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8/6/2019 Bank Branch Audit Audit Planning
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Bank Branch Audit
Audit Planning
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Need for Planning :
Primary Objective of Audit to ensure that AnnualAccounts of the Branch give a True and Fair View.
Features of Bank Audit :
Balance Sheet Audit
Rapidly changing Accounting Software, Technological
up-gradation by banks like CBS, RTGS etc.
Frequent RBI Guidelines to Banks and Auditors
Frequent Pronouncements by ICAI.
Tight Audit Schedules. Limited Time period.
Effective Internal Check and Internal Control System.
Number of Audit Reports/ Certificates to be signed by
Branch Auditor.
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Audit Planning :
IF YOU FAIL TO PLAN,
YOU PLAN TOFAIL.
If an auditor overlooks importance of Audit
planning, he is likely to spend more time on
collection of data etc. and it will disturb the
entire audit schedule.
Poor Audit Planning Poor Allocation ofWork Inadequate attention to high risk
areas Poor Audit Quality.
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* Bank Branch Audit Process:
1) Appointment of auditor
2) Pre-commencement Work- Types of BankBranches- Peculiar features of banking business-Types of accounting software
3) Bank Branch Audit Planning and Reporting-Making effective Audit plan/ Audit Programme-Audit Procedures Reporting.
4) Internal Controls in Banks
5) Use of Audit Software (CAAT-Computer Assisted
Audit Techniques- Inbuilt Audit Trails)6) Form and Contents of Financial Statements
7) Compilation of Information and Reports to besigned.
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Bank Audit Process:
Pre-commencement Work
Understanding the business of
Bank BranchEffective Audit Planning
Audit Procedures
Reporting
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Pre-commencement Work
Audit Planning starts with the Receipt ofAppointment Letter.
Check the compliance u/s. 226 (3) with
regard to qualifications/disqualifications.Decision for Acceptance or Refusal of
Audit Assignment.
Communication with Previous Auditors
Expected Date of Submission of Reports Finding out the Scope of Work.
Issue Engagement Letter under SA 210-Agreeing the terms of Audit Engagements.
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Understanding the Business of Bank
Branch:
Type of Branch and Nature of Business
handled by the Branch.
Laws applicable to Bank*
Accounting Standards applicable to Bank*
Obtain management representation letter
for each type of report like - LFAR, Tax
Audit Report, Ghosh and Jilani committee Type/Nature of transactions at Branch.
Quantum of Transactions.
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Understanding the Business of Bank
Branch:
Computerization System software
Internal Control Risk Assessment
Risk Management Back up system
Obtain previous year audit reports
RBI inspection reports, Internal
Inspection/ Concurrent audit reports
Attend the Meeting of Statutory
Auditors and Bank Audit seminar.
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Audit Planning and Reporting
Audit Planning and Reporting are two
critical stages in the entire audit process.
Audit Planning is before the start of audit
process and beginning of the field workand Reporting is the last stage in bank audit
process.
Good Planning leads to Effective Reporting.
SA-300 - Planning an Audit of Financial
Statements emphasizes the need for Audit
Planning.
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Audit Planning(SA-300) :
The auditor should plan his work to
enable him to conduct an effective
audit in an efficient and timely manner.
Audit Plan should be based on -
knowledge of the clients business.
Plans should be further developed and
revised as necessary during the
course of a audit.
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Audit Planning:
The Process of Audit Planning shouldcover, amongst other things:
a)acquiring knowledge of clients accountingsystem, policies and internal control
procedures;b)Determining the expected degree of
reliance to be placed on internal controls;
c) determining the nature, timing, and extent
of the audit procedures to be performed;and preparing the audit plan accordingly.
d)Allocation and Coordination of the work tobe performed.
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Audit Planning:
Audit Planning - Divided into two stages : a) In-house Planning/ Planning at Office
b) On-site Planning/ Ground work at Branch
A) IN-HOUSE PLANNING :
Starts with Appointment Letter
Obtain basic information about the Nature andType of Branch, Regional/Head Office, CentralStatutory Auditors, Previous Auditors, TimeLimit for completion of Audit, Reports/
Certificates to be signed etc.Send Acceptance Letter to Bank with necessary
declarations.
Obtain NOC from Previous Auditors
Communication with Branch.
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Audit Planning (Contd.):
Prepare Detailed Branch profile covering thedetails about Nature and Type of Branch (CBB/IFB/ SME/ AFB/
Service Br/ Asset Recovery Br.etc.)
