AUDIT OF BANK

EXECUTIVE SUMMERY
A banking companies are requires maintaining the books of account in accordance with section 209 of the companies act, 1956. Banking genera ! a sound interna contro s!stem their da! to da! transaction. "he auditor has to e#a uate such s!stem carefu !. "he fundamenta requirement of an audit, as regards reporting on statement of account can be discharged from the e$amination of the interna checked and #erification of assets and iabi ities b! making a comparison and reconci iation of ba ance with those in the !ear and that of amount of income and e$penses b! app ication of test checks. "he banking regu ation act casts greater responsibi ities on the directors of banks as compared to those of other companies in the matter of super#ision o#er their working. "herefore, the! e$ercise, or are e$pected to e$ercise greater super#ision o#er the affairs of bank. "he auditor is entities to re ! on such super#ision and to imit his checking to test checks. "he financia position of a bank is depended on the condition of assets, oan, in#estment, cash ba anced and those of its iabi ities and fund. "heir #erification form an important part of the ba ance sheet. %ost of the bank ha#e their own interna audit or inspection department entrusted with the responsibi ities of checking the account of #arious branches. "he statutor! auditor ma! not, therefore, dup icate work.

AUDIT OF BANK

INTRODUCTION
"he audit of banking companies p a!s a #er! important ro e in &ndia as it he p to regu ate the banking companies in right manner. &n audit of banks inc udes #arious t!pes of audit which are norma ! carried out in banking companies such as statutor! audit, re#enue'income e$penditure audit, concurrent audit, computer and s!stem audit etc. the abo#e audit is main ! conducted b! the banks own staff or e$terna auditor. (owe#er, the ru es and the regu ation re ating to the conduct of #arious t!pes of audit or inspections differ from a bank to bank e$pect the statutor! audit for which the )B& guide ines is app icab e. &n this, & ha#e gi#en more importance on the o#era bank audit s!stem. &n toda!*s competiti#e wor d audit is #er! much necessar! as we as compu sor! , because in#estor in#esting decision is depend on that particu ar concept if auditor has e$pressing his #iew about particu ar organi+ation is true and fair then in#estor can get his ideas about how much he shou d in#est in particu ar companies.

AUDIT OF BANK

ORIGIN AND EVOLUATION OF AUDITING

1) Origin of ter !

"he term audit is deri#ed from the ,atin term -audire. mean to hear. &n ear ! da!s, an auditor used to isting to the account read out b! the accountant in order to check them. ") An#ient origin ! Auditing is as o d as accounting. &t was in use in a ancient

countries such as %esopotamia, /g!pt, 0reece, )ome, 1.2., and &ndia. "he 3edas,)ama!ana, %ahabharata contain references to accounting and auditing. Arthashasastra b! 2auti !a gi#es detai ed ru es for accounting and auditing of pub ic finances. "he %aur!as, the 0uptas and the %ugha s had de#e oped and accounting and auditing s!stem to contro state finances. "hus, basica !, accounting and auditing had their origin in the need for the go#ernment to contro the income and e$penditure of the state and the arm!. "he origina ob4ect of auditing was to detect and pre#ent errors and frauds.

AUDIT OF BANK

$) Co %&'(or) *&+it( of #o %*nie(! 5ith increasing number of companies, the companies* acts in different countries began pro#iding for compu sor! audit of accounts of companies. "hus 1.2. audit of accounts of imited companies became compu sor! in 1900. &n &ndia, the companies act, 1916 made audit of compan! accounts compu sor!. 5ith increase in si+e of companies, the ob4ect of audit a so shifted to ascertaining whether the accounts were -true and fair. rather than -true and correct.. "hus, the emphasis was not arithmetica accurac! but on fair representation of financia affairs. ,) De-e'o% ent of *##o&nting *n+ *&+iting (t*n+*r+! "he internationa accounting standards committee and the accounting standards board of institute of chartered accountant of &ndia ha#e de#e oped standard accounting and auditing practices to guide the accountants and auditor in their da!7to7da! work. .) Co %&ter te#/no'og)! "he atest de#e opment in auditing pertains to the use of computers in accounting as we as auditing. )ea !, auditing has come a ong wa! from -hearing. the accounts in the ancient da! to using computers to e$amine computeri+ed accounts of toda!.

AUDIT OF BANK

DEFINITION OF AUDITING
3arious persons such as the owners, shareho ders, in#estors, creditors, enders, go#ernment etc. use the fina account of business concern for different purposes. A these users need to be sure that the fina accounts prepared b! the management are re iab e. An auditor is an independent e$pert who e$amines the accounts of a business concern and reports whether the fina accounts are re iab e or not. 8ifferent authorities ha#e defined auditing as fo ows.

M*&t0 define the auditing as -auditing is concerned with the #erification of accounting data, with determining the accurac! and re iabi it! of accounting statement and reports..

Intern*tion*' *&+iting g&i+e'ine( defines the auditing as -auditing is an independent e$amination of financia information of an! entit! with a #iew to e$pressing an opinion thereon..

AUDIT OF BANK

BASIC 1RINCI1AL OF AUDITING!

1) Integrit)2 o34e#ti-it) *n+ in+e%en+en#e! "he auditor shou d be honest and sincere in his audit work. (e must be fair and ob4ecti#e. (e shou d a so be independent. ") Confi+enti*'it)! "he auditor shou d keep the information obtained during audit, confidentia . (e shou d not disc ose such information to an! third part!. (e shou d, keep his e!es and ears open but his mouth shut. $) S5i'' *n+ #o %eten#e! "he auditor shou d ha#e adequate training, e$perience and competence in Auditing. (e shou d ha#e a professiona qua ification 9 i.e. be a :hartered Accountant; and practica e$perience. (e shou d be aware of recent de#e opments in the fie d of auditing such as statement of &:A&, changes in compan! aw, decisions of courts etc.

AUDIT OF BANK

AUDIT OF BANK

,) 6or5ing %*%er(! "he auditor shou d maintain working papers of important matters to pro#e that audit was conducted with due care according to the basic princip es. .) 1'*nning! "he auditor shou d p an his audit work. (e shou d prepare an audit programmed to comp ete the audit efficient ! and in time. 7) A&+it e-i+en#e! "he report of the auditor shou d be base on e#idence obtained in the course of audit. "he e#idence ma! be obtained through #ouching of transactions, #erification of assets and iabi ities, ratio ana !sis etc.

8) E-*'&*tion of *##o&nting ()(te

*n+ intern*' #ontro'!

"he auditor shou d ensure that the accounting s!stem is adequate. (e shou d see that a the transaction ha#e been proper ! recorded. (e shou d stud! and e#a uate the interna contro s. 9) O%inion *n+ re%ort! "he auditor shou d arri#e at his opinion on the account based on the audit e#idence and submit his report. "he opinion ma! be

AUDIT OF BANK

unqua ified, qua ified or ad#erse. "he audit report shou d c ear ! e$press his opinion. ,aw shou d require the content and form of audit report.

