1. General – Area of Review Pre Audit

a) Review of Latest available inspection reports of Internal/Concurrent/RBI/Statutory Auditors and compliance thereof.

b) Review of Closing Circular issued by Head Office

c) Study of Significant accounting policies of the Bank & computer system

d) Study of Business mix of the Branch & determination of the sample size and percentage of checking in each area

e) Compliance of Mandatory Accounting Standards / Auditing Standards and RBI circulars

f) Intimation in writing whether given to the Branch Manager regarding requirements for audit and documents to be kept ready for audit

Checklist

2. Certain Aspects

Sr No. Items Important Audit Checks 
1.    

Deposit

i.   Term

ii. Saving

iii.  Current

iv. FCNR/ NRE/ NRNR

Verify transactions during the year relating to:

i)    New Accounts opened & Accounts closed;

ii)  Dormant Accounts;

iii)  Interest calculations;

iv)  Test check account statements for unusual/  large/ overdraft transactions;

v)    Overdue Term deposits & banks policy for its renewal;

vi)  Accrual of interest;

vii)RBI Norms for Non-resident deposits & its operations – with due importance to opening and operation of accounts like NRE, NRNR, FCNR, RFC, etc.;

viii) Interest on various types of deposits;

ix) Tax Deducted at Source.

x) Large deposits placed at the end of the year (probable window dressing).

xi) Examine unusual trend in account opening or account closing, dormant accounts that have suddenly been reactivated by heavy cash withdrawals or deposits, overdrawing, etc.

xii)  Examine interest trends as compared to average annual deposits (monthly average figures).

2. Advances i) Review monitoring reports (irregularity reports) sent by the branch to the controlling authorities in respect of irregular advances.

ii) Review appraisal system, Files of large as well as critical borrowers, sanctions, disbursement, renewals, documentation, systems, securities, etc.

iii) Review on test check basis operations in the Advances Accounts.

iv) Compliance of sanction terms and conditions in the case of new advances.

v) 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.

vi) Charge of interest and recovery for each quarter or as applicable to be verified.

vii)  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.

viii) Check classification of advances, income recognition and provisioning as per RBI Norms/ Circulars.

ix) Examine interest trends as compared to average annual advances (monthly average figures).

x) Scrutinise the final advances statements with regard to assets classification, security value, documentation, drawing power, out standings, provisions, etc.

xi) Check whether Non-Fund based (Letter of Credits/ Bank Guarantees) exposure of the borrowers is within the sanctioned limits.

xii)  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.

xiii)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

3. Profit & Loss Account Income/ Expenditure:

Verify:

i)   Short debit of interest/ commission on advances;

ii) Excess credit of interest on deposits;

iii)  In case the discrepancies are existing in large number of cases, the auditor should consider the impact of the same on the accounts;

iv)  Determine whether the discrepancies noticed are intentional or by error;

v)  Check whether the recurrence of such discrepancies are general or in respect of some specific clients;

vi)  Proper authority in sanction and disbursement of expenses as also the correctness of the accounting treatment given as to revenue/ capital/ deferred expenses.

vii) Check accrual of income/ expenditure especially for the last month of the financial year.

viii) 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.

4. Balance Sheet Cash & Bank Balances:

i) Physically verify the Cash Balance as on March 31, 2020 or reconcile the cash balance from the date of verification to March 31, 2020.

ii) Confirm and reconcile the Balances with banks as on March 31, 2020.

Investments:

i) 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.

ii)  Check receipt of interest and its subsequent credit to be given to Head Office.

Advances Provisioning:

i) 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.

ii) Partial Recovery in respect of NPA accounts should be generally appropriated against principal amount in respect of doubtful assets.

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.

Inter Branch Reconciliation (IBR):

i) 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 unreconciled entries in the banking system makes the area fraud-prone.

ii) Check up head office inward communication to branch to ascertain date up to which statements relating to inter branch reconciliation have been sent.

Check and report:

i) Reversal of any large/ old/ unexplained entries, which had remained outstanding in IBR.

ii) Items of revenue nature, cash-in-transit (for example, cash meant for deposit into currency chest) which remains pending for more than a reasonable period.

iii) Double responses to the entries in the Accounts.

iv)    Test Check accuracy and correctness of “Daily statements” which are prepared by the branch and sent to IOR department. The auditor should duly consider the extent of non-reconciliation in forming his opinion on the financial statements. Where the amounts involved are material, the auditor should suitably qualify his audit report

Suspense Accounts, Sundry Deposits, etc.:

v)  Suspense accounts are adjustment accounts in which certain debit transactions are temporarily posted whose authorisation is pending for approval. Sundry Deposit accounts are adjustment accounts in which certain credit transactions are temporarily posted whose authorisation is pending for approval, As and when the transactions are duly authorised by the concerned officials they are posted to the respective accounts and the Suspense account/ Sundry Deposit account is credited/ debited respectively.

vi)Ask for and analyse their year-wise break-up. o Check the nature of entries parked in such Accounts.

vii) Check any movement in such old balances and whether the same is genuine and has been properly authorised by the competent authority.

viii) Check for any revenue items lying in such accounts and whether proper treatment has been given for the same.

