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Bank Branch Audit
PLANNING AND DOCUMENTATION
CA. V.K.Viswanathan
B.Sc, F.C.A., DISA (ICA)
BANK AUDIT - CPE SEMINAR
25/03/2017
BANK BRANCH AUDIT
INTEGRATED WORK PAPER FILE
Bank Name
Branch
Year 2016-17
Date of Commencement
Date of Completion
Partner In Charge
File reference
Number of Staff deployed
Advances Value Rs.
Address of the Branch
Name of the Manager
Phone Number
Circle Office Contact
2
INTRODUCTION
A well planned audit will make the entire assignment of bank branch audit more
pleasurable while an ill-planned audit will end in chaos.
Impact of Information Technology Right approach and Techniques For quality audit and completion of audit within a small time span.
1. Objective and Scope of audit:
1.1. We have been appointed as the Statutory Auditors of the ……………………… Branch of
……………………………………….. ……………………………… Bank for the year 2016-17
1.2. The appointment letter dated ………………… has been accepted by us
on……………………………………………. after due communication to the previous year auditor
vide letter dated …………………………………….
1.3. The key terms of reference is to certify the financial statements of the branch as at March 31, 2017
with reference to a True and Fair perspective
1.4. The Branch audit instructions as received from the Head / Circle office have been duly cognised for
in the preparation of this integrated work paper document
1.5. The following key reports / certificates are required to be issued by us
Branch Auditors report
Memorandum of Changes if any
Certified / Attested financial statements
Long Form Audit Report
Schedules and Certificates as per index attached in the next segment
Tax Audit report under Section 44AB of the Income tax Act
1.6. The audit was commenced on ……………. and completed on …………………. By the following
team
1.7. The Key risks in Bank Branch Audits are as under
Misstatement of income, expenses, Assets or Liabilities.
Unrecorded liabilities and contingent liabilities
Asset Classification and NPA provisions not adequate for impaired assets , Asset
Classification and Income Recognition especially for restructured assets
KYC / AML norm compliance related issues
Internal control failures over banking operations including potential / undetected /
detected frauds
Wrong certification
3
1.8. The details of Bank Staff from whom data / records / information and explanations were solicited /
obtained for the purpose of this audit are as under
2. ACCEPTANCE OF APPOINTMENT:
Disqualifications – As per The Companies Act, 2013
The following persons shall not be eligible for appointment as an auditor of a company, namely:-
Sec. 141 (3)(a) - a body corporate other than a limited liability partnership registered under the Limited Liability Partnership Act, 2008;
Sec. 141 (3)(d) (i) – A person or his relative or partner is holding any security of or interest in the company or its subsidiary, or of its holding company or associate company or a subsidiary of such holding company. Provided that the relative may hold security or interest in the company of face value not exceeding Rs. 1 lakh
– See also Rule 10 of Companies (Audit and Auditors) Rules, 2014
Rule 10 of Companies (Audit and Auditors) Rules, 2014
Sub-Rule (1)
For the purpose of proviso to sub-clause (i) of Sec.141 (3) (d), a relative of an auditor may hold securities
in the company of face value not exceeding rupees one lakh: Provided that the condition under this
sub-rule shall, wherever relevant, be also applicable in the case of a company not having share
capital or other securities:
Name Designation Days From To
Partner
Qualified Paid Assistant
Audit Assistant
Articleship trainee
Designation Name Grade
Branch Manager
Loans Officer
Deposit Officer
Other Officers
4
Sec. 141 (3) (d) (ii) – A person or his relative or partner is indebted to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, in excess of Rs.5 lakh - See also Rule 10 of Companies (Audit and Auditors) Rules, 2014
Rule 10 of Companies (Audit and Auditors) Rules, 2014
Sub-Rule (2)
For the purpose of sub-clause (ii) of clause (d) of Sec.141 (3) (d), a person who or whose relative or
partner is indebted. to the company or its subsidiary or its holding or associate company or a subsidiary of
such holding company, in excess of rupees five lakh shall not be eligible for appointment.
Sec. 141 (3)(d) (iii) - A person who or whose relative or partner has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, for Rs. 1 lakh – See also Rule 10 of Companies (Audit and Auditors) Rules, 2014
Rule 10 of Companies (Audit and Auditors) Rules, 2014
Sub-Rule (3)
For the purpose of sub-clause (iii) of clause (d) of Sec.141 (3) (d), a person who or whose relative or
partner has given a guarantee or provided any security in connection with the indebtedness of any third
person to the company, or its subsidiary, or its holding or associate company or a subsidiary of such
holding company, in excess of one lakh rupees shall not be eligible for appointment.
