128823010 project on audit of bank(1)

8/12/2019 128823010 Project on Audit of Bank(1)

1/71

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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#auate 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 iabiities b! making a comparison and

reconciiation of baance with those in the !ear and that of amount of

income and e$penses b! appication of test checks. "he banking

reguation act casts greater responsibiities 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 baanced and those of its iabiities

and fund. "heir #erification form an important part of the baance

sheet. %ost of the bank ha#e their own interna audit or inspection

department entrusted with the responsibiities of checking the account

of #arious branches. "he statutor! auditor ma! not, therefore,

dupicate work.


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AUDIT OF

BANK

INTRODUCTION

"he audit of banking companies pa!s a #er! important roe in &ndia

as it hep to reguate the banking companies in right manner. &n audit of

banks incudes #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

rues and the reguation reating 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& guideines is appicabe. &n this, & ha#e gi#en more importance on

the o#era bank audit s!stem. &n toda!*s competiti#e word audit is #er!

much necessar! as we as compusor! , because in#estor in#esting decision

is depend on that particuar concept if auditor has e$pressing his #iew about

particuar organi+ation is true and fair then in#estor can get his ideas about

how much he shoud in#est in particuar companies.


3/71

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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 od as accounting. &t was in use in a ancient

countries such as %esopotamia, /g!pt, reece, )ome, .., and &ndia.

"he 3edas,)ama!ana, %ahabharata contain references to accounting

and auditing. Arthashasastra b! auti!a gi#es detaied rues for

accounting and auditing of pubic finances. "he %aur!as, the uptas and

the %ughas had de#eoped 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.


4/71


5/71

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AUDIT OF

BANK

DEFINITION OF AUDITING

3arious persons such as the owners, sharehoders, 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 reiabe. An auditor is an independent

e$pert who e$amines the accounts of a business concern and reports

whether the fina accounts are reiabe or not. 8ifferent authorities ha#e

defined auditing as foows.

M*&t0 define the auditing as -auditing is concerned with the

#erification of accounting data, with determining the accurac! and

reiabiit! 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.


6/71

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AUDIT OF

BANK

BASIC RINCIAL OF AUDITING!

1) Integrit2 o34e#ti-it *n+ in+e%en+en#e!

"he auditor shoud be honest and sincere in his audit work. (e

must be fair and ob4ecti#e. (e shoud aso be independent.

") Confi+enti*'it!

"he auditor shoud keep the information obtained during audit,

confidentia. (e shoud not discose such information to an! third part!.

(e shoud, keep his e!es and ears open but his mouth shut.

$) S5i'' *n+ #o%eten#e!

"he auditor shoud ha#e adequate training, e$perience and

competence in Auditing. (e shoud ha#e a professiona quaification

i.e. be a :hartered Accountant; and practica e$perience. (e shoud be

aware of recent de#eopments in the fied of auditing such as statement

of &:A&, changes in compan! aw, decisions of courts etc.


7/71

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AUDIT OF

BANK


8/71

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AUDIT OF

BANK

,) 6or5ing %*%er(!

"he auditor shoud maintain working papers of important matters

to pro#e that audit was conducted with due care according to the basic

principes.

.) '*nning!

"he auditor shoud pan his audit work. (e shoud prepare an audit

programmed to compete the audit efficient! and in time.

7) A&+it e-i+en#e!

"he report of the auditor shoud 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 iabiities, ratio ana!sis etc.

8) E-*'&*tion of *##o&nting ((te *n+ intern*' #ontro'!

"he auditor shoud ensure that the accounting s!stem is adequate.

(e shoud see that a the transaction ha#e been proper! recorded. (e

shoud stud! and e#auate the interna contros.

9) O%inion *n+ re%ort!

"he auditor shoud arri#e at his opinion on the account based on

the audit e#idence and submit his report. "he opinion ma! be


9/71

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AUDIT OF

BANK

unquaified, quaified or ad#erse. "he audit report shoud cear! e$press

his opinion. aw shoud require the content and form of audit report.