AUDIT COMMITTEE
&n pursuance of )B& circu ar <eptember 26, 1995, a bank is required to constitute an Audit :ommittee of its Board. "he membership of the audit committee is restricted to the /$ecuti#e 8irector, nominees of :entra 0o#ernment and the )B&, :hartered Accountant director and one of the non7officia directors. =ne of the functions of this committee is to pro#ide direction and o#ersees the operations of the tota audit function in the bank. "he committee a so has to re#iew the interna inspection function in the bank, with specia emphasis on the s!stem, its qua it! and effecti#eness in terms of fo ow up. "he committee has to re#iew the s!stem of appointment and remuneration of concurrent auditors. "he audit committee is, therefore, connected with the functioning of the s!stem of concurrent audit. "he method of appointment of auditors, their remuneration and the qua it! of their work is to be re#iewed b! the Audit :ommittee. &t is in this conte$t that periodica meeting b! the members of the audit committee with the concurrent auditors he p the audit committee to o#ersee the operations of the tota audit function in the bank.

AUDIT OF BANK

:onsidering the co#erage of this audit assignment and the specia i+ed nature of work there is a so a need for training to be imported to the staff of the auditors. "his training has to be gi#en in specia i+ed fie d such as foreign e$change, computeri+ation, and areas of income eakage, fraud prone areas, determination of credit rating and other simi ar specia i+ed areas. "he bank can organi+e such training programmed at #arious p aces so that it can ensure the qua it! of audit.

AUDIT OF BANK

ADVANTAGES OF AUDITING
1) A((&r*n#e of tr&e *n+ f*ir *##o&nt(! Audit pro#ides an assurance to the #arious users of fina accounts such as owners, management, creditors, enders, in#estors, go#ernment*s etc. that the accounts are true and fair. ") Tr&e *n+ F*ir 3*'*n#e (/eet! "he user accounts can be sure that the assets and iabi ities shown in the audited ba ance sheet show the concern, as it is i.e. neither more nor ess. $) Tr&e *n+ f*ir %rofit *n+ 'o(( *##o&nt! "he user can be confident that the audited profit and oss account shows the true amount of profit or oss as it is i.e. neither more nor ess.

,) T*'') :it/ 3oo5(! "he audited fina account can be taken to ta ! with the books of accounts. "hus, the income7ta$ officer can start with the figure of

AUDIT OF BANK

audited books profit, make ad4ustments and compute the ta$ab e income. An outside user need not go through the entire books. .) A( %er (t*n+*r+ *##o&nting *n+ *&+iting %r*#ti#e(! "he audited fina accounts fo ow the standard accounting and auditing princip es aid down b! professiona bodies. "hus, audited accounts are based on ob4ecti#es standard and not on persona whims and fancies of a particu ar accountant or auditor. 7) Dete#tion *n+ %re-ention of error( *n+ fr*&+(! Audited accounts can be assumed reasonab ! free from errors and frauds. "he auditor with his e$pert know edge wou d take due care to see that /rrors and frauds are detected so that the accounts shoe a true and fair #iew. 8) A+-i#e on ()(te 2 t*;*tion2 fin*n#e! "he auditor can a so ad#ise the c ient about the accounting s!stem, interna contro , interna check, interna audit, ta$ation, finances etc.

AUDIT OF BANK

LIMITATIONS OF AUDITING
1. An auditor cannot check each and e#er! transaction he has to check on ! the se ected areas and transaction on a samp e basis. 2. Audit e#idence is not conc usi#e in nature thus confirmation b! a debtor is not conc usi#e e#idence that the amount wi be co ected. &t is said e#idence is rather than conc usi#e in nature. 6. An auditor cannot be e$pected to disco#er deep ! aid frauds usua ! in#o #es acts designed to concea them such as forger! , ce ibate fai ure to record transactions, fa se e$p anation and hence are difficu t to detect. >. Audit cannot assure the users of account about the future profitabi it!, prospects or the efficienc! of the management. 5. An auditor has to re ! upon e$pert auditor ma! ha#e to re ! on e$pert in re ated fie d such as aw!ers, engineers, #a ue*s etc. for estimating contingent iabi ities, #a uation of fi$ed assets etc.

AUDIT OF BANK

INTERNAL CONTROL IN CERTAIN SELECTED AREAS Gener*'

"he staff and officer of a bank shou d ift form one position to another frequent ! and without prior notice. "he work of one person shou d a wa!s be checked b! another person in the norma course of business. A arithmetica accurac! of the book shou d be pro#ed independent ! e#er! da!. A bank form 9e.g. books, demand draft book, ?tra#e ers* cheque, etc.; shou d be kept in the possession of an officer, and another responsib e officer shou d occasiona ! #erif! the stock of such stationar!. "he mai shou d be opened b! responsib e officers. <ignature on a the etters and ad#ice recei#ed from other branches of the bank or its correspondence shou d be checked b! an officer with signature book. "he signature book of the te egraphic codebook shou d be kept with responsib e officers, used, and seen b! authori+ed officers on !. "he bank shou d take out insurance po icies against oss and emp o!ees infide it!. "he power of officers of different grade shou d be c ear ! defined.

AUDIT OF BANK

"here shou d be surprise inspection of office and branches at periodic inter#a b! the interna audit department. "he irregu arities pointed out in the inspection reports shou d be prompt ! rectified.

C*(/!
:ash shou d be kept in the 4oint custod! of two responsib e peop e. &n addition to norma checking b! the chief cashier, cash shou d be test checked dai ! and counted in fu occasiona ! b! responsib e officers unconnected with the ba anced shown the ba anced shown b! the da!book e#er! da!. "he cashier shou d ha#e no access to the edger account and the da!book. "his is an important safeguard. Bank management are often tempted to used cashier because of their shorter working hours as a edger c erks in the absence of regu ar staff on ea#e, etc. "his cash can be a #er! e$pensi#e price of econom!.

C'e*ring(!
:heques recei#ed b! the bank in c earing shou d with the ist accompan!ing them independent ist shou d be prepared for cheques

AUDIT OF BANK

debited to different customers account and those return unpaid and these shou d be checked b! officers. "he tota numbered and amount of cheques sent out the bank for c earing shou d be agreed with the tota of the c earing pa!7in7s ip, b! an independent person. "he unpaid cheques recei#ed back return c earing shou d be checked in the same manner as the cheques recei#ed.

Con(tit&ent 'e+ger!
Before making pa!ment, cheques shou d proper ! checked in respect of signature, date, ba anced in hand etc. and shou d be passed b! an officers and entered into constituent*s account. @o withdrawa shou d norma ! be a owed against cheques deposited on the same da!. An officer shou d check a the entries made in the edger with the origina document particu ar ! nothing that the correct account ha#e been debited or credited. ,edger keeper shou d not ha#e access to #oucher summar! sheet after the! ha#e been checked b! an officer and to the da!book. &nterest debited or credited to constituent account shou d be independent ! checked.

AUDIT OF BANK

Bi'' of #o''e#tion!
A documents accompan!ing the bi shou d be recei#ed and entered in the register b! a responsib e officer. A the time of dispatch, the officer shou d a so see that a document sent a ong with the bi s. "he account of customers or principa s shou d be credited on ! after bi s ha#e been co ected or an ad#ice to that effect recei#ed form the branch or agent to which the! were sent for co ection. &t shou d be ensured that bi s sent b! one, branch for co ection to another branch of the bank, are not in the co ection twice in the ama gamated ba ance sheet of the bank. Aor this purpose, the recei#ing branch shou d re#erse the entries such as bi s at the end of the recei#ing branch at the end of the !ear fir c osing purposes.

