Introduction:

Assurance services are independent professional services that improve the quality of information for decision makers. Individuals who are responsible for making business decisions seek assurance services to help improve the reliability and relevance of the information used as the basis of their decisions. Assurance services are valued because the assurance provider is independent and perceived as being unbiased with respect to the information examined. Assurance services can be performed by CAs (Chartered accountants in Bangladesh) or by a variety of other professionals. One category of assurance services provided by CAs is attestation service.

An Audit of historical financial statements is a form of attestation service in which the auditor issues a written report expressing an opinion about whether the financial statements are in material conformity with generally accepted accounting principles (GAAP) or international financial reporting standards (IFRSs). Audit represents the predominant form of assurance performed by CA firms. When presenting information in the form of financial statements, the client makes various assertions about its financial condition and results of operations. External users who rely on those financial statements to make business decisions look to the auditor’s report as an indication of the statements’ reliability. They value the auditor’s assurance because of the auditor’s independence from the client and knowledge of financial statement reporting matters (Arens, 2000).

The objectives of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework. The term “financial statements as defined by the council of the ICAB “framework of presentation of financial statements” covers balance sheets, income statements or profit and loss accounts. Cash flow statements, notes and other statements and explanatory material which are identified as being part of the financial statements. Although the auditors’ opinion enhances the credibility of the financial statements, the user cannot assume that the opinion is an assurance as to the future viability of the entity nor

the efficiency or effectiveness with which management has conducted the affairs of the entity (ICAB, 2004).

An audit is defined by the International Auditing Practices Committee (IAPC) of International Federation of Accountants (IFAC) as:

The independent examination of the financial information of any entity, whether profit oriented or not, and irrespective of its size, or legal form, when such an examination is conducted with a view to expressing an opinion thereon. The term financial information encompasses financial statements.

There are three primary types of audits: financial statements audits, operational audits, and compliance audits. The latter two services are often called audit activities, even though they are most similar to assurance and attestation services (ICAB, 1999).

DEFINITION OF AUDITING:

Various persons such as the owners, shareholders, investors, creditors, lenders,

government, banks etc. use the final account of a business concern for different purposes. All

these users need to be sure that the final accounts prepared by the management are reliable. An

auditor is an independent expert who examines the accounts of a business concern and reports

whether the final accounts are reliable or not. Different authorities have defined auditing as

follows.

Mautz define the auditing as “auditing is concerned with the verification of accounting data,

with determining the accuracy and reliability of accounting statements and reports”.

Prof. L. R. Dicksee defines auditing, as “auditing is an examination of accounting records

undertaken with a view to establish whether they correctly and completely reflect the transactions to

which they relate”.

ORIGIN AND EVOLUTION OF AUDITING:

Origin of term:

The term audit is derived from the Latin term “audire” mean to hear. In early days an auditor

used to listen to the accounts read out by the accountant in order to check them. In last one

decade the Indian Banking sector has witnessed a very high level of conceptual revolution in

terms of organization structure, business model, accounting, operations, control, environment,

customer interface, customer service, regulatory compliance, information dissemination and a

whole lot.

1) Ancient origin:

Auditing is as old as accounting. It was in use in all ancient countries such as Mesopotamia, Egypt, Greece, Rome, U.K. and India. The Vedas, Ramayana, Mahabharata contain references to accounting and auditing. Arthashsastra by Kautilya gives detailed rules for accounting and auditing of public finances. The Mauryas, the Guptas and the Mughals had developed and accounting and auditing system to control state finances. Thus, basically accounting and auditing had their origin in the need for the government to control the income

and expenditure of the state and the army. The original object of auditing was to detect and

prevent errors and frauds.

2) Compulsory audits of companies:

With increasing number of companies, the companies’ acts in different countries began

providing for compulsory audit of accounts of companies. Thus in the U.K. audit of accounts of

limited companies became compulsory in 1900. In India, the companies act, 1913 made audit of

company accounts compulsory. With increase in size of companies the object of the audit also

shifted to ascertaining whether the accounts were “true and fair” rather than “true and correct”.

Thus the emphasis was not on arithmetical accuracy but on fair representation of financial affair.

3) Development of accounting and auditing standards :

The international accounting standards committee and the accounting standards board of the

institute of chartered accountant of India have developed standard accounting and auditing

practices to guide the accountants and auditors in their day-to-day work.

4) Computer technology:

The latest development in auditing pertains to the use of computers in accounting as well as

auditing. Really, auditing has come a long way from “hearing” the accounts in the ancient days

to using computers to examine computerized accounts of today.

Audit Committee:

Functions:

The functions of the Audit Committee include the following:

1. Oversight of the Company’s financial reporting process and the disclosure of its

financial information, to ensure that the financial statements are true and accurate and

provide sufficient information.

2. Recommending to the Board, the appointment, re-appointment and, if required, the

replacement or removal of the statutory auditor and the fixation of their audit fees.

3. Approval of payment to statutory auditors for any other services rendered by the

statutory auditors.

4. Reviewing, with the management, the annual financial statements before submission

to the board for approval, with particular reference to:

Matters required being included in the Director’s Responsibility statement, which

forms a part of the Board’s report in terms of clause (2AA) of section 217 of the

companies Act, 1956.

Changes, if any, in accounting policies and practices and reasons for the same.

Major accounting entries involving estimates based on the exercise of judgment

by management.

Disclosure of any related party transactions.

Qualifications in the draft audit report.

5. Reviewing, with the management, the quarterly financial statements before

submission to the Board for approval.

6. Discussion with internal auditors with respect to the coverage and frequency of

internal audits as per the annual audit plan, nature of significant findings and follow

up thereof.

7. Reviewing the findings of any internal investigations by the internal auditors into

matters where there is suspected fraud or irregulatory or a failure of internal control

systems of a material nature and reporting the matter to the board.

8. Reviewing with the management, the quarterly financial statements before

submission to the board for approval.

9. Reviewing, with the management, performance of statutory and internal auditors,

adequacy of the internal control systems.

10. Reviewing the adequacy of internal audit function including the structure of the

internal audit department, staffing and seniority of the official heading the

department, availability and deployment of resources to complete their

responsibilities and the performance of the out-sourced audit activity.

11. Obtaining an update on the Risks Management Framework and the manner in which

risks are being addressed.

12. Discussion with statutory auditors before the audit commences, about the nature and

scope of audit as well as post-audit discussion to ascertain any area of concern.

