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AUDIT OF BANK
EXECUTIVE SUMMERY
A banking companies are requires maintaining the books of account in
accordance with section 209 of the companies act, 1956. Banking
genera! a sound interna contro s!stem their da! to da! transaction.
"he auditor has to e#auate such s!stem carefu!. "he fundamenta
requirement of an audit, as regards reporting on statement of account
can be discharged from the e$amination of the interna checked and
#erification of assets and iabiities b! making a comparison and
reconciiation of baance with those in the !ear and that of amount of
income and e$penses b! appication of test checks. "he banking
reguation act casts greater responsibiities on the directors of banks as
compared to those of other companies in the matter of super#ision
o#er their working. "herefore, the! e$ercise, or are e$pected to
e$ercise greater super#ision o#er the affairs of bank. "he auditor is
entities to re! on such super#ision and to imit his checking to test
checks. "he financia position of a bank is depended on the condition
of assets, oan, in#estment, cash baanced and those of its iabiities
and fund. "heir #erification form an important part of the baance
sheet. %ost of the bank ha#e their own interna audit or inspection
department entrusted with the responsibiities of checking the account
of #arious branches. "he statutor! auditor ma! not, therefore,
dupicate work.
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AUDIT OF BANK
INTRODUCTION
"he audit of banking companies pa!s a #er! important roe in &ndia
as it hep to reguate the banking companies in right manner. &n audit of
banks incudes #arious t!pes of audit which are norma! carried out in
banking companies such as statutor! audit, re#enue'income e$penditure
audit, concurrent audit, computer and s!stem audit etc. the abo#e audit is
main! conducted b! the banks own staff or e$terna auditor. (owe#er, the
rues and the reguation reating to the conduct of #arious t!pes of audit or
inspections differ from a bank to bank e$pect the statutor! audit for which
the )B& guideines is appicabe. &n this, & ha#e gi#en more importance on
the o#era bank audit s!stem. &n toda!*s competiti#e word audit is #er!
much necessar! as we as compusor! , because in#estor in#esting decision
is depend on that particuar concept if auditor has e$pressing his #iew about
particuar organi+ation is true and fair then in#estor can get his ideas about
how much he shoud in#est in particuar companies.
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AUDIT OF BANK
ORIGIN AND EVOLUATION OF AUDITING
1) Origin of ter !
"he term audit is deri#ed from the ,atin term -audire. mean to
hear. &n ear! da!s, an auditor used to isting to the account read out b!
the accountant in order to check them.
") An#ient origin !
Auditing is as od as accounting. &t was in use in a ancient
countries such as %esopotamia, /g!pt, 0reece, )ome, 1.2., and &ndia.
"he 3edas,)ama!ana, %ahabharata contain references to accounting and
auditing. Arthashasastra b! 2auti!a gi#es detaied rues for accounting
and auditing of pubic finances. "he %aur!as, the 0uptas and the
%ughas had de#eoped and accounting and auditing s!stem to contro
state finances. "hus, basica!, accounting and auditing had their origin in
the need for the go#ernment to contro the income and e$penditure of the
state and the arm!. "he origina ob4ect of auditing was to detect and
pre#ent errors and frauds.
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AUDIT OF BANK
$) Co%&'(or) *&+it( of #o%*nie(!
5ith increasing number of companies, the companies* acts in
different countries began pro#iding for compusor! audit of accounts of
companies. "hus 1.2. audit of accounts of imited companies became
compusor! in 1900. &n &ndia, the companies act, 1916 made audit of
compan! accounts compusor!. 5ith increase in si+e of companies, the
ob4ect of audit aso shifted to ascertaining whether the accounts were
-true and fair. rather than -true and correct.. "hus, the emphasis was not
arithmetica accurac! but on fair representation of financia affairs.
,) De-e'o%ent of *##o&nting *n+ *&+iting (t*n+*r+!
"he internationa accounting standards committee and the
accounting standards board of institute of chartered accountant of &ndia
ha#e de#eoped standard accounting and auditing practices to guide the
accountants and auditor in their da!7to7da! work.

.) Co%&ter te#/no'og)!
"he atest de#eopment in auditing pertains to the use of computers
in accounting as we as auditing.
)ea!, auditing has come a ong wa! from -hearing. the accounts
in the ancient da! to using computers to e$amine computeri+ed accounts
of toda!.