5.

 

Auditors Report & Memorandum of Changes i) The Auditors Report should be a self-contained document and should contain no reference of any point made in any other report including the LFAR;

ii)   Include Audit Qualifications in the Auditors Report and not in the LFAR;

iii)  Quantify the Audit Qualifications for a better appreciation of the point made to the reader;

iv)  For suggesting any changes in the financial statements of the branch, quantify the same in the Memorandum of Changes (MOC) and make it a subject matter of qualification and annex it to the Auditors Report.

INCOME RECOGNITION and ASSET CLASSIFICATION NORMS – AT A GLANCE

Credit Facility Basis for treating a Credit Facility as NPA Remarks
Term Loans Interest or installment remains overdue for a period of more than 90 days from end of the quarter w.e.f. March 31, 2004

Agricultural Advances: In respect of advances granted for agricultural purposes where interest and/ or installment of principal remains overdue for a period of more than two harvest seasons but for a period not exceeding two half years, the advance should be treated as NPA.

Overdue: An amount due to the bank under any credit facility is ‘Overdue’ if it is not paid on the due date fixed by the bank.
Cash Credits & Overdrafts The account remains continuously “out of order” for a period of more than 90 days i.e. Outstanding balance remains continuously in excess of the sanctioned limit/ drawing power or there are no credits continuously for a period of 90 days as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period. Banks may not classify an account merely due to existence of some deficiencies, which are of temporary nature such as non-availability of adequate drawing power, balance outstanding exceeding the limit, non-submission of stock statements and non-renewal of the limits on the due date, etc. However, stock statements older than three months should not be considered for drawing power and the working capital borrower account will become NPA if such irregular drawings are permitted in the account for a continuous period of 90 days even though the unit may be working or the borrower’s financial position is satisfactory. Further, an account where the regular/ ad-hoc credit limits have not been reviewed/ renewed within 90 days from the due date/ date of adhoc sanction respectively, will be treated as NPA.
Bills Purchased and Discounted The bills purchased/ discounted remains overdue for a period of more than 90 days. Overdue interest should not be charged and taken to income account in respect of overdue bills unless it is realised.
Other Accounts Any amount to be received in respect of that facility remains overdue for a period of more than 90 days.
Government State Government guaranteed advances in respect of which guarantee has been invoked and has remained in default for more than 90 days. The credit facilities backed by guarantee of Central Government though overdue may be treated as NPA only when the government repudiates its guarantee when invoked. However, income shall not be recognised if the interest or installment has remained overdue or the account has remained continuously out of order or the bills or any other facility has remained overdue for a period of more than 90 days.

Author Bio

Qualification: Post Graduate
Company: ANUJ CONSULTANCY SERVICES
Location: VIRAR EAST, Maharashtra, IN
Member Since: 11 Jun 2020 | Total Posts: 3

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3 Comments

  1. Raj says:

    I have query in regards to Saving bank account? Actually, I have opened one saving bank account with SBI around 12 years ago, and about 7 years ago I transferred it to other branch in same locality, now, after 7 years, Bank officials are saying to submit Fresh account opening form with KYC documents for this account, because it’s 12 years old and under audit scrutiny, Now, May I know can auditor give it’s qualification purely on this basis ,That just due to old account and somehow branch don’t have physical record ,they can compel customer to do this thing? By the way My account is general saving account with fully KYC complied! Till yet I know qualifications can come only for unusual / suspected and kyc incompliant accounts.what happen in my case is purely recklessness of branch to maintain records !

    1. AGRAJ1991 says:

      Hi,
      Raj…
      Auditor can not give qualification on that basis,but there should be the records of each customer either in hard-copy or soft copy for KYC purpose. I can understand that the problem faced by you even your account was fully KYC compiled, Generally this occurred due to fulfillment of the maintenance of records as per the internal terms & conditions or due to change in some terms & conditions.
      Here in your case i think it happens just because misplace of your and of course, this is purely recklessness of branch to maintain records.

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