BASIC PRINICPLES OF AUDITING:

a) Integrity, objectivity and independence:

The auditor should be honest and sincere in his audit work. He must be fair and objective. He

should also be independent.

b) Confidentiality:

The auditor should keep the information obtained during audit, confidential. He should not disclose such

information to any third party. He should, it is said, keep his eyes and ears open but his mouth shut.

c) Skill and competence:

The auditor should have adequate training, experience and competence in auditing. He should

have a professional qualification (i.e. be a Chartered Accountant) and practical experience. He

should be aware of recent developments in the field of auditing such as statement of ICAI,

changes in company law, decisions of courts etc.

d) Working papers:

The auditor should maintain working papers of important matters to prove that audit was

conducted with due care according to the basic principles.

e) Planning:

The auditor should plan his audit work. He should prepare an audit programmed to complete the

audit efficiently and in time.

f) Audit evidence:

The report of the auditor should be based on evidence obtained in the course of audit. The

evidence may be obtained through vouching of transactions, verification of assets and liabilities,

ratio analysis etc.

g) Evaluation of accounting system and internal control:

The auditor should ensure that the accounting system is adequate. He should see that all the

transactions have been properly recorded. He should study and evaluate the internal controls.

h) Opinion and report:

The auditor should arrive at his opinion on the account on the basis of the audit evidence and

submit his report. The opinion may be unqualified or qualified or adverse. The audit report

should clearly express his opinion. Law should require the content and form of audit report.

ADVANATAGES OF AUDITING:

1. Assurance of true and fair accounts:

Audit provides an assurance to the various users of final accounts such as owners, management,

creditors, lenders, investors, government’s etc. that the accounts are true and fair.

2. True and Fair balance sheet:

The user of accounts can be sure that the assets and liabilities shown in the audited balance sheet

show the concern, as it is i.e. neither more nor less.

3. True and fair profit and loss account:

The user can be confident that the audited profit and loss account shows the true amount of profit

or loss, as it is i.e. neither more nor less.

4. Tally with books:

The audited final accounts can be taken to tally with the books of account. Thus, the income-tax

officer can start with the figure of audited books profit, make adjustments and compute the

taxable income. An outside user need not go through the entire books.

5. As per standard accounting and auditing practices:

The audited final accounts follow the standard accounting and auditing principles laid down by

professional bodies. Thus audited accounts are based on objectives standards and not on personal

whims and fancies of a particular accountant or auditor.

6. Detection and prevention of errors and frauds:

Audited accounts can be assumed to be reasonably free from errors and frauds. The auditor with

his expert knowledge would take due care to see that errors and frauds are detected so that the

accounts show a true and fair view.

7. Advice on system, taxation, finance:

The auditor can also advise the client about the accounting system, internal control, internal

check, internal audit, taxation, finances etc.

LIMITATIONS OF AUDITING:

An auditor cannot check each and every transaction he has to check only the selected

areas and transaction on a sample basis.

Audit evidence is not conclusive in nature thus confirmation by a debtor is not conclusive

evidence that the amount will be collected. It is said evidence is persuasive rather than

conclusive in nature.

An auditor cannot be expected to discover deeply laid frauds usually involve acts

designed to conceal them such as forgery, deliberate failure to record transactions, false

explanations and so on and hence are difficult to detect.

Audit cannot assure the user of account about the future profitability, prospects or the

efficiency of the management.

An auditor has to rely upon experts auditor may have to rely on experts in related field

such as lawyers, engineers, value’s etc. for estimating contingent liabilities, valuation of fixed

assets etc.

SCOPE OF AUDIT:

Bank is the only industry that deals in money while other industries need to convert their

products and services to money by undergoing the set working capital cycle. This unique feature

of a Bank determines the thrust of audit, which has no parallel. it must be remembered that this

industry has come of its own especially in India with a history that pre-dates the British

occupation. Despite the continuously evolving strong internal controls and strengthening audit

coverage, it is not uncommon to note Bank frauds especially since they sadly affect the life long

savings of the common man. Frauds, therefore, have also been the driving force in the evolution

of the bank audit and its scope as we see at present. Another powerful determinant is the advent

of technology. Never has any machine affected the banking industry operations as the computers,

which hitherto confined to the back office now are spearheading the banking industry and often

critically affecting the life of the Bank itself. These two and many other forces such as regulatory

forces come together to define the general scope of the bank audit, which undoubtedly is unique

for the industry. An auditor thus is required to pay attention to the following aspects:

a) Whether accurate and correct record of the liabilities and assets of the bank/branch is

shown in the books.

b) Whether the books and records are being maintained in accordance with instructions

received from the Head Office from time to time

c) Whether assets shown in the books physically exist and their condition is satisfactory.

d) Whether the documents obtained by the branch from its borrowers are complete and

enforceable.

e) Whether proper record of instructions from the Head Office for the advances (sanction

letter) is kept and the extent to which they have been complied with.

f) Whether returns to the Head Office and the statutory returns are correctly complied and

submitted regularly.

Essential Qualities of Auditor:

It is the primary objective of this project to raise the quality of talents of the bank Auditor to

ensure minimum acceptable standards. In addition, there are certain qualities mentioned here

which are of practical nature and will assure your reputation of a good Bank auditor by both the

Head Office as well as the branch/departments. This is a difficult balancing act to win over the

very persons whose actions one may have critically commented upon in your report.

1. Integrity and Competence:

The Bank Inspector/ auditor should possess high standard of integrity and competence and

should be one who can be relied upon to conduct a through scrutiny of the branch. There are

many leeway’s given to the Bank auditor by which he can place reliance on the internal control

as noted by him to be practiced in the Branch. Here is where the competence, higher will be the

quality of audit.

2. Experience of responsible positions:

The Bank auditors have to deal with senior staff and should have a good idea of what the job

entails. The rules and instructions and circulars are present but what are most effective in all

cases are the practicality of the action and the achievement of the transaction.

3. Conversant with Instructions and Circulars:

If the Bank auditor has to guide the Bank officials about their work, he has to himself be

conversant with the Manual of Instruction and Circulars. The Bank auditor is seen as an expert

who represents the Head office and cannot merely the one of ‘ticking’.

Guide the branch officials in many of the matters. The role of Bank auditor s thus a very

responsible one.

4. Enthuse Developmental Activity:

The Bank auditor is the human face of the Head Office with whom the Branch officials can

interact. This interaction makes the circulars easier to digest and the Bank Officials are enthused

in their work resulting in higher productivity. This unlisted work of the Bank auditor is critical.

5. Professional Independence:

This is the integral quality of any auditor. If he can be influenced, his whole audit is effected and

unsuccessful. Transfers of auditees: Where the auditees have come from or going to the

Personnel Department, he is likely to be influenced. It is true that he has to give declaration

under Section 27 of the Companies Act of not being a borrower or guarantor to the Bank

6. Constructive Approach:

This quality is an absolute requirement of a Bank auditor even though it is recommended for all

audits. He has to ensure rectification of the irregularities as soon as possible. The primary

objective is not to pull up people committing mistakes but to rectify and prevent recurrence.