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AUDIT OF BANK
DEFINITION OF AUDITING
3arious persons such as the owners, sharehoders, in#estors,
creditors, enders, go#ernment etc. use the fina account of business concern
for different purposes. A these users need to be sure that the fina accounts
prepared b! the management are reiabe. An auditor is an independent
e$pert who e$amines the accounts of a business concern and reports whether
the fina accounts are reiabe or not. 8ifferent authorities ha#e defined
auditing as foows.
M*&t0 define the auditing as -auditing is concerned with the
#erification of accounting data, with determining the accurac! and
reiabiit! of accounting statement and reports..
Intern*tion*' *&+iting g&i+e'ine( defines the auditing as -auditing is
an independent e$amination of financia information of an! entit! with
a #iew to e$pressing an opinion thereon..
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AUDIT OF BANK
BASIC 1RINCI1AL OF AUDITING!
1) Integrit)2 o34e#ti-it) *n+ in+e%en+en#e!
"he auditor shoud be honest and sincere in his audit work. (e
must be fair and ob4ecti#e. (e shoud aso be independent.
") Confi+enti*'it)!
"he auditor shoud keep the information obtained during audit,
confidentia. (e shoud not discose such information to an! third part!.
(e shoud, keep his e!es and ears open but his mouth shut.
$) S5i'' *n+ #o%eten#e!
"he auditor shoud ha#e adequate training, e$perience and
competence in Auditing. (e shoud ha#e a professiona quaification 9 i.e.
be a :hartered Accountant; and practica e$perience. (e shoud be aware
of recent de#eopments in the fied of auditing such as statement of &:A&,
changes in compan! aw, decisions of courts etc.
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AUDIT OF BANK
,) 6or5ing %*%er(!
"he auditor shoud maintain working papers of important matters
to pro#e that audit was conducted with due care according to the basic
principes.
.) 1'*nning!
"he auditor shoud pan his audit work. (e shoud prepare an audit
programmed to compete the audit efficient! and in time.
7) A&+it e-i+en#e!
"he report of the auditor shoud be base on e#idence obtained in
the course of audit. "he e#idence ma! be obtained through #ouching of
transactions, #erification of assets and iabiities, ratio ana!sis etc.
8) E-*'&*tion of *##o&nting ()(te *n+ intern*' #ontro'!
"he auditor shoud ensure that the accounting s!stem is adequate.
(e shoud see that a the transaction ha#e been proper! recorded. (e
shoud stud! and e#auate the interna contros.
9) O%inion *n+ re%ort!
"he auditor shoud arri#e at his opinion on the account based on
the audit e#idence and submit his report. "he opinion ma! be
unquaified, quaified or ad#erse. "he audit report shoud cear! e$press
his opinion. ,aw shoud require the content and form of audit report.
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AUDIT OF BANK
AUDIT COMMITTEE
&n pursuance of )B& circuar <eptember 26, 1995, a bank is required
to constitute an Audit :ommittee of its Board. "he membership of the audit
committee is restricted to the /$ecuti#e 8irector, nominees of :entra
0o#ernment and the )B&, :hartered Accountant director and one of the non7
officia directors.
=ne of the functions of this committee is to pro#ide direction and
o#ersees the operations of the tota audit function in the bank. "he
committee aso has to re#iew the interna inspection function in the bank,
with specia emphasis on the s!stem, its quait! and effecti#eness in terms of
foow up. "he committee has to re#iew the s!stem of appointment and
remuneration of concurrent auditors.
"he audit committee is, therefore, connected with the functioning of
the s!stem of concurrent audit. "he method of appointment of auditors, their
remuneration and the quait! of their work is to be re#iewed b! the Audit
:ommittee. &t is in this conte$t that periodica meeting b! the members of
the audit committee with the concurrent auditors hep the audit committee to
o#ersee the operations of the tota audit function in the bank.
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AUDIT OF BANK
:onsidering the co#erage of this audit assignment and the
speciai+ed nature of work there is aso a need for training to be imported to
the staff of the auditors. "his training has to be gi#en in speciai+ed fied
such as foreign e$change, computeri+ation, and areas of income eakage,
fraud prone areas, determination of credit rating and other simiar
speciai+ed areas. "he bank can organi+e such training programmed at
#arious paces so that it can ensure the quait! of audit.
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AUDIT OF BANK
ADVANTAGES OF AUDITING
1) A((&r*n#e of tr&e *n+ f*ir *##o&nt(!
Audit pro#ides an assurance to the #arious users of fina accounts
such as owners, management, creditors, enders, in#estors, go#ernment*s
etc. that the accounts are true and fair.
