Long Form Audit Report (LFAR) Statutory Bank Branch Audit

General


LFAR is a separate report to be submitted to the management in the format prescribed by the RBI Assist central statutory auditor Submission of report by branch statutory auditor as per banking regulation act, 1949 LFAR in question-answer format

LFAR

Major contents
1. Assets -Cash -Balance with RBI,SBI and other Bank -Money at call and short notice -Advances -Other Assets

LFAR

Major Contents
2. Liabilities -Deposits -Other Liabilities -Contingent Liabilities

3.

Profit and Loss Account

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Major Contents
General 1. Books and records 2. Reconciliation of Control and subsidiary records 3. Inter branch accounts 4. Audits/ Inspections 5. Frauds 6. Miscellaneous Questionnaires Applicable to Specialized Branches 1. For Branches dealing in Foreign Exchange Transactions 2. For Branches dealing in very large advances in excess of Rs. 100 crores 3. For Branches dealing in Non Performing Assets such as Asset Recovery Management Branches. 4. For Branches dealing in Clearing House Operations, normally referred to as Service Branches
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Pre-commencement Work

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Pre-commencement Work
1. 2.

3.

4.

5.

Beginning of audit cycle is from receipt of appointment letter Check the compliance u/s. 226 (3) with regard to qualifications and disqualifications of auditors (concurrent ,Internal,Revenue, Stock,System, Credit Risk or other Special Audits conducted in same previous year) Decision for Acceptance or Rejection of Assignment ( Cost Benefit analysis, other considerations e.g. time available, expertise available) Communication with Previous Auditor by Registered AD (clause 8 of First Schedule to the Chartered Accountants Act, 1949 Finding Out Expected date of submission of reports
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LFAR

Pre-commencement Work
6. 7.

8.

9.

Finding out Scope of work Copy of all circulars of RBI applicable to branch have to be obtained and kept ready for reference Banking terminology and schemes should be well understood A reading of Guidance note on audit of banks by ICAI would provide valuable guidance.

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Understanding the Banking Business

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Knowledge of bank business



The auditor needs to obtain a level of knowledge of bank business that will enable him to identify the events, transactions and practices that may have significant effect on the financial information Knowledge of bank business can be obtained fromBank s annual report to shareholders Internal financial management reports for current and previous periods including budget if any Previous year audit working papers Discussion with and Letters seeking Information from bank branch Manager Bank policy and procedures manual

 1. 2.

3. 4.

5.

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Knowledge of bank business

Usage of knowledge of bank business
1. 2. 3.

4.

To develop an overall audit plan To identify areas of special audit consideration To evaluate the reasonableness of accounting estimates and management representations To make judgments regarding the appropriateness of accounting policies and disclosures

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Letter seeking information

Before actual commencement of audit a letter may be written to the management of bank asking for following information Organizational chart of bank and bank branch List of departments in the bank branch along with name of head of department. Authority and responsibility of each officer in the bank Special feature of each banking product Areas where work has been outsourced to outsiders

1. 2.

3. 4. 5.

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Letter seeking information

6. 7. 8. 9. 10. 11.

Information of top 10 borrowers for each kind of loan Instructions issued by Head office for closing of accounts Details of software used by bank List of reports generated by the software Accounting policy followed by the bank Copy of day book

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Areas where special knowledge about the business of Bank Branch is required
     

Special Features of Banking Business Special audit considerations in bank branch audits Internal controls in banks Additional Controls for Computerised Environment Accounting System Accounting standards applicable to bank

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Peculiar features of banking business

 

Custody of large volumes of monetary items, including cash and negotiable instruments, whose physical security has to be ensured Deals in a large volume and variety of transactions in terms of both number and value. Operate through a wide network of branches and departments, which are geographically dispersed The nature of business which makes it susceptible to Frauds by Customers.

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Special audit considerations in bank branch audits

 

  

Effect of the statutory and regulatory requirements The scale of banking operations and the resultant significant exposures Extensive dependence on IT to process transactions Continuing development of new services and banking practices Particular nature of risks associated with the transactions undertaken by banks

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Controls for Computerised Environment

1) 2)

3)

4)

The system maintains a record of all log-ins and log-outs If the transaction is sought to be posted to a dormant (or inoperative) account, the processing is halted and can be proceeded with only with a supervisory password The system checks whether the amount to be withdrawn is within the drawing power. The system flashes a message if the balance in a lien account would fall below the lien amount after the processing of the transaction

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Importance of Audit Planning

1. 2. 3.

4.

Well planned is half done One should know destination to plan well Good planning leads to effective reporting. Audit destination is report ( to express opinion on financial statements) Audit planning helps in controlling audit risks

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Considerations for overall audit Plan

1. 2. 3. 4.

5. 6.

The terms of his engagement and any statutory responsibilities The nature and timing of reports or other communication The applicable legal or statutory requirements The accounting policy adopted by bank and changes in these polices The identification of significant audit areas The degree of reliance he expects to be placed on accounting systems and internal control

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Considerations for overall audit Plan

7. 8. 9. 10.

11.

The nature and timing of audit evidence obtained The work of internal auditors and extent of their involvement The involvement of expert The allocation of work to be undertaken between joint auditors and procedures for its control and review Establishing and coordinating staffing requirements

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Audit Programme
An audit program can contain following columns  Particulars  Closing Balance  Sample Size  Criteria for selection of data in sample  Date/ Months/ Period  Action to be taken  Person In charge

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Audit Procedures

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Verification of Advances
1) 2) 3) 4) 5) 6) 7) 8)

General Verification of Advances against goods Verification of advances against fixed deposits Verification of advances vehicles Verification of advances immovable property Verification of advances against insurance policy Verification of advances against shares Verification of advances against bills purchased and discounted

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Computer Assisted Audit Techniques (CAAT)

CAAT are computer programs and data that the auditor uses as part of the audit procedures to process data of audit significance, contained in an entity s information systems CAAT may be used in performing various auditing procedures, including the following: Tests of details of transactions and balances, for example, the use of audit software for recalculating interest or the extraction of invoices over a certain value from computer records

1.

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Computer Assisted Audit Techniques (CAAT)

2. 3.

4. 5.

Analytical procedures, for example, identifying inconsistencies or significant fluctuations Tests of general controls, for example, testing the set-up or configuration of the operating system or access procedures to the program libraries or by using code comparison software to check that the version of the program in use is the version approved by management ; Sampling programs to extract data for audit testing Reperforming calculations performed by the entity s accounting systems.

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Audit Reports

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Major Clauses in LFAR

IV

General 1. Books and records 2. Reconciliation of Control and subsidiary records 3. Inter branch accounts 4. Audits/ Inspections 5. Frauds 6. Miscellaneous

Questionnaires Applicable to Specialized Branches 1. For Branches dealing in Foreign Exchange Transactions 2. For Branches dealing in very large advances in excess of Rs. 100 crores 3. For Branches dealing in Non Performing Assets such as Asset Recovery Management Branches. 4. For Branches dealing in Clearing House Operations, normally referred to as Service Branches
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