AUDIT OF BANK

PROJECT REPORT ON “AUDIT OF BANK A CASE STUDY OF UNION BANK OF INDIA” MASTER OF COMMERCE IN ADVANCED FINANCIAL ACCOUNTING SEMESTER IIIrd 2013-2014 IN PARTIAL FULFILLMENT OF RECRUITMENT MASTER OF COMMERCE SUBMITTED: BY PRATEEK KUMAR UDAYRAJ UPADHYAY ROLL NO: -

S.M.SHETTY COLLEGE OF SCIENCE, COMMERCE & MANAGEMENT STUDIES ADD: - OPP. JALVAYU VIHAR HIRANANDANI GARDEN POWAI (W)

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AUDIT OF BANK

Address: Opp. Jalvayu Vihar, Hiranandani Garden, Powai, Mumbai - 400076 Web site: http://smshettyinstitute.org 61327321 Email id: college@smshettyinstitute.in Telephone: (91-22)

Telefax: (91-22) 61327304

EVALUATION CERTIFICATE
This is to certify that the undersigned have assessed and evaluated the project on “AUDIT OF BANK A CASE STUDY OF UNION BANK OF INDIA ”, submitted by PRATEEK KUMAR UDAYRAJ UPADHYAY student of M Com part – II. This project is original to the best of our Knowledge and has been accepted for internal Assessment.

Internal Examiner Prof. Vinayak Joshi

External Examiner

Principal Dr. Sridhara Shetty

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AUDIT OF BANK

Address: Opp. Jalvayu Vihar, Hiranandani Garden, Powai, Mumbai - 400076 Web site: http://smshettyinstitute.org 61327321 Email id: college@smshettyinstitute.in Telephone: (91-22)

Telefax: (91-22) 61327304

DECLARATION BY THE STUDENT I, PRATEEK KUMAR UDAYRAJ UPADHYAY, student of M Com Part – 1 Roll Number hereby declare that the project for the paper Advanced Financial Acconuting , titled, “AUDIT OF BANK A CASE STUDY OF UNION BANK OF INDIA” submitted by me for semester – 1 during the academic year 2012 – 2013, based on actual work carried out by me under the guidance and supervision of PROF. VINAYAK JOSHI I further state that this work is original and not submitted anywhere else for any examination.

Signature: (Prateek kumar Udayraj Upadhyay)

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AUDIT OF BANK

ACKNOWLEDGMENT

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No. Table of Content Page No INTRODUCTION 24 .AUDIT OF BANK Sr.

concurrent audit. computer and system audit etc.AUDIT OF BANK The audit of banking companies plays a very important role in India as it help to regulate the banking companies in right manner. In audit of banks includes various types of audit which are normally carried out in banking companies such as statutory audit. In today’s competitive world audit is very much necessary as well as compulsory . ORIGIN AND EVOLUATION OF AUDITING 24 . because investor investing decision is depend on that particular concept if auditor has expressing his view about particular organization is true and fair then investor can get his ideas about how much he should invest in particular companies. revenue/income expenditure audit. the above audit is mainly conducted by the banks own staff or external auditor. I have given more importance on the overall bank audit system. However. the rules and the regulation relating to the conduct of various types of audit or inspections differ from a bank to bank expect the statutory audit for which the RBI guidelines is applicable. In this.

In early days.Compulsory audits of companies: With increasing number of companies. It was in use in all ancient countries such as Mesopotamia. basically. an auditor used to listing to the account read out by the accountant in order to check them. Arthashasastra by Kautilya gives detailed rules for accounting and auditing of public finances. Egypt.K.AUDIT OF BANK 1. 1913 made audit of company accounts compulsory. U. audit of accounts of limited companies became compulsory in 1900. 4. Thus. Greece. In India. Thus U. and India. the companies act. accounting and auditing had their origin in the need for the government to control the income and expenditure of the state and the army.Ramayana. the emphasis was not arithmetical accuracy but on fair representation of financial affairs. the companies’ acts in different countries began providing for compulsory audit of accounts of companies. The Vedas.K.Ancient origin : Auditing is as old as accounting. The Mauryas.Development of accounting and auditing standard: 24 .. the object of audit also shifted to ascertaining whether the accounts were “true and fair” rather than “true and correct”. Rome. 2. Origin of term : The term audit is derived from the Latin term “audire” mean to hear. 3. The original object of auditing was to detect and prevent errors and frauds. With increase in size of companies. Thus. Mahabharata contain references to accounting and auditing. the Guptas and the Mughals had developed and accounting and auditing system to control state finances.

government etc. investors. use the final account of business concern for different purposes. DEFINITION OF AUDITING Various persons such as the owners. lenders. Really. An auditor is an independent expert who examines the accounts of a business concern and reports whether the final accounts are reliable or not.  Mautz define the auditing as “auditing is concerned with the verification of accounting data. All these users need to be sure that the final accounts prepared by the management are reliable.Computer technology: The latest development in auditing pertains to the use of computers in accounting as well as auditing.AUDIT OF BANK The international accounting standards committee and the accounting standards board of institute of chartered accountant of India have developed standard accounting and auditing practices to guide the accountants and auditor in their day-to-day work. shareholders. 5. creditors. auditing has come a long way from “hearing” the accounts in the ancient day to using computers to examine computerized accounts of today. 24 . with determining the accuracy and reliability of accounting statement and reports”.  International auditing guidelines defines the auditing as “auditing is an independent examination of financial information of any entity with a view to expressing an opinion thereon”. Different authorities have defined auditing as follows.