") Tr&e *n+ F*ir 3*'*n#e (/eet!
"he user accounts can be sure that the assets and iabiities shown
in the audited baance sheet show the concern, as it is i.e. neither more
nor ess.
$) Tr&e *n+ f*ir %rofit *n+ 'o(( *##o&nt!
"he user can be confident that the audited profit and oss account
shows the true amount of profit or oss as it is i.e. neither more nor ess.
,) T*'') :it/ 3oo5(!
"he audited fina account can be taken to ta! with the books of
accounts. "hus, the income7ta$ officer can start with the figure of audited
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AUDIT OF BANK
books profit, make ad4ustments and compute the ta$abe income. An
outside user need not go through the entire books.
.) A( %er (t*n+*r+ *##o&nting *n+ *&+iting %r*#ti#e(!
"he audited fina accounts foow the standard accounting and
auditing principes aid down b! professiona bodies. "hus, audited
accounts are based on ob4ecti#es standard and not on persona whims and
fancies of a particuar accountant or auditor.
7) Dete#tion *n+ %re-ention of error( *n+ fr*&+(!
Audited accounts can be assumed reasonab! free from errors and
frauds. "he auditor with his e$pert knowedge woud take due care to see
that /rrors and frauds are detected so that the accounts shoe a true and
fair #iew.
8) A+-i#e on ()(te2 t*;*tion2 fin*n#e!
"he auditor can aso ad#ise the cient about the accounting s!stem,
interna contro, interna check, interna audit, ta$ation, finances etc.
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AUDIT OF BANK
LIMITATIONS OF AUDITING
1. An auditor cannot check each and e#er! transaction he has to check
on! the seected areas and transaction on a sampe basis.
2. Audit e#idence is not concusi#e in nature thus confirmation b! a debtor
is not concusi#e e#idence that the amount wi be coected. &t is said
e#idence is rather than concusi#e in nature.
6. An auditor cannot be e$pected to disco#er deep! aid frauds usua!
in#o#es acts designed to concea them such as forger! , ceibate faiure
to record transactions, fase e$panation and hence are difficut to
detect.
>. Audit cannot assure the users of account about the future profitabiit!,
prospects or the efficienc! of the management.
5. An auditor has to re! upon e$pert auditor ma! ha#e to re! on e$pert in
reated fied such as aw!ers, engineers, #aue*s etc. for estimating
contingent iabiities, #auation of fi$ed assets etc.
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AUDIT OF BANK
INTERNAL CONTROL IN CERTAIN SELECTED AREAS
Gener*'
"he staff and officer of a bank shoud ift form one position to another
frequent! and without prior notice.
"he work of one person shoud awa!s be checked b! another person in
the norma course of business.
A arithmetica accurac! of the book shoud be pro#ed independent!
e#er! da!.
A bank form 9e.g. books, demand draft book, ?tra#eers* cheque, etc.;
shoud be kept in the possession of an officer, and another responsibe
officer shoud occasiona! #erif! the stock of such stationar!.
"he mai shoud be opened b! responsibe officers. <ignature on a the
etters and ad#ice recei#ed from other branches of the bank or its
correspondence shoud be checked b! an officer with signature book.
"he signature book of the teegraphic codebook shoud be kept with
responsibe officers, used, and seen b! authori+ed officers on!.
"he bank shoud take out insurance poicies against oss and empo!ees
infideit!.
"he power of officers of different grade shoud be cear! defined.
"here shoud be surprise inspection of office and branches at periodic
inter#a b! the interna audit department. "he irreguarities pointed out
in the inspection reports shoud be prompt! rectified.
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AUDIT OF BANK
C*(/!
:ash shoud be kept in the 4oint custod! of two responsibe peope.
&n addition to norma checking b! the chief cashier, cash shoud be test
checked dai! and counted in fu occasiona! b! responsibe officers
unconnected with the baanced shown the baanced shown b! the
da!book e#er! da!.
"he cashier shoud ha#e no access to the edger account and the
da!book. "his is an important safeguard. Bank management are often
tempted to used cashier because of their shorter working hours as a
edger cerks in the absence of reguar staff on ea#e, etc. "his cash can
be a #er! e$pensi#e price of econom!.
C'e*ring(!
:heques recei#ed b! the bank in cearing shoud with the ist
accompan!ing them independent ist shoud be prepared for cheques
debited to different customers account and those return unpaid and
these shoud be checked b! officers.