Bi'' %&r#/*(e+!
At the time of purchased of bi , an officer shou d #erif! that a the document of tit es are proper ! assigned to the bank. <ufficient margin shou d be kept whi e purchased or discounting a bi to co#er an! dec ine in the #a ue of the securit! etc.

AUDIT OF BANK

&f the bank is unab e to co ect a bi on the due date, immediate ! step shou d be taken to reco#eries the amount form the drawer against the securit! pro#ided. A irregu ar outstanding account shou d be reported to the head office. &n the case of purchased outstanding at the c ose of the !ear discount recei#ed thereon shou d thereon shou d be proper ! apportioned between !ears.

Lo*n *n+ *+-*n#e(!

"he bank shou d make ad#ances on ! after satisf!ing itse f as to the creditworthiness of the borrowers and after obtaining sanction from the proper authorities of bank. "he entire necessar! document 9e.g. agreement, demand promissor! note, etter of h!pothecation etc.; <ufficient margin shou d be kept against securities taken to co#er an! dec ine in the #a ue thereof and a so to comp ! with proper authorities of directi#es. <uch margin shou d be determined b! the proper authorities of the bank as a genera po ic! or for particu ar account. A the securities shou d be recei#ed and returned b! responsib e officer. "he! shou d be kept in the 4oint custod! of two such officer

AUDIT OF BANK

&n the case of good in possession of the bank, content of the package shou d be test checked at the time of receipt. <urprise check shou d be made in respect of h!pothecated goods not in the possession of the bank. %arket #a ue of good shou d be checked b! officer of the bank b! persona enquir! in addition to the in#oice to the in#oice #a ue gi#en b! the borrowers. As soon as an! increased or decreased takes take p ace in the #a ue of securities proper entries shou d be made in the drawing power book and dai ! ba ance book. "hese entries shou d be checked b! an officer. A account shou d be kept within both the drawing power and the sanctioned imit at a times. At the account, which e$ceed the sanctioned imit or drawing power or are against unappro#ed securities or are otherwise irregu ar, shou d be brought to the notice of the management'head office regu ar !.

De *n+ +r*ft!
"he signature on demand draft shou d be checked b! an officer with signature book. A the best demand draft so d b! shou d be immediate ! confirmed b! the ad#ice to the branches concerned.

AUDIT OF BANK

&f the branches does not recei#e does not recei#ed proper confirmation of ant demand draft form the issuing branch or does not recei#ed credit in its account with that branches, it shou d take immediate step to ascertain the reason.

Inter 3r*n#/ *##o&nt!

"he account shou d be ad4usted on ! on the basis of app ication with reasonab ! good credit assessment. Brompt action shou d be taken preferab ! b! centra authorities, if an! entries are not reasonab ! time.

Cre+it #*r+ o%er*tion!

"here shou d be effecti#e screening of app ication with reasonab ! good credit assessment. "here shou d be strict contro o#er storage and issues of card. "here shou d be at s!stem whereb! a merchant confirm the statues of uti i+ed imit of a credit card ho der form the bank before accepting the sett ement in case the amount to be sett ed e$ceed a specified percentage of the tota imit of the credit ho der. "here shou d be s!stem of prompt reporting b! the merchant of a sett ement accepted b! them through credit cards.

AUDIT OF BANK

)eimbursement to merchants shou d be made on ! after #erification of the #a idit! of merchant acceptance of card. A the reimbursement shou d be made immediate ! charged to the customers account. "here shou d be a s!stem to ensure that statements are sent regu ar ! and prompt ! to the customers. "here shou d be a s!stem to monitor and fo ow up customer pa!ment. &tems o#erdue be!ond a reasonab e period shou d identification and attended to carefu !. :redit shou d be stopped b! informing the merchant through periodic bu etin, as ear ! as possib ! to a#oid increased osses. "here shou d be a s!stem of periodic re#iew of credit card ho der account. =n the basis, the imit of customer ma! be re#isedC it necessar!, the re#iew shou d a so inc udes determination of doubtfu amount and the pro#isioning in respect thereof.

AUDIT OF BANK

STAGES IN AUDITING 1; 1re'i in*r) :or5!

a; "he auditor shou d acquire know edge of the regu ator! en#ironment in which the bank operates. "hus, the auditor shou d fami iari+e himse f with the re e#ant pro#isions of app icab e aws and ascertain the scope of his duties and responsibi ities in accordance with such aws. (e shou d be we acquainted with the pro#isions of the Banking )egu ation act, 1956 in the case of audit of a banking compan! as far as the! re ate of preparation and presentation of financia statements and their audit. b; "he auditor shou d a so acquire know edge of the economic en#ironment in which the bank operates. <imi ar !, the auditor needs to acquire good working know edge of the ser#ices offered b! the bank. &n acquiring such know edge, the auditor needs to be aware of the man! #ariation in the basic deposit, oan and treasur! ser#ices that are offered and continue to be de#e oped b! banks in response to market conditions. "o do so, the auditor needs to understand the nature of ser#ices rendered through instruments such as etters of credit, acceptances, forward contracts and other simi ar instruments.

AUDIT OF BANK

c; "he auditor shou d a so obtain and understanding of the nature of books and records maintained and the termino og! used b! the bank to describe #arious t!pes of transaction and operations. &n case of 4oint auditors, it wou d be preferab e that the auditor a so obtains a genera understanding of the books and records, etc, re ating to the work of the other auditors, &n addition to the abo#e, the auditor shou d undertake the fo owingD &. =btaining interna audit reports, inspection reports, inspection reports and concurrent audit reports pertaining to the bank'branch. &&. =btaining the atest report of re#enue or income and e$penditure audits, where a#ai ab e. &&&. &n the case of branch auditors, obtaining the report gi#en b! the outgoing branch manager to the incoming branch in the case of change in incumbent at the branch during the !ear under audit, to the e$tent the same is re e#ant for the audit. d; )B& has introduced and offsite sur#ei ance s!stem for commercia banks on #arious aspects of operations inc uding so #enc!, iquidit!, asset qua it!, earnings, performance, insider trading etc., and has indicated that such reports sha be submitted at periodic inter#a s from the !ear commencing 170>71995. &t wi be appropriate to be

AUDIT OF BANK

fami iar with the reports submitted and to re#iew them to the e#ent that the! are re e#ant for the purpose of audit. e; &n a computeri+ed en#ironment the audit procedure ma! ha#e to appropriate ! tuned to the circumstances, particu ar ! as the books are not authenticated as in manua ! maintained accounts and the auditor ma! not ha#e his in7house computer faci it! to taste the software programmes. "he emphasis wou d ha#e to be aid on interna contro procedure re ated to inputs, securit! in the matter of access to /8B s!stem, use of codes, passwords, data inputs being prepared b! person independent of ke! operators and other bui d7in procedure for data #a idation and s!stem contro s as to ensure comp eteness and correctness of the transaction ke!ed in. s!stem documentation of the software ma! be obtained and e$amined. f; =ne set of tests that the auditor at both the branch e#e and head office e#e ma! app ! for audit of banks in ana !tica procedure.