He should prepare an audit programmed to complete the audit efficiently and in time.Audit evidence: 24 . He should not disclose such information to any third party. He should. 6. be a Chartered Accountant) and practical experience. 4. 2. He must be fair and objective. He should also be independent. keep his eyes and ears open but his mouth shut. He should have a professional qualification ( i. experience and competence in Auditing. decisions of courts etc. objectivity and independence: The auditor should be honest and sincere in his audit work. confidential. He should be aware of recent developments in the field of auditing such as statement of ICAI.e. 5.Skill and competence: The auditor should have adequate training. 3. changes in company law.AUDIT OF BANK BASIC PRINCIPAL OF AUDITING: 1.Integrity.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.Planning: The auditor should plan his audit work.Confidentiality: The auditor should keep the information obtained during audit.

qualified or adverse. He should study and evaluate the internal controls. 24 .AUDIT OF BANK The report of the auditor should be base on evidence obtained in the course of audit. The evidence may be obtained through vouching of transactions. The audit report should clearly express his opinion.Evaluation of accounting system and internal control: The auditor should ensure that the accounting system is adequate.Opinion and report: The auditor should arrive at his opinion on the account based on the audit evidence and submit his report. 7. 8. The opinion may be unqualified. Law should require the content and form of audit report. verification of assets and liabilities. He should see that all the transaction have been properly recorded. ratio analysis etc.

nominees of Central Government and the RBI. The bank can organize such training programmed at various places so that it can ensure the quality of audit. fraud prone areas. a bank is required to constitute an Audit Committee of its Board. It is in this context that periodical meeting by the members of the audit committee with the concurrent auditors help the audit committee to oversee the operations of the total audit function in the bank. One of the functions of this committee is to provide direction and oversees the operations of the total audit function in the bank. Considering the coverage of this audit assignment and the specialized nature of work there is also a need for training to be imported to the staff of the auditors. with special emphasis on the system. connected with the functioning of the system of concurrent audit. determination of credit rating and other similar specialized areas. The method of appointment of auditors. computerization. 1995. The membership of the audit committee is restricted to the Executive Director. Chartered Accountant director and one of the non-official directors. their remuneration and the quality of their work is to be reviewed by the Audit Committee. its quality and effectiveness in terms of follow up. ADVANTAGES OF AUDITING 24 . and areas of income leakage. This training has to be given in specialized field such as foreign exchange. The audit committee is. The committee also has to review the internal inspection function in the bank. therefore. The committee has to review the system of appointment and remuneration of concurrent auditors.AUDIT OF BANK AUDIT COMMITTEE In pursuance of RBI circular September 26.

neither more nor less. audited accounts are based on objectives standard and not on personal whims and fancies of a particular accountant or auditor. as it is i. neither more nor less. the income-tax officer can start with the figure of audited books profit. 5) As per standard accounting and auditing practices: The audited final accounts follow the standard accounting and auditing principles laid down by professional bodies.e. creditors. 4) Tally with books: The audited final account can be taken to tally with the books of accounts. An outside user need not go through the entire books. management. 6) Detection and prevention of errors and frauds: 24 . government’s etc. that the accounts are true and fair. Thus. 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. make adjustments and compute the taxable income.e. lenders.AUDIT OF BANK 1) Assurance of true and fair accounts: Audit provides an assurance to the various users of final accounts such as owners. Thus. investors. 2) True and Fair balance sheet: The user accounts can be sure that the assets and liabilities shown in the audited balance sheet show the concern.

2. taxation. It is said evidence is rather than conclusive in nature. engineers. internal control. value’s etc.AUDIT OF BANK Audited accounts can be assumed reasonably free from errors and frauds. 5. An auditor has to rely upon expert auditor may have to rely on expert in related field such as lawyers. internal audit. internal check. finance: The auditor can also advise the client about the accounting system. 3. false explanation and hence are difficult to detect. The auditor with his expert knowledge would take due care to see that Errors and frauds are detected so that the accounts shoe a true and fair view. Audit cannot assure the users of account about the future profitability. 4. An auditor cannot check each and every transaction he has to check only the selected areas and transaction on a sample basis. prospects or the efficiency of the management. finances etc. taxation. Audit evidence is not conclusive in nature thus confirmation by a debtor is not conclusive evidence that the amount will be collected. for estimating contingent liabilities. celibate failure to record transactions. 7) Advice on system. 24 . valuation of fixed assets etc. LIMITATIONS OF AUDITING 1. An auditor cannot be expected to discover deeply laid frauds usually involves acts designed to conceal them such as forgery .

Thus. He should be well acquainted with the provisions of the Banking Regulation act. 1956 in the case of audit of a banking company as far as they relate of preparation and presentation of financial statements and their audit. loan and treasury services that are offered and continue to be developed by banks in response to market conditions. the auditor needs to acquire good working knowledge of the services offered by the bank. inspection reports. the auditor needs to understand the nature of services rendered through instruments such as letters of credit. Obtaining internal audit reports. Similarly. forward contracts and other similar instruments. relating to the work of the other auditors. b) The auditor should also acquire knowledge of the economic environment in which the bank operates. In addition to the above. it would be preferable that the auditor also obtains a general understanding of the books and records.AUDIT OF BANK STAGES IN AUDITING 1) Preliminary work: a) The auditor should acquire knowledge of the regulatory environment in which the bank operates. the auditor should undertake the following: I. etc. inspection reports and concurrent audit reports pertaining to the bank/branch. the auditor should familiarize himself with the relevant provisions of applicable laws and ascertain the scope of his duties and responsibilities in accordance with such laws. c) The auditor should also obtain and understanding of the nature of books and records maintained and the terminology used by the bank to describe various types of transaction and operations. To do so. In case of joint auditors. the auditor needs to be aware of the many variation in the basic deposit. acceptances. 24 . In acquiring such knowledge.

