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AN OPEN SECRET PUZZLE?
Only final delivery in the cumbersome audit process
Only mouthpiece of the auditors
Only communication between the auditors and stakeholders
Hardly drafted by qualified chartered accountants
Seldom read by the regulators/stakeholders
Only instrument which can SAVE OR SINK Auditors
INTROSPECTION
INTROSPECTION
Going forward, in mutual discussions with
GoI and SCAs, based, inter alia, on :
The operational efficiency & robustness
of CBS.
System driven identification of NPAs.
Integrity of MIS
Managements of individual PSBs may decide on the threshold level of advances for the
purpose of selecting branches for statutory audit.
Progressively, the threshold
level of advances may be
increased so that the number
of branches to be taken up
for statutory audit is
phased down
over a period of time.
INTROSPECTION
Pre- branch visit
• Annual report of the Bank
• Accounting Policies
• Audit Manual
• Communication with the previous auditors
• Portal Visit of the bank
• ERP environment studies
• Guidance Note study
• Seminars/Webinars
Walk In Process
• Branch Audit Report and Accounts;
• Long Form Audit Report;
• Internal Inspection Report;
• Concurrent Audit Report(s);
• Credit Audit Report;
• RBI Inspection Report, if such inspection took place;
• Income and Expenditure Control Audit/Revenue Audit Report;
• Quarterly review report;
• Snap and Systems Audit Report;
• IS/ IT/Computer/EDP Systems Audit; and
• Any special inspection/investigation report.
Walk In Process
Review of Registers/returns/records:
1. Loan Application
2. Sanction/Disbursement
3. Documents/Charge
4. Pre & Post Inspection
5. Insurance
6. Stock
7. Irregularity
8. Limitation/LAD/BC
9. Renewal/Review
10. Recalled Assets
11. W/off
12. RC issued
13. Securitizations
14. Recovery
15. Suit Filed
16. Compromise/Settlement
17. Bank Guarantee
18. LC
19. Bills purchased
20. Locker Rent
21. BMCC
22. Attendance/DAK
23. Salary/TDS/15G/H
24. Fixed Assets and so on…….
Thorough examination of FSs
Accounting Policies of Bank
Closing circulars
Exception reports
2x3 day book vouching
Suits filed by and against the
branch
Tax Audit Report
TDS notices, online status
Service Tax notices etc.
Consistency between AR/LFAR
Laptop
Internet
Pen Drive
RBI master circular-
IRAC etc.
Guidance Note –ICAI
Guidance Note – 44AB
Letter head, stamp, DSC
Stationery
Bank Branch Audit
Engagement Letter - SA 210
Written Representation SA – 580
Communication with Prev. Auditors
Audit Program
LFAR/
OTHERS/
CERTIFICATES
/REPORTS
INDEPENDENT
AUDITOR’S
REPORT
Independent Bank Branch Auditor's Report
SA 700
Clean
Opinion
SA 706
MP
&
OMP
SA 705
Modified Opinion
i. Qualified
ii. Adverse &
iii. Disclaimer
Matters that required significant auditor
attention
Matters that were communicated with those charged with
governance
Matter of most significance in the audit
SA - 701 “ Communicating Key Audit Matters in the Independent Auditor’s Report ”
In certain limited
circumstances,
if there are no KAM to
communicate, the auditor’s
report
includes a statement to that
effect
Key Audit
Matters
SA-700- Forming an opinion and reporting on Financial
Statements
CA GOPAL JI AGRAWAL
When an auditor can not issue clean report?
(i) The Auditor is unable to obtain sufficient appropriate audit evidence in
respect of any five elements of the financial statements viz. Assets,
Liabilities, Income, Expense and Equity and other reporting
requirements as per governing financial reporting framework
Or
(ii) Obtains sufficient appropriate audit evidence which signifies that any of
these elements or disclosures has materially been misstated in the
financial statements.
Materiality
Information is material if its
omission or misstatement
(individually or collectively) could
influence the economic decisions
of the users taken on the basis of
financial information. Materiality
depends on the SIZE or NATURE
or a combination of both. (Entity
specific).
Misstatement
Information is material if its
mission or misstatement
(individually or collectively) could
influence the economic decisions
of the users taken on the basis of
financial information. Materiality
depends on the SIZE or
NATURE or a combination of
both. (Entity specific).
PERVASIVENESS
(A)Where it pertains to an amount(s) in the FSs, it is not confined to
specific components, accounts or items of the FSs. If it is so confined,
it represents or could represent a substantial portion of the FSs;
OR
(B)Where it pertains to disclosures, such disclosures or the matter(s)
therein are/ could be fundamental to the user’s understanding of the
FSs.