AUDIT COMMITTEE

&n pursuance of )B& circuar


10/71

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AUDIT OF

BANK

:onsidering the co#erage of this audit assignment and the

speciai+ed nature of work there is aso a need for training to be imported to

the staff of the auditors. "his training has to be gi#en in speciai+ed fied

such as foreign e$change, computeri+ation, and areas of income eakage,

fraud prone areas, determination of credit rating and other simiar

speciai+ed areas. "he bank can organi+e such training programmed at

#arious paces so that it can ensure the quait! of audit.


11/71

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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 iabiities shown

in the audited baance 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


12/71

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AUDIT OF

BANK

audited books profit, make ad4ustments and compute the ta$abe 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 foow the standard accounting and

auditing principes aid down b! professiona bodies. "hus, audited

accounts are based on ob4ecti#es standard and not on persona whims

and fancies of a particuar 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 knowedge woud take due care to see

that /rrors and frauds are detected so that the accounts shoe a true andfair #iew.

8)A+-i#e on ((te2 t*;*tion2 fin*n#e!

"he auditor can aso ad#ise the cient about the accounting s!stem,

interna contro, interna check, interna audit, ta$ation, finances etc.


13/71

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AUDIT OF

BANK

LIMITATIONS OF AUDITING

1. An auditor cannot check each and e#er! transaction he has to check

on! the seected areas and transaction on a sampe basis.

2. Audit e#idence is not concusi#e in nature thus confirmation b! a

debtor is not concusi#e e#idence that the amount wi be coected. &t is

said e#idence is rather than concusi#e in nature.

. An auditor cannot be e$pected to disco#er deep! aid frauds usua!

in#o#es acts designed to concea them such as forger! , ceibate faiure

to record transactions, fase e$panation and hence are difficut to

detect.

>. Audit cannot assure the users of account about the future profitabiit!,

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 reated fied such as aw!ers, engineers, #aue*s etc. for estimating

contingent iabiities, #auation of fi$ed assets etc.


14/71


15/71

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AUDIT OF

BANK

"here shoud be surprise inspection of office and branches at periodic

inter#a b! the interna audit department. "he irreguarities pointed out

in the inspection reports shoud be prompt! rectified.

C*(/!

:ash shoud be kept in the 4oint custod! of two responsibe peope.

&n addition to norma checking b! the chief cashier, cash shoud be test

checked dai! and counted in fu occasiona! b! responsibe officers

unconnected with the baanced shown the baanced shown b! the

da!book e#er! da!.

"he cashier shoud 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 cerks in the absence of reguar 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 cearing shoud with the ist

accompan!ing them independent ist shoud be prepared for cheques


16/71

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AUDIT OF

BANK

debited to different customers account and those return unpaid and

these shoud be checked b! officers.

"he tota numbered and amount of cheques sent out the bank for

cearing shoud be agreed with the tota of the cearing pa!7in7sip, b!

an independent person.

"he unpaid cheques recei#ed back return cearing shoud be checked in

the same manner as the cheques recei#ed.

Con(tit&ent 'e+ger!

Before making pa!ment, cheques shoud proper! checked in respect

of signature, date, baanced in hand etc. and shoud be passed b! an

officers and entered into constituent*s account.

@o withdrawa shoud norma! be aowed against cheques deposited

on the same da!.

An officer shoud check a the entries made in the edger with the

origina document particuar! nothing that the correct account ha#e

been debited or credited.

edger keeper shoud 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 shoud be

independent! checked.


17/71

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AUDIT OF

BANK

Bi'' of #o''e#tion!

A documents accompan!ing the bi shoud be recei#ed and entered

in the register b! a responsibe officer. A the time of dispatch, the

officer shoud aso see that a document sent aong with the bis. "he account of customers or principas shoud be credited on! after

bis ha#e been coected or an ad#ice to that effect recei#ed form the

branch or agent to which the! were sent for coection.

&t shoud be ensured that bis sent b! one, branch for coection to

another branch of the bank, are not in the coection twice in the

amagamated baance sheet of the bank. or this purpose, the

recei#ing branch shoud re#erse the entries such as bis at the end of

the recei#ing branch at the end of the !ear fir cosing purposes.