7. Courteous and dignified with staff:

Though this is needed in all audits, it is all the more needed in Banks. The industry has a large

dose of public interface daily for more than 50% of the time and this leads to emotional fatigue.

If the Bank auditor also add to the irritant already there, he is less likely to get any co-operation

from the affected staff. As a representative of the Head Office, his attitude to the staff should not

create more problems for the Branch Manager to solve.

TYPES OF AUDITS:

It is well known that no any day of the year, there will be at least one auditor working in the bank

branch. The following are the popular types of audits conducted in a bank branch. The titles may

be modified in some banks especially for Internal Audit and system Audit but the content

remains the same.

I. Statutory Audit:

This is an annual audit determined by statute and done normally at the end of the financial year

while some of the larger branches are similarly audited half yearly. A bank’s statutory audit is

essentially a balance sheet audit including the Long Audit Report though there is no scope

restriction of the statutory auditor to perform certain actins of other auditors as part of his duty or

if some findings lead him into the domain of the auditors such as Revenue, inspector and even

concurrent. The statutory auditor performs the following functions.

Verifies the classification of items of the Balance Sheet to assure their correct placement

Basel II accord, which has influenced the prudential norms, has included the statutory auditor as

an active member to assure the proper execution of the prevailing prudential norms. The direct

result of an accurate classification is the appropriateness of income recognition and thus the

effect on the profitability of the Bank.

II. Inspection Auditor:

The highest coverage of audit is under this category of audit. As we know, the Revenue audit

responsibility lies with this auditor and test checks of revenue calculation is not uncommon even

if the same was covered by a Revenue Auditor earlier. Safety of advances is the other main

function of the auditor.

One way to cover is to ensure that the documents obtained from the borrowers are the correct

category and filled in fully. Other way to cover this is by analysis of the account to ensure that

the unit is operational by observation of the credit and debits into the account.

III. Concurrent Audit:

In the beginning of the 1990’s, the Great Banking Scam or the Harshad Mehta Scam rocked the

nation. This brought into limelight special category of audit called concurrent audit or continuous

audit. This stemmed from the need of filling in the gap between the annual statutory audits and

the intervening period between two inspections, which is a period sufficiently large to cause

damage to the Bank. Now, RBI who insisted that at least 50% of the business of the Bank should

be covered under concurrent controlled the spotlight of the concurrent audit. While some Banks

covered very large branches under the umbrella of concurrent audit. Some banks took the

excurse for improvement by including weak branches though having low volume of business.

Concurrent audit in one sentence will mean checking yesterday’s transactions today. Let us see

the broad areas covered by the Concurrent Auditor.

A. Revenue Aspects:

1. Interest earned and service charges earned by the Bank

2. Interest Paid

3. All charges paid like cancellation charges, compensation under Court Directive

etc.

B. Expenditure:

1. Salary payments

2. Branch expenses like printing and stationary, temporary employees etc.

3. Rent of premises etc.

C. Documentation and other aspects of advances department:

1. Documentation correctness of ALL new advances granted during the period

2. Validity of all old advances to ensure that they are not time barred.

3. Currency of insurance cover of stock machinery etc.

4. Whether the inspections of units and stock have been carried out at the pre-set

intervals.

D. Administrative and other aspects:

1. Correctness of attendance and leave records

2. Cash Department working including security aspects with periodic surprise inspection

by the auditor

3. Stock check at regular intervals of all security documents like Blank chequebooks,

Demand Drafts, Pay orders, Pass Books etc.

IV. RBI Audit:

The Central Bank of the country also sends its own auditors to the Banks for their own

inspection. Their actions cannot be covered in this project because it is more of a supervisory

implementation of a Government Policy existing from time to time. The primary aim of this

audit is as follows.

Overall assessment of the assets and liabilities of the Bank, whether its financial position is

satisfactory, whether it is in position to pay its depositors in full as and when their claims accure,

and in the event of loss, whether it has sufficient cushion of owned funds to safeguard the

interests of depositors.

Soundness of Bank’s policies and procedures and effectiveness of the management to safeguard

point No.1 mentioned above as also whether they are on approved lines and in conformity with

socio-economic objectives.

V. Information Technology/System Audit:

This audit is introduced more as a compulsion of the Invasion of technology in all aspects of

Banking. No longer is this just an office machine or even a back-office recording machine. This

has now turned into the determinant of the Bank whether as service provider or even as the

vehicle of marketing of products of the Bank. More important, for the economy, the Banks have

to ensure continuous working to assure lubricant for the rolling of wheels of the economy. To

ensure this and assure RBI that such aspects are taken care of by the Bank in addition to securing

the protection of records of the depositor and borrower, system audit is undertaken to audit the

system – environment to aspects of software testing to some extent. It was observed that the

security and disaster recovery aspects improved considerably after the RBI made system audit

mandatory

Table of comparative scope of various audits other than RBI audit:

Activity of Audit Statutory

Audit

Internal

Audit

Revenue

Audit

Concurrent

Audit

System

Audit

Examination of balance sheet accounts

Examination of Profit & Loss accounts

Document Examination of Advances

Prudential norms verification

H.O. Guidance compliance for lending

Interest and service charge collection

accuracy by the Bank

Interest paid on deposits

All charges paid by the Bank

Accuracy of periodic returns

Housekeeping

Staff function

Unit inspection

Protection of server (Physical and

Logical)

Note

Indicates specific coverage as per that type of audit specified in the respective column.

Indicates partial coverage as per practice for the audit specified in the relevant column.

Prudential Norms & the Auditor:

Statutory auditor as well as concurrent auditor, needs to verify and (especially in

statutory audit) certify the health codes given to the advance accounts. The main implication of

an account reaching Non-Performing Asset (NPA) status is that no further interest can be applied

after that point of time. One major current feature is that hitherto, the accounts were accorded

date of NPA from the date of year end in which they had been so classified but currently, the

date of NPA will be the date on which it so suffered the down gradation as per the applicable

rules.

Necessity for Measurement of Non-Performing Assets:

The repayment of interest/installment was either not easily forthcoming as per schedule or

recovery. Consequently, banks found it increasingly prudent not to reckon such interest/other

charges as part of their income and pay tax on unrealized income. Rather they chose to cease

charging interest in such accounts of bad/doubtful nature or where the prospectuses of recovery

were bleak

RBI Health Code System and Relation to NPA:

The Reserve Bank of India introduced the Health Code System of classification of borrowal

accounts by banks in the year 1985. Based on this classification of advances, it was decided by

the Reserve Bank in the years 1989 and1990 that banks should cease charging interest

compulsorily in account under Health Code 5 to 8 i.e. Recalled, Suit-filled, Decreed and

bad/doubtful and selectivity, taking into account the availability and readability of security, in

accounts under Health Code 4 i.e. Stick: Non-viable/Sticky.