SA-705- Modifications to the opinion in Independent Auditors Report
Nature of matter giving rise to
modification
Auditor’s judgment about the Materiality and
Pervasiveness of the Effects or Possible Effects on the
financial statements.
Material but
Not Pervasive
Material and
Pervasive
FS are materially misstated Qualified opinion Adverse opinion
Inability to obtain sufficient
appropriate audit evidence
Qualified opinion
Disclaimer of opinion
BANK BRANCH AUDIT
Q. STATUS OF MOC/ ADJUSTMENTS
IN AUDIT REPORT?
SUBJECT TO/READ WITH??
BANK BRANCH AUDIT
HOW MANY REPORTS ARE ISSUED IN BANK
BRANCH AUDIT???
WHAT IS THE PURPOSE OF BANK BRANCH
AUDIT?
OR WHAT KIND OF ASSURANCE (KINDS OF
ASSURANCES) IS GIVEN BY BANK BRANCH
AUDITORS?
BANK BRANCH AUDIT - SBI
We have also audited the under mentioned statements countersigned by us for the
purpose of identification as at 31st March 2015.
1. Fixed Assets Returns.
2. Weekly abstracts of the Reporting Fridays.
3. Capital Adequacy Returns based on Basel II & III guidelines.
4. Annual Advance Return - SA 1 to SA 7, SA 10 & SA-11 including classification of
advances and provisioning as per IRAC norms prescribed by RBI.
5. DISC Return - DISC 1 to DISC 14.
6. Annexure IX, XA, XB and XC
7. Compliance of Ghosh, Jilani and Mitra Committee recommendations.
8. CFS Returns 1 to 8. [PLACING ISSUE]
Independent Bank Branch Auditor’s Report
Addressee [Members]
REPORT ON FINANCIAL STATEMENTS
• Opinion / Qualified Opinion/Adverse Opinion • Basis for opinion/Qualified opinion/Adverse Opinion
• Key Audit Matters, if required
• Management’s responsibility paragraph or TCWG
• Auditor’s responsibility paragraph
Matter Paragraph Other Matter Paragraph REPORT ON OTHER LEGAL & REGULATORY REQUIREMENTS
Signature
Date of the auditor’s report (after approval)
Place of signature FRN and Membership Number
BASIS OF MODIFICATION
Significant volume of wrong classification of Advances?
NPA accounts transferred as a new loan facility
Non availability of verification/valuation of securities in NPA
accounts more particularly in government sponsored
advances without collateral security
Charging of lower rate of interest in KCC despite being
irregular and claiming interest subvention.
BASIS OF MODIFICATION
Wrong classification of secured and unsecured advances?
NPA accounts are upgraded manually without recovery in the
accounts by deviating terms of sanction?
Recognition of several advances as NPA on a particular date?
BASIS OF MODIFICATION
Our test check has revealed that:
The branch had not been following properly the prudential norms on
income recognition, asset classification and provisioning pertaining to
advances in the past periods hence the advances amounting to Rs.
_____crore approximately were recognized as NPA (sub-standard) during
the financial year 2018-19 or in the month of ______ or on _________, in
terms of HO Letter No……. to rectify the errors occurred in the past
periods. The unrealized income including interest has been partially
reversed in the current year. Therefore the income recognition, asset
classification and provisioning are materially misstated due to the
following reasons:
BASIS OF MODIFICATION
1. These advance accounts had not been classified as NPA in the past periods in accordance with the IRAC
norms of RBI.
2. All such aforesaid accounts have been classified as sub-standard instead of the correct classification into
three categories viz. sub standard, doubtful and loss since the relevant date of each such account
becoming NPA is more than 12 months.
3. The unrealized income including interest on these accounts has been partially reversed.
4. As required by Accounting Standard 5- The nature and amount of prior period items should be
separately disclosed in the statement of profit and loss in a manner that their impact on the current profit
or loss can be perceived but it has not been followed.
The impact of the aforesaid errors on correct classification, income recognition and provisioning could not
be ascertained by the branch.
BANK BRANCH AUDIT
MP VS. OMP
1. In MP, matters are appropriately presented and disclosed in FSs
but OMP are not presented or disclosed in FSs.
2. MP is fundamental with reference to understanding of FSs while
OMP is relevant to users’ understanding in respect of 3 matters
only
(a)audit
(b)the auditor’s responsibilities
(c ) the auditor’s report.”
BANK BRANCH AUDIT
The branch could not furnish us the details
in respect of:
Draft Rs. 500 crore,
Inter Office Instrument A/c Rs. 200 crore.