2; E-*'&*tion of intern*' #ontro' ()(te !

&t ma! be noted that transaction in banks are #o uminous and repetiti#e, and fa into imited categories'heads of account. &t ma!, therefore, be more appropriate that the e#a uation of the interna contro is made for each c ass'categor! of transaction. &f the e$ercise of interna contro e#a uation is

AUDIT OF BANK

proper ! carried out, it assist the auditor to determine the effecti#eness or otherwise of the contro s!stems and according ! enab e him to strengthen his audit procedures, and a! appropriate emphasis on the risk prone areas. &nterna contro wou d inc ude accounting contro administrati#e contro s. *) A##o&nting #ontro'(! Accounting contro s co#er areas direct ! concerned with recording of financia transactions and maintenance of such registers'records as to ensure their re iabi it!. &nterna accounting contro s are a so en#isaging such procedures as wou d determine responsibi it! and fi$ accountabi it! with regard to safeguarding of the assets of the bank. &t wou d not be out of p ace of mention that there is a distinction between accounting s!stem and interna accounting contro s. Accounting s!stem en#isages the processing of the transaction and e#ents, their recognition, and appropriate recording. &nterna contro s are techniques, method and procedures so designed and usua ! bui t into s!stems, as wou d enab e pre#ention as we as detection of errors, omissions or irregu arities in the process of e$ecution and recording of transaction'e#ents. "he interna accounting contro s as wou d ensure pre#ention of errors, omissions and irregu arities wou d inc ude fo owingD

AUDIT OF BANK

&.

@o

transaction

can

be

registered'recorded

un ess

it

is

sanctioned'appro#ed b! the designated authorit!. &&. Bui t7 in dua contro 'super#isor! procedures ensure that there is an independent automatic check on input'#ouchers. &&&. @o sing e person has authorit! to initiate transaction and record through a stages to the genera edger. /ach da! transactions are accurate ! and prompt ! recorded, and the contro and subsidiar! records are kept ba anced through personne independent of each other. "he auditor wou d be we ad#ised to ook into other areas ma! ead to detection of errors, omissions and irregu arities, inter a ias in the fo owingD &. &&. %issing' oss of securit! paper, stationer! forms. Accumu ation of transactions'ba ances in nomina nomina heads of

accounts ike suspense, sundries, inter7branch accounts, or other head of accounts particu ar ! if there accounts particu ar ! if these accounts are e$tensi#e ! used to ba ance books, despite a#ai abi it! of information.

AUDIT OF BANK

&&&.

Accumu ation of o d' arge une$p ained'unsubstantiated entries in accounts with )eser#e Bank of &ndia and other banks and institutions.

&3.

"ransaction

represented

b! or

mere upon

book

ad4ustments

not of

e#idenced'substantiated contracts'commitments. 3. 3&.

non7honoring

=rigination debits & head office accounts'inter7branch accounts. Ana !tica re#iew procedure. irregu arities pointer out in interna

3&&. <erious

audit'inspection'specia audit 3&&&. :omp aints'matters pending in the #igi ance'grie#ances ce , as regards discrepancies in accounts of constituents, etc. &E. )esu ts of periodic ana !tica re#iew, if obser#ed as ad#erse.

*) A+ ini(tr*ti-e #ontro'!

AUDIT OF BANK

"hese are broad ! concerned with the decision making process and a!ing down of authorit!'de egation of powers b! the management. &t ma! be noted that in the norma course, the head office use the +ona 'regiona offices do not conduct an! banking business. "he! are genera ! responsib e for administrati#e and po ic! decisions which are e$ecuted at the branch e#e . 6; 1re%*r*tion of *&+it %rogr* e;e#&tion (a#ing fami iari+ed him the requirements of audit, the auditor shou d prepare an audit programme for substanti#e testing which shou d adequate ! co#er the scope of his work. &n framing the audit programme, due weightage shou d be gi#en b! the auditor to areas where, in his #iew, there are weaknesses in the interna contro s. "he audit programme for the statutor! auditors wou d be different from that of the branch auditor. At the branch e#e , basic banking operation are to be co#ered b! the audit. =n the other hand, the statutor! auditors at the head office 9pro#isions for gratuit!, inter7 office accounts, etc.;. "he scope of the work of the statutor! auditors wou d a so in#o #e dea ing with #arious accounting aspects and disc osure requirements arising out of the branch returns. >; 1re%*r*tion *n+ (&3 i((ion of *&+it re%ort e for (&3(t*nti-e te(ting *n+ it(

AUDIT OF BANK

"he branch auditor forwards his report to the statutor! auditors who ha#e to dea with the same in such manner, as the! considered necessar!. &t is desirab e that the branch auditors* reports are adequate ! in unambiguous terms. As far as possib e, the financia impact of a qua ification or ad#erse comments on the branch accounts shou d be c ear ! brought out in the branch audit report. &t wou d assist the statutor! auditors if a standard pattern of reporting, sa!, head wise, commencing with assets, then iabi ities and thereafter items re ated to income and e$penditure, is fo owed. &n preparing the audit report, the auditor shou d keep in mind the concept of materia it!. "hus, items which do not materia ! affect the #iew presented b! the financia statements ma! be ignored. (owe#er, in the 4udgement of the auditor, an item though not materia , is contrar! to accounting princip es or an! pronouncements of the &nstitute of :hartered Accountants of &ndia or in such as wou d require a re#iew of the re e#ant procedure, it wou d be appropriate for him to draw the attention of the management to this aspect in his ong form audit report. &n a cases, matters co#ering the statutor! responsibi ities of the auditor shou d be dea t with in the main report. "he ,AA) shou d be used to further e aborate matters contained in the main report and as substitute thereof. <imi ar ! whi e framing his main report, the auditor shou d consider, where#er practicab e, the significance of #arious comments in his ,AA), where an! of the comments made b! the auditor threrin is ad#erse, he shou d consider whether qua ification in his main report is necessar! b! using his discretion on the facts and circumstances of

AUDIT OF BANK

each case. &n ma! be emphasi+ed that the main report shou d be se f7 contained document.

BOOKS OF ACCOUNTS OF BANKS

A banking compan! is required to maintain the books of accounts in accordance with sec.209 of the companies act. "here are, howe#er, certain imperati#es in banking business the! are the requirements to maintain accurate and a wa!s up to date account. Banks, therefore, de#ice their accounting s!stem to suit these requirements. "he main characteristics of a banks s!stem of book keeping are as fo owsD entries in the persona edgers are made direct ! from #ouchers instead of being posted from the books of prime entr!. A. "he #ouchers entered into different persona edgers each da! are summari+ed on summer! sheetC the tota s of each are posted to the contro accounts in the genera edger.