Sec. 141 (3)(f) - a person whose relative is a director or is in the employment of the company as
a director or key managerial personnel;
It is suggested to refer Sec. 141of The Companies Act, 2013 to get a first hand
information
about “Eligibility, Qualification and Disqualification of Auditors”
Change in constitution of the firm since application to ICAI If there is any change in constitution inform the bank and wait for confirmation
Acceptance letter and Secrecy and Fidelity letter to Head Office. To send by Registered Post and A/D due. Communication with previous auditor
5
3. REFRESHER COURSE FOR AUDIT TEAM;
RBI circulars - Income Recognition and Provisioning Norms – Master circular on IRAC Norms - Advances Certificates to be issued Account closing instructions – H.O / Z.O Circulars Salient features of LFAR and Tax Audit Audit procedure in a computerised environment.
4. CONDUCT AUDIT IN TWO STAGES:
Pre-closure and post-closure of books
Pre-closure
Review of sanction of large advances, terms and conditions – 5% of Total Advances or Rs. 2 Crore whichever is less
Status of accounts already identified as NPA Stock statements and insurance cover Documentation Generate at the Branch the Reports like Special Watch Accounts or Weekly Alert A/c’s – Status
regarding overdue Compare February 2017 Report with March 2017 Report Problem accounts becoming good or regular Unit visit or inspection Test check of interests received and interest paid Test check of major heads of Income and Expenditure
Post-closure
Account closing statements Certificates Verification of advance accounts closed during the fag end of the year Source of funds for closure
5. DEVELOPMENT OF AN OVERALL AUDIT PLAN:
In developing an overall plan for the audit, the auditor needs to give particular attention to:
- the assessment of materiality
- the assessment of audit risk
- the expected degree of reliance on internal control
- the extent of EDP and EFT systems used by the bank
- the work of internal audit
- the complexity of the transactions undertaken by the bank and the documentation in respect
thereof
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- the existence of significant areas of audit concern not readily apparent from the bank’s financial
statements
- the existence of related party transactions
- the involvement of other auditors
- management’s representations, and
- the work of supervisors
6. PLANNING ACTIVITY:
Plan the audit by establishing audit strategy commensurate with nature and size of the branch under
audit by:
- Selecting the important areas for the audit
- Audit Materiality and Audit Risk with respect to the size and scale of the branch, To enable
detection of material misstatements.
- Understand the Materiality as per the accounting policy of the bank for different items of income
/ expenditure / asset or liability
- Plan to cover all advances above Rs.2 crore or 5% of outstanding advances of the branch,
preferably a lower limit is desirable
- Orient the team members, by updating them with the extent, scope and changes in the norms
when compared to previous year
- Go through the closing circular as well as the Master Circulars of RBI and the latest issue of
Guidance Note on Audit of Banks issued by the Institute of Chartered Accountants of India,
mark important areas of concern for the branch / branches under audit
- Based on the information received, plan out the audit of financial statements, in respect of the
statement of affairs, audit of incomes, expenditures, or advances with specific reference to /
Potential NPA accounts under Standard Category, verification of restructured accounts vis a vis
their Asset Classification
7
7. Branch Overview
7.1. Key data
7.2. Target Vs Accomplishment
7.3. Advances Overview - top 10 advance categories of the branch
Description 2016-17 2015-16
Rs . lakhs Rs . lakhs
Total Assets
Total liabilities
Total Advances
Total Deposits
Income
Expenditure
Profit / Loss
Description 2016-17 2016-17
Target
Rs . lakhs
Actual
Rs . Lakhs
Total Advances
Total Deposits
Rating of the Branch
S No Category of advances 2016-17 2016-17 2015-16 2015-16
Rs . lakhs No of accts Rs . lakhs No of accts
1 Cash Credit
2 Overdraft
3 Term loans
4 Crop loans
5 Housing loans
6 Jewel loans
7 Other advances
Total Advances
8
7.4. Large Advance Profiling
List of advances greater than Rs 2 Crores or individually accounting for 5% of the total advances whichever is
lower to be covered for detailed checking are as under
7.5. Customer wise advances
Based on our discussions with the branch manager, these advances belong to the same party and are
considered for checking on a collective basis as slippage in one account could result in NPA status for all
accounts
7.6. Advance profiling by value
S No Account reference / name 2016-17 2016-17 2015-16 2015-16
Rs . lakhs No of accts Rs . lakhs No of accts
1
2
3
S No Customer Name Facilities 2016-17
Rs . lakhs
1 1
2
2 1
2
3 1
2
S No Slab - Rs Lakhs outstanding 2016-17 2016-17
Rs . lakhs No of accts
1 < Rs 1 lakh
2 Rs 1 – 5 lakhs
3 Rs 5 – 10 lakhs
4 Rs 10 - 50 lakhs
5 Rs 50 lakhs – Rs 1 Crore
6 Rs 1 to 2 Crores
7 Rs 2 to 5 Crores
8 Rs 5 to 10 Crores
9 > Rs 10 Crores
9
7.7. Deposit profiling
7.8. Restructured advances
The following are the advances restructured by the branch and to be reviewed for compliance with restructuring
terms and conditions as per revised sanctions. Repeated restructured accounts will also be reviewed
7.9. Interest rate and other charges on major advances
Advances Type Interest % Charges % Charges % Charges %
7.10. Interest rate on deposits
Deposit type Days Interest %
7.11. Any frauds reported
Note on frauds reported at the branch in the last few years
S No Category of deposit accounts 2016-17 2016-17 2015-16 2015-16
Rs . lakhs No of accts Rs . lakhs No of accts
1
2
3 Others
Total Deposits
S No Account reference / Name During
2016-17
Upto
2015-16
2016-17
Rs . lakhs Rs. Lakhs Rs . lakhs
1
2
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8. Various Internal/Special/Other Audits carried out at Branch,
period covered under audit and status of compliance thereof eg.