Bi'' %&r#/*(e+!

At the time of purchased of bi, an officer shoud #erif! that a the

document of tites are proper! assigned to the bank.


18/71

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AUDIT OF

BANK

&f the bank is unabe to coect a bi on the due date, immediate!

step shoud be taken to reco#eries the amount form the drawer against

the securit! pro#ided.

A irreguar outstanding account shoud be reported to the head

office.

&n the case of purchased outstanding at the cose of the !ear discount

recei#ed thereon shoud thereon shoud be proper! apportioned

between !ears.

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

"he bank shoud make ad#ances on! after satisf!ing itsef as to the

creditworthiness of the borrowers and after obtaining sanction from

the proper authorities of bank.

"he entire necessar! document e.g. agreement, demand promissor!

note, etter of h!pothecation etc.;


19/71

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AUDIT OF

BANK

&n the case of good in possession of the bank, content of the package

shoud be test checked at the time of receipt.


20/71

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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 shoud take

immediate step to ascertain the reason.

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

"he account shoud be ad4usted on! on the basis of appication with

reasonab! good credit assessment.

rompt action shoud be taken preferab! b! centra authorities, if an!

entries are not reasonab! time.

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

"here shoud be effecti#e screening of appication with reasonab!

good credit assessment.

"here shoud be strict contro o#er storage and issues of card.

"here shoud be at s!stem whereb! a merchant confirm the statues

of utii+ed imit of a credit card hoder form the bank before

accepting the settement in case the amount to be setted e$ceed a

specified percentage of the tota imit of the credit hoder.

"here shoud be s!stem of prompt reporting b! the merchant of a

settement accepted b! them through credit cards.


21/71

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AUDIT OF

BANK

)eimbursement to merchants shoud be made on! after #erification

of the #aidit! of merchant acceptance of card.

A the reimbursement shoud be made immediate! charged to the

customers account.

"here shoud be a s!stem to ensure that statements are sent

reguar! and prompt! to the customers.

"here shoud be a s!stem to monitor and foow up customer

pa!ment.

&tems o#erdue be!ond a reasonabe period shoud identification and

attended to carefu!. :redit shoud be stopped b! informing the

merchant through periodic buetin, as ear! as possib! to a#oid

increased osses.

"here shoud be a s!stem of periodic re#iew of credit card hoder

account. =n the basis, the imit of customer ma! be re#isedC it

necessar!, the re#iew shoud aso incudes determination of

doubtfu amount and the pro#isioning in respect thereof.


22/71

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AUDIT OF

BANK

STAGES IN AUDITING

1; re'iin*r :or5!

a; "he auditor shoud acquire knowedge of the reguator! en#ironment

in which the bank operates. "hus, the auditor shoud famiiari+e

himsef with the ree#ant pro#isions of appicabe aws and ascertain

the scope of his duties and responsibiities in accordance with such

aws. (e shoud be we acquainted with the pro#isions of the

Banking )eguation act, 1956 in the case of audit of a banking

compan! as far as the! reate of preparation and presentation of

financia statements and their audit.

b; "he auditor shoud aso acquire knowedge of the economic

en#ironment in which the bank operates.


23/71

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AUDIT OF

BANK

c; "he auditor shoud aso obtain and understanding of the nature of

books and records maintained and the terminoog! used b! the bank

to describe #arious t!pes of transaction and operations. &n case of

4oint auditors, it woud be preferabe that the auditor aso obtains a

genera understanding of the books and records, etc, reating to the

work of the other auditors, &n addition to the abo#e, the auditor

shoud undertake the foowingD

&. =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#aiabe.