AUDIT OF BANK

B. "he genera edger trai ba ance is e$tracted and agreed e#er! da!.

AUDIT OF BANK

:. A entries in the detai persona edgers and the summar! sheet are check b! person other than those who ha#e made the entries, with the genera resu ts that most c erica mistakes are detected before another da! begins. 8. A tria ba ance of the detai ed persona genera edger contro accounts. /. /$pecting for cash transactions, a wa!s two #ouchers are prepared for each transaction, one for debit and the other for credit. "his s!stem ensures doub e entr! at the basic e#e and ob#iates the possibi it! of errors in posting. edgers is prepared

periodica !, usua ! e#er! two weeks, and agreed with the

AUDIT OF BANK

1RINCI1AL BOOKS OF ACCOUNT Gener*' 'e+ger! &t contains contro accounts of a persona edgers, the profit and oss account and different assets and iabi ities accounts. "here are certain additiona accounts known as contra accounts, which is unique feature of bank accounting. "hese contra accounts are maintained with a #iew to keeping contro o#er transactions, which ha#e no direct effect on the banks positions. Aor e.g. etter of credit opened, bi s recei#ed for co ection, guarantee is gi#en etc.

1rofit *n+ Lo(( 'e+ger(< <ome banks keep one account for profit and oss in this genera edger and maintained separate books for the detai ed accounts. "hese are co umnar books ha#ing separate co umns for each re#enue receipt and e$pense head. =ther banks keep separate books for debits and credits posted are entered in to the profit and oss account in the genera edger.

AUDIT OF BANK

SUBSIDIARY BOOKS OF ACCOUNTS 1er(on*' 'e+ger(! <eparate edgers are maintained b! banks for different t!pes of accounts, i.e. current account, sa#ing account, etc. As has been maintained ear ier, these edgers are posted direct ! from #ouchers and the entire #oucher entered in each edger in a da! are summari+ed in to 3oucher <ummar! <heets. Bi'' Regi(ter(! 8etai s of different t!pes of bi s are kept in separate registers, which ha#e suitab e co umns. Aor e.g. bi purchased, inward bi for co ection, outward bi s for co ection etc are entered seria ! da! to da! in separate registers. /ntries in these registers are made b! reference to the origina documents. Ot/er (&3(i+i*r) regi(ter(! "here are different registers for #arious t!pes of transaction. "heir number, #o ume and detai s, which differ according to the indi#idua needs of each bank. Aor e$amp e, there wi be registers forD

AUDIT OF BANK

A. 8emand drafts, te egraphic and mai transfers issued on branches or agencies. B. 8emand drafts, te egraphic and mai transfers recei#ed from branches and agencies. :. ,etters of credit. 8. ,etter of guarantee. 8epartmenta 4ourna sD /ach department of bank maintains a 4ourna to note the transfer entries passed b! it. "hese 4ourna s are memoranda book on !, as a the entries made there are a so made in the da!book, through #oucher summar! sheets. "he purpose is to maintain a record of a transfer entries originated b! each department.

=ther memoranda booksD Besides the book mentioned abo#e, #arious departments of a bank ha#e to mention a number of memoranda books to

AUDIT OF BANK

faci itate their work. <ome of the important books are described be owD o )ecei#ing cashiers cash book o Ba!ing cashiers cash book o %ain cash book o :ash ba ance book "he main cashbook is maintained b! a person other than cashier. /ach cashier keeps a separate cashbook. 5hen cash is recei#ed, it is accompanied b! pa!7in7s ips or other simi ar documents. "he cashier makes entr! in his book, which is check b! the chief cashier. O&t:*r+ #'e*ring(D A person checks the #ouchers and ist with the c earing cheques recei#ed books. "he #oucher are then sent to appropriate departments, where customers account are immediate ! credited. @orma ! no drawings are a owed against c earing cheques deposited the same da! but e$ceptions are often made b! the manager in the case of estab ished customer. In:*r+ #'e*ring!

AUDIT OF BANK

:heques recei#ed are check with the accompan!ing ist. "hese are then distributed to differed department and number of cheques gi#en to each department is noted in a memo book. 5hen the cheques are passed and posted in to edger, there number is independent ! agreed with the memo book. &f the cheques are found unpa!ab e, the! are return to c earing house. ,oans and o#erdrafts departmentsD a; )egisters for shares and other securities he d on beha f of its customer b; <ummar! books of securities gi#e in detai s of go#ernment securities. c; 0odown registers maintained b! the 0odown keepers of bank. d; =#erdraft sanction register e; 8rawing power book. f; 8e i#er! order books. g; <torage books.

AUDIT OF BANK

8eposit departmentD a; Account opening and c osing registers. b; Ai$ed deposits rate register. c; 8ue date dair!. d; <pecimen signature book. /stab ishment departmentD a; <a ar! and a ied registers. b; )egister of fi$ed assets. c; <tationar! registers d; = d record registers 0enera D a; <ignature books of bank officers b; Bri#ate te egraphic code and ciphers

AUDIT OF BANK

<tatica ! booksD <tatica ! records kept b! different books are in accordance with their indi#idua needs. Aor e$amp e, there ma! be books for recordingD a; A#erage ba ances in oans etc. b; 8eposits recei#ed and amounts paid out each month in the #arious departments. c; @umber of cheques paid. d; @umber of cheques, bi s and other items co ected.

In#o %'ete re#or+(! &n some situations, the auditor ma! find that certain accounting and other records are not up to date. &n such a situations, the auditor shou d first ascertain the e$tent of arrears in housekeeping and the areas in which accounting and other records are not up to date. &t ma! a so be noted that in ,ong Aorm Audit )eport 9,AA)0;, the auditor has to make detai ed obser#ation on such arrears.

AUDIT OF BANK

VERIFICATION OF ASSETS AND LIABILITES

C*%it*' *n+ Li*3i'itie(! 1) C*%it*' "he fo owing particu ars ha#e to be gi#en in respect of share capita in the ba ance sheet Aor nationa i+ed banks "he capita owned b! centra go#ernment as on the date of ba ance sheet inc uding contribution from go#ernment, if an!, for participation in wor d bank pro4ect shou d be shown. Aor banks incorporated outside &ndia :apita 9the amount brought in b! banks b! wa! of start up capita as prescribed b! )B& shown under this head; Amount of deposit kept with )B& under section 1192; of the banking regu ation act, 19>9.

AUDIT OF BANK

Aor other banks Authori+ed capita &ssued capita <ubscribed capita :a ed7up capita ,essD ca s unpaid AddD forfeited shares "he auditor shou d #erif! the opening ba ance of capita with reference to the audited ba ance sheet of the pre#ious !ear. &n case there has been increase in capita during the !ear, the auditor shou d e$amine the re e#ant documents supporting the increase. Aor e$amp e, in case of an increase an authori+ed capita of a banking compan!, the auditor shou d e$amine the specia reso ution of shareho ders and the memorandum of association. An increase in subscribed and paid7up capita of a banking compan!, on the other hand, shou d be #erified with reference to prospectus' other offer document, reports recei#ed from registers to the issue, bank statement, etc. 9shares of )sFF.each; 97do7; 97do7; 97do7;

AUDIT OF BANK

2; Re(er-e( *n+ (&r%'&(! "he fo owing are required to be disc osed in the ba ance sheet under the head ?)eser#es and <urp us*. a; <tatutor! reser#es. b; :apita reser#es. c; <hare premium. d; )e#enue and other reser#es. e; Ba ance in profit and oss account. "he auditor shou d #erif! the opening ba ances of #arious reser#es with reference to the audited ba ance sheet of the pre#ious !ear. Addition to or deductions from reser#es shou d a so be #erified in the usua manner, e.g. with reference to board reso ution. &n the case of statutor! reser#es and share premium, comp iance with ega requirements shou d a so be e$amined. "hus, the auditor shou d specifica ! e$amine whether the

AUDIT OF BANK

requirements of go#erning egis ation regarding transfer of the prescribed percentage of profits to reser#e fund ha#e been comp ied with. &n case the bank has been granted e$emption form such transfer, the auditor shou d e$amine the re e#ant documents granting such e$emption. <imi ar !, it shou d be e$amined whether the appropriations from share premium account conform to the ega requirements. 6; De%o(it(! 8eposits are required to be c assified in the ba ance sheet under the fo owing heads. A. &. 8emand 8eposits 9i; 9ii; from banks from others

&&. <a#ing Bank 8eposits &3. 9i; 9ii; "erm 8eposits Arom banks. Arom =thers.