Asset Classification

I. Performing Asset:

Performing asset is one which generates periodical income and payments, as and when

due or within the minimum lag of two quarters. This is being cut down to one quarter from April

2004.

II. Non-Performing Asset (NPA):

The problem of NPA arises when the dues to the bank, interest/other charges or

installments are not being received as per schedule. To justifiably set right this phenomenon, the

Reserve Bank of India has drawn upon the international standards of accounting for the purpose

of NPA treatment of credit facilities. A loan asset will become NPA if the due amount is not paid

within one quarter.

Current position of NPA triggers.

Term Loan Interest and/or installment remain overdue for a period of more

than 90 days.

Overdraft/Cash Credit Account remains out of order for a period of more than 90 days.

Bill purchased/Discounted Overdue for more than 90 days from its due date.

Agriculture Loans Interest and/or installment remain overdue for a period of more

than 2 harvest seasons but not more than 2 half years.

Any Amount To be received remains overdue for a period more than 90 days.

Categories of NPA

1. Sub-standard Assets:

A sub-standard asset was one, which was classified as NPA for a period not exceeding two

years. With effect from 31 March 2001, a sub-standard asset is one, which has remained NPA for

a period less than or equal to 18 months and from 2005 it is further reduced to 12 months.

2. Doubtful Assets:

A doubtful asset was one, which remained NPA for a period exceeding two years.

With effect from 31 March 2001, an asset is to be classified as doubtful, if it remained NPA for a

period exceeding 18 months. With effect from March31, 2005, an asset would be classified s

doubtful if it remained in the sub-standard category for 12 months.

3. Loss Assets:

Assets which are classified as bad and non-recoverable by the concerned bank or by

Statutory Auditors or by RBI Inspectors but the amount have not been written off wholly. In

other words, such an asset is considered uncollectible and of such little value that its continuance

as a bankable asset is not warranted, they will continue to appear in the Balance Sheet but under

the heading “Loss Asset” although there may be some salvage or recovery value.

Provisions

The current position of providing provision on the various assets is as follows:

Standard assets General Provision 0.40% of Balance Outstanding

Sub-Standard

assets

General provision of 10% of Balance outstanding without considering

DICGC or ECGC Guarantees

Doubtful Assets 100% of Unsecured portion after considering the realizable value of

security which should be realistic. In addition to the above provision on

the secured portion should be made as under: Up to 1 year 20%, 1year to

3 years 30%, More than 3 year 50%

Loss Assets 100% on the Balance outstanding

Checklist to verify validity of NPA classification.

An auditor should ensure that branches for treating an account as NPA do the

following or otherwise, irrespective of the cutoff point of limit outstanding balance.

Obtain the ‘balance book’ for loans, cash credit and overdraft. This gives you the

exhaustive list of accounts outstanding as on the date of your inspection or the date of

classification. By use of this balance book, you can ensure that you can cover all the accounts

and you do not skip accidentally the classification of any account.

The totals of the report of classification should match with the totals of the concerned

departments thereby ensuring that all the accounts are considered.

Analysis of the account should be done since ’income recognition’ is the underlying

criteria. Therefore obtain the copy of the branch of the account statements to verify the

classification made by the Bank. Ensure the following points during your scrutiny of the account.

Both interest and installments, wherever applicable should be taken into account for

assessing the NPA status of an account. If a particular facility of a borrower becomes NPA. Then

all the facilities granted to the borrower should be treated as NPA.

Advances backed by Central/State Governments should not be treated as NPA. Advances

against bank’s fixed deposits, NSC’s, IVPs, KVPs, and life Policies eligible for surrender, should

not be treated as NPAs.

In the case of agricultural advances, NPA status should be decided upon after considering

the recovery of interest dues for two harvest seasons.

Net-worth of borrower/guarantor and availability of security is no consideration for

treating an account as NPA or otherwise, as the concept is based on record of recovery of

interest/installments.

Staff loans should not be treated as NPAs, except in exceptionally problematic cases.

AUDIT OF LOANS AND ADVANCE:

Advances generally constitute the largest item of assets of a bank branch. Banks normally make

advances on the basis of security in the form of tangible assets. In addition, they may also require

the borrowers to furnish guarantees of third parties for repayment of the advances. RBI has stated

that banks should include all interest-bearing loans and advances granted to their staff under the

head ‘Advances’ in the balance sheet.

A. General:

i. In the case of advances granted to minors:

If any advance has been granted to any minor a letter of assurance from the father or the

guardian, should have been obtained stating that the money borrowed would be utilized solely

for the benefits of the minor. The father or the guardian should have executed the documents.

ii. In the case of advances granted to firms :

In the case advances granted to partnership firm the following points are to be observed.

To verify the partnership deed and to acquaint with the powers of individual

partners to operate the accounts and borrow funds.

To see that the partner as per the manual of instructions has duly signed all

documents executed by the firm issued by the bank concerned.

To go through the latest audited balance sheet of the firm.

iii. In the case advances granted to companies:

To go through the memorandum and articles of association of the company.

To see the powers of the board of directors to raise fund by way of loans.

To verify the purpose of the loan, with the help of the loan application and see

that the same falls within the scope of object clause of memorandum.

To verify the board resolution passed in this connection.

To verify whether form-B has been filed with the registrars of companies within

the one month from the date of execution of the documents.

To see that the documents have been executed by duly authorized persons of the

board and confirm that the common seal has been affixed in the presence of two directors if the

AOA permits.

B. SECURED ADVANCE:

i. Advance against goods key loan, open cash credit:

To check the individual balances in each loan ledger with the trail balance book.

To verify the head office sanction and renewal for each advance.

To verify the stock statement and ascertain that the loan availed is within the DP

limit is sanctioned not any excess amount advanced and see that head office approval has been

obtained for such excess.

To pursue the fire insurance policies and ascertain that the policies are alive as at

31st march. Also see the stocks charged and their location are correctly described therein.

To see that the later or deed of hypothecation has been executed in favor of bank.

The inspect the godown and verify the physical stock-in-hand with the stock

statement and see also the condition of stock.

To see that the name of bank on the board of godown.

Test checks the interests charged and verify the rate of interest with the help of

head office circulation.

In the case of key loans, see that the key are in the bank custody and satisfy as to

the safety of the godown location, fire hazard etc.

In clean overdraft, insurance policy endorsed in favour of the Bank under

instructions from the borrower

Mandate to debit borrower’s account to pay premium.

ii. Advance against jewels:

To check the entire jewel loans account balances with the trial balance book.

To see that appraiser valuation is attached.

To count all the jewel loan packets and see that it tallies with the total number of

jewel loan account.

The select at random sufficient number of packets and physically verify the

weight with the help of appraiser.

Test check the interest charged.

To ascertain the value of jewels from the finesse mentioned in appraiser

certificate.

