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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 auditors
report as an indication of the statements reliability. They value the auditors assurance because
of the auditors 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 Companys 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 Directors Responsibility statement, which


forms a part of the Boards 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, governments 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, values 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 leeways 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 banks 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 1990s, 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 yesterdays transactions today. Let us see
the broad areas covered by the Concurrent Auditor.

A.
1.

Revenue Aspects:
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 Banks 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

Internal

Revenue

Concurrent

System

Audit

Audit

Audit

Audit

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

General provision of 10% of Balance outstanding without considering

assets

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 banks fixed deposits, NSCs, 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.

iii.

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

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

ii.

Mandate to debit borrowers account to pay premium.

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.

iv.

Test check the interest charged.

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.

vi.

To check the interest charged.

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.

vii.

Test check the interest charged.

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 borrowers 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, travelers 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 1980s, 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 Banks 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 yesterdays 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 Address Proof
in case the premises is owned by the applicant in a society
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 Proof of being a income tax payer and
received but the PAN card is not received

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, Bills discount & purchase

Overdraft etc

(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 Debtors 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

Reasons for

outstanding

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.

Analyze the last generated General Ledger to identify how many accounts are available
(new)

2.

in the Bank/branch.
Compare last subsidiary listing with the previous ones to note accounts opened for each

(new)
3.

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


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

(new)

number of new submission to equal the number shown by the subsidiary and reconcile
the difference.

4.

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

5.

of formality, should also be scrutinized by you.


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

(new)

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.

In case of multiple accounts being opened like Savings and Fixed deposits, is one set of
(new)

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.

Obtain the exception reports from the bound file or a soft copy from the computer log
(old a/s

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

amended)

detail the old value and the new value.

(old a/s

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

amended)

account?

8.

9.

Are the changes such that do not drastically change any aspect of the account that is a
(old a/s

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

amended)

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 banks 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 undercapitalized 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.

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.

BASEL II
Systemati
c Risk

Credit
Risk

Operation
al Risk

Market
Risk

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


RBIs 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 banks 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

2)

Public

Corporate

What kind of deposit you have?


Saving

3)

Current

Fixed

Do you think in bank there is?

Errors

4)

Frauds

Have you take any loan?

Home

5)

Personal

Are you aware of Auditing?

Yes

No

Any Other

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

What Kind of deposit you have?


Saving
Current

Fixed

Do you think in Bank there is?


Errors
Frauds

Have you take any loan?


Home

Personal
Any other

Are you aware of Auditing?

Yes
No

Should auditing be done in Bank?

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
auditors 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 banks own policy guidelines from the
boundaries within which the banks 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 banks 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