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AUDIT OF BANK
"he tota numbered and amount of cheques sent out the bank for
cearing shoud be agreed with the tota of the cearing pa!7in7sip, b!
an independent person.
"he unpaid cheques recei#ed back return cearing shoud be checked in
the same manner as the cheques recei#ed.
Con(tit&ent 'e+ger!
Before making pa!ment, cheques shoud proper! checked in respect
of signature, date, baanced in hand etc. and shoud be passed b! an
officers and entered into constituent*s account.
@o withdrawa shoud norma! be aowed against cheques deposited
on the same da!.
An officer shoud check a the entries made in the edger with the
origina document particuar! nothing that the correct account ha#e
been debited or credited.
,edger keeper shoud not ha#e access to #oucher summar! sheet after
the! ha#e been checked b! an officer and to the da!book.
&nterest debited or credited to constituent account shoud be
independent! checked.
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AUDIT OF BANK
Bi'' of #o''e#tion!
A documents accompan!ing the bi shoud be recei#ed and entered
in the register b! a responsibe officer. A the time of dispatch, the
officer shoud aso see that a document sent aong with the bis.
"he account of customers or principas shoud be credited on! after
bis ha#e been coected or an ad#ice to that effect recei#ed form the
branch or agent to which the! were sent for coection.
&t shoud be ensured that bis sent b! one, branch for coection to
another branch of the bank, are not in the coection twice in the
amagamated baance sheet of the bank. Aor this purpose, the
recei#ing branch shoud re#erse the entries such as bis at the end of
the recei#ing branch at the end of the !ear fir cosing purposes.
Bi'' %&r#/*(e+!
At the time of purchased of bi, an officer shoud #erif! that a the
document of tites are proper! assigned to the bank.
<ufficient margin shoud be kept whie purchased or discounting a bi
to co#er an! decine in the #aue of the securit! etc.
&f the bank is unabe to coect a bi on the due date, immediate! step
shoud be taken to reco#eries the amount form the drawer against the
securit! pro#ided.
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AUDIT OF BANK
A irreguar outstanding account shoud be reported to the head
office.
&n the case of purchased outstanding at the cose of the !ear discount
recei#ed thereon shoud thereon shoud be proper! apportioned
between !ears.
Lo*n *n+ *+-*n#e(!
"he bank shoud make ad#ances on! after satisf!ing itsef as to the
creditworthiness of the borrowers and after obtaining sanction from
the proper authorities of bank.
"he entire necessar! document 9e.g. agreement, demand promissor!
note, etter of h!pothecation etc.;
<ufficient margin shoud be kept against securities taken to co#er an!
decine in the #aue thereof and aso to comp! with proper authorities
of directi#es. <uch margin shoud be determined b! the proper
authorities of the bank as a genera poic! or for particuar account.
A the securities shoud be recei#ed and returned b! responsibe
officer. "he! shoud be kept in the 4oint custod! of two such officer
&n the case of good in possession of the bank, content of the package
shoud be test checked at the time of receipt.
<urprise check shoud be made in respect of h!pothecated goods not
in the possession of the bank.
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AUDIT OF BANK
%arket #aue of good shoud be checked b! officer of the bank b!
persona enquir! in addition to the in#oice to the in#oice #aue gi#en
b! the borrowers.
As soon as an! increased or decreased takes take pace in the #aue of
securities proper entries shoud be made in the drawing power book
and dai! baance book. "hese entries shoud be checked b! an officer.
A account shoud be kept within both the drawing power and the
sanctioned imit at a times.
At the account, which e$ceed the sanctioned imit or drawing power
or are against unappro#ed securities or are otherwise irreguar, shoud
be brought to the notice of the management'head office reguar!.
De*n+ +r*ft!
"he signature on demand draft shoud be checked b! an officer with
signature book.
A the best demand draft sod b! shoud be immediate! confirmed
b! the ad#ice to the branches concerned.
&f the branches does not recei#e does not recei#ed proper
confirmation of ant demand draft form the issuing branch or does not
recei#ed credit in its account with that branches, it shoud take
immediate step to ascertain the reason.
Inter 3r*n#/ *##o&nt!
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AUDIT OF BANK
"he account shoud be ad4usted on! on the basis of appication with
reasonab! good credit assessment.
Brompt action shoud be taken preferab! b! centra authorities, if an!
entries are not reasonab! time.
Cre+it #*r+ o%er*tion!
"here shoud be effecti#e screening of appication with reasonab!
good credit assessment.
"here shoud be strict contro o#er storage and issues of card.
