Audit planning for Bank Statutory audit in India

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Information about Audit planning for Bank Statutory audit in India
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Published on March 9, 2014

Author: nitanttrilokekar

Source: slideshare.net

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How to plan before Bank audit to make audit fast and efficient

WIRC of ICAI Audit Planning & Audit Certification including GoshJilani Report Presentation By CA. Nitant Trilokekar Email: nitanttrilokekar @yahoo.com Internet: nptbanking.blogspot.com

ct xpe E rtly sho ed

Plan your work and work your plan BY FAILING TO PREPARE YOU ARE PREPARING TO Benjamin Franklin FAIL

Why Plan Well planned activity is well Well planned activity is well done done Time available does not match the scope and risk Time available does not match the scope and risk Channel increase & computerisation has Channel increase & computerisation has permitted manifold increase in business of the Bank permitted manifold increase in business of the Bank

Types of Branches ‘Regular’ Branches ‘Specialist’ Branches 5

Type of branch 1 st Step of planning HR HR Plan Plan Requisite staff to match the Branch Requisite staff to match the Branch profile profile Brushing up certain areas like Foreign Exchange Brushing up certain areas like Foreign Exchange Time to go through the RBI Master and Time to go through the RBI Master and subject relevant circulars subject relevant circulars

Documents - the start and end Appointment letter 1 st Document Appointment letter 1 st Document Letter of requirements Letter of requirements Minute your discussion with Minute your discussion with full identification of person full identification of person Working papers (next slide) Working papers (next slide)

Working notes different from Corporate sector Signed Final Signed Final Accounts Accounts Trial balance Trial balance Scroll of each department – Scroll of each department – Advances – New advances, sticky advances Advances – New advances, sticky advances Important Extracts of other Important Extracts of other Audit Reports incl previous year’s Audit Reports incl previous year’s

Start before the year end Acclimatize to the Branch profile, Staff, Tea Acclimatize to the Branch profile, Staff, Tea etc. etc. Health of majority borrowers not likely to change Health of majority borrowers not likely to change Study thoroughly Study thoroughly 1.Previous report 1.Previous report 2.Concurrent Audit report 2.Concurrent Audit report 3.Revenue Audit report (if any) 3.Revenue Audit report (if any) 4.System Audit report (Jalani Committee) 4.System Audit report (Jalani Committee) 5.Unit/stock Inspection reports 5.Unit/stock Inspection reports

Co-ordinate plans with Bank Branch Request for sitting on Sundays and Bank Request for sitting on Sundays and Bank Holidays Holidays Unit visits chosen by you – especially for Unit visits chosen by you – especially for outstation location outstation location Sharing your strategy will Sharing your strategy will ensure staff and physical accomodation ensure staff and physical accomodation Meeting the Concurrent Auditor with Branch Meeting the Concurrent Auditor with Branch Manager to discuss serious pending issues Manager to discuss serious pending issues

Planning for different elements of Audit Planning for Branch Health incl Fraud/leakages Planning for Branch Health incl Fraud/leakages Planning for Health determination of borrowers Planning for Health determination of borrowers Planning for Computer related issues Planning for Computer related issues

Planning for Branch health Ratio analysis – same year & Comparison Ratio analysis – same year & Comparison Books to tally Books to tally Revenue accuracy Revenue accuracy Top 10/20 borrowers Top 10/20 borrowers

Planning for health determination of borrowers Branch returns--half year/monthly Branch returns--half year/monthly Cash Credit--Account Turnover 10 times Cash Credit--Account Turnover 10 times the sanctioned limit the sanctioned limit

Planning for Computer related issues Identify application brand and available reports Identify application brand and available reports Obtain sufficient number of User ID Obtain sufficient number of User ID TXT file to Excel TXT file to Excel Read Jalani Committee recommendations Read Jalani Committee recommendations

RBI site must be in your book mark AT THE TOP

Off B/S items CAR Credit conversion factor (CCF) Credit conversion factor (CCF) Financial guarantees are direct credit substitutes Financial guarantees are direct credit substitutes Performance guarantees Performance guarantees (( CCF of 100 per cent )) CCF of 100 per cent (CCF of 50 per cent ) (CCF of 50 per cent ) (i) Bid bonds; (i) Bid bonds; (ii) Performance bonds and export performance guarantees; (ii) Performance bonds and export performance guarantees; (iii) Guarantees in lieu of security deposits // earnest money deposits (EMD) for participating in (iii) Guarantees in lieu of security deposits earnest money deposits (EMD) for participating in tenders; tenders; (iv) Retention money guarantees; (iv) Retention money guarantees; (v) Warranties, indemnities and standby letters of credit related to particular transaction. (v) Warranties, indemnities and standby letters of credit related to particular transaction.