To see that the loan advanced does not exceed the maximum that can be advanced

taking into account the rate per gram fixed by the head office the weight and margin.

iii. Loan on deposits (fixed deposits, recurring deposits etc:

To verify the entire ledger balances with the trail balance.

To see that the deposit receipts or pass book or cash certificates have been duly

discharged in favor of the bank at the time of pledge.

Blank payment challans duly signed by borrower should have been obtained.

Banks lien should have been marked on the deposit receipt as well as in the

respective deposit ledger folio.

To see that no advance has been granted against duplicate receipt etc. without

proper verification.

In case of borrowings against deposits in the name of minors the branch should

have noted the date of birth of the minor also see that the loan has been granted for the benefit of

the minor.

Test check the interest charged.

iv. Vehicles advances:

To verify the copies of the registration certificate test check the original certificate

and ascertain endorsement in favor of the bank.

To see that vehicle has been comprehensively insured and verify the banker

clause in the policy.

To verify the duplicate key of the vehicle has been lodged with the bank.

To check the interest charged.

v. Advance against immovable properties:

To examine the documents relating to advance and also see that there is proper

sanction from head office.

To go through the legal opinion of banks lawyer about the title of properly to the

borrower. If lawyer has suggested complying with certain formalities see that the formalities

have been compiled with.

To see the latest tax receipts forwards payment of properly tax.

To see that the documents have been deposited in notified centers in the case of

equitable mortgage.

To verify the documents deposited with other branches and the acknowledgement

kept in the branch where advance has been made.

To verify the engineers valuation.

If the property is a building see that it has been sufficiently insured and policy has

been taken in the joint names of the bank and mortgagor.

To check the interest charged.

vi. Advance against life insurance policies:

To verify head office sanction.

To scrutinize the policy and ascertain the surrender value from L.I.C.

To verify the latest premium receipts.

To satisfy that sufficient margin is kept or not.

To verify policies should be assigned by the insured in favor of bank and the

assignment is noted by L.I.C.

Test check the interest charged.

vii. Advances against shares and debentures:

To verify head office sanction.

To scrutinize the share certificates and ascertain that they stand in the name of

borrower.

To see that the bank has obtained undated blank share transfer from duly signed

by the borrower.

To verify notices of lien should have been sent to the company and their

acknowledgement should be obtained.

To ascertain the market value of shares as on the date of verification and see

sufficient margin is maintained.

To verify the copy of dividend mandates and also a dividend warrant.

Test check the interest charged.

UNSECURED ADVANCES:

i. Clean loans overdraft, clean cash credit etc:

To see the head office sanction.

To scrutinize all clean advances and verify that the accounts are satisfactorily

conducted or not.

Test check the interest charged.

Insurance policy endorsed in favour of the Bank under instructions from the

borrower

Mandate to debit borrower’s account to pay premium.

ii. Documentary bills purchased:

To see the head office sanction.

To see that all bills discounted are accompanied with the ledger register.

To verify all long overdue bills and suggest to debit borrower account with the

amount of such bills.

To see that the limit has not exceeded at any time.

Test checks the discount and commission charged.

iv. Clean bills purchased:

To see head office sanction.

To verify that all bills are accompanied with account sales, sales invoices etc.

To see that bills are met regularly and limit is not exceeded.

Test checks the discount and commission charged.

AUDIT OF DEPOSITS:

Deposit accounts are designed to encourage saving. Under the category of deposits, we not only

have the term deposits but also the savings and current accounts. Deposits are the main liabilities

of the bank, which give it the required fund flow of the schemes of lending. It is also main source

of expenditure of the bank in the form of interest. Revenue calculation of this department

assumes equal importance as excess expenditure affects the profits.

i. Current deposits:

To verify the balancing books with individual ledger.

To see that no current account is overdrawn at any time without head office

authority.

Test check the new accounts opened during the year with regard to introduction,

partnership deed, memorandum and articles of association in case of limited companies and

necessary resolution.

To see that total balancing books tallies with general ledger balance.

ii. Saving bank account:

To see the consolidation of balance as per different saving book balancing book.

Verify that the total of balancing books tallies with the general ledger balance.

Test checks the entries in balancing books with individual ledgers.

Test check the interest credited.

To see that saving bank has not been opened in the name of companies.

SAVINGS INTEREST VERIFICATION IN COMPUTERIZED

ENVIRONMENT

How is the rate controlled –through a parameter file or each account

Does the parameter file give audit trail of who has changes the rate from what

value

Does the software provide the user without intervention of the IT department from

HO, the full history of the rate changes at least for the period under audit

Test check few accounts opened less than one month, two months, three months,

five months

Test check few accounts which are old – opened almost at the time of start of the

Branch

Test check the accounts with zero balances to ensure that the accounts are NOT

those accounts which have been closed but remained opened in the system due to total

withdrawal of funds and the accounts closure formality demanded by software not initiated.

iii. Fixed deposit account:

Test checks the balance in balancing book with individual ledgers.

To see that the total in balancing book tallies with the general ledgers.

To see that correct interest rate is applied according to the period of deposit and

also check the interest payable.

Test checks the fixed deposit receipts issued during the year with the counterfoils.

To see that fixed deposit exceeding Rs. 20000/- has not been repaid in cash.

In case of deposits made in the case of minor also see whether date of birth is

mentioned on not.

v. Recurring deposits :

Check the balance is balancing book with individual ledger.

To see that the total in balancing books tallies with the general ledger.

Test checks the interest payable.

To see that penal interest has been debited for late payment.

To see that the repayment of recurring deposit exceeding Rs. 20000/- has not been

made in cash.

Test checks the interest as per accrued interest charts.

OTHER AREAS:

i. Guarantees issued by the bank or countersigned by the bank:

To verify the accounts with ledger register.

To verify the copies of the guarantees issued and see that all guarantees conform to

the terms and condition of sanction.

To verify that every guarantee indicates the last date by which claim under the

guarantee should be made by the beneficiary after whom the bank would cease to be liable.

To see that commission has been collected as per head office instruments.

To verify that the guarantees are appropriately stamped before obtained it.

In case of the company verify the resolution should be passed in favor of

guarantee.

To verify whether cash margins have been collected as per the sanction.

To verify whether the expired guarantee have been called back, cancelled and the

entries reversed.

To verify whether the individual accounts of the constituents are debit when the

guarantees are invoked, irrespective of payments made by the bank to the beneficiary.

ii. Safe deposit locker service:

Whether the rents for lockers are charged in accordance with head office circular.

If initial key deposit and advance rent is to be collected.

Give a list of hirers who have not paid the rent for lockers.

iii. Verification of furniture and fixture and stationery:

To conduct a physical verification of furniture and fitting and tally with the

register.