passwords. security in the matter of access to EDP system. system documentation of the software may be obtained and examined. III. where available. insider trading etc. e) In a computerized environment the audit procedure may have to appropriately tuned to the circumstances. The emphasis would have to be laid on internal control procedure related to inputs. to the extent the same is relevant for the audit. In the case of branch auditors. d) RBI has introduced and offsite surveillance system for commercial banks on various aspects of operations including solvency.. 24 . particularly as the books are not authenticated as in manually maintained accounts and the auditor may not have his in-house computer facility to taste the software programmes. data inputs being prepared by person independent of key operators and other build-in procedure for data validation and system controls as to ensure completeness and correctness of the transaction keyed in. use of codes. earnings. It will be appropriate to be familiar with the reports submitted and to review them to the event that they are relevant for the purpose of audit. asset quality. f) One set of tests that the auditor at both the branch level and head office level may apply for audit of banks in analytical procedure. and has indicated that such reports shall be submitted at periodic intervals from the year commencing 1-04-1995.AUDIT OF BANK II. Obtaining the latest report of revenue or income and expenditure audits. performance. obtaining the report given by the outgoing branch manager to the incoming branch in the case of change in incumbent at the branch during the year under audit. liquidity.

omissions and irregularities would include following: I. and fall into limited categories/heads of account.AUDIT OF BANK 2) Evaluation of internal control system: It may be noted that transaction in banks are voluminous and repetitive. It may. and appropriate recording. No transaction can be registered/recorded unless it is sanctioned/approved by the designated authority. If the exercise of internal control evaluation is properly carried out. method and procedures so designed and usually built into systems. The internal accounting controls as would ensure prevention of errors. Internal accounting controls are also envisaging such procedures as would determine responsibility and fix accountability with regard to safeguarding of the assets of the bank. a) Accounting controls: Accounting controls cover areas directly concerned with recording of financial transactions and maintenance of such registers/records as to ensure their reliability. 24 . their recognition. Internal control would include accounting control administrative controls. Internal controls are techniques. and lay appropriate emphasis on the risk prone areas. be more appropriate that the evaluation of the internal control is made for each class/category of transaction. Accounting system envisages the processing of the transaction and events. omissions or irregularities in the process of execution and recording of transaction/events. therefore. it assist the auditor to determine the effectiveness or otherwise of the control systems and accordingly enable him to strengthen his audit procedures. It would not be out of place of mention that there is a distinction between accounting system and internal accounting controls. as would enable prevention as well as detection of errors.

Transaction represented by mere book adjustments not evidenced/substantiated or upon non-honoring of contracts/commitments. II. despite availability of information. omissions and irregularities. Serious irregularities pointer out in internal audit/inspection/special audit 24 . V. No single person has authority to initiate transaction and record through all stages to the general ledger. stationery forms. III. Origination debits I head office accounts/inter-branch accounts. Analytical review procedure.in dual control/supervisory procedures ensure that there is an independent automatic check on input/vouchers. Built. Accumulation of old/large unexplained/unsubstantiated entries in accounts with Reserve Bank of India and other banks and institutions. The auditor would be well advised to look into other areas may lead to detection of errors. Each day transactions are accurately and promptly recorded. VI. inter alias in the following: I. Missing/loss of security paper.AUDIT OF BANK II. inter-branch accounts. and the control and subsidiary records are kept balanced through personnel independent of each other. sundries. VII. III. or other nominal head of accounts particularly if there accounts particularly if these accounts are extensively used to balance books. Accumulation of transactions/balances in nominal heads of accounts like suspense. IV.

At the branch level. etc. the head office use the zonal/regional offices do not conduct any banking business. The scope of the work of the statutory auditors would also involve dealing with various accounting aspects and disclosure requirements arising out of the branch returns. Results of periodic analytical review. 4. It may be noted that in the normal course. basic banking operation are to be covered by the audit.AUDIT OF BANK VIII. if observed as adverse. due weightage should be given by the auditor to areas where. the statutory auditors at the head office (provisions for gratuity. 3.Preparation of audit programme for substantive testing and its execution Having familiarized him the requirements of audit.). Complaints/matters pending in the vigilance/grievances cell. the auditor should prepare an audit programme for substantive testing which should adequately cover the scope of his work. etc.office accounts.Preparation and submission of audit report The branch auditor forwards his report to the statutory auditors who have to deal with the same in such manner. as they considered necessary. inter. in his view. there are weaknesses in the internal controls. as regards discrepancies in accounts of constituents. The audit programme for the statutory auditors would be different from that of the branch auditor. In framing the audit programme. They are generally responsible for administrative and policy decisions which are executed at the branch level. IX. b)Administrative control: These are broadly concerned with the decision making process and laying down of authority/delegation of powers by the management. It is desirable that the branch auditors’ 24 . On the other hand.