&&&. &n the case of branch auditors, obtaining the report gi#en b! theoutgoing 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 ree#ant for the audit.

d; )B& has introduced and offsite sur#eiance s!stem for commercia

banks on #arious aspects of operations incuding so#enc!, iquidit!,

asset quait!, earnings, performance, insider trading etc., and has

indicated that such reports sha be submitted at periodic inter#as

from the !ear commencing 170>71995. &t wi be appropriate to be


24/71

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AUDIT OF

BANK

famiiar with the reports submitted and to re#iew them to the e#ent

that the! are ree#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, particuar! as the books are

not authenticated as in manua! maintained accounts and the auditor

ma! not ha#e his in7house computer faciit! to taste the software

programmes. "he emphasis woud ha#e to be aid on interna contro

procedure reated to inputs, securit! in the matter of access to /8

s!stem, use of codes, passwords, data inputs being prepared b!

person independent of ke! operators and other buid7in procedure for

data #aidation and s!stem contros as to ensure competeness 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 #ouminous and repetiti#e, and

fa into imited categories'heads of account. &t ma!, therefore, be more

appropriate that the e#auation of the interna contro is made for each

cass'categor! of transaction. &f the e$ercise of interna contro e#auation is


25/71

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AUDIT OF

BANK

proper! carried out, it assist the auditor to determine the effecti#eness or

otherwise of the contro s!stems and according! enabe him to strengthen

his audit procedures, and a! appropriate emphasis on the risk prone areas.

&nterna contro woud incude accounting contro administrati#e contros.

*) A##o&nting #ontro'(!

Accounting contros co#er areas direct! concerned with recording of

financia transactions and maintenance of such registers'records as to

ensure their reiabiit!.

&nterna accounting contros are aso en#isaging such procedures as

woud determine responsibiit! and fi$ accountabiit! with regard to

safeguarding of the assets of the bank. &t woud not be out of pace of

mention that there is a distinction between accounting s!stem andinterna accounting contros. Accounting s!stem en#isages the

processing of the transaction and e#ents, their recognition, and

appropriate recording. &nterna contros are techniques, method and

procedures so designed and usua! buit into s!stems, as woud enabe

pre#ention as we as detection of errors, omissions or irreguarities in

the process of e$ecution and recording of transaction'e#ents.

"he interna accounting contros as woud ensure pre#ention of errors,

omissions and irreguarities woud incude foowingD


26/71

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AUDIT OF

BANK

&. @o transaction can be registered'recorded uness it is

sanctioned'appro#ed b! the designated authorit!.

&&. Buit7 in dua contro'super#isor! procedures ensure that there is

an independent automatic check on input'#ouchers.

&&&. @o singe 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 baanced through personne independent of each

other.

"he auditor woud be we ad#ised to ook into other areas ma! ead to

detection of errors, omissions and irreguarities, inter aias in thefoowingD

&. %issing'oss of securit! paper, stationer! forms.

&&. Accumuation of transactions'baances in nomina heads of

accounts ike suspense, sundries, inter7branch accounts, or other

nomina head of accounts particuar! if there accounts

particuar! if these accounts are e$tensi#e! used to baance

books, despite a#aiabiit! of information.


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AUDIT OF

BANK

&&&. Accumuation of od'arge une$pained'unsubstantiated entries in

accounts with )eser#e Bank of &ndia and other banks and

institutions.

&3. "ransaction represented b! mere book ad4ustments not

e#idenced'substantiated or upon non7honoring of

contracts'commitments.

3. =rigination debits & head office accounts'inter7branch accounts.

3&. Ana!tica re#iew procedure.

3&&.


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AUDIT OF

BANK

"hese are broad! concerned with the decision making process and a!ing

down of authorit!'deegation 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! responsibe

for administrati#e and poic! decisions which are e$ecuted at the branch

e#e.

; re%*r*tion of *&+it %rogr*e for (&3(t*nti-e te(ting *n+ it(

e;e#&tion

(a#ing famiiari+ed him the requirements of audit, the auditor shoud

prepare an audit programme for substanti#e testing which shoud adequate!

co#er the scope of his work. &n framing the audit programme, due

weightage shoud be gi#en b! the auditor to areas where, in his #iew, there

are weaknesses in the interna contros. "he audit programme for thestatutor! auditors woud 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 pro#isions for gratuit!,

inter7 office accounts, etc.;. "he scope of the work of the statutor! auditors

woud aso in#o#e deaing with #arious accounting aspects and discosure

requirements arising out of the branch returns.