AUDIT OF BANK

B. &. 8eposits of Branches in &ndia. &&. 8eposits of Branches outside &ndia. "he auditor ma! #erif! t!pes of deposits in the fo owing manner. I= C&rrent *##o&nt!

"he auditor shou d #erif! the ba ances in indi#idua accounts on a samp ing basis. (e shou d a so e$amine whether the ba ances as per subsidiar! edgers ta ! with the re ated contro accounts in the genera edger. "he auditor shou d consider the debit ba ances in current account are not netted out on the iabi ities side but appropriate ! inc uded under the ?ad#ances*. &noperati#e accounts are a common area of frauds in banks. 5hi e e$amining current account, the auditor shou d specifica ! co#er in his samp e some of the inoperati#e account re#i#ed during the !ear. "he auditor shou d ascertain whether inoperati#e are ?re#i#ed* on ! with proper authorit!. Aor this purpose, the auditor shou d identif! cases where there has been a significant reduction in ba ances compared to the pre#ious !ear and e$amine the authori+ation for withdrawa s.

AUDIT OF BANK

II= S*-ing 3*n5 +e%o(it(! "he auditor shou d #erif! the ba ances is indi#idua account on a samp ing basis. (e shou d a so e$amine whether the ba ances as per subsidiar! edgers ta ! wit the re ated contro accounts in the genera edger. "he auditor shou d a so check the ca cu ations of interest on a samp ing basis. &t is not usua for branches to interest sa#ing bank up to a date c ose to the end of the accounting period for e.g.25th %arch based on the actua ba ances with interest of the remaining period on an estimated basis at the head office e#e . &&&. Ter +e%o(it(!

"erm deposits are deposits repa!ab e after a specified period. "he! are considered time iabi ities of the bank. "he auditor shou d #erif! the deposits with reference to the re e#ant registers. "he auditor shou d a so e$amine, on a samp ing basis, the

AUDIT OF BANK

registers with the counter7foi s of the receipts issued and with the discharged receipts returned to the bank.

&3= De%o(it( +e(ign*te+ in foreign #&rren#ie(! &n the case of deposits designated in a foreign currenc!, for e.g. foreign currenc! non7resident deposits, the auditor shou d e$amine whether the! ha#e been con#erted into &ndian rupees at the rate notified in his beha f b! the head office. 3. Intere(t *##r&e+ 3&t not +&e! "he auditor shou d e$amine that interest accrued but not due on deposits is not inc uded under the deposited but is shown under the head ?other iabi ities ad pro#ision* ") Borro:ing! Borrowings of a bank are required to be shown in ba ance sheet as fo owsD I= Borro:ing in In+i*= a. )eser#es Bank of &ndia. b. =ther banks.

AUDIT OF BANK

c. =ther institution and agencies.

&&. Borrowing from )B&, other banks'financia institution etc. shou d be #erified b! the auditors with reference to confirmation certificated and other supporting document such as agreements, correspondence etc. "he auditor shou d a so e$amine whether a c ear distinction has been made between ?rediscount* and ?refinance* for disc osure of the amount under the abo#e head since rediscount does not figure under this head. "he auditor shou d e$amine whether borrowing of mone! at ca and short notice is proper ! authori+ed. "he rate of interest paid'pa!ab e on as we as duration of , such borrowing shou d a so be e$amined b! the auditor. Ot/er #&rrent 'i*3i'itie(! "he third schedu e to the banking )egu ation act, 19>9, requires disc osure of the fo owing items under the head ?other iabi ities and pro#ision* Bi s pa!ab e &nter office ad4ustments.

AUDIT OF BANK

&nterest accrued =ther 9inc uding pro#isions; "he auditor ma! #erif! the #arious items under the head other iabi ities and pro#ision in the fo owing manner.

Bi''( %*)*3'e Bi s pa!ab e represent instrument issued b! the ranch against mone! recei#ed from customers, which are to be paid to the customers or as per his order. "hese inc ude 8emand 8raft, "e egraphic "ransfer, and %ai transfer and %ai "ransfer, "ra#e er cheques, Ba! order, Banker cheques, and simi ar instrument issued b! the bank but not presented for pa!ment unti the ba ance sheet date.

Inter offi#e *+4&(t ent! "he ba anced in inter office ad4ustment account, if in credit, is to be shown under this head. Intere(t *##r&e+!

AUDIT OF BANK

&nterest accrued but not due on deposit is to be shown and borrowing is to shown under this head. "he auditor shou d e$amine this with reference to terms of #arious t!pe of deposits and borrowings. &t shou d be specia ! e$amined that such interest has not been c ubbed with the deposits and borrowing shown under the deposits and borrowing.

Ot/er According to the notes and instructions for compi ation of ba ance sheet and profit and oss account, issued b! the )eser#e Bank of &ndia, the fo owing items are to be inc uded under this head. @et pro#ision for income ta$ and other ta$es ike interest ta$, ess ad#ances pa!ment and ta$ deducted at source. <urp us in aggregate in pro#ision for bad and doubtfu debts pro#ision account. :ontingenc! funds, which are actua ! in the nature of reser#ed but are not disc osed as such. Bro#ision towards standard assets. "hese are to shown separate ! as contingent standard assets.

AUDIT OF BANK

Broposed di#idend'transfer to go#ernment.

AUDIT OF BANK

ASSETS! C*(/2 3*n5 3*'*n#e+ *n+ one) *t #*'' *n+ (/ort noti#e!

"he third schedu e to the Banking )egu ation act, 19>9, requires fo owing disc osure to the be made in the made in the ba ance sheet regarding cash, ba ances with )eser#e Bank of &ndia., ba ance with other bank, and mone! at ca and short notice. C*(/ *n+ 3*'*n#e :it/ Re(er-e B*n5 of In+i*= &. :ash in hand 9inc uding foreign currenc! notes; &&. Ba ance with )eser#e Bank of &ndia a; &n current account b; &n other account Ba anced with banks mone! at ca and short notice &. &n &ndia A) B*'*n#e+ :it/ 3*n5( 1. &n current account 2. &n other deposits account.