"here shoud be at s!stem whereb! a merchant confirm the statues
of utii+ed imit of a credit card hoder form the bank before
accepting the settement in case the amount to be setted e$ceed a
specified percentage of the tota imit of the credit hoder.
"here shoud be s!stem of prompt reporting b! the merchant of a
settement accepted b! them through credit cards.
)eimbursement to merchants shoud be made on! after #erification
of the #aidit! of merchant acceptance of card.
A the reimbursement shoud be made immediate! charged to the
customers account.
"here shoud be a s!stem to ensure that statements are sent reguar!
and prompt! to the customers.
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AUDIT OF BANK
"here shoud be a s!stem to monitor and foow up customer
pa!ment.
&tems o#erdue be!ond a reasonabe period shoud identification and
attended to carefu!. :redit shoud be stopped b! informing the
merchant through periodic buetin, as ear! as possib! to a#oid
increased osses.
"here shoud be a s!stem of periodic re#iew of credit card hoder
account. =n the basis, the imit of customer ma! be re#isedC it
necessar!, the re#iew shoud aso incudes determination of doubtfu
amount and the pro#isioning in respect thereof.
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AUDIT OF BANK
STAGES IN AUDITING
1; 1re'iin*r) :or5!
a; "he auditor shoud acquire knowedge of the reguator! en#ironment
in which the bank operates. "hus, the auditor shoud famiiari+e
himsef with the ree#ant pro#isions of appicabe aws and ascertain
the scope of his duties and responsibiities in accordance with such
aws. (e shoud be we acquainted with the pro#isions of the Banking
)eguation act, 1956 in the case of audit of a banking compan! as far
as the! reate of preparation and presentation of financia statements
and their audit.
b; "he auditor shoud aso acquire knowedge of the economic
en#ironment in which the bank operates. <imiar!, the auditor needs
to acquire good working knowedge of the ser#ices offered b! the
bank. &n acquiring such knowedge, the auditor needs to be aware of
the man! #ariation in the basic deposit, oan and treasur! ser#ices that
are offered and continue to be de#eoped b! banks in response to
market conditions. "o do so, the auditor needs to understand the
nature of ser#ices rendered through instruments such as etters of
credit, acceptances, forward contracts and other simiar instruments.
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AUDIT OF BANK
c; "he auditor shoud aso obtain and understanding of the nature of
books and records maintained and the terminoog! used b! the bank
to describe #arious t!pes of transaction and operations. &n case of 4oint
auditors, it woud be preferabe that the auditor aso obtains a genera
understanding of the books and records, etc, reating to the work of
the other auditors, &n addition to the abo#e, the auditor shoud
undertake the foowingD
&. =btaining interna audit reports, inspection reports, inspection
reports and concurrent audit reports pertaining to the bank'branch.
&&. =btaining the atest report of re#enue or income and e$penditure
audits, where a#aiabe.
&&&. &n the case of branch auditors, obtaining the report gi#en b! the
outgoing branch manager to the incoming branch in the case of
change in incumbent at the branch during the !ear under audit, to
the e$tent the same is ree#ant for the audit.
d; )B& has introduced and offsite sur#eiance s!stem for commercia
banks on #arious aspects of operations incuding so#enc!, iquidit!,
asset quait!, earnings, performance, insider trading etc., and has
indicated that such reports sha be submitted at periodic inter#as
from the !ear commencing 170>71995. &t wi be appropriate to be
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AUDIT OF BANK
famiiar with the reports submitted and to re#iew them to the e#ent
that the! are ree#ant for the purpose of audit.
e; &n a computeri+ed en#ironment the audit procedure ma! ha#e to
appropriate! tuned to the circumstances, particuar! as the books are
not authenticated as in manua! maintained accounts and the auditor
ma! not ha#e his in7house computer faciit! to taste the software
programmes. "he emphasis woud ha#e to be aid on interna contro
procedure reated to inputs, securit! in the matter of access to /8B
s!stem, use of codes, passwords, data inputs being prepared b! person
independent of ke! operators and other buid7in procedure for data
#aidation and s!stem contros as to ensure competeness and
correctness of the transaction ke!ed in. s!stem documentation of the
software ma! be obtained and e$amined.
f; =ne set of tests that the auditor at both the branch e#e and head
office e#e ma! app! for audit of banks in ana!tica procedure.
2; E-*'&*tion of intern*' #ontro' ()(te!
