profit & Loss Account Item
Income/ Expenditure Verify:
Short debit of interest/ commission on advances;
Excess credit of interest on deposits;
In case the discrepancies are existing in large number of cases,
the auditor should consider the impact of the same on the
accounts;
Determine whether the discrepancies noticed are intentional or
by error; Check whether the recurrence of such discrepancies
are general or in respect of some specific clients;
28. 28
Proper authority in sanction and disbursement of expenses as
also the correctness of the accounting treatment given as to
revenue/ capital/ deferred expenses.
Check accrual of income/ expenditure especially for the last
month of the financial year.
Divergent Trends:
Divergent trends in income/ expenditure of the current year may
be analysed with the figures of the previous year.
Wherever a divergent trend is observed, obtain an explanation
along with supporting evidences like monthly average figures,
composition of the income/ expenditure, etc.
B. Verification of Balancesheet Item
1. Cash & Bank Balances:
Physically verify the Cash Balance as on March 31, 2014 or
reconcile the cash balance from the date of verification to March
31, 2014.
Confirm and reconcile the Balances with banks as on March 31,
2014.
2. Investments:
Physically verify the Investments held by the branch on behalf
of Head Office and issue certificate of physical verification of
investments to bank’s Investments Department.
Check receipt of interest and its subsequent credit to be given to
Head Office.
3. Advances Provisioning:
As per RBI norms, unrealised interest on NPA accounts should
be reversed and not charged to “Advance Accounts”. Reversal
of unrealised interest of previous years in case of NPA accounts
is required to be checked
Partial Recovery in respect of NPA accounts should be
generally appropriated against principal amount in respect of
doubtful assets.
29. 29
4. Fixed Assets:
Check Inter-branch transfer memos relating to Fixed Assets and
whether they have been correctly classified in the accounts and
depreciation accounting thereof.
5. Inter Branch Reconciliation (IBR):
Understand the IBR system and accordingly prepare an audit
plan to review the IBR transactions. The large volume of Inter
Branch Transactions and the large number of unreconcile entries
in the Banking System makes the area fraud-prones. Check up
head office inward communication to branch to ascertain date
upto which statements relating to inter branch reconciliation
have been sent
6. Deposit
i. Term
ii. Saving
iii. Current
iv. FCNR/ NRE/ NRNR
Verify transactions during the year relating to:
New Accounts opened;
Accounts closed;
Dormant Accounts;
Interest calculations;
Test check account statements for unusual/ large/ overdraft
transactions;
Overdue Term deposits & banks policy for its renewal;
Accrual of interest;
RBI Norms for Non-resident deposits & its operations -
with due importance to opening and operation of accounts
like NRE, NRNR, FCNR, RFC, etc.;
Interest on various types of deposits; Tax Deducted at
Source.
30. 30
Large deposits placed at the end of the year (probable
window dressing).
Examine unusual trend in account opening or account
closing, dormant accounts that have suddenly been
reactivated by heavy cash withdrawals or deposits,
overdrawing, etc.
Examine interest trends as compared to average annual
deposits (monthly average figures).
Review the Master Circular on Maintenance of Deposit
Accounts issued by RBI dated March 1, 2004 attached
hereto.
7. Advances
Review monitoring reports (irregularity reports) sent by the
branch to the controlling authorities in respect of irregular
advances.
Review appraisal system, Files of large as well as critical
borrowers, sanctions, disbursement, renewals, documentation,
systems, securities, etc.
Review on test check basis operations in the Advances
Accounts.
Compliance of sanction terms and conditions in the case of new
advances.
Whether the borrower is regular in submission of stock
statements, book debt statements, insurance policies, balance
sheets, half yearly results, etc. and whether penal interest is
charged in case of default/ delay in submission of such data.
Charge of interest and recovery for each quarter or as applicable
to be verified.
Review the monitoring system, i.e. monitoring end use of funds,
analytical system prevalent for the advances, cash flow
monitoring, branch follow-up, consortium meetings, inspection
reports, stock audit reports, market intelligence (industry
analysis), securities updation, etc.
31. 31
Check classification of advances, income recognition and
provisioning as per RBI Norms/ Circulars.
Examine interest trends as compared to average annual advances
(monthly average figures).