RBI Inspection
Concurrent Audit
I.S. Audit
Migration Audit
Stock Audit
Others
Internal Audit Rating assigned:
(Poor/Satisfactory/Good/Excellent)
Risk rating assigned by the internal auditors/I.S.Auditors.
(Low/Medium/High/very High)
9. Review Notes of Concurrent, Risk Based Audit, Inspection Reports
Concurrent Audit
S No Account reference / nature of issue / date of report
Amount Present Status – Rectified, LFAR, MoC, Unadjusted
Impact, if any on audit strategy
Risk Based Internal Audit
S No Account reference / nature of issue / date of report
Amount Present Status – Rectified, LFAR, MoC, Unadjusted
Impact, if any on audit strategy
11
Inspection Reports
S No Account reference / nature of issue / date of report
Amount Present Status – Rectified, LFAR, MoC, Unadjusted
Impact, if any on audit strategy
Previous Year LFAR / Audit report issues
S No Account reference / nature of issue / date of report
Amount Present Status – Rectified, LFAR, MoC, Unadjusted
Impact, if any on audit strategy
10. Audit Strategy
Based on our high level review of the branch data, loans and deposits CBS files and based on
discussions with the Branch manager the following is proposed as the audit strategy
10.1. Top Down Approach to audit
The audit strategy will envisage a top down approach which involves understanding the Balance Sheet
and P & L and a drill down to perform compliance and substantive procedures at a component /
transaction level
10.2. Utilisation of Other Audit reports
The branch has been covered under Concurrent audits / Risk based internal audits as well as
Inspections. These reports will be reviewed to gain a quick understanding of the control framework and
the efficient functioning at the branch.
10.3. Sample selection
CBS reports will be downloaded converted to excel and samples selected across loan types,
accounting periods, rates , value slabs
10.4. Advances
Understand and appreciate target related pressures and potential impact on misstatements
Top accounts ( Rs 2 Crs / 5% advance ) will be checked 100% to cover all accounts
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Samples of ….. accounts will be taken across all categories of advances to check sanction,
documentation, income accrual and monitoring controls
Particular attention will be paid to the following accounts based on our review of the Concurrent
/ inspection reports
o ………………..
o ……………….
o ……………….
The following unit visits will be undertaken to perform inspection of books / assets held by
customers
o ………………..
o ……………….
o ……………….
All accounts with irregularities as indicated in CBS ( based on loan balance file ) will be
undertaken for review with bank manager to identify potential NPA cases. The Irregular loan
balance report will also be reviewed in detail and documented
Sanity checks of advances file will be undertaken for interest rate inconsistencies / sub rate / off
standard rates for the particular categories
Interest and processing charge accruals will be test checked for 10 random months across ….
Loan files and CCOD files ( periodic / daily interest computation )
Large disbursements close to year / quarter end will be reviewed in detail on a test basis
Clean loans / bullet loans to be reviewed in detail
Special emphasis on restructured advances
10.5. Deposits
Top deposit accounts will be checked to review completeness, adequacy , relevance of
documentation
Large deposits placed at year end will be reviewed in detail
Sanity checks of advances file will be undertaken for interest rate inconsistencies / sub plr / off