the auditor should keep in mind the concept of materiality. The LFAR should be used to further elaborate matters contained in the main report and as substitute thereof. say. the financial impact of all qualification or adverse comments on the branch accounts should be clearly brought out in the branch audit report. matters covering the statutory responsibilities of the auditor should be dealt with in the main report. In preparing the audit report. it would be appropriate for him to draw the attention of the management to this aspect in his long form audit report. However. then liabilities and thereafter items related to income and expenditure. the significance of various comments in his LFAR. It would assist the statutory auditors if a standard pattern of reporting. is contrary to accounting principles or any pronouncements of the Institute of Chartered Accountants of India or in such as would require a review of the relevant procedure. the auditor should consider. in the judgement of the auditor. As far as possible. head wise. 24 . In may be emphasized that the main report should be selfcontained document. In all cases. is followed. Similarly while framing his main report. where any of the comments made by the auditor threrin is adverse. an item though not material. Thus. he should consider whether qualification in his main report is necessary by using his discretion on the facts and circumstances of each case. items which do not materially affect the view presented by the financial statements may be ignored. commencing with assets. wherever practicable.AUDIT OF BANK reports are adequately in unambiguous terms.

therefore. Banks. however. This system ensures double entry at the basic level and obviates the possibility of errors in posting PRINCIPAL BOOKS OF ACCOUNT • • General ledger: Profit and Loss ledgers. The vouchers entered into different personal ledgers each day are summarized on summery sheet. usually every two weeks. D. SUBSIDIARY BOOKS OF ACCOUNTS • • • Personal ledgers: Bill Registers: Other subsidiary registers: 24 . A trial balance of the detailed personal ledgers is prepared periodically. The main characteristics of a banks system of book keeping are as follows: A.209 of the companies act. Expecting for cash transactions. There are. and agreed with the general ledger control accounts.AUDIT OF BANK BOOKS OF ACCOUNTS OF BANKS A banking company is required to maintain the books of accounts in accordance with sec. The general ledger trail balance is extracted and agreed every day. one for debit and the other for credit. the totals of each are posted to the control accounts in the general ledger. certain imperatives in banking business they are the requirements to maintain accurate and always up to date account. always two vouchers are prepared for each transaction. device their accounting system to suit these requirements. B. C.

1949.each) (-do-) (-do-) (-do-) 24 .AUDIT OF BANK VERIFICATION OF ASSETS AND LIABILITES Capital and Liabilities: 1) Capital The following particulars have to be given in respect of share capital in the balance sheet  For nationalized banks The capital owned by central government as on the date of balance sheet including contribution from government.  For banks incorporated outside India Capital (the amount brought in by banks by way of start up capital as prescribed by RBI shown under this head) Amount of deposit kept with RBI under section 11(2) of the banking regulation act. for participation in world bank project should be shown.  For other banks Authorized capital Issued capital Subscribed capital Called-up capital Less: calls unpaid Add: forfeited shares (shares of Rs……. if any.

For example. should be verified with reference to prospectus/ other offer document. the auditor should examine the special resolution of shareholders and the memorandum of association. reports received from registers to the issue. 2) Reserves and surplus: The following are required to be disclosed in the balance sheet under the head ‘Reserves and Surplus’. b) Capital reserves. c) Share premium. e) Balance in profit and loss account. d) Revenue and other reserves. In the case of statutory reserves and share premium. the auditor should specifically examine whether the requirements of 24 . Addition to or deductions from reserves should also be verified in the usual manner.AUDIT OF BANK The auditor should verify the opening balance of capital with reference to the audited balance sheet of the previous year. etc. bank statement. the auditor should examine the relevant documents supporting the increase. compliance with legal requirements should also be examined. An increase in subscribed and paid-up capital of a banking company. Thus. The auditor should verify the opening balances of various reserves with reference to the audited balance sheet of the previous year. e. in case of an increase an authorized capital of a banking company. with reference to board resolution. a) Statutory reserves. on the other hand. In case there has been increase in capital during the year.g.

Saving Bank Deposits III. Similarly. II. 24 . Demand Deposits (i) (ii) from banks from others II. In case the bank has been granted exemption form such transfer. A. the auditor should examine the relevant documents granting such exemption. 3) Deposits: Deposits are required to be classified in the balance sheet under the following heads. Deposits of Branches in India. Deposits of Branches outside India. B. From Others. I. it should be examined whether the appropriations from share premium account conform to the legal requirements. Term Deposits (i) (ii) From banks. I.AUDIT OF BANK governing legislation regarding transfer of the prescribed percentage of profits to reserve fund have been complied with.

The auditor should also check the calculations of interest on a sampling basis. the auditor should identify cases where there has been a significant reduction in balances compared to the previous year and examine the authorization for withdrawals. The auditor should consider the debit balances in current account are not netted out on the liabilities side but appropriately included under the ‘advances’. Current account: The auditor should verify the balances in individual accounts on a sampling basis.g. Term deposits: 24 .AUDIT OF BANK The auditor may verify types of deposits in the following manner. I. It is not usual for branches to interest saving bank up to a date close to the end of the accounting period for e.25th March based on the actual balances with interest of the remaining period on an estimated basis at the head office level. the auditor should specifically cover in his sample some of the inoperative account revived during the year. He should also examine whether the balances as per subsidiary ledgers tally with the related control accounts in the general ledger. For this purpose. Inoperative accounts are a common area of frauds in banks. While examining current account. Saving bank deposits: The auditor should verify the balances is individual account on a sampling basis. III. II. The auditor should ascertain whether inoperative are ‘revived’ only with proper authority. He should also examine whether the balances as per subsidiary ledgers tally wit the related control accounts in the general ledger.