BANK BRANCH AUDIT
OTHER MATTERS
No adjustments/provisions have been made in the accounts of the Branch
in respect of matters usually dealt with at Head Office or CO, including in
respect of: (a to i):
• Bonus, ex-gratia, terminal and other similar exp. and allowances to
• branch employees
• Terminal benefits
• Arrears of salary/wages/allowances
• Staff welfare contractual obligations
• Taxation (Current Tax and Deferred Tax)
• Provision for Advances (GN) cont………..
BANK BRANCH AUDIT
•Old un-reconciled/unlinked entries at debit under various heads
comprising Inter branch/office
•Auditors’ fees
•Reversal of interest of new Non performing accounts
•Taxation (Current Tax and Deferred Tax)
•Provision for office rent
•Depreciation on fixed assets
•Any other item as per bank policy (GN)
•SUMMARY OF MOCs
BANK BRANCH AUDIT
OMP –Missing Disclosures required as per Accounting Standards issued by ICAI, RBI, Banking Regulation Act, 1949 & other applicable statutes, rules and regulations viz. SBI Act, 1955. (GN)
BANK BRANCH AUDIT
BANK AS MP/OMP ADDRESSED
SBI ICAI Yes President
PNB ICAI No President
CANARA BANK ICAI Yes President
OBC ICAI Yes President
CORPORATION BANK ICAI Yes President
ALLAHABAD BANK ICAI No President
INDIAN BANK ICAI Yes President
UNITED BANK ICAI Yes President
ANNUAL REPORT 2014-2015 PUBLIC SECTOR BANKS:
BANK AS MP/OMP ADDRESSED
UNION BANK applicable AS in last paragraph No Members
CENTRAL BANK applicable AS in last paragraph No President
SYNDICATE BANK applicable AS in last paragraph Yes President
IOB applicable AS in last paragraph Yes President
UCO BANK applicable AS in last paragraph Yes President
ANDHRA BANK applicable AS in last paragraph Yes Members
BANK OF MAH. applicable AS in last paragraph Yes President
DENA BANK applicable AS in last paragraph Yes President
BANK OF BARODA Generally Accepted In India No Shareholders
BANK OF INDIA Generally Accepted In India Yes Shareholders
PUNJAB & SIND BANK Generally Accepted In India Yes President
IDBI BANK Companies Act Yes Members
VIJAYA BANK Companies Act Yes President / Members
BANK BRANCH AUDIT
BANK AS MP/OMP ADDRESSED
SBI ICAI Yes President
PNB ICAI Yes Members
CANARA BANK Generally Accepted In India No Members
OBC ICAI No Members
CORPORATION BANK Generally Accepted In India Yes Members
ALLAHABAD BANK Generally Accepted in India Yes Members
INDIAN BANK Generally Accepted In India
No Members
UNITED BANK ICAI No Members
ANNUAL REPORT 2017-2018 PUBLIC SECTOR BANKS:
BANK AS MP/OMP ADDRESSED
UNION BANK ICAI No President/Members
CENTRAL BANK Generally Accepted In India No Members
SYNDICATE BANK ICAI No President/Members
IOB Generally Accepted In India Yes Members
UCO BANK Generally Accepted In India No Members
ANDHRA BANK Generally Accepted In India No Members
BANK OF MAH. ICAI Yes Members
DENA BANK Generally Accepted In India No President/Members
BANK OF BARODA Generally Accepted In India Yes Members
BANK OF INDIA ICAI Yes President /Members
PUNJAB & SIND BANK Generally Accepted In India Yes Members
IDBI BANK Companies Act Yes Members
VIJAYA BANK ICAI No President / Members
Prudential Norms modified for March 2019 MSME – 90 Days to 180 days – Feb 7 & June 6, 2018
i. GST registration on or before 31/01/2018 or 31/12/2018
ii. Total exposure – banks/NBFCs- 25 Cr – 31/01/18 – 31/05/2018
iii. Standard but Irregular – 31/08/2017
iv. Dues from 01/09/2017 upto 31/12/2018 –within 180 days from due date
v. Jan –Feb 2019 - 150 days from due date, March –April -120 days
vi. Provision- 5% BUT INTT ON REALISATION BASE
25 lac 25 – 500 lac 500-1000 lac
10 lac 10 -200 lac 200-500 lac
Prudential Norms modified for March 2019 MSME – One time restructuring – Cir 01/01/2019
i. GST registration on the date of implementation of restructuring-31/03/20
ii. Total exposure – banks/NBFCs- 25 Cr -01/01/2019
iii. Standard BUT irregular – 01/01/2019
iv. Dues from 01/09/2017 upto 31/12/2018 –within 180 days from due date
v. Jan –Feb 2019 - 150 days from due date, March –April -120 days
vi. Provision- 5%
25 lac 25 – 500 lac 500-1000 lac
10 lac 10 -200 lac 200-500 lac
