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.

1. STATUTORY BANK
BRANCH AUDIT
BY - VIVEK KHEMKA

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

14. THANK YOU