Long form audit report

1. Long Form audit report & Income recognition norms ( Lucknow branch of circ of icai – 22 nd March, 2014) CA . Dhruv Seth [email protected]

2. Bank audit general guidelines Set aside your Ego and “targets” Bank Audit NPA identification Year closing manual RBI master circulars ICAI Guidance note Audit reports at branch Analysis of financial statement

3. Importance of Long Form audit report Standardisation of reports Coverage Internal control evaluation Ready Audit program

4. Structure of Long Form audit report Does the branch generally carry or comply… In the cases examined by you… Verification on test check basis…

5. Structure of Long Form audit report

6. General Guidelines Be Specific Be thorough with requirements Don’t “Save as” previous year Disclosures to be specific Audit report vis -a- viz LFAR LFAR qualifications to be part of audit report Main report to be standalone

7. Important clauses Cash and Bank balances Advances Other Assets Deposits and other liabilities Profit and Loss General

8. Cash balances Cash balance being maintained Reporting of excess cash Insurance coverage Joint Custody Physical verification

9. Bank balances Obtain Balance confirmation Verify reconciliation entries Old pending entries Un-responded cash transactions Booking of expenses Report differences

10. Advances - Appraisal Appropriate forms Completely filed and signed Functioning normally Adequate securities End use of funds Difference in Audited and Projected

11. Advances - Sanctioning Sanctioning limits Loan Sanctioned Temporary overdraft Withdrawal against pending cheques Disbursement of loan without EM Disbursement of loan without PG

12. Advances - Documentation Obtain a sample checklist for reference Non registration of charges Non obtaining of guarantee Marking of Lien (Offline and Online)

13. Advances - Review Identify accounts overdue and report Submission of financial statements Submission of other information Obtain and analyse review note Overdue more than 180 days = NPA (Para 4.2.4 (ii) Master circular on Prudential norms July, 2013)

14. Advances - Review Scrutinise the stock statement Non submission of stock statement = NPA (Para 4.2.4 ( i ) Master circular on Prudential norms July, 2013) Limits > 10 lacs = Audited FS Physical verification of Security Inadequate security coverage

15. Advances - Review Clause 5(d)(ix) Clause 5(d)(x)

16. Clause 5(d)(ix) and (x) ix ) Has the branch identified and classified advances into standard/ substandard/ doubtful/ loss assets in line with the norms prescribed by the RBI . x) Where the auditor disagrees with the branch classification of advances into standard/ substandard / doubtful/ loss assets, the details of such advances with reasons should be given. Also indicate whether suitable changes have been incorporated/ suggested in the Memorandum of Changes.

17. Identification - npa Interest / Instalment due > 90 days “Out of Order” Continuously in excess OR No credits / insufficient credits for 90 days Bill overdue > 90 days Agricultural advance > One/Two crop season (Para 4.2.13 Master circular on Prudential norms July, 2013 )

18. Classification

19. NPA – General Guidelines Holistic approach – Substance over form Value of Security (Para 4.2.9) Temporary deficiencies (Para 4.2.4) Importance of Stock statements Ad hoc limits > 180 days – NPA Asset Classification – Borrower wise Advances against NSC’s, KVP’s, TD’s etc

20. NPA – account masters Period of Loan Due date of first instalment Instalment Amount Rate of Interest Agricultural Loan – Crop Type

21. NPA – Restructuring Only at the instance of borrower Repeated restructuring Standard – Restructured – Downgrade ( Para 12.2.1 ) NPA – Restructured – Same classification (12.2.2)

22. LFAR – Other Assets Physical Verification Stationery ATM Cards and PIN Issue and Custody Instances of Lost items

23. LFAR – Other Assets Sundries / Suspense Account Verify old entries Camouflaging NPA’s or Old expenses Reporting Working paper with reasons MOC, if required Highlight in main audit report

24. deposits & other liabilities Inoperative accounts Guidelines for Inoperative accounts Customer initiation Signature verification Large movement in Deposits Overdue/matured term deposits

25. deposits & other liabilities Old outstanding BP, Sundry Deposits Contingent Liabilities Obtain list of consumer court cases Claim from government departments Demand of any statutory liability Management representation

26. Profit & loss - Income Mechanism to address discrepancies Compliance to revenue audit reports Interest Periodicity of levy Correctness of levy Master verification Other Incomes (Charges, Fees etc )

27. Profit & loss - Expenses Discrepancies with interest Correctness of accrued interest Effect of change of interest on deposits Policy on overdue deposits (Savings rate interest to be paid – RBI) Co-relate interest paid to average deposits

28. General Obtain list of exceptional reports Data security measures No sharing of user passwords Deactivate left employees Map leave to login Backups (Offsite and Onsite) Physical restraint to server room

29. General Reconciliation Control & Subsidiary Inter Branch Accounts Regular reports being shared with HO / RO Account with HO / RO / ZO Entries originating at other branches Expeditious clearing of entries

30. Miscellaneous Window dressing Large movement in advances and deposits Deposits and Advances to same group Account regularisation near FS date Under utilised facility into deposits Unsecured shown as secured Restructuring of Accounts

31. Specialised branches Branches dealing in Foreign Exchange Branches dealing in very large advances Branches dealing in NPA recovery Branches as Clearing houses

32. Thank You CA . Dhruv Seth [email protected]