Size of the Branch (Small/Medium/Large/Very Largeetc.) No. of Extension Counters/ATMs
Key Business Figures Deposits, Advances, NetProfit, NPA Level, New NPA Accounts etc.
Operating Environment (CBS, Internet Banking, RTGSetc.)
Details of Government / Other Contractual Businesshandled by the Branch
Details of
Audits/ Inspections d
uring the year Obtaincopies of the reports
Internal Audit Rating/ Risk rating of the Branchassigned by Internal Auditors
Collect Closing Instructions Circular, Important H.O.Circulars and details of Changes in AccountingPolicies.
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Audit Planning (Contd.)
On-Site Planning at Branch:
a)Evaluation of the Accounting andInternal Control System.
b) Development ofAudit Programme.
c)Allocation of Work according to AuditProgramme
d)Review of Progress of Work andRevision ofAudit Plan, if necessary.
e)Compilation of Information forReporting and Summary of AuditQueries & Observations
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Evaluation ofAccounting System and
Internal Controls :
SA-265 (EarlierAAS-01) States:
Management is primarily responsible formaintaining an adequate accounting system
incorporating various internal controls to theextent appropriate according to the size andnature of the business.
The auditor should examine and study theaccounting system and related internalcontrols and should evaluate the operationof those internal controls upon which hewishes to rely in determining the nature,timing and extent of other audit procedures.
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Evaluation ofAccounting System and
Internal Controls :
Where the auditor concludes that hecan rely on certain internal controls,his substantive procedures would
normally be less extensive and mayalso differ as to their nature andtiming.
If he observes any deficiencies in theinternal controls in any area- hissubstantive procedures would bemore extensive.
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Evaluation of Internal Controls:
The auditor should obtain information in respect of InternalControl Systems in the following areas:
General Software related controls
Revenue Items Related Controls
Controls related to General Administration andHousekeeping
Controls related to certain Special Accounts like Sundriesand Suspense Accounts
Controls with respect to Advances- Sanctions, Renewals,Credit Appraisal, Disbursement, Documentation,Recovery etc.
Controls related to Classification of Advances andIncome Recognition
Deposit related Controls and Controls with respect toInoperative/ Dormant Accounts
Controls with respect to Compliance of Tax Laws.
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System Controls in Banks:
Access to the system is available only betweenstipulated hours and specified days only.
Individual users can access only specified
directories and files Exception situations such as limit excess,
reactivating dormant accounts, etc. can behandled only with a valid supervisory level
password.A user timeout is prescribed
Once the end-of-the-day process is over, theledgers cannot be opened without a supervisory
level password.
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System Controls in Banks:
The system maintains a record of all log-ins andlog-outs
If the transaction is sought to be posted to a
dormant (or inoperative) account, the processingis halted and can be proceeded with only with asupervisory password
The system checks whether the amount to be
withdrawn is within the drawing power. The system flashes a message if the balance in a
lien account would fall below the lien amountafter the processing of the transaction.
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Internal controls in bank branch
Work of one staff member is invariablysupervised / checked by another staff member,irrespective of the nature of work
Banks have a system of job rotation among staff
The financial and administrative powers of eachofficial / each position are fixed andcommunicated to all persons concerned
Branch managers have to send periodicconfirmation to their controlling authority oncompliance of the laid down systems andprocedures.
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Internal controls in bank branch
All branches of a bank have a unique codenumber which is circulated amongst all officesof the bank
All books are to be balanced periodically.Balancing is to be confirmed by an official
Particulars of lost security forms areimmediately advised to branches so that theycan exercise caution
Sensitive items like currency, valuables, draftforms, term deposit receipts, travellers chequesand other such security forms are in the custodyof at least two officials of the branch.
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Audit Planning Why?
SA 300 -Audit Planning emphasizes thatthe auditor should plan his audit work toenable him to conduct an effective audit inefficient and timely manner.
In Bank Branch Audit, adequate auditplanning is required because it facilitatesthe following:
i. ensures that appropriate attention isdevoted to all important areas of audit likedeposits,advances,Bank charges etc
ii. Ensures that potential problems areproperly identified e.g frauds
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Audit Planning Why?
iii. Ensure that work is completed
expeditiously and effectively.
iv. Effective Utilization of Audit Staff. No
important area of work is left out and
No work is duplicated.
v. Coordination of the work done by
other auditors Important Points ofOther Inspection/Audit Reports are
taken care of.