the registers with the counter-foils of the receipts issued and with the discharged receipts returned to the bank. V. 24 .AUDIT OF BANK Term deposits are deposits repayable after a specified period.g. Reserves Bank of India. Borrowing in India. for e. foreign currency non-resident deposits. on a sampling basis. a. Deposits designated in foreign currencies: In the case of deposits designated in a foreign currency. the auditor should examine whether they have been converted into Indian rupees at the rate notified in his behalf by the head office. The auditor should verify the deposits with reference to the relevant registers. c. Other banks. They are considered time liabilities of the bank. Other institution and agencies. Interest accrued but not due: The auditor should examine that interest accrued but not due on deposits is not included under the deposited but is shown under the head ‘other liabilities ad provision’ 2. IV. Borrowing: Borrowings of a bank are required to be shown in balance sheet as follows: I. The auditor should also examine. b.

other banks/financial institution etc. 1949. 24 . and Mail transfer and Mail Transfer. Banker cheques. Traveller cheques. • Bills payable Bills payable represent instrument issued by the ranch against money received from customers.AUDIT OF BANK II. Interest accrued Other (including provisions) The auditor may verify the various items under the head other liabilities and provision in the following manner. which are to be paid to the customers or as per his order. These include Demand Draft. requires disclosure of the following items under the head ‘other liabilities and provision’ • • • • Bills payable Inter office adjustments. The auditor should also examine whether a clear distinction has been made between ‘rediscount’ and ‘refinance’ for disclosure of the amount under the above head since rediscount does not figure under this head. Borrowing from RBI. Pay order. Telegraphic Transfer. Other current liabilities: The third schedule to the banking Regulation act. should be verified by the auditors with reference to confirmation certificated and other supporting document such as agreements. and similar instrument issued by the bank but not presented for payment until the balance sheet date. correspondence etc.

Provision towards standard assets. the following items are to be included under this head. The auditor should examine this with reference to terms of various type of deposits and borrowings.AUDIT OF BANK Interest accrued: Interest accrued but not due on deposit is to be shown and borrowing is to shown under this head. Contingency funds. These are to shown separately as contingent standard assets. • • • • • Net provision for income tax and other taxes like interest tax. Surplus in aggregate in provision for bad and doubtful debts provision account. 24 . issued by the Reserve Bank of India. less advances payment and tax deducted at source. which are actually in the nature of reserved but are not disclosed as such. It should be specially examined that such interest has not been clubbed with the deposits and borrowing shown under the deposits and borrowing. Proposed dividend/transfer to government. Other According to the notes and instructions for compilation of balance sheet and profit and loss account.

In exceptional cases where physical verification of investment scripts on the balance sheet date is not possible the auditor should carry out the physical verification on a should take in to consideration any adjustment for subsequent transaction of purchase.AUDIT OF BANK ASSETS: A) Balanced with banks 1. sale etc. the auditor of advances. In other deposits account.Cash Reserved: One of the determinants of cash balance to be maintained by banking companies and other schedule is the requirement for maintenance of certain minimum cash reserve. 2) Investment: The auditor should verify the investment scripts physically at the close of business on the date of balance sheet. 3. In current account 2.1949 corresponding requirements for schedule bank is contain in the Reserve Bank of India. the auditor is primarily concerned with obtaining evidence about following 24 . he should take particular care to see that only genuine investment are produced before him. With other institutions 1. While the requirement for maintenance of cash reserve by banking companies is contained in the banking regulation act. B) Money at call and short notice 1.Advances: In carrying out of audit of advances. With banks 2.

ledger or fixed asset register. The auditor should verify the stationery and stamps.office adjustments. a) b) c) Advances represent amount due to the bank. There are no unrecorded advances. he should ascertain the location of documents of title or other documents evidencing ownership of various items of fixed assets. and that the recoverability of advances is recognized in their valuation. The branch auditor should ascertain whether the accounts in respect of premises and/or other fixed assets are maintained at the branch or centrally. a copy of the sale deed and receipt of the salve value should examined by the auditor. The auditor should also pay attention towards interest-accrued part from the banks point of view. the auditor is concerned primarily with obtaining evidence about their existence and valuation. 24 .AUDIT OF BANK Amount included in balance sheet in respect of advances are outstanding at the date of balance sheet. The auditor should verify the opening balance of premises with reference to schedule of fixed assets. In respect of fixed assets sold during the year. The stated basis of valuation of advances is appropriate and properly applied. The auditor should see that internal control over stationery items. Similarly. 5) Other assets: The auditor should see that whether there are any reversals entries indicating the possibility of irregular payments or frauds in case of inter. 4) Fixed assets: In carrying out an audit of fixed assets.

according with effect from 31st march 2004.GUIDELINES The guideline requires the banks to classify their advances in four broad categories as follows:- 1.P.AUDIT OF BANK N.A. for period not exceeding not more than 18 months.Standard asset:A standard asset is one. 2. Of N.P.P.Sub-standard asset: It is one. and which does not carry more than normal risk attached to the business such asset is not a non-performing asset. from the year ending 31st March 2004.Loss asset: It is one where the loss has been identified by the bank or the internal or external auditors or the RBI inspection. a non-performing asset shall be a loan or advances where. 24 . but the amount has not been written off wholly or partly in other words such asset is considered uncollectible and of such little value that its continuous as bankable asset is not warranted through although there may be some salvage or recovery value. which does not disclose any problems.A for period exceeding 18 months.P.Doubtful asset: It is one. 3. which has been classified as N. which remained has N.A. 4.A. With the view to moving towards international based practices and to ensure greater transference it has been decided to adopt the 90 days overdue norms for identification.