>; re%*r*tion *n+ (&3i((ion of *&+it re%ort


29/71

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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

desirabe that the branch auditors* reports are adequate! in unambiguous

terms. As far as possibe, the financia impact of a quaification or ad#erse

comments on the branch accounts shoud be cear! brought out in the

branch audit report. &t woud assist the statutor! auditors if a standard

pattern of reporting, sa!, head wise, commencing with assets, then iabiities

and thereafter items reated to income and e$penditure, is foowed.

&n preparing the audit report, the auditor shoud keep in mind the concept of

materiait!. "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 principes

or an! pronouncements of the &nstitute of :hartered Accountants of &ndia or

in such as woud require a re#iew of the ree#ant procedure, it woud beappropriate 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!

responsibiities of the auditor shoud be deat with in the main report. "he

A) shoud be used to further eaborate matters contained in the main

report and as substitute thereof.


30/71

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AUDIT OF

BANK

each case. &n ma! be emphasi+ed that the main report shoud be sef7

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 awa!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 foowsD

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 totas of each are

posted to the contro accounts in the genera edger.


31/71

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AUDIT OF

BANK

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

da!.


32/71

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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 resuts that most cerica mistakes are

detected before another da! begins.

8. A tria baance of the detaied persona edgers is prepared

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

genera edger contro accounts.

/. /$pecting for cash transactions, awa!s two #ouchers are

prepared for each transaction, one for debit and the other for

credit. "his s!stem ensures doube entr! at the basic e#e and

ob#iates the possibiit! of errors in posting.


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AUDIT OF

BANK

RINCIAL BOOKS OF ACCOUNT

Gener*' 'e+ger!

&t contains contro accounts of a persona edgers, the profit and oss

account and different assets and iabiities 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.

or e.g. etter of credit opened, bis recei#ed for coection, guarantee is

gi#en etc.

rofit *n+ Lo(( 'e+ger(&i+it r*tio!


53/71

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AUDIT OF

BANK

the act requires that e#er! banking compan! sha maintain in

&ndia in cash, god or unencumbered appro#ed securities an amount which

sha not, at the cose 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 iabiities in &ndia as on ast rida! of

the second preceding fortnight.

De%o(it( 3 foreign 3*n5ing #o%*n!


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$) 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 foowing

*) Amount incuded in baance sheet in respect of ad#ances are

outstanding at the date of baance sheet.

3) Ad#ances represent amount due to the bank.

#) "here are no unrecorded ad#ances.

+) "he stated basis of #auation of ad#ances is appropriate and

proper! appied, and that the reco#erabiit! of ad#ances is

recogni+ed in their #auation.

e) "he ad#ances are discosed, cassified and describe accordance

with recogni+ed accounting poicies and ree#ant statutor! and

reguator! requirements.

f) "he auditor shoud ascertain the statues of baancing of

subsidiar! edger reating to ad#ances.

g) "he auditor shoud re#iew the operation other ad#ances

accounts.


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,) 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 #auation.

"he branch auditor shoud ascertain whether the accounts in respect of

premises and'or other fi$ed assets are maintained at the branch or centra!.


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5; Ot/er *((et(!

"he auditor shoud see that whether there are an! re#ersas entries

indicating the possibiit! of irreguar pa!ments or frauds in case of inter7

office ad4ustments. "he auditor shoud aso pa! attention towards interest7

accrued part from the banks point of #iew. "he auditor shoud see that

interna contro o#er stationer! items. "he auditor shoud #erif! the

stationer! and stamps.

"he auditor shoud e$amine the non7interest bearing ad#ances to the staff

with reference to the ree#ant documentation. "he auditor shoud aso see

that the entries under the head ?suspense account*. "he auditor shoud aso

#erif! prepaid e$penses in the same manner as in the case of entities.


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N==A=GUIDELINES

"he guideine requires the banks to cassif! their ad#ances in four broad

categories as foowsD7

1= St*n+*r+ *((et!?