standard rates for the particular categories
10.6. Other items
Checklist driven approach guided by key control aspects as stated in the LFAR
13
11. Key Reports from CBS to be used for audit
The following key reports have been obtained from CBS
Balance sheet
Profit and Loss account
Loan Balance file
CC OD file
Deposit balance file
Interest ledger
NPA file
SMA file
Irregular loans file
Previous year NPA file
TDS ledgers
Guarantee Commission register
12. Advances and General Audit plan
12.1. General Audit plan for advances
12.1.1. Obtain the Loan listing as at the Date of Audit
12.1.2. Loans greater than Rs.2Crore limit or Rs 2 Cr balance outstanding to be
taken up for detailed review documentation for LFAR
12.1.3. Generate the following reports:
o Special Watch Report
o Restructured accounts report
o Suspended Accounts
o NPA Listing
12.1.4. Identify samples of loans to be checked.
12.1.5. Ensure 100% of files selected for samples are available to confirm that no
file is lost
12.1.6. Review loans against checklist prepared category wise in relation to
o Application
o Credit appraisal
o Sanction letter
o Disbursement
o Master data updation in CBS
o Interest computation
o Principal repayment
o Fixation of drawing power
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o Verification of securities
o Submission of stock and book debts
o Submission of financial statements
Any other documentation
13. Special Note on Audit of Restructured Advances
13.1. Indicative Checklist
Obtain a general understanding of the type of advance which has been restructured –
project / non project advances, prior to or after Commencement of Commercial
production etc as per the RBI master circular which deals in detail on manner and
mode of treatment of restructured advances
Restructured advances to be reviewed with reference to revised terms of sanction
properly approved by the relevant sanctioning authority
Repeated restructuring to be reviewed for NPA classification
All terms of revised sanction are complied with ( including but not limited to revision in
commercial production, interest rate revision, rescheduling of repayments, additional
security cover, promoters contribution enhancements, escrow requirements etc ). In
case of non-compliance, appropriate reclassifications have been considered
Alteration in the terms & conditions of the sanctioned limits and Alteration in repayment
period.
Alteration in installment amounts – without changing the total repayment period or
ballooning amount of repayments.
For e.g. Qly installments of Rs.5 Lakh may be altered to Rs. 4 Lakh for the first few
years and thereafter be increased to Rs.5.5 Lakh etc..
Alteration in ROI – to benefit the borrower.
Fresh moratorium period
Where unserviced interest has been funded as FITL – Funded Interest Term Loan.
The following accounts cannot be restructured
i) Loss accounts
ii) Fraud accounts
iii) Willful defaulters.
15
14. SPECIMEN CHECKLIST FOR REVIEW OF MAJOR ADVANCES
1. BORROWER
a) Name of the Borrower.
b) Address ………………………………………………………………………………
c) Nature of Business..…………………………………………………………………
d) Constitution (Tick) Proprietor / Firm / Pvt. Ltd. / Public / Society / Trust
e) Limit last renewed on ………………………………………………………………..
f) Note for Trust/Society whether Deed/Bye Law permits mortgage of Property)
Yes / No
SECURITY
1. Primary Security – Stock/Book Debt Statement latest available Month
Whether Stock & Book Debts Statements are received in time Yes / No
2. Collateral
Whether Valuation done once in 3 years. Last Valuation date
3. Date of Inspection of Unit/Go down / Factory etc
Date of Visit
Name of Official
Policy No & date …………………………………
Sum Insured Deficiency
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5. Insurance
Rs. In Lakhs ………………. …………..
Expiry Date of Policy...
6. For Term Loan whether assets are properly insured
Value of Stock Sum Insured Deficiency Policy No & Date
Expiry Date of Policy
GENERAL 01.04.2016 31.03.2017
1. Latest Audited accounts available. ……………
2. Whether explanations for any divergent trends noticed and reason obtained?
a) Loss making? Yes/No
b) High Sundry Debtors/High Stocks/ Yes/No
c) Has the borrower advance money to Sister Concerns
(Inter firm advance) Yes/No
If YES is the Advance amount substantial compared to Loan?
3. Whether there is deficiency in document noticed/cited in the RBI/Other Audit Reports
NOTE YOUR COMMENTS AND VIEWS ABOUT THIS ACCOUNT. MARK SEPERATELY ITEMS
THAT SHOULD BE CONSIDERED FOR REPORTING IN LFAR ETC.
Verified by Name and Signature Name and Signature of Partner
17
15. SPECIMEN CHECKLIST FOR NEW LOAN DOCUMENTATION
BRANCH Name of Borrower
FUND BASED NON FUND BASED
NATURE OF LOAN ………………… ………………………
BAL O/S. IN LAKHS ………………… ………………………
LIMIT IN LAKHS ………………… ………………………
A/C. NO. ………………… ………………………
NATURE OF BUSINESS
Sl
No.