To verify the stationery on hand particularly the unused fixed deposit receipts,

draft books, chequebook, traveler’s cheque etc.

Test check that no leaf has been taken out of the receipts book.

iv. Profit and loss account:

To verify the salary payment with register.

Test checks the interest payment on deposits saving bank accounts.

Test checks the interest receipts on advances except in the case of borrowers with

limit exceeding Rs. 5000/- in which case all the accounts have to be verified.

To verify whether the interest is charged in accordance with RBI guidelines and

head office sanction.

To verify other expenses and compare with that of the last year. In case of any

substantial difference please verify and ascertain the reason.

To verify all expenses and income on accrual basis i.e. locker rent has to be

accounted for the entire period whether received or no, guarantee commission, discount and

other charges.

vi. Postage, telegram and telephones:

To verify the dispatch and postage register.

To verify the balance of postage stamps and cash in hand.

To verify the entries in the dispatch register at random.

To verify entries made in the trunk call register at random.

To verify whether the charges are recovered in respect of calls made at instances of

constituents and those made by staff.

vii. General:

To make surprise verification of cash preferably opening balance of cash before

commencing regular audit work.

To verify the general ledger balancing book with the general ledger.

To verify the balance sheet and profit and loss account with the general ledger

balancing book.

Checklist for audit of department of Deposits

Banks are established for the primary purpose of acceptance of deposits and lending to those

who can utilize the money for their business. Hitherto, lot of care was taken to ensure the identity

and residential accuracy of the borrower since the Bank had to evolve a system to recover their

own money. Until the 1980’s, lapses in formality of account opening of the depositors were not

given much importance on the plea that the money of that person is with the Bank and not much

harm can come this way in case he forgets to come. The Bank is not to incur any loss. While this

was a selfish microscopic viewpoint which may have found many sympathizers, the role of all

the Banks in the economy was lost sight off and especially in India which is known for its

parallel economy, the aspect of money laundering suddenly brought into focus the need of

perfect identification and thus the strict implementation of Know Your Customer (KYC) norms.

Even before the insistence of KYC norms by the Reserve Bank of India, each Bank should have

been sensitive to the fact that a devious customer first opens a deposit account as bait without

submission of proof of identity. Many stolen instruments are then deposited and immediately

withdrawn while he has fled before the discovery of the trail. The Bank officials are then

dragged into the case and have to devote precious time for this negligent and perfectly avoidable

action. Or, he later creates an aura of emergency taking a facility for ‘just a day or two’ and only

later the Bank realizes they were conned by a smooth operator and all the money lent is lost

which naturally has exceeded the deposit he had placed with them. Therefore in the interest of

the Bank, the set formality that currently is largely directed by the Reserve Bank’s KYC norms

should be adhered to and the auditor is placed in the immediate supervisor position to stem the

problem before it escalates into anything more serious. As India goes more and more on-line, we

will get to see more cases of identity theft, which is one of the largest crimes in USA in the turn

of the century. KYC norm compliance will go a long way to abort attempts of such identity

crimes.

While new account opening remains a main area of audit concern, it is also important to note

amendments of existing accounts in the areas of change of signatories and operating instructions

etc. The Bank is never privy to the internal frictions and yesterday’s brothers also part ways but

the Bank should not be embroiled in their controversy. Attempts to remove a partner or change

of operating instructions from joint to single to withdraw the balance by one partner in an

unauthorized manner are some of the risks that accrue by amendments to existing accounts and

the auditor too should cover these. Such cases are rater easy to track in computerized

environments.

Another dimension to the deposits department is the application of the interest. A frequent

change under inadequately designed software compounds the problem of revenue leakage.

Sometimes the Banks are not able to respond to even the differential rates in new time slots since

adjusting rates to the existing time slots is easier.

KNOW CUSTOMER NORMS

DOCUMENTS SUMMARIZED OBJECTIVE

Two Photographs Physical Identity

Birth certificate in case of minor Identity and Proof of Age

Passport copy Identity, Proof and Residence Proof

Diving license copy Age Proof and Residence Proof

Electricity bill copy/landline Telephone bill copy Address Proof

Rent receipt in case premised is rented and maintenance bill

in case the premises is owned by the applicant in a society

Address Proof

Election Identity Card Address Proof

Certified Memorandum and Association of Company To permit the Bank to study the operating

restrictions if any and the registration

certificate copy issued by the Registrar of

Companies

PAN Card copy/PAN number allocation letter (when letter is

received but the PAN card is not received

Proof of being a income tax payer and

submission of correct PAN number

PAN Card application copy and copy of Income Tax When account holder is in the process of

obtaining PAN number and is yet not

allotted PAN number

FORM No. 16 When the account holder is not taxable, such

a declaration is taken on this Income Tax

authorized form from the account holder

Memorandum of Changes Particulars of Advances:

Particulars Loans, Cash Credits,

Overdraft etc

Bills discount & purchase

(including foreign Bills)

Additions

(+)

Deductions

(-)

Additions

(+)

Deductions

(-)

Debts considered good in respect

of which bank is fully secured

Debts considered good in respect

of which bank holds no other

security than Debtor’s personal

activity

Debts considered good secured by

the personal liability of one or

more parties in addition to the

personal security of the debtors

Debts considered*

Doubtful or bad not provided for

Total

Particulars in the following form

Page reference Account Name of borrower Balance

outstanding

Reasons for

reclassification

Note: Please note that grand total of additions of all the items should tally with grand total of

deductions and net effect should be NIL. Name of Branch…

Name of Region…

*This is especially useful for: This checklist is of special use to the Concurrent,

System (IT) & Internal Auditors in addition to the RBI auditors.

I. Evaluating the correct number of accounts opened

1.

(new)

Analyze the last generated General Ledger to identify how many accounts are

available in the Bank/branch.

2.

(new)

Compare last subsidiary listing with the previous ones to note accounts opened

for each scheme i.e. Savings , term deposits, monthly deposits etc.

3.

(new)

Obtain the file containing the papers submitted by each account holder and verify

the number of new submission to equal the number shown by the subsidiary and

reconcile the difference.

4.

(new)

Papers kept aside, which the officer has identified for follow up due to non-

fulfillment of formality, should also be scrutinized by you.

5.

(new)

Where the Bank has a manual account number allocation register, are the number

of accounts tallied with this register or are there cases where accounts may have

been opened with Zero balances and not picked up by the software for printing

subsidiary in case the software has and the operator has exercise the option

routines for printing only those accounts with balances?

6.

(new)

In case of multiple accounts being opened like Savings and Fixed deposits, is one

set of papers missing from either of the files then is it either marked with a pointer

to the other file (e.g. Photos with SB 345/09) or is a photocopy of the papers

placed in this file?

7.

(old a/s

amended)

Obtain the exception reports from the bound file or a soft copy from the computer

log and scan it for changes made to the masters of deposit accounts, which will

normally detail the old value and the new value.