iii.P. It means that if any of the credit facilities granted to a borrower becomes non-performing all the facilities granted to a borrower will have to be treated as N. If the account is out of order or deficient for a temporary period due to non-availability of adequate drawing power. will not classify as N. The bill remains overdue for period of more than 90 days in the case of bills purchased and discounted.5 years in the case of advanced granted for agriculture purpose. N.P. Nonsubmission of stock statement.P. classification will be as per borrower wise and not facility wise.A. Interest and installment of principle remains overdue for two harvest season but not exceeding 2. is to be on the basis of the position as on balance sheet day if an account has been regularized before the balance sheet day by payment of overdue amount through genuine sources and not by sanction of additional facilities or transfer of funds between accounts. Some of the Exemptions are their as follows.P. iv. The account remains out of order for period of more than 90 days.A.P. Any amount to be received remains overdue for a period of more than 90 days in of other account. non-renewal of due date. In respect of overdraft or cash credit limit. ii.A. the bank should however ensured that the accounts remains in order subsequently. 24 .A. the accounts need not be treated as N.A.AUDIT OF BANK i. without having any regard to performing status of other facilities. Interest and installment of principle remains overdue for the period of more than 90 days in respect of term loan. v. The identification of N.

A.  Advance to Staff: As in the case of project finance in respect of housing loan all similar advances granted to staff members where interest is payable after recovery of principle.P.A.  Agricultural Advances Affected by Natural Calamities: In terms of RBI instruction where Natural calamities in fairs the repayment capacity of agricultural borrower the bank can convert short term production loan. finance given for industrial project or for agricultural status where moratorium period is available for payment of interest.AUDIT OF BANK  Project finance: In the case of bank. The overdue status should be recognized from the date when there is default in payment of interest on due date of payment. though the account in overdue or outstanding for more than 90 days.P. in to term loan or reschedule the repayment and sanction them short term loan loans in such cases the term loan as well as fresh short term may be treated as current dues and need not be classified as N.  Loans and Advances backed or supported by government: Any loans and advances provided by the bank under any scheme introduced by GOVT. like PMRY. payment of interest becomes due after the moratorium period is over and not on the date of debit of interest. 24 . Scheme will not be treated as N.

They are an important link in internal control of the bank. The statutory audit of banks is like a post mortem activity. which is compulsory as per the law. concurrent audit. documented and vouched. A separate department within the banks by firms of chartered accountants carries out the internal audit and inspection function. There internal auditors pay frequent visit to the branches.Statutory audit: The statutory audit. The systems of internal audit in different banks also have a system of regular inspection of branches and head office. The statutory audit of banks includes examination and inspection of internal audit. It has perceived the effective means of control. 4. The main view of concurrent auditors is to see that the transactions are properly recorded. In this way statutory plays a very important role in regulating the banking companies.Internal audit: Banks generally have a well-organized system of internal audit.Concurrent audit: Concurrent audit is the system which introduced by the RBI with the view that interval between the occurrence of transaction and it’s over view kept to the minimum extent and examination of transactions by the auditors take place as soon as the transaction take place. The suggestions of the statutory auditors can assist the bank management in improving the effectiveness of internal audit/concurrent audit/inspection functions.System audit: 24 . 2. etc. 3.AUDIT OF BANK TYPE OF AUDIT IN BANK 1. etc.

banking companies are using a well-organized computer system to perform their transactions. timely processed manner which in turn are verified by computer. accurately.AUDIT OF BANK In today’s technological advancements.Revenue audit: Revenue audit refers to the audit of revenues/ incomes. the auditor inspects that all the records are showing true and fair picture of revenues or not. In revenue audit of banks. it is very necessary to conduct ‘system audit’ in order to evaluate the computer system for effectiveness. In revenue audit of banking companies. 5. System audit is the audit of such computer environment/system and comprises the following internal controls over EDP activities and with application controls specific control procedures over accounting applications/assuring that all transaction are recorded and authorized and completely. 24 . So. auditors go through the various sources of revenues from which bank earn income.

2. European money lenders or money changers used to display (show) coins of different countries in big heaps (quantity) on benches or tables for the purpose of lending or exchanging. 4. firm or a company. which it pays out on customer's order. Payment and Withdrawal A bank provides easy payment and withdrawal facility to its customers in the form of cheques and drafts. In olden days.AUDIT OF BANK What is a Bank ? Finance is the life blood of trade. Now-a-days. A bank is a financial institution which deals with deposits and advances and other related services. Definition of a Bank Oxford Dictionary defines a bank as "an establishment for custody of money. money given by depositors. etc. It gives safety to the deposits of its customers.e. A banking company means a company which is in the business of banking. 24 . drafts. Development of any country mainly depends upon the banking system. Acceptance of Deposit A bank accepts money from the people in the form of deposits which are usually repayable on demand or after the expiry of a fixed period. Dealing in Money Bank is a financial institution which deals with other people's money i. 3. This money is in the form of cheques. Giving Advances A bank lends out money in the form of loans to those who require it for different purposes. banking sector acts as the backbone of modern business. It receives money from those who want to save in the form of deposits and it lends money to those who need it. It also acts as a custodian of funds of its customers. The term bank is derived from the French word Banco which means a Bench or Money exchange table. It also brings bank money in circulation. commerce and industry. 5. Individual / Firm / Company A bank may be a person." Characteristics / Features of a Bank 1.