A standard asset is one, which does not discose an! probems, 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 cassified as @..A. for period not e$ceeding not

more than 1G months.

$= Do&3tf&' *((et!

&t is one, which remained has @..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


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off who! or part! in other words such asset is considered uncoectibe

and of such itte #aue that its continuous as bankabe asset is not warranted

through athough there ma! be some sa#age or reco#er! #aue.

ith 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 @..A. from the !ear ending 1st %arch 200>,

according with effect from 1stmarch 200>, a non7performing asset sha be

a oan or ad#ances where,

i. &nterest and instament of principe 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 bis purchased and discounted.

i#. &nterest and instament of principe remains o#erdue for two

har#est season but not e$ceeding 2.5 !ears in the case of ad#anced

granted for agricuture purpose.


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#. 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 @..A. is to be on the basis of the position as on

baance sheet da! if an account has been reguari+ed before the baance

sheet da! b! pa!ment of o#erdue amount through genuine sources and not

b! sanction of additiona faciities or transfer of funds between accounts, the

accounts need not be treated as @..A. the bank shoud 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#aiabiit! of adequate

drawing power. @on7submission of stock statement, non7renewa of due

date, wi not cassif! as @..A.

@..A. cassification wi be as per borrower wise and not faciit! wise. &t

means that if an! of the credit faciities granted to a borrower becomes non7performing a the faciities granted to a borrower wi ha#e to be treated as

@..A. without ha#ing an! regard to performing status of other faciities.


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pa!ment of interest becomes due after the moratorium period is o#er and

not on the date of debit of interest.


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ii= A+-*n#e to St*ff!

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

ad#ances granted to staff members where interest is pa!abe after reco#er!

of principe. "he o#erdue status shoud be recogni+ed from the date when

there is defaut 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 caamities in fairs the repa!ment

capacit! of agricutura borrower the bank can con#ert short term

production oan, in to term oan or reschedue 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 cassified as @..A.

i-= Lo*n( *n+ A+-*n#e( 3*#5e+ or (&%%orte+ 3 go-ernent!

An! oans and ad#ances pro#ided b! the bank under an! scheme introduced

b! =3". ike %)H.


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

Ad#ances secured against "erm 8eposits, @ationa


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A genera pro#ision of minimum of 10I on tota


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#aue terms is either written off or pro#ision is made to the e$tend of

sacrifice in#o#ed in the amount of interest shoud 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 cassified as @..A. for the 1 st time the unreai+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 cassified as

@..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 foows a

practice where b! unreai+ed interest is re#ersed in the !ear in which the

account is cassified is @..A. for the 1

st

time but redebited at the beginningof the ne$t financia !ear during ne$t financia !ear interest is debited to the

account in the usua manner unreai+ed interest is re#ersed and again

redebited at the subsequent financia !ear.


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TYE OF AUDIT IN BANK

St*t&tor *&+it!

"he statutor! audit, which is compusor! as per the aw. "he statutor! audit

of banks incudes 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! pa!s a #er! important roe in reguating

the banking companies.

Intern*' *&+it!

Banks genera! ha#e a we7organi+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 aso ha#e a s!stem of reguar 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.


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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

pace as soon as the transaction take pace. &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 technoogica ad#ancements, banking companies are using a

we7organi+ed computer s!stem to perform their transactions.

b! computer.


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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.


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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 principas, concurrent audit,

interna audit, deposit, oan accounting and transparenc! and foreign

e$change transaction. "he pro4ect concuded that, gi#en the compe$it! and

de#eopment of &ndian banking sector, the o#era e#e of compiances 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, manipuations etc. form this auditor get the cear ideas

how to recommend on the banks position. ro4ect aso contain that how to

conduct of audit of the banks, what are the #arious procedure through which

audit of banks shoud be done. orm auditing point of #iew, there is proper

foow 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


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of transactions is taken paces for that purpose the auditing is #er! important

aspect in toda!*s scenario form compan! and point of #iew.

BIBLIOGRA@Y

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A&+iting


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128823010 project on audit of bank(1)

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