8.

(old a/s

amended)

Are the letters from the account holder on record instructing the change in the

master account?

9.

(old a/s

amended)

Are the changes such that do not drastically change any aspect of the account that

is a camouflaged attempt to create a new account within the old account? (e.g.

Change of title, unsupported operating instructions, name removal without death

certificate or no objection from person whose name is being removed)

II. Verification of each Account

10. Is the number of signatures equal to the number of joint holders?

11. Is the requisite number of photos submitted?

12. Is the account opening form filled by the applicant or by the Bank official?

13. Is the account introduced properly?

14. Does the Bank know the introducer for a period exceeding six months? (Unless it

is a Bank branch recently opened for a period less than a year. Also, in case of

passport copy submission introduction need not be insisted upon for individuals.

For incorporated companies, introductions are waived since the copy of

Registration certificate issued by Registrar of Companies will suffice)

15. Are all the supporting papers for KYC norms submitted?

15.1 Are all the submitted photocopies (Xeroxes) authenticated by the Bank officer on

the reverse as having seen the original?

15.2 In case of income tax return copy being submitted as a proof of PAN number is it

authenticated as a copy by a practicing Chartered Accountant

15.3 Is a copy of the proof of address submitted and is it the approved type i.e. copy of

a passport or election card or electricity bill or phone bill (preferably landline)?

15.4 Is the address on the submitted proof the same as that given in the account opening

application form for each of the account holders?

15.5 If the address of the proof of residence is permanent and the temporary address of

the same city of Bank Branch location is to be used, like a hostel in case of a

student, is the additional proof by way of admission letter or identity card taken?

15.6 In case of current or Cash Credit accounts is the location of the business also

supported by proof of operation in the same name? If business is located at a place

owned by another organization, then is the rent receipt of permission to operate in

case of a sister concern also submitted?

15.7 Are the joint holders either related or part of an organization like a firm, company,

Trust club etc. in which case, the application needs to be supported by requisite

resolution copy duly authenticated by an office bearer of the same organization.

15.8 When the applicant is an incorporated company, are the signatures of operators of

the account authenticated by a copy of resolution issued by the company under its

seal? (Rubber stamp is also accepted as a seal)

15.9 Is the proof of date of birth submitted in case of accounts opened in the names of

minors?

16 . If the account is opened in a single name of an individual, is a nomination taken

and if nomination is waived by the applicant, is it so written and signed by the

applicant on the application form?

17. Compare the operating instructions entered in the computer with that on the

application form and recommend immediate rectification if difference is noted.

18. If it is change of partners in a firm is another account opened instead of just change

of signatories?

19. Does a firm or company open the new account while the existing regular accounts

(current) are frozen by the Government authorities like the Income Tax

Department or Sales Tax Department?

20. In case of current accounts, is the declaration taken from the applicant that he/they

does not have any other account and if they do, is full name and address is taken of

those Banks?

21. In such case as mentioned in point above, has the Bank therefore sent letters to

those Banks seeking information if any borrowing is done and if that Bank does

not have any objection if this new account is opened? Is proper follow up done

until the receipt of no objection letters from these Banks?

22. Are letters of thanks sent to the account holder at the address written in the

application form as well as the introducer in case the introducer has not

accompanied the applicant to the Bank branch at the time of submission of

application for account opening?

23. Is the correct applicable rate of interest entered in the computer ?

24. Is the acknowledgement taken from the account holder wherever Deposit receipt is

handed over or ATM card etc.?

25. Are all accounts are opened with Cash deposit or transfer from within the

Bank/branch since accounts should not be opened with external transfer

instruments?

26. Are large cash deposits made and issued by single instrument or vice versa i.e.

large value instrument deposited and cash withdrawn in case of new account?

(Such cases need to be studied for possibility of fraud or money laundering)

27. Do the Bank officers monitor new savings accounts and Current accounts for the

first six months?

28. In case of high value and high frequency of transactions in savings accounts has

the Bank branch interviewed the account holder to ensure that business operations

are not transacted though the savings account in individual name?

29. When savings accounts are permitted to be opened by a Trust, has the trust

submitted enough evidence that it is a public charitable trust?

30. After the amendment of the Small Savings Act, are the HUFs permitted to open

only current accounts and not savings accounts?

BASEL I:

This is should be interest to very auditor to monitor the progress of the Banks in the fields of

Information Technology, which is essential to drive the pillars of Capital Requirement,

Supervisory Review and Market Discipline recommended by the BASEL II committee.

Only under a clear understanding of these aspects will the auditor lend a constructive

approach in the period of change. Development and fine-tuning of risk mechanism of the Banks

on a scientific basis should already be under development. Banks are therefore expected to shore

up their Information Technology base for a faster detailed collation of data for real time analysis

to apply risk matrix and initiate risk mitigation actions. All this will have to eventually be

evaluated by the auditor with the internal auditor providing feedback to the management and the

concurrent and statutory auditor-ensuring adherence to prevailing law by success of the mix of

all these actions.

The business of a bank is to lend deposits to its customers. The interest earned form the

loan is then used to pay for the deposits. While your deposits and interest are safe, the bank faces

the risk of losing money on the loans they have given. Succinctly put, while a bank’s assets

(loans and investments) are risky and prone to losses, its liabilities (deposits) are certain. Bank

failures are mainly caused by losses on its assets in the form of default by borrowers (credit risk)

and frauds, systems and process failures (operational risks).

The failure of the German Bank Herstatt in 1974 forced the central banks of the G-10

countries (Belgium, Canada, France, Germany, Italy, Japan, The Netherlands, Sweden,

Switzerland, The United Kingdom and the United States) to delve deeper into the issue of under-

capitalized banks and non-standardized banking regulations. These countries, along with the

Luxembourg, formed the “Basel Committee on Banking Supervision” under the aegis of the

Bank of International Settlements (BIS) in 1974.Formed in 1930, the BIS is one of the oldest

international financial institutions. It is actively involved in securing and maintaining

international central banks cooperation.

In July 1988, the Basel Committee came out with a set of recommendations aimed at

introducing minimum levels of capital for internationally active banks. This first series of

recommendations by Basel Committee are popularly known as Basel I norms. These norms

required the banks to maintain capital of at least 8 percent of their risk-weighted loan exposure.

The Basel Committee also laid down standard definitions for different types of capital. Capital

was categorized, as Tier I is mainly the permanent capital like equity and Tier II capital is the

supplementary capital like subordinate debt.

BASEL II

Systematic Risk Credit Risk

Operational Risk Market Risk

In India, the banks were required by the Reserve Bank of India to maintain a higher

capital-to-risk-weighted-assets ratio (CRAR) of 9 percent. That almost all Indian and

internationally active banks are sufficiently capitalized now is a testimonial to the success of the

norms.

