This document outlines guidelines for conducting long-form audit reports (LFARs) for bank branches, including the structure and important clauses to cover for assets, liabilities, income, expenses, and general matters. It discusses guidelines for auditing cash balances, advances, NPAs, deposits, profits and losses, and other assets and liabilities. The document provides details on classifying and identifying NPAs according to RBI guidelines. It emphasizes being thorough, specific, and addressing any qualifications in the LFAR and audit report.

1. LONG FORM AUDIT REPORT
&
INCOME RECOGNITION NORMS
(LUCKNOW BRANCH OF CIRC OF ICAI – 22ND MARCH, 2014)
CA. DHRUV SETH
DS@SETHSPRO.COM

2. BANK AUDIT
GENERAL GUIDELINES
 Set aside your Ego and “targets”
 Bank Audit NPA identification
 Year closing manual
 RBI master circulars
 ICAI Guidance note
 Audit reports at branch
 Analysis of financial statement

3. IMPORTANCE OF
LONG FORM AUDIT REPORT
Standardisation of reports
Coverage
Internal control evaluation
Ready Audit program

4. STRUCTURE OF
LONG FORM AUDIT REPORT
 Does the branch generally carry or comply…
 In the cases examined by you…
 Verification on test check basis…

5. Asset Liability Income Expenses
STRUCTURE OF
LONG FORM AUDIT REPORT

6. GENERAL GUIDELINES
 Be Specific
 Be thorough with requirements
 Don’t “Save as” previous year
 Disclosures to be specific
 Audit report vis-a-viz LFAR
 LFAR qualifications to be part of audit report
 Main report to be standalone

7. IMPORTANT CLAUSES
 Cash and Bank balances
 Advances
 Other Assets
 Deposits and other liabilities
 Profit and Loss
 General

8. CASH BALANCES
Cash balance being maintained
Reporting of excess cash
Insurance coverage
Joint Custody
Physical verification

9. BANK BALANCES
Obtain Balance confirmation
Verify reconciliation entries
Old pending entries
Un-responded cash transactions
Booking of expenses
Report differences

10. Advances
Appraisal
Sanctioning
Documentation
Review

11. ADVANCES - APPRAISAL
Appropriate forms
Completely filed and signed
Functioning normally
Adequate securities
End use of funds
Difference in Audited and Projected

12. ADVANCES - SANCTIONING
Sanctioning limits
Loan Sanctioned
Temporary overdraft
Withdrawal against pending cheques
Disbursement of loan without EM
Disbursement of loan without PG

13. ADVANCES - DOCUMENTATION
Obtain a sample checklist for reference
Non registration of charges
Non obtaining of guarantee
Marking of Lien (Offline and Online)

14. ADVANCES - REVIEW
Identify accounts overdue and report
Submission of financial statements
Submission of other information
Obtain and analyse review note
Overdue more than 180 days = NPA
(Para 4.2.4 (ii) Master circular on Prudential norms July, 2013)

15. ADVANCES - REVIEW
 Scrutinise the stock statement
 Non submission of stock statement = NPA
(Para 4.2.4 (i) Master circular on Prudential norms July, 2013)
 Limits > 10 lacs = Audited FS
 Physical verification of Security
 Inadequate security coverage

16. ADVANCES - REVIEW
Clause 5(d)(ix)
Clause 5(d)(x)

17. CLAUSE 5(D)(IX) AND (X)
ix) Has the branch identified and classified advances into
standard/ substandard/ doubtful/ loss assets in line with
the norms prescribed by the RBI.
x) Where the auditor disagrees with the branch
classification of advances into standard/ substandard/
doubtful/ loss assets, the details of such advances with
reasons should be given. Also indicate whether suitable
changes have been incorporated/ suggested in the
Memorandum of Changes.

18. IDENTIFICATION - NPA
 Interest / Instalment due > 90 days
 “Out of Order”
 Continuously in excess OR
 No credits / insufficient credits for 90 days
 Bill overdue > 90 days
 Agricultural advance > One/Two crop season
(Para 4.2.13 Master circular on Prudential norms July, 2013)

19. CLASSIFICATION
Sub Standard <= 12 Months as NPA
Doubtful = 12 Months as Sub standard
Loss = To be written off

20. NPA – GENERAL GUIDELINES
 Holistic approach – Substance over form
 Value of Security (Para 4.2.9)
 Temporary deficiencies (Para 4.2.4)
 Importance of Stock statements
 Ad hoc limits > 180 days – NPA
 Asset Classification – Borrower wise
 Advances against NSC’s, KVP’s, TD’s etc

21. NPA – ACCOUNT MASTERS
 Period of Loan
 Due date of first instalment
 Instalment Amount
 Rate of Interest
 Agricultural Loan – Crop Type

22. NPA – RESTRUCTURING
 Only at the instance of borrower
 Repeated restructuring
 Standard – Restructured – Downgrade (Para 12.2.1)
 NPA – Restructured – Same classification (12.2.2)

23. LFAR – OTHER ASSETS
 Physical Verification
 Stationery
 ATM Cards and PIN
 Issue and Custody
 Instances of Lost items

24. LFAR – OTHER ASSETS
Sundries / Suspense Account
 Verify old entries
 Camouflaging NPA’s or Old expenses
 Reporting
 Working paper with reasons
 MOC, if required
 Highlight in main audit report

25. DEPOSITS & OTHER LIABILITIES
 Inoperative accounts
 Guidelines for Inoperative accounts
 Customer initiation
 Signature verification
 Large movement in Deposits
 Overdue/matured term deposits

26. DEPOSITS & OTHER LIABILITIES
 Old outstanding BP, Sundry Deposits
 Contingent Liabilities
 Obtain list of consumer court cases
 Claim from government departments
 Demand of any statutory liability
 Management representation

27. PROFIT & LOSS - INCOME
 Mechanism to address discrepancies
 Compliance to revenue audit reports
 Interest
 Periodicity of levy
 Correctness of levy
 Master verification
 Other Incomes (Charges, Fees etc)

28. PROFIT & LOSS - EXPENSES
 Discrepancies with interest
 Correctness of accrued interest
 Effect of change of interest on deposits
 Policy on overdue deposits
(Savings rate interest to be paid – RBI)
 Co-relate interest paid to average deposits

29. GENERAL
 Obtain list of exceptional reports
 Data security measures
 No sharing of user passwords
 Deactivate left employees
 Map leave to login
 Backups (Offsite and Onsite)
 Physical restraint to server room

30. GENERAL
 Reconciliation
 Control & Subsidiary
 Inter Branch Accounts
 Regular reports being shared with HO / RO
 Account with HO / RO / ZO
 Entries originating at other branches
 Expeditious clearing of entries

31. MISCELLANEOUS
 Window dressing
 Large movement in advances and deposits
 Deposits and Advances to same group
 Account regularisation near FS date
 Under utilised facility into deposits
 Unsecured shown as secured
 Restructuring of Accounts

32. SPECIALISED BRANCHES
 Branches dealing in Foreign Exchange
 Branches dealing in very large advances
 Branches dealing in NPA recovery
 Branches as Clearing houses

33. THANK YOU
CA. DHRUV SETH
DS@SETHSPRO.COM