ITEM
PLEASE
TICK
OBJECTIVE
EVIDENCE
FILL THE
DETAILS
1
2
3
4
5
6
7
8
9
Loan application received
Project report received and appraised
Income Tax return of Promoters received
Statement of associate concerns obtained
Memorandum & Articles of Association /
Partnership deed is available and
registered with Registrar of firms
Risk in the project are identified
Feasibility report if necessary obtained
Whether previous banks reference
obtained
Opinion report of sister concerns obtained
Procedure from HO regarding proposal
preparation followed correctly
Yes/No/NA
Yes/No/NA
Yes/No/NA
Yes/No/NA
Yes/No/NA
Yes/No/NA
Yes/No/NA
Yes/No/NA
Yes/No/NA
Date of Application
Report prepared by
Asst. year
Name of Concerns
Date of Deed &
Registration No. or
Certificate of
incorporation details
Name of Bank
18
10
11
12
13
14
15
16
17
18
19
20
Whether the power is correctly exercised
for sanction
Facility are disbursed after complying
sanction letter
Sanction letter in file
Promoters contribution is properly made
Mortgage of property proper
Legal opinion valid-Give details
All documents in legal opinion obtained
Copy of IT Acknowledgement obtained
Original of documents for Vehicle loan
obtained
Registration of charges available
Interest rates fed in computer is tallying
with sanction letter
Yes/No/NA
Yes/No/NA
Yes/No/NA
Yes/No/NA
Yes/No/NA
Yes/No/NA
Yes/No/NA
Yes/No/NA
Yes/No/NA
Yes/No/NA
Yes/No/NA
Yes/No/NA
Date of Sanction &
Authority
Amount brought in
Name of Lawyer &
Opinion date
Date of filling return
Regn. Certificate Date
Date of filling Form No 8
Interest rate in sanction
letter vis a vis computer
Verified by : Name and Signature Name and Signature of Partner
19
16. Check list and questionnaire to be submitted to the Branch before
commencement of audit.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Copy of other Audit Reports, period covered, status of compliance
there
a) Previous year Branch Audit Report
b) RBI Inspection Report,
Concurrent Audit,
I.S. Audit,
Revenue Audit,
Stock Audit,
Migration Audit
Others.
List of Large Advances
Having Limits or Balance outstanding in excess of 5% of the branch
or Rs.2 Crore, whichever is less
List of Advances sanctioned during the year
List of Advances where documentation is still pending
List of Advances where Renewal was due during the year, but not
completed.
List of DPNs to be renewed during the year
List of Rescheduled/Rephased advances
List of BIFR accounts and accounts considered for revival,
rehabilitation
List of accounts closed on one time settlement
List of Advances where stock statements have not been received
regularly.
20
11.
12.
13.
14.
15.
16.
17.
18.
19.
List of cases where valuation report of securities is more than 3
years old.
List of non-corporate entities where aggregate advances is more
than Rs.20 lacs
The accounts where Audit Report as per RBI guidelines have been
obtained.
Have all the credit card dues have been recovered promptly. It not,
the dues as on 31.03.17
DICGC/ECGC claims
a) Claims at the beginning of the year
b) Claims lodged during the year
c) Claims settled
d) Details of sharing of recoveries, in claims settled accounts.
Details of outstanding amount of guarantees invoked and funded by
the branch as at the end of the year
Details of outstanding amounts of letters of credit and co-
acceptances funded by the branch.
Details of outstanding entries in IBIT, if any
Details of outstanding entries in Sundry Assets and Suspense a/c.
Details of outstanding entries in Sundry Deposits.
a) Quantum of overdue/matured term deposits at the end
of the year
b) Details of interest accrued and provided on overdue deposits.
List of major items of contingent liabilities (other than Liabilities
such as guarantees, letters of credit, acceptances, endorsements
etc.) not acknowledged as debt by the branch.
Particulars of fraud, if any, discovered during year and details of
report to H.O. compliant lodged with police etc.
21
20.
21.
22.
23.
24.
25.
PMRY Loans
a) No. of loans sanctioned during the year
b) Details of limits, amount disbursed
c) Subsidy claims
d) Subsidy received
Cash Department
Cash Retention limit
Dates on which cash balance exceeded the limit
Reporting to controlling authorities and approval thereof
Whether any steps have been taken to increase the cash retention
limit, if the frequency of cash balance exceeding the limits is more.
Insurance coverage held by the branch for cash on hand and cash in
transit whether in force.
Cash Remittance Register
Cash outward remittance
Cash inward remittance
Key Movement Register
Joint custody
Exchange of custody between officers of the branch
Cash verification done by
Officers of Other branch of the bank
Does the branch have accounts with RBI, SBI or any other banks
Balance confirmation letter as at the end of the year
BRS if needed.
Does the branch have any investments on behalf of H.O. If yes,
details thereof
List of advances where stock audit, has to be conducted during the
years.
22
26.
Advances where stock audits, have been completed.
Compliance Report on stock audit
Statements to be kept ready for Audit.
a) Statement of Final Asset & Liabilities
b) Profit and Loss a/c.
c) Classification of Advances
d) NPA Statements
e) LFAR
f) Tax Audit Report etc.