Banks in India India has a well developed banking system. The role of central banking in India is looked by the Reserve Bank of India. It is higher in 24 . Reserve Bank was nationalized in 1947 and was given broader powers. Both the banks are now defunct. they may be publicly listed and traded on stock exchanges) and foreign banks. At that time it was known as the Bank of Calcutta. SBI is presently the largest commercial bank in the country. Indian banks can be broadly classified into public sector banks (those banks in which the Government of India holds a stake). Most of the banks in India were founded by Indian entrepreneurs and visionaries in the pre-independence era to provide financial assistance to traders. The rate of interest for Bank Fixed Deposits depends on the maturity period.AUDIT OF BANK 2. 14 largest commercial banks were nationalized followed by six next largest in 1980. The oldest bank in existence in India at the moment is the State Bank of India. The State Bank of India came into existence in 1806. which in 1935 formally took over these responsibilities from the then Imperial Bank of India. Bank Fixed Deposits Bank Fixed Deposits are also known as Term Deposits. a certain sum of money is deposited in the bank for a specified time period with a fixed rate of interest. which started in 1786 were the first banks in India. RBI includes only those banks in this schedule. 1934. Scheduled commercial Banks constitute those banks. But with adoption of economic liberalization in 1991. agriculturists and budding Indian industrialists. The origin of banking in India can be traced back to the last decades of the 18th century. which have been included in the Second Schedule of Reserve Bank of India (RBI) Act. In 1969. private banks (government doe not have a stake in these banks. which satisfy the criteria laid down vide section 42 (6) (a) of the Act. In a Fixed Deposit Account. private banking was again allowed. The commercial banking structure in India consists of: Scheduled Commercial Banks and Unscheduled Banks. The General Bank of India and the Bank of Hindustan.

public enterprises etc. Just as a bank account is required if we want to save money or make cheque payments. The deposit has a fixed tenure. 1935 in accordance with the provisions of the Reserve Bank of India Act. Current Accounts are cheque operated accounts meant neither for the purpose of earning interest nor for the purpose of savings but only for convenience of business hence they are non-interest bearing accounts Demat Account Demat refers to a dematerialised account. 1934. Recurring Bank Deposits Under a Recurring Deposit account (RD account). Reserve Bank of India The Reserve Bank of India was established on April 1.AUDIT OF BANK case of longer maturity period. companies. Its central office is in Mumbai where the Governor of RBI sits. Demat account is just like a bank account where actual money is replaced by shares. that have numerous daily banking transactions. There is great flexibility in maturity period and it ranges from 15days to 5 years. at the end of which the principal sum as well as the interest earned during that period is returned to the investor. it was nationalized in 1949. a specific amount is invested in bank on monthly basis for a fixed rate of return. Though initially RBI was privately owned. Current Account Current Account is primarily meant for businessmen. firms. we need to open a demat account in order to buy or sell shares. The main advantage of Savings Bank Account is its high liquidity and safety. Savings Bank Account Savings Bank Accounts are meant to promote the habit of saving among the citizens while allowing them to use their funds when required. 24 .

in Union Bank of India (UBI) (BSE: 532477) is one of India's largest public sector banks (the government owns 55.unionbankofindia.co.AUDIT OF BANK 4. It has assets of USD 13.43% of its share capital remains public.787 crore (US$323.746 (2011) www.45 billion and all the bank's 24 . Sarkar (Chairman & MD) 21.Union Bank of India Profile Union Bank of India Type Industry Headquarters Key people Revenue Net income Employees Website Public (BSE: 532477) Financial services Mumbai.45 million) (2012) 27. India D.83 billion) (2012) 1. private organizations and foreign companies).144 crore (US$3. is listed on the Forbes 2000.

the Shri Jadeya Shankarling Bank. In 1999 the Reserve Bank of India requested that UBI acquire Sikkim Bank in a rescue after extensive irregularities had been discovered at the non-scheduled bank. It has representative offices in Abu Dhabi. and Shanghai. Peoples Republic of China. UBI opened a representative office in Sydney. Shortly after nationalization. At the time of India's Independence in 1947. After Independence UBI accelerated its growth and by the time the government nationalized it in 1969. Its online Telebanking facility are available to all its Core Banking Customers . UBI still only had four branches . which had been established in 1929. Sikkim Bank had eight branches located in the North-east. all concentrated in key trade centres. and Shanghai.AUDIT OF BANK branches have been networked with its 3025 ATMs. and a branch in Hong Kong. UBI began its international expansion in 2007 with the opening of representative offices in Abu Dhabi. In 2009.three in Mumbai and one in Saurashtra. Management . it had grown to 240 branches in 28 states. Australia. The next year. Then in 1985 UBI merged in Miraj State Bank. UBI established a branch in Hong Kong. a private sector bank established in 1930 that had itself merged in a bank in 1964. which was attractive to UBI.individual as well as corporate. United Arab Emirates. Peoples Republic of China. UBI merged in Belgaum Bank.Union Bank Name D Sarkar Suresh Kumar Jain B M Sharma N Shankar S Ravi M V Nair Name S S Mundra Chandan Sinha Baidya Nath Bhattacharjee M S Sriram Atul Agarwal A Bhattacharya Designation Chairman & Managing Director Executive Director Director Director Director Director Designation Executive Director Director Director Director Director Director 24 . United Arab Emirates. its first branch outside India. History Union Bank of India (UBI) was registered on 11 November 1919 as a limited company in Mumbai and was inaugurated by Mahatma Gandhi.