Indirect financing Upfront disbursal of sanctioned individual housing Upfront disbursal of sanctioned individual housing loans to the builders loans to the builders No link to stages of construction of housing project No link to stages of construction of housing project EMI & interest serviced by the builders during the EMI & interest serviced by the builders during the construction period/specified period construction period/specified period Disputes/non service by builders lower credit Disputes/non service by builders lower credit rating/scoring of such borrowers by credit information rating/scoring of such borrowers by credit information

WIRC of ICAI Certification including GoshJilani Report Presentation By CA. Nitant Trilokekar Email: nitanttrilokekar @yahoo.com Internet: nptbanking.blogspot.com

What is a Certificate Final Accounts Final Accounts Annexures Annexures LFAR LFAR PMRY etc. PMRY etc.

Certificates • Certificate relating to DICGC transactions in respect of Credit Guarantee scheme •PMRY Certificate •Certificate relating to cash and Bank Balances • Certificate relating to investments held • Certificate in respect of segment Reporting (AS 17) • Certificate on risk weighted assets for BASEL-II CRAR • Certificate of NPAs at the Branch • Interest subvention claim (short term crop loans, Kisan Credit card, Warehouse receipt to small and marginal farmers) • Central interest subsidy scheme for Education loan to students belonging to economically weaker section (EWS) • Utilization certificate under the scheme of 1% interest subvention on Housing Loans (upt 10 lacs and upto 15 lacs) • Certificate for having given effect of MOCs suggested during the previous year.

Protocol for issuing a Certificate •The audit report/ certificate should be printed on the letterhead of the auditor firm. •It should be dated not earlier than the date on which the financial statements/ certificates are signed by the Branch Manager. •The audit report/certificate should be signed in the personal name of the partner and on behalf of the firm. •Firm registration number of ICAI should be invariably mentioned in the audit report along with the firm’s seal.

Jilani committee recommendation status Complaint Complaint re: re: Auditors Auditors Mere replica of previous reports. Mere replica of previous reports. May be held accountable under ICAI disciplinary process. May be held accountable under ICAI disciplinary process. 25 questions to be answered. Implemented/not implemented 25 questions to be answered. Implemented/not implemented Some of the Recommendations are to be implemented at Some of the Recommendations are to be implemented at Branch Level and some of them at RO/ZO Level Branch Level and some of them at RO/ZO Level

Jilani committee recommendation status Sr. no Reco mme ndati on no. Nature of Recommendation 1 39 Follow up on major/serious irregularities detected during concurrent audit immediately taken up with the HO. A time bound action programme for rectification to be drawn up and closely monitored. Fraudulent transactions to be reported to Vigilance/Chief of Inspection/Audit etc. 2 44 Auditors to get majority of irregularities rectified during their stay at the branches concerned and guide them as well. 3 45 4 53 5 54 Immediate action to be taken to plug gaps in serious irregularities/revenue leakages which have surfaced due to loopholes in existing procedures, abnormal deviations from laid down procedures/ norms in consultation with the departments concerned by issue of fresh guidelines. Appropriate control measures should be devised and documented to prevent the computer system from attacks of unscrupulous elements. All aspects of security, reliability, and accessibility are ensured before introduction of EDP application in place of manual system by having pilot parallel runs. Various tests to be carried out to ensure that EDP applications have resulted in consistent and reliable system for inputting, processing and generation of output of data. Implimentation status at Br.

Ghosh committee recommendation status Committee formed to review the causes of frauds and Committee formed to review the causes of frauds and malpractices in Banks and give recommendations on minimising malpractices in Banks and give recommendations on minimising the same. the same. Complaint Complaint re: re: Auditors Auditors Mere replica of previous reports. Mere replica of previous reports. Branch Management is required to prepare this report Branch Management is required to prepare this report “YES” or “NO” Format “YES” or “NO” Format Branch Auditor is required to verify the answers Branch Auditor is required to verify the answers

Objective a. Safety of assets, b. Compliance of laid down procedures, c. Accuracy and completeness of accounting and other records, d. Proper segregation and rotation of duties and responsibilities of staff and, e. Measures for the prevention of frauds. f. Timely detection of frauds and malpractices and taking corrective actions

Ghosh Committee Recommendations Sr. no Reco mme ndati on no. Nature of Recommendation 1 3.3 2 3.4 Joint custody and dual responsibility of cash and other valuables. Transactions in the currency chest to be reported to RBI on the same day. 3 3.5 4 8.10 Adhering to the prescribed norms and safeguards issued by RBI on issue and payment of high value drafts, depositing large amounts in new accounts without verifying antecedents, opening of benami accounts, etc. to prevent misuse of banking channel. a. System of exclusive scrutiny of credit portfolio with focus on larger advances and group exposures. b. Special scrutiny of high value accounts shifted to the bank along with executives and account transferred from other branches along with officials. The observations of RBI Inspections should be promptly and effectively followed up by banks. Implementation status at Br.

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