Tax Audit.
1. Capital expenditure debited to profit and loss account, if any,
2. Payment made to clubs towards fees & for services
3. Personal expenses debited to P&L a/c.
4. Any payment in the nature of fine & penalty
5. Deposits repaid in cash exceeding Rs.20000/-
6. Payments exceeding Rs.20000/- paid otherwise than by crossed
cheque or crossed D.D.
7. Particulars of Income & Expenditure relating to earlier years
8. Total amount of TDS deducted during the year:
a) on salary
b) on Interest on Term Deposits
c) on Interest on NRO Deposits
d) on Contract payment
e) on Rent
f) on Professional Fees
g) on brokerage and commission
h) on other Payments (Specify)
23
Signature of the Manager.
Date
17. Exceptional Reports
Major Audit Tools Contains dishonored cheques, large withdrawals, overdrawn accounts etc. Generally contain following details
Debit / credit balance change
Maturity record deleted
Inactive accounts reactivated
Excess allowed over limits
Debits to Income head accounts
Overdue bills and returned
Withdrawals against clearings
Deposits accounts debit balance
Temporary O/D beyond sanctioned limit
Standing instruction failed in day
Irregular term loan accounts with number of arrears of installments
and interest with amounts
Time barred demand promissory notes
Unchecked transactions
Password errors
Debit balance accounts without interest rate
inter-branch transactions with age-wise details
27.
9. Date of filing of TDS Returns (Quarterly)
10. Details of Form 15G & 15H obtained & submission to
Commissioner of Income Tax.
Other Items
a) Amount recovered during the year out of bad debts written off in
earlier years
b) Locker rent arrears – due during the year and remains
unrecovered.
24
18. CHECK LIST FOR VERIFICATION OF ADVANCES
Facility
Name of the Borrower and Account No. A/c. No.
(For various Accounts)
1. Have you checked whether the branch has complied with the requirements such as obtaining loan applications, preparation of proposals, grant / renewal of advances, enhancement of limits etc.
2. Have you checked whether the facility has been granted beyond such delegated powers of the branch?
3. If so, whether the same has been reported to the higher authorities.
4. Have you checked whether the terms of sanction has been complied with?
5. Have you checked whether all the documentation formalities have been complied with before release of facilities by the branch?
6. Have you checked whether in the cases of corporate borrowers due charges have been registered with the Registrar of Companies?
7. Have you verified receipt of stock statements? Have you verified that the follow up action of the branch is adequate?
8. Have you checked whether periodic stock audits have been conducted? Have you perused the latest stock audit report?
9. Have you checked the procedure adopted by the branch for periodically verifying the assets charged to the bank?
10. Have you perused the account to ensure that there are no frequent over drawls, shortfall in the value of security?
11. Have you checked whether the assets charged to the branch have been adequately insured?
12. Has the account been classified as per IRAC norms?
13. If not, have you made out a detailed working for proposing MOC?
14. Has the branch furnished the relevant information required for the purpose of reporting in LFAR?
15. Have you checked whether the branch has obtained valuation reports?
16. Have you verified whether there is any compromise
proposals/write offs in this account?
25
19. TREATMENT OF ASSETS FALLING UNDER CLASSIFICATION OF RESTRUCTURING
The classification of a Restructured account depends on the following guidelines:
a) Restructuring done before commencement of commercial production
b) Restructuring done after commencement of commercial production but before the asset
has been classified as sub-standard
c) Restructuring done after commencement of commercial production and after the asset
has been classified as sub-standard
Rescheduling of Principal alone Rescheduling of Interest
Before commencement of production Account will continue as
Standard Asset provided the
loan/credit facility is fully secured
Account will continue as Standard Asset
subject to the condition that the amount
of sacrifice, if any in the element of
interest, measured in present value
terms, is either written off or provision is
made to the extent of the sacrifice
involved.
After commencement of commercial
production but before the asset has
become sub-standard
Do - Do -
After commencement of commercial
production and after the asset has
become sub-standard
Account will continue in the sub-
standard category for specified
period of one year provided the
loan/credit facility is fully secured
Account will continue in the sub-standard
category for specified period of one year
subject to the condition that the amount
of sacrifice, if any, in the element of
interest, measured in present value
terms, is either written off or provision is
made to the extent of the sacrifice
involved
20. WHETHER NPA AND PRUDENTIAL NORMS ARE APPLICABLE TO ALL STAFF
ACCOUNTS
the respective due dates and interest can be continued to be recognized in spite of non-recovery The answer is in
the affirmative. There is no specific exemption given to the staff accounts regarding classification as Non
performing Asset.