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Considerations for Overall Audit
Plan: (SA-300)
1. The terms of engagement- scope of workand statutory responsibility.
2. The nature and timing of reports to be
submitted.3. Applicable Legal/Statutory Requirements
4. The accounting policies adopted by Bankand changes in these policies.
5. The identification of significant audit areas6. The degree of reliance by Auditor on
accounting systems and internal controls.
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Considerations for Overall Audit
Plan: (SA-300)
7. The nature and timing of audit evidenceobtained
8. The work of internal auditors and extent of
their involvement9. The involvement of expert
10. The allocation of work to be undertakenbetween joint auditors and procedures for
its control and review11. Establishing and coordinating staffing
requirements
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Other Factors to be considered
for audit planning:
1. Size and Complexity of audit
2. Environment in which Bank operates Past Experience with the Entity.
3. Qualification and Experience of AuditTeam in bank audit work.
4. Knowledge of Banks Business-
Type of Business handled by theBranch.
5. Discussion with Bank Manager.
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Audit Procedures to be Applied:
1. Inspection e.g. Vouching.
2. Observation
3. Inquiry & confirmation e.g.Confirmation of Bank Balances
4. Computation e.g. Interest
Calculations.
5. Analytical Procedures like
Comparisons- Ratio Analysis etc.
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Documents/ Certificates to be Collected:
Following certificates should be obtained fromBranch Management:
Cash Retention Limit duly certified by the BranchManager.
A photo copy each of the confirmation certificatesfor Balances with RBI, SBI and other banks.
A copy of the reconciliation statement in respectof differences in such balances with RBI, SBI andother banks.
List of overdue or matured investments at theend of the year duly confirmed by the Branch
Manager;
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Documents/ Certificates to be Collected:
A certificate stating that the Branch did nothold any investments on behalf of the HeadOffice (if there are no such investmentsheld by the Branch).
List of large advances i.e. those in respectof which the outstanding amount is inexcess of 5% of the aggregate advances ofthe Branch or Rs.10.00 crores whichever is
less duly certified by the Branch Manager A copy of the letter from Head Office
regarding Sanction Powers of the BranchManager.
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Documents/ Certificates to be Collected:
List of cases where the Branch has notobtained stock/book debts statements atthe end of the year;
List of cases where insurance copies are
yet to be received at the end of the yearA copy of the Head office instructions for
identification of NPAs and classification ofadvances.
List of major items pending for reconciliation under Inter-Branch Accounts;List of all fraud cases reported to HO/RBI.
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Compilation and Verification of Information
relating to different Reports:
Main Audit Report as per (sec.30(3) of)Banking Regulation Act, 1949.
Long Form Audit Report
Tax Audit Report
Jilani Committee Report
Ghosh Committee Report
Special Certificates/ Reports asapplicable (e.g. Prime Minister Rojgar YojanaScheme Certificate etc.)
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Reporting under
Banking Regulation Act,1949:
As per section 30(3) of a Banking RegulationAct,1949; an auditor of a banking company isrequired to state in his report :--
(a) whether or not the information andexplanations required by him have been found tobe satisfactory;
(b) whether or not the transactions of the companywhich have come to his notice have been withinthe powers of the company;
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Reporting under
Banking Regulation Act,1949:
(c) whether or not the returns received frombranch offices of the company have been found
adequate for the purposes of his audit (not
applicable to bank branch)(d) whether the profit and loss account shows a
true balance of profit or loss for the period
covered by such account;
(e)any other matter, which he considers should be
brought to the notice of the shareholders of the
company.
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Reporting under
Banking Regulation Act,1949:
Distinct Feature of Bank Branch Audit:Memorandum of Changes (MOC)
In other audits, normally errors found during theaudit are modified/ given effect in the books ofaccounts and modified financial statements areprepared; But, in case of banks, by the time, thebranch audit is completed, there is compilation ofdata at regional and zonal level hence, anymodification in the financial statements is giveneffect through MOC. The main report must stateabout this and shall also mention whether MOC isNIL or it contains any items affecting the financialstatements or Statement of Advances.
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Points to be noted for Final
Reporting:
Address the Report to the Central StatutoryAuditors (sec.228 (3)(c) of the Co.Act,1956).
Financial statements to be approved by Branch
Manager. Take Management Representation Letter for each
type of report.
Before the final report is submitted, ensure thatyour queries are solved to your satisfaction.
Take acknowledgement of submission of report.
Submit the professional fees bill (after chargingservice tax) to the relevant authorities.
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THANK YOU