Scrutinise the final advances statements with regard to assets
classification, security value, documentation, drawing power,
out standings, provisions, etc.
Check whether Non-Fund based (Letter of Credits/ Bank
Guarantees) exposure of the borrowers is within the sanctioned
limits.
Compare projected financial figures given at the time of project
appraisal with actual figures from audited financial statements
for relevant period and ascertain reasons for large variance.
Take into account the assessment of RBI if the regional office of
RBI has forwarded a list of individual advances to the bank,
where the variance in the provisioning requirements between the
RBI and the bank is above certain cut off levels
Necessity for Measurement of Non-Performing Assets:
The repayment of interest/installment was either not easily
forthcoming as per schedule or recovery. Consequently, banks found
it increasingly prudent not to reckon such interest/other charges as
part of their income and pay tax on unrealized income. Rather they
chose to cease charging interest in such accounts of bad/doubtful
nature or where the prospectuses of recovery were bleak
32. 32
RBI Health Code System and Relation to NPA:
The Reserve Bank of India introduced the Health Code System
of classification of borrower accounts by banks in the year 1985.
Based on this classification of advances, it was decided by the
Reserve Bank in the years 1989 and1990 that banks should cease
charging interest compulsorily in account under Health Code 5 to 8 i.e.
Recalled, Suit-filled, Decreed and bad/doubtful and selectivity, taking
into account the availability and readability of security, in accounts
under Health Code 4 i.e. Stick: Non-viable/Sticky
Asset Classification
Performing Asset:
Performing asset is one which generates periodical income and
payments, as and when due or within the minimum lag of two
quarters. This is being cut down to one quarter from April 2004.
Non-Performing Asset (NPA):
The problem of NPA arises when the dues to the bank, interest/other
charges or installments are not being received as per schedule. To
justifiably set right this phenomenon, the Reserve Bank of India has
drawn upon the international standards of accounting for the purpose
of NPA treatment of credit facilities. A loan asset will become NPA if
the due amount is not paid within one quarter.
Current position of NPA triggers.
Term Loan Interest and/or installment remain overdue
for a period of more than 90 days.
Overdraft/Cash Credit Account remains out of order for a period
of more than 90 days.
33. 33
Bill
purchased/Discounted
Overdue for more than 90 days from its
due date.
Agriculture Loans Interest and/or installment remain overdue
for a period of more than 2 harvest seasons
but not more than 2 half years.
Any Amount To be received remains overdue for a
period more than 90 days.
Categories of NPA
Sub-standard Assets:
A sub-standard asset was one, which was classified as NPA for a
period not exceeding two years. With effect from 31 March 2001, a
sub-standard asset is one, which has remained NPA for a period less
than or equal to 18 months and from 2005 it is further reduced to 12
months.
Doubtful Assets:
A doubtful asset was one, which remained NPA for a period
exceeding two years. With effect from 31 March 2001, an asset is to
be classified as doubtful, if it remained NPA for a period exceeding
18 months. With effect from March31, 2005, an asset would be
classified s doubtful if it remained in the sub-standard category for 12
months.
Loss Assets:
34. 34
Assets which are classified as bad and non-recoverable by the
concerned bank or by Statutory Auditors or by RBI Inspectors but the
amount have not been written off wholly. In other words, such an
asset is considered uncollectible and of such little value that its
continuance as a bankable asset is not warranted, they will continue to
appear in the Balance Sheet but under the heading “Loss Asset”
although there may be some salvage or recovery value.
Provisions
The current position of providing provision on the various assets is as
follows:
Standard
assets
General Provision 0.40% of Balance Outstanding
Sub-
Standard
assets
General provision of 10% of Balance outstanding without
considering DICGC or ECGC Guarantees
Doubtful
Assets
100% of Unsecured portion after considering the realizable
value of security which should be realistic. In addition to the
above provision on the secured portion should be made as
under: Up to 1 year 20%, 1year to 3 years 30%, More than 3
year 50%
Loss Assets 100% on the Balance outstanding
Checklist to verify validity of NPA classification.