However, in the case of housing loan or similar advances granted to staff members where interest is payable after
recovery of entire principal, interest need to be considered as overdue from the first month onwards. Such
loans/advances should be classified as NPA only when there is a default in repayment of installment of principal
or payment of interest on.
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21. Checklist of documents to be taken from Management Following certificates/ documents should be in the audit file after audit of Bank branch
S.No
Description of the certificate
Obtained on
Date of
certificate
Checked by
1 A certificate from the Branch
Manager stating that the excess cash
holding is being reported to the
controlling authority on a regular
basis;
2 A certificate from the Branch
Manager to the effect that the closing
instructions submitted by the Branch
are the latest updated instructions
and no instruction have been issued
after that date.
2 A photo copy each of the
confirmation certificates for
Balances with RBI, SBI and other
banks;
3 A copy of the reconciliation statement
in respect of differences in such
balances with RBI, SBI and other
banks;
4 A copy of the Demat Account
relating to investments;
investments at the end of the year
duly confirmed by the Branch
Manager;
5 List of large advances i.e. those in
respect of which the outstanding
amount is in excess of 5% of the
aggregate advances of the Branch or
Rs.2.00 crores whichever is less duly
certified by the Branch Manager;
6 List of renewal proposals pending at
Branch Level at the end of the year
duly
confirmed by the Branch
Manager;
7 A copy of the letter from Head
Office regarding Sanction limit of
the Branch Manager;
8 List of proposals sanctioned during
the year;
9 List of cases where registration of
creation of charge with Registrar
of Companies pending at the
end of the year;
10 List of cases where the prescribed
period of 30 days for registration of
creation of charge is over as at the
end of the year;
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11 List of cases where search
reports obtained from
professionals for loans
sanctioned to various
companies;
12 List of cases where the Branch has
not obtained acknowledgement of
Debt (AOD)/ Balance Confirmation
letters at the end of the year;
13 List of cases where the Branch has
not obtained stock/book debts
statements at the end of the year;
14 List of cases where the stock audit
is mandatorily required to be
carried out
15 Compliance on Adverse features
noted in stock audit reports and
whether all issues
are closed.
16 A certificate from the Branch
Manager for inspection or physical
verification of securities charged to
the Bank;
29
17 Statement from the Branch Head
regarding cases of inspection due
as on March
31st and inspection actually
carried out during the year;
18 List of cases where copies of
insurance policies are yet to be
received at the end of the year;
19 Statement of credit card dues at the
year end;
20 Copy of Head office instructions for
identification of NPAs and
classification of advances;
21 Copies of Master circular issued by
the Reserve Bank of India;
22 List of cases where authorized legal
action for recovery of advances are
pending at the
end of the year;
23 A list of cases where legal action
for recovery of advances or
recalling of advances was
authorized by
30
22. Auditing Review and Other Standards
The work has been planned and performed in accordance with the following Auditing, Review
and Other Standards as prescribed by the Institute of Chartered Accountants of India to the
extent applicable for the engagement
SA reference Description
SA 200 OVERALL OBJECTIVES OF THE INDEPENDENT AUDITOR AND THE CONDUCT OF AN AUDIT IN ACCORDANCE WITH STANDARDS ON AUDITING.
SA210 AGREEING THE TERMS OF AUDIT ENGAGEMENTS.
SA220 QUALITY CONTROL FOR AN AUDIT OF FINANCIAL STATEMENTS.
SA230 AUDIT DOCUMENTATION.
SA240 THE AUDITOR’S RESPONSIBILITIES RELATING TO FRAUD IN AN AUDIT OF FINANCIAL STATEMENTS
.
SA250 CONSIDERATION OF LAWS AND REGULATIONS IN AN AUDIT OF FINANCIAL STATEMENTS.
SA265 COMMUNICATING DEFICIENCIES IN INTERNAL CONTROL TO THOSE CHARGED WITH GOVERNANCE AND MANAGEMENT.
SA300 PLANNING AN AUDIT OF FINANCIAL STATEMENTS.
SA315 IDENTIFYING AND ASSESSING THE RISK OF MATERIAL MISSTATEMENT THROUGH UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT.
SA320 MATERIALITY IN PLANNING AND PERFORMING AN AUDIT.
SA330 THE AUDITOR’S RESPONSES TO ASSESSED RISKS.
SA402 AUDIT CONSIDERATIONS RELATING TO AN ENTITY USING A SERVICE ORGANISATION.
SA450 EVALUATION OF MISSTATEMENTS IDENTIFIED DURING THE AUDIT.
SA500 AUDIT EVIDENCE.
SA501 AUDIT EVIDENCE—SPECIFIC CONSIDERATIONS FOR SELECTED ITEMS.
SA530 AUDIT SAMPLING.
SA540 AUDITING ACCOUNTING ESTIMATES, INCLUDING FAIR VALUE ACCOUNTING ESTIMATES, AND RELATED DISCLOSURES.