We conducted our audit in accordance with the Standards on Auditing issued by the Institute of 12 24 .Auditors Report of Union Bank of India Auditor’s Report (Union Bank of India) Year ended March 2013 1. 2013 and Profit and loss Account abd tge cash flow statement for the year then ended. 2.62 per cent of deposits. Auditors' Responsibility 3. This responsibility includes the design. Incorporated in these financial statements are the return of 19 branches. Also incorporated in the balance sheet and profit and Loss are the return from 2128 branches. and a summary of significant accounting policies and other explanatory information. The branches audited by us and those audited by other auditors have been selected by the bank in accordance with the guidelines issued to the bank by the reserve bank of India .AUDIT OF BANK 9. Management is responsible for the preparation of these financial statements in accordance with Banking Regulation Act 1949. 1 Treasury Branch and 18 regional officiers audited by us and 1364 branches including 2 foreign branches . 2013. These unaudited branches account for 8.84 per cent of advances 29. 81 offices/centres which have not been subjected to audit. 6. 46 service branches audited by branch auditors.01 per cent of interest income and 29. which comprise the Balance Sheet as at March 31. Our responsibility is to express an opinion on these financial statements based on our audit.15 per cent of interest expenses. whether due to fraud or error. We have audited the accompanying financial statements of Union Bank of India as at 31st march . implementation and maintenance of internal control relevant to the preparation of the financial statements that are free from material misstatement.

whether due to fraud or error. In making those risk assessments. 5. The procedures selected depend on the auditor's judgment.13 of Schedule 18. Emphasis of Matter 7. including the assessment of the risks of material misstatement of the financial statements.bC/80/21.018/2010-11 dated February 9. we draw attention to Note No. in conformity with accounting principles generally accepted in India.04. as shown by books of bank. for the year covered by the account. 4. regarding deferment of pension liability of the Bank to the extent of Rs. (ii) the Profit and Loss Account. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.AUDIT OF BANK Chartered Accountants of India. read with the notes thereon shows a true balance of profit. Employee Benefits (circular no.676.Rs.1014.13 crore) pursuant to the circular issued by the Reserve Bank of India to the public sector banks on the provisions of AS 15. 2011) on re-opening of Pension Option to 24 .09 crore(previous year . In our opinion. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. and (iii) the Cash Flow Statement gives a true and fair view of the cash flows for the year ended on that date. and to the best of our information and according to the explanations given to us: (i) the Balance Sheet. the auditor considers internal control relevant to the Company's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances.5. is properly drawn up so as to exhibit a true and fair view of state of affairs of the Bank as at 31st March 2013 in conformity with accounting principles generally accepted in India.BP. Without qualifying our opinion. read with the notes thereon is a full and fair Balance Sheet containing all the necessary particulars. describes a. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management. DBOD. as well as evaluating the overall presentation of the financial statements. Opinion 6.

SHYAM SUNDER0 PARTNER (M. FOR G.65 crore has been charged to the Profit & Loss account with the balance of Rs. MATHUR & CO FOR PRICEPATT & CO FOR SINGRODIA GOYAL & CO CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS FIRM REGN NO.50 lacs to Rs. 112081W (RAJIV KUMAR WADHAWAN) (S. In our opinion.V. The Balance Sheet and the Profit and Loss Account have been drawn up in Forms A and B respectively of the Third Schedule to the Banking Regulation Act.NO. 008744N FIRM REGN NO.091007) PARTNER ( M.NO.3.S.25413) PARTNER ( M. which have come to our notice.NO.130 crore being carried forward to be charged over the next 2 years. Report on Other Legal and Regulatory Requirements 8. b.ROHATGI & CO 24 .AUDIT OF BANK Employees of Public Sector Banks. and subject also to the limitations of disclosure required therein. we report that: (a) We have obtained all the information and explanations which to the best of our knowledge and belief. the Balance Sheet. 1970/1980. regarding deferment of additional gratuity liability which arose on enhancement of Gratuity limit from Rs.002783S FIRM REGN. (c) The returns received from the offices and branches of the Bank have been found adequate for the purposes of our audit.S.015747) FOR JINDAL & CO FOR SHAH GUPTA & CO FOR V.10 lacs amounting to Rs. Subject to the limitations of the audit indicated in paragraph 1 to 5 above and as required by the Banking Companies (Acquisition and Transfer of Undertakings) Act. (b) The transactions of the Bank. 10. Profit and Loss Account and Cash Flow Statement comply with the applicable accounting standards. 9. 1949. have been within the powers of the Bank. NO. were necessary for the purposes of our audit and have found them to be satisfactory. BAKASUBRAMANIAN) (K.

109574W FIRM REGN.000844N FIRM REGN NO. 2013 Source : Dion Global Solutions Limited 24 .NO. CHOKSI) (VANDANA RASTOGI) PARTNER (M.037606) PARTNER ( M.NO.090515) PARTNER ( M.NO.086956) Place: MUMBAI Date : 9th May.AUDIT OF BANK CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS FIRM REGN NO.000980C (AKHIL JINDAL) (VIPUL K.NO.

concurrent audit. loan accounting and transparency and foreign exchange transaction. internal audit. manipulations etc. form this auditor get the clear ideas how to recommend on the banks position. This project gives the correct ideas about how the major areas can be found by way of effective auditing system i. Form auditing point of view. given the complexity and development of Indian banking sector. Project also contain that how to conduct of audit of the banks.AUDIT OF BANK CONCLUSION The project the position of Indian banking system as well as the principal laid down by the Basel Committee on banking supervision. what are the various procedure through which audit of banks should be done.e. which are core principals. there is proper follow up of work done in every organization whether it is banking company or any other company or any other company there no misconduct of transactions is taken places for that purpose the auditing is very important aspect in today’s scenario form company and point of view. deposit. This assessment was done in seven major areas. errors. The project concluded that. 24 . the overall level of compliances with the standards and codes is of high order. frauds.

moneycontrol.AUDIT OF BANK BIBLIOGRAPHY Websites www.icai.org Books Auditing 24 .com www.

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