An auditor should ensure that branches for treating an account
as NPA do the following or otherwise, irrespective of the cutoff point
of limit outstanding balance. Obtain the ‘balance book’ for loans, cash
35. 35
credit and overdraft. This gives you the exhaustive list of accounts
outstanding as on the date of your inspection or the date of
classification. By use of this balance book, you can ensure that you
can cover all the accounts and you do not skip accidentally the
classification of any account.
The totals of the report of classification should match with the totals
of the concerned departments thereby ensuring that all the accounts
are considered.
Analysis of the account should be done since ’income
recognition’ is the underlying criteria. Therefore obtain the copy of
the branch of the account statements to verify the classification made
by the Bank. Ensure the following points during your scrutiny of the
account.
Both interest and installments, wherever applicable should be taken
into account for assessing the NPA status of an account. If a particular
facility of a borrower becomes NPA. Then all the facilities granted to
the borrower should be treated as NPA.
Advances backed by Central/State Governments should not be
treated as NPA. Advances against bank’s fixed deposits, NSC’s, IVPs,
KVPs, and life Policies eligible for surrender, should not be treated as
NPAs.
In the case of agricultural advances, NPA status should be
decided upon after considering the recovery of interest dues for two
harvest seasons.Net-worth of borrower/guarantor and availability of
security is no consideration for treating an account as NPA or
otherwise, as the concept is based on record of recovery of
interest/installments.
Staff loans should not be treated as NPAs, except in
exceptionally problematic cases.
Question:- How to Verify the Asset of Banking Company, give 2
examples
36. 36
Ans :- Basically Banking Company had 5 main heads & one
miscellaneous which as follows
1. Cash and balances with Reserve Bank of India
2. Balances with banks and money at call and short notice
3. Investments
4. Advances
5. Fixed assets
6. Other assets
Verification Of assets as follows
1. Cash and balances with Reserve Bank of India
A. Cash
Cash on hand
Verification
The auditor should therefore plan to count all cash balances
SIMULTANEOUS to prevent any ‘transfers’ of floats to hide
discrepancies.
Cash counts
The following procedures should be applied:
a) Surprise cash count: cash counts must be performed
without the custodian being informed in advance e.g. on
a surprise basis.
b) Control all cash funds: until the completion of the
count to prevent cash being transferred between funds
to conceal deficiencies.
c) Count in the presence of the custodian: to ensure the
auditors cannot be blamed for any shortage.
d) List each item in the fund: showing the denominations
of notes and coins.
e) The custodian should sign: the record as evidence of
agreement.
f) Agree the total to the petty cash book balance: and
investigate any differences.
B. Balances with Reserve Bank of India
37. 37
a. Balance confirmation:- Verify the ledger balance with bank
confirmation certificate. And reconciliation statements as at
the year end.
b. Explanation:- Obtain a written explanation from the
management as to the reason for old outstanding transaction
in bank reconciliation statements remaining unexplained for
one year.
2. Investments
a. Guidelines & Policies :- Auditor should examine that
whether investments are made with context of the Guideline
of the RBI and accounting policies followed by bank in that
respect.
b. Classification:- Classification of investment into three
categories Like held to maturity, held for trading or available
for sale . Verify whether proper classification of investment
has been made at the time of acquisition which is evidenced
by decision of the component authority such as board of
director, or investment committee.
c. Change in method:- Change in method of valuation of of
investment constitute change in accounting policy and proper
disclosure regarding the fact of the change along with its
effect should be made in balancesheet.
CONCLUSION
38. 38
The project the position of Indian banking system as well as
the principal laid down by the Basel Committee on banking
supervision. This assessment was done in seven major areas, which
are core principals, concurrent audit, internal audit,
deposit, loan accounting and transparency
and foreign exchange transaction. The project concluded that, given
the complexity and development of Indian banking sector, the overall
level of compliances with the standards and codes is of high order.
This project gives the correct ideas about how the major areas can be
found by way of effective auditing system i.e. errors, frauds,
manipulations etc. form this auditor get the clear idea show to
recommend on the banks position. Project also contain that how to
conduct of audit of the banks, what are the various procedure through
which audit of banks should be done. Form auditing point of view,
there is proper follow up of work done in every organization whether
it is banking company or any
other company or any other company there no misconduct
of transactions is taken places for that purpose the auditing is very
important aspect in today’s scenario form company and point of view.