BASEL II:

Despite the achievements, the norms were becoming increasingly ineffective to address the

fundamental changes in the banking sector over the past decade as increasing use of financial

innovations such as securitization and credit-risk derivatives allowed the banks to manipulate

their balance sheet figures in such a way that capital requirements were lowered without

significant reduction in actual risks. There was a need to revise the Basel I norms

To set right these aspects, the Basel Committee came up with a new set of guidelines in June

2004, popularly known as the Basel II norms. These new norms are far more complex and

comprehensive compared to the Basel I norms. It is based on the three pillars of Capital

Requirement, Supervisory Review and Market Discipline.

Though the Basel II recommendations enhance the business of the bank by better management of

its risk, it has such pitfalls as pro- cyclical nature of the recommendations, loans portfolio

polarization, potential hurdle for the emerging securitization market and increased capital

requirement. But it is certain that these norms are going to have a tremendous effect on our loves

by changing the way banks do business.

Basel II adherence emphasized in India

RBI’s association with the Basel Committee on Banking Supervision dates back to 1997as India

was among to 16 non-member countries that were consulted in the drafting of the Basel Core

Principles. Reserve Bank of India became a member of the Core Principles Liaison Group

(CPWG) in 1998 and subsequently became a member of the Core Principles Working Group on

Capital.

RBI had in April 2003 itself accepted in principle to adopt the new capital accord Basel II. The

RBI has announced, in its Annual Policy statement in May 2004 that banks in India should

examine in depth the options available under Basel II and draw a road-map by end December

20004 for migration to Basel II and review the progress made thereof at quarterly intervals.

REGULATORY INITIATIVES

Ensuring that the banks have suitable risk management framework oriented towards their

requirements dictated by the size and complexity of business, risk philosophy, market

perceptions and the expected level of capital. Introduction of Risk Based Supervision (RBS) in

23 banks on a pilot basis.

Encouraging banks to formalize their Capital Adequacy Assessment Programme (CAAP)

in alignment with business plan and performance budgeting system. This, together with adoption

of Risk Based Supervision would aid in factoring the Pillar II requirements under Basel II.

Enhancing the area of disclosures (Pillar III), so as to have greater transparency of the

financial position and risk profile of banks. Improving the level of corporate governance

standards in banks.

Banks are required to adopt standardized approach for credit risk and basic indicator

approach for operational risk with effect from March 31, 2007. But banks wanting to adopt

advanced approaches have seen asked to make objective self-assessment of their fulfillment of

the minimum criteria prescribed under Basel II.

Banks may be allowed to migrate to Internal Rating Based (IRB) approach after adequate

skills both in banks and at supervisory levels are developed. Under standardized approach, banks

would use ratings assigned by credit rating agencies identified by RBI.

The new framework also recognizes the responsibility of bank management in

developing an Internal Capital Adequacy Assessment Process (ICAPP) that is commensurate

with bank’s risk profile and control environment. The apex bank, therefore asked banks to focus

on formalizing and operational sing their ICAAP, which will serve as a useful benchmark while

undertaking the parallel run with effect from April 1, 2006.

The main benefit of Basel II will flow from the greater awareness of risk that it will instill in the

banks. It also has in built incentives for improved risk analysis, risk management systems,

allocation of capital and pricing of risk that enable banks to improve the quality of their asset

portfolio.

The new norms require a lot of disclosures of risks and the risk management practices by banks.

Data sharing among banks is also a very crucial under the new norms. Compliance with Basel II

will require increased capital commitments from all banks, as well as increased transparency and

reporting to both regulators and the market place.

Due to formal risk measurement processes, loans will be granted to only good borrowers. The

more risky borrowers will have difficulty in finding banks that are willing to lend to them. This

should result in reduced Non Performing Assets for the banking sector as a whole resulting in

better solvency of the Indian banking system.

JAI HIND COLLEGE OF COMMERCE AND ECONOMICS

Survey for project on Audit of Bank Deposit and Loans

NAME: -

DESIGNATION: -

SIGNATURE: -

CONTACT NO: -

1) Which Bank provides better services i.e. interest rate in deposit?

Private Public Corporate

2) What kind of deposit you have?

Saving Current Fixed

3) Do you think in bank there is?

Errors Frauds

4) Have you take any loan?

Home Personal Any Other

5) Are you aware of Auditing?

Yes No

6) Should auditing be done in Bank?

Yes No

Comments: -

ANALYSIS ON SURVEY

Which Bank provides better services i.e. interest rate in deposit?

Private

Public

Corporate

0

10

20

30

40

50

60

Private Public Corporate

What Kind of deposit you have?

Saving

Current

Fixed

0

10

20

30

40

50

60

Saving Current Fixed

Do you think in Bank there is?

Errors

Frauds

0

10

20

30

40

50

60

70

80

90

Errors Frauds

Have you take any loan?

Home

Personal

Any other

0

5

10

15

20

25

30

35

Are you aware of Auditing?

Yes

No

0

10

20

30

40

50

60

70

80

Yes No

Should auditing be done in Bank?

Yes

No

0

10

20

30

40

50

60

70

Yes No

ANNEXURE

What is Auditing?

Auditing in simple terms is to check and correct the statement of accounts, which gives you

accurate and true statement.

What are the essential qualities of an Auditor?

The auditor should be experienced, Conversant with Instructions and Circulars, clear, integrate

information, adequate training, professional qualifications.

How many meeting does auditor have to attend?

Once in a year. Different in different banks.

How many Audits does an Auditor have to check?

They have to check the main department; some of them have to check of their consult branches.

CONCLUSION

In recent years, banks have placed an increased emphasis on proper review, monitoring and

supervision of advances. As the basic operations are carried out a branch level, audit of an

advances, deposits and interest related thereto constitutes a significant proportion of the branch

auditor’s work. The auditor should be well acquainted with the laws governing banking

institution particularly those, which affect the various items of the financial statements. The

auditor should familiar himself with the computer system of the bank and should evaluate the

efficacy of various internal controls over the computer system.

The auditor should report whether the bank has laid down a loan policy specifying the prudential

exposure norms and industry-wise exposures.It would be fitting to conclude that Auditing is an

art as well as a Science in as much as one need to apply the principles to the actual realities in an

innovative manner. While the regulatory prescriptions and bank’s own policy guidelines from

the boundaries within which the bank’s investment operations are required and expected to be

carried out, it is the auditing process that culls out and highlights the bubbles and weakness in the

procedures adopted by the bank’s operating personnel and forewarn the management about the

likely risks which have the potential to undermine the Corporate Objectives of the bank. One can

say that audit process is like the pebble of sand that enters the pearl oyster without whose

irritation the oyster will not be able to produce the pearl.

Bibliography