SA560 SUBSEQUENT EVENTS.
SA580 WRITTEN REPRESENTATIONS.
SA600 USING THE WORK OF ANOTHER AUDITOR.
SA610 USING THE WORK OF INTERNAL AUDITORS.
SA700 FORMING AN OPINION AND REPORTING ON FINANCIAL STATEMENTS.
SA706 EMPHASIS OF MATTER PARAGRAPHS AND OTHER MATTER PARAGRAPHS IN THE INDEPENDENT AUDITOR’S REPORT.
31
23. PEER REVIEW
Once a Practice Unit is selected for Review, its assurance engagement records pertaining to the
Peer Review Period shall be subjected to Review.
The Reviewer is required to adopt a combination of compliance approach and substantive
approach in the Review process.
As per SA 230 Audit Documentation is a record of audit procedures performed, relevant audit
evidence obtained and conclusions reached by the auditor
Audit Documentation assists
The auditor in planning and performing the audit
In supervision and review work
In creating accountability in work
In retaining a record of significant matters for future audits
In enabling the conduct of quality control reviews and inspections in accordance with
SQC-1
Form of Documentation can be in any of the following forms
Paper – working papers
Electronic – System files
Other media
Examples of Audit Documentation
Audit Plan
Audit Programmes
Copies of agreements entered into by the client
Checklists
Analysis done – ratio analysis
Letter of Representation
Correspondence (including e-mails) regarding significant matters
32
Nature, Timing & Extent of Audit Documentation
Identifying the characteristics of the specific items or matters tested
Who performed the audit work and the date such work was completed
Who reviewed the audit work performed and the date and extent of such review
Documentation of ―significant matters‖ discussed with the management and others
(including the nature of the significant matters discussed and when and with whom the
discussions took place) and related significant professional judgements
If there was information about a significant matter which was identified as not being in
concurrence with the auditor’s final conclusion regarding it, the auditor shall document
how the inconsistency was addressed
A pivotal factor in determining the form, content and extent of audit documentation for
significant matters is the extent of ―professional judgement‖ exercised in performing and
reviewing the work
24. Ensure that the following are available in the bank audit file
1) Copy of letter sent to the previous auditors
2) Engagement letter as envisaged by AAS 26
3) Audit plan
4) Audit program
5) Papers and records which would provide the basis for relying on the internal controls
6) The basis for deciding on the ‘sample selection’ for scrutiny
7) All confirmations and certificates wherever necessary
8) In areas where difference of opinion exists, the views of the organization should be obtained in
writing and recorded.
9) Significant ratio and trend analysis
10) Significant audit observations culled out from other audit reports
11) Circulars, notifications and directives from Government / Regulatory Authority etc which have a
bearing on the audit
33
12) Checklists duly filled up, indexed and cross referenced to the working papers
13) Note on resolution of major observations with specific reference to NPA & provisioning
14) Management letter of representation
25. OTHER SALIENT FEATURES
1. Sharing of recoveries made in DI&CGC claim settled accounts Certificate
2. PMRY subside claim certificate 3. Technology Up gradation Fund Scheme – TUF Scheme Interest subsidy certificate
4. Verification of Miscellaneous expenditure accounts. 5. Verification of Miscellaneous Income accounts 6. EPF Turnover commission 7. Interest subvention for Agricultural Loans Certificate 8. Interest subvention for Housing Loan 9. Interest subvention for Education Loan
26. COMPILING THE REPORT
Two Audit Reports One Short Form – Expressing Opinion on the Financial Statements of the branch Other – Long Form Audit Report Ensure that all queries and observation have been discussed with the Branch Manager
and replies obtained Discussion on a daily basis Obtain a Management letter of representation
At the end of audit (before you leave the branch)
Obtain certificate from Branch Manager with regard to persons attended, No of days taken for audit. Receive one set of all statements meant for the auditor. Prepare list of traveling and conveyance expenses
Ensure that permanent and current files are properly prepared and all the papers
pertaining to the audit are serially numbered
34
27. Members are requested to visit Branch web site which contains the
following materials.
i ) List of various laws applicable to the branch
ii) Specimen of No Objection Letter
iii) Specimen Management Representation Letter
iv) Specimen Checklist for Special Considerations in CBS environment
v) Non corporate entities- W. C. limit exceeding Rs 20 lakh-
RBI Audit Report Format
LAST WORDS
IF YOU FAIL TO PLAN, YOU PLAN TO FAIL
------------------------------------------------------------------------------------------------------------
Thank you V.K.V
CA V.K. VISWANATHAN
Off : 0452 – 2628440
Mob: 9443497301, 9626014871
e-mail : [email protected] and [email protected]
