prpri Bank Audit: Investment Verification Bank Audit: Investment Verification

As so many branch audit are closed, the investment made by the banks are generally done by the head office of the bank, the central auditor required to make its main audit report, however the verification of investments is to be done on the following basis:

Classification of Investments:

In India

    • In Government securities.
    • Other approved securities.
    • Shares
    • Debentures and bonds
    • Subsidiary and Joint ventures
    • Others to be specified.

In Outside India-

  • In Government securities.
  • Other approved securities.
  • Others to be specified.

Audit Procedure and Verification

  • Internal Control Evaluation and review of Investment Policy.
  • Examination of reconciliation.
  • Separation of Investment functions
  • Examination of documents
  • Physical verification.
  • Examination of valuation
  • Dealing insecurities on behalf of others
  • Examination of classification and shifting from Available for sales to Held to maturity.
  • Special purpose certificate required by the central auditor to issue that is its own Investment account and PMS client account.
  • Non Performing Investment:
    • Preference shares where the fixed dividends are in arrears or is not paid.
    • Unquoted equity shares which are valued at cost at Re 1 due to non-availability of the latest balance sheet.
    • Securities issue by the issuer who has given any credit any facility which is NPA in the bank’s book.
    • Equity, debentures bond etc. received as a result of conversation of non-performing advances.
  • Income recognitions Norms-Investments:
    • Performing investments on accrual basis.
    • Income of NPI should be recognized on realization.
    • Income of MF’s on cash basis only.
  • Governments Guarantee: Income on securities of corporate and PSU iro which the payment of interest and repayment have been guaranteed by the the CG/SG can be accounted for on accrual basis. However, where the interest is not serviced regularly and it is arrears such income caanot be accounted for on accrual basis.
  • Discount earned in discounted instruments i.e. on commercial papers, zero coupon bonds should be booked on accrual basis over the remaining period to maturity.
  • Profit/loss on sale of investments including HTM category should be shown under the profit/loss on sale of investments

Hope this article will guide you to perform the verification of investment of a bank.

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July 2021