AUDIT OF BANK

B) Mone) *t #*'' *n+ (/ort noti#e 1. 5ith banks 2. 5ith other institutions II O&t(i+e in In+i* 1. &n current accounts. 2. &n other deposits account. 6. %one! at ca and short notice. C*(/ Re(er-e+! =ne of the determinants of cash ba ance to be maintained b! banking companies and other schedu e is the requirement for maintenance of certain minimum cash reser#e. 5hi e the requirement for maintenance of cash reser#e b! banking companies is contained in the banking regu ation act,19>9 corresponding requirements for schedu e bank is contain in the )eser#e Bank of &ndia. St*t&tor) 'i>&i+it) r*tio!

AUDIT OF BANK

<ection of 2> the act requires that e#er! banking compan! sha maintain in &ndia in cash, go d or unencumbered appro#ed securities an amount which sha not, at the c ose of business on an! da!, be ess than twent! fi#e percent, or such other percentage not e$ceeding fort!, as the )B& bank form time to time, of tota demand and time iabi ities in &ndia as on ast Arida! of the second preceding fortnight. De%o(it( 3) foreign 3*n5ing #o %*n)! <ection 1192; of the act requires the banking companies incorporated outside &ndia to deposit with )B& certain amount either in cash or in unencumbered securities or part ! in cash and part ! in such securities.

") In-e(t ent! "he auditor shou d #erif! the in#estment scripts ph!sica ! at the c ose of business on the date of ba ance sheet. &n e$ceptiona cases where ph!sica #erification of in#estment scripts on the ba ance sheet date is not possib e the auditor shou d carr! out the ph!sica #erification on a shou d take in to consideration an! ad4ustment for subsequent transaction of purchase, sa e etc. he shou d take particu ar care to see that on ! genuine in#estment are produced before him.

AUDIT OF BANK

AUDIT OF BANK

$) A+-*n#e(! &n carr!ing out of audit of ad#ances, the auditor of ad#ances, the auditor is primari ! concerned with obtaining e#idence about fo owing

*) Amount inc uded in ba ance sheet in respect of ad#ances are outstanding at the date of ba ance sheet. 3) Ad#ances represent amount due to the bank. #) "here are no unrecorded ad#ances. +) "he stated basis of #a uation of ad#ances is appropriate and proper ! app ied, and that the reco#erabi it! of ad#ances is recogni+ed in their #a uation. e) "he ad#ances are disc osed, c assified and describe accordance with recogni+ed accounting po icies and re e#ant statutor! and regu ator! requirements. f) "he auditor shou d ascertain the statues of ba ancing of subsidiar! edger re ating to ad#ances. g) "he auditor shou d re#iew the operation other ad#ances accounts.

AUDIT OF BANK

,) Fi;e+ *((et(! &n carr!ing out an audit of fi$ed assets, the auditor is concerned primari ! with obtaining e#idence about their e$istence and #a uation. "he branch auditor shou d ascertain whether the accounts in respect of premises and'or other fi$ed assets are maintained at the branch or centra !. <imi ar !, he shou d ascertain the ocation of documents of tit e or other documents e#idencing ownership of #arious items of fi$ed assets. "he auditor shou d #erif! the opening ba ance of premises with reference to schedu e of fi$ed assets, edger or fi$ed asset register. &n respect of fi$ed assets so d during the !ear, a cop! of the sa e deed and receipt of the sa #e #a ue shou d e$amined b! the auditor.

AUDIT OF BANK

5; Ot/er *((et(! "he auditor shou d see that whether there are an! re#ersa s entries indicating the possibi it! of irregu ar pa!ments or frauds in case of inter7 office ad4ustments. "he auditor shou d a so pa! attention towards interest7 accrued part from the banks point of #iew. "he auditor shou d see that interna contro o#er stationer! items. "he auditor shou d #erif! the stationer! and stamps. "he auditor shou d e$amine the non7interest bearing ad#ances to the staff with reference to the re e#ant documentation. "he auditor shou d a so see that the entries under the head ?suspense account*. "he auditor shou d a so #erif! prepaid e$penses in the same manner as in the case of entities.

AUDIT OF BANK

N=1=A=GUIDELINES
"he guide ine requires the banks to c assif! their ad#ances in four broad categories as fo owsD7 1= St*n+*r+ *((et!? A standard asset is one, which does not disc ose an! prob ems, and which does not carr! more than norma risk attached to the business such asset is not a non7performing asset. "= S&3?(t*n+*r+ *((et! &t is one, which has been c assified as @.B.A. for period not e$ceeding not more than 1G months. $= Do&3tf&' *((et! &t is one, which remained has @.B.A for period e$ceeding 1G months. ,= Lo(( *((et! &t is one where the oss has been identified b! the bank or the interna or e$terna auditors or the )B& inspection, but the amount has not been written

AUDIT OF BANK

off who ! or part ! in other words such asset is considered unco ectib e and of such itt e #a ue that its continuous as bankab e asset is not warranted through a though there ma! be some sa #age or reco#er! #a ue. 5ith the #iew to mo#ing towards internationa based practices and to ensure greater transference it has been decided to adopt the 90 da!s o#erdue norms for identification. =f @.B.A. from the !ear ending 61 st %arch 200>, according with effect from 61st march 200>, a non7performing asset sha be a oan or ad#ances where, i. &nterest and insta ment of princip e remains o#erdue for the period of more than 90 da!s in respect of term oan. ii. "he account remains out of order for period of more than 90 da!s. &n respect of o#erdraft or cash credit imit. iii. "he bi remains o#erdue for period of more than 90 da!s in the case of bi s purchased and discounted. i#. &nterest and insta ment of princip e remains o#erdue for two har#est season but not e$ceeding 2.5 !ears in the case of ad#anced granted for agricu ture purpose.

AUDIT OF BANK

#.

An! amount to be recei#ed remains o#erdue for a period of more than 90 da!s in of other account.

"he identification of @.B.A. is to be on the basis of the position as on ba ance sheet da! if an account has been regu ari+ed before the ba ance sheet da! b! pa!ment of o#erdue amount through genuine sources and not b! sanction of additiona faci ities or transfer of funds between accounts, the accounts need not be treated as @.B.A. the bank shou d howe#er ensured that the accounts remains in order subsequent !. &f the account is out of order or deficient for a temporar! period due to non7a#ai abi it! of adequate drawing power. @on7submission of stock statement, non7renewa of due date, wi not c assif! as @.B.A. @.B.A. c assification wi be as per borrower wise and not faci it! wise. &t means that if an! of the credit faci ities granted to a borrower becomes non7 performing a the faci ities granted to a borrower wi ha#e to be treated as @.B.A. without ha#ing an! regard to performing status of other faci ities. <ome of the /$emptions are their as fo ows, i= 1ro4e#t fin*n#e!

&n the case of bank, finance gi#en for industria pro4ect or for agricu tura status where moratorium period is a#ai ab e for pa!ment of interest,

AUDIT OF BANK

pa!ment of interest becomes due after the moratorium period is o#er and not on the date of debit of interest.

AUDIT OF BANK

ii=

A+-*n#e to St*ff! simi ar

As in the case of pro4ect finance in respect of housing oan a

ad#ances granted to staff members where interest is pa!ab e after reco#er! of princip e. "he o#erdue status shou d be recogni+ed from the date when there is defau t in pa!ment of interest on due date of pa!ment. iii= Agri#&'t&r*' A+-*n#e( Affe#te+ 3) N*t&r*' C*'* itie(!

&n terms of )B& instruction where @atura ca amities in fairs the repa!ment capacit! of agricu tura borrower the bank can con#ert short term production oan, in to term oan or reschedu e the repa!ment and sanction them short term oan oans in such cases the term oan as we as fresh short term ma! be treated as current dues and need not be c assified as @.B.A.

i-=

Lo*n( *n+ A+-*n#e( 3*#5e+ or (&%%orte+ 3) go-ern ent!

An! oans and ad#ances pro#ided b! the bank under an! scheme introduced b! 0=3". ike B%)H. <cheme wi not be treated as @.B.A. though the account in o#erdue or outstanding for more than 90 da!s.

AUDIT OF BANK

-=

A+-*n#e( (e#&re+ *g*in(t #ert*in in(tr& ent(!

Ad#ances secured against "erm 8eposits, @ationa <a#ing :ertificate e igib e for surrender, &ndira 3ikas Battra and ,ife &nsurance Bo icies ha#e been e$empted from the abo#e guide ines thus interest on such ad#ances ma! be taken to income account on due pro#ided adequate margins a#ai ab e in respect of such accounts. &n respect of consortium ad#ances each bank ma! c assif! the borrower accounts according to the own record of reco#er! and other aspect. (a#ing a bearing on the reco#erabi it! of the ad#ances. 1ro-i(ioning for Lo*n( *n+ A+-*n#e(! "he guide ines require pro#isions for different c asses of ad#ances to be made as fo owsD7 St*n+*r+ A((et! A genera pro#ision of minimum of 0.25I on tota standard asset shou d be made. S&3?(t*n+*r+ A((et!

AUDIT OF BANK

A genera pro#ision of minimum of 10I on tota <tandard Asset shou d be made. Do&3tf&' A((et! Au pro#ision to the e$tend of unsecured portion shou d be made in doing so the rea i+ab e #a ue of the securit! a#ai ab e to the bank shou d be determined on a rea istic basis additiona ! 20I to 50I of the secured portion shou d a so be pro#ided for depending upon the period for which the ad#ances has been considered as a doubtfu are as fo ows Lo(( A((et! "he entire amount shou d be written off or fu pro#ision shou d be made for the mount outstanding "reatment of )estructured <ub7<tandard AccountsD A reschedu ing of insta ment of princip e amount wou d render sub7 standard asset e igib e to be continuing in sub7standard categor! for specified period pro#ided oan or credit faci it! is fu ! secured. A reschedu ing of interest e ements wou d rendered a sub7standard asset e igib e to continue to c assified in sub7standard categor! for the specified period sub4ect to the condition that amount of sacrifice if an! in present

AUDIT OF BANK

#a ue terms is either written off or pro#ision is made to the e$tend of sacrifice in#o #ed in the amount of interest shou d either be written off or pro#ision made to the e$tend of sacrifice in#o #es. )e#ersa of &nterest or &ncome )ecognitionD &n respect of account c assified as @.B.A. for the 1st time the unrea i+ed portion of interest debited to the borrower account and credited to the income account in the pre#ious !ear as we as interest debited during the current !ear has to be re#ersed, in respect of accounts that were c assified as @.B.A. in the pre#ious !ear banks genera ! do not debit an! interest to the account there is therefore no question of re#ersa of interest. (owe#er in the case of operati#e cash credit or o#erdraft account some bank fo ows a practice where b! unrea i+ed interest is re#ersed in the !ear in which the account is c assified is @.B.A. for the 1st time but redebited at the beginning of the ne$t financia !ear during ne$t financia !ear interest is debited to the account in the usua manner unrea i+ed interest is re#ersed and again redebited at the subsequent financia !ear.

AUDIT OF BANK

TY1E OF AUDIT IN BANK

St*t&tor) *&+it! "he statutor! audit, which is compu sor! as per the aw. "he statutor! audit of banks inc udes e$amination and inspection of interna audit, concurrent audit, etc. "he statutor! audit of banks is ike a post mortem acti#it!. "he suggestions of the statutor! auditors can assist the bank management in impro#ing the effecti#eness of interna audit'concurrent audit'inspection functions, etc. &n this wa! statutor! p a!s a #er! important ro e in regu ating the banking companies.

Intern*' *&+it! Banks genera ! ha#e a we 7organi+ed s!stem of interna audit. "here interna auditors pa! frequent #isit to the branches. "he! are an important ink in interna contro of the bank. "he s!stems of interna audit in different banks a so ha#e a s!stem of regu ar inspection of branches and head office. A separate department within the banks b! firms of chartered accountants carries out the interna audit and inspection function.

AUDIT OF BANK

Con#&rrent *&+it! :oncurrent audit is the s!stem which introduced b! the )B& with the #iew that inter#a between the occurrence of transaction and it*s o#er #iew kept to the minimum e$tent and e$amination of transactions b! the auditors take p ace as soon as the transaction take p ace. &t has percei#ed the effecti#e means of contro . "he main #iew of concurrent auditors is to see that the transactions are proper ! recorded, documented and #ouched. S)(te *&+it!

&n toda!*s techno ogica ad#ancements, banking companies are using a we 7organi+ed computer s!stem to perform their transactions. <o, it is #er! necessar! to conduct ?s!stem audit* in order to e#a uate the computer s!stem for effecti#eness. <!stem audit is the audit of such computer en#ironment's!stem and comprises the fo owing interna contro s o#er /8B acti#ities and with app ication contro s specific contro procedures o#er accounting app ications'assuring that a transaction are recorded and authori+ed and comp ete !, accurate !, time ! processed manner which in turn are #erified b! computer.

AUDIT OF BANK

Re-en&e *&+it! )e#enue audit refers to the audit of re#enues' incomes. &n re#enue audit of banking companies, auditors go through the #arious sources of re#enues from which bank earn income. &n re#enue audit of banks, the auditor inspects that a the records are showing true and fair picture of re#enues or not.

AUDIT OF BANK

CONCLUSION

"he pro4ect the position of &ndian banking s!stem as we as the principa aid down b! the Base :ommittee on banking super#ision. "his assessment was done in se#en ma4or areas, which are core principa s, concurrent audit, interna audit, deposit, oan accounting and transparenc! and foreign e$change transaction. "he pro4ect conc uded that, gi#en the comp e$it! and de#e opment of &ndian banking sector, the o#era e#e of comp iances with

the standards and codes is of high order. "his pro4ect gi#es the correct ideas about how the ma4or areas can be found b! wa! of effecti#e auditing s!stem i.e. errors, frauds, manipu ations etc. form this auditor get the c ear ideas how to recommend on the banks position. Bro4ect a so contain that how to conduct of audit of the banks, what are the #arious procedure through which audit of banks shou d be done. Aorm auditing point of #iew, there is proper fo ow up of work done in e#er! organi+ation whether it is banking compan! or an! other compan! or an! other compan! there no misconduct

AUDIT OF BANK

of transactions is taken p aces for that purpose the auditing is #er! important aspect in toda!*s scenario form compan! and point of #iew.

BIBLIOGRA1@Y

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AUDIT OF BANK