&t ma! be noted that transaction in banks are #ouminous and repetiti#e, and
fa into imited categories'heads of account. &t ma!, therefore, be more
appropriate that the e#auation of the interna contro is made for each
cass'categor! of transaction. &f the e$ercise of interna contro e#auation is
proper! carried out, it assist the auditor to determine the effecti#eness or
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AUDIT OF BANK
otherwise of the contro s!stems and according! enabe him to strengthen
his audit procedures, and a! appropriate emphasis on the risk prone areas.
&nterna contro woud incude accounting contro administrati#e contros.
*) A##o&nting #ontro'(!
Accounting contros co#er areas direct! concerned with recording of
financia transactions and maintenance of such registers'records as to
ensure their reiabiit!.
&nterna accounting contros are aso en#isaging such procedures as
woud determine responsibiit! and fi$ accountabiit! with regard to
safeguarding of the assets of the bank. &t woud not be out of pace of
mention that there is a distinction between accounting s!stem and
interna accounting contros. Accounting s!stem en#isages the processing
of the transaction and e#ents, their recognition, and appropriate
recording. &nterna contros are techniques, method and procedures so
designed and usua! buit into s!stems, as woud enabe pre#ention as
we as detection of errors, omissions or irreguarities in the process of
e$ecution and recording of transaction'e#ents.
"he interna accounting contros as woud ensure pre#ention of errors,
omissions and irreguarities woud incude foowingD
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AUDIT OF BANK
&. @o transaction can be registered'recorded uness it is
sanctioned'appro#ed b! the designated authorit!.
&&. Buit7 in dua contro'super#isor! procedures ensure that there is an
independent automatic check on input'#ouchers.
&&&. @o singe person has authorit! to initiate transaction and record
through a stages to the genera edger. /ach da! transactions are
accurate! and prompt! recorded, and the contro and subsidiar!
records are kept baanced through personne independent of each
other.
"he auditor woud be we ad#ised to ook into other areas ma! ead to
detection of errors, omissions and irreguarities, inter aias in the
foowingD
&. %issing'oss of securit! paper, stationer! forms.
&&. Accumuation of transactions'baances in nomina heads of
accounts ike suspense, sundries, inter7branch accounts, or other
nomina head of accounts particuar! if there accounts particuar!
if these accounts are e$tensi#e! used to baance books, despite
a#aiabiit! of information.
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AUDIT OF BANK
&&&. Accumuation of od'arge une$pained'unsubstantiated entries in
accounts with )eser#e Bank of &ndia and other banks and
institutions.
&3. "ransaction represented b! mere book ad4ustments not
e#idenced'substantiated or upon non7honoring of
contracts'commitments.
3. =rigination debits & head office accounts'inter7branch accounts.
3&. Ana!tica re#iew procedure.
3&&. <erious irreguarities pointer out in interna audit'inspection'specia
audit
3&&&. :ompaints'matters pending in the #igiance'grie#ances ce, as
regards discrepancies in accounts of constituents, etc.
&E. )esuts of periodic ana!tica re#iew, if obser#ed as ad#erse.
*) A+ini(tr*ti-e #ontro'!
"hese are broad! concerned with the decision making process and a!ing
down of authorit!'deegation of powers b! the management. &t ma! be noted
that in the norma course, the head office use the +ona'regiona offices do
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AUDIT OF BANK
not conduct an! banking business. "he! are genera! responsibe for
administrati#e and poic! decisions which are e$ecuted at the branch e#e.
6; 1re%*r*tion of *&+it %rogr*e for (&3(t*nti-e te(ting *n+ it(
e;e#&tion
(a#ing famiiari+ed him the requirements of audit, the auditor shoud
prepare an audit programme for substanti#e testing which shoud adequate!
co#er the scope of his work. &n framing the audit programme, due weightage
shoud be gi#en b! the auditor to areas where, in his #iew, there are
weaknesses in the interna contros. "he audit programme for the statutor!
auditors woud be different from that of the branch auditor. At the branch
e#e, basic banking operation are to be co#ered b! the audit. =n the other
hand, the statutor! auditors at the head office 9pro#isions for gratuit!, inter7
office accounts, etc.;. "he scope of the work of the statutor! auditors woud
aso in#o#e deaing with #arious accounting aspects and discosure
requirements arising out of the branch returns.
>; 1re%*r*tion *n+ (&3i((ion of *&+it re%ort
"he branch auditor forwards his report to the statutor! auditors who ha#e to
dea with the same in such manner, as the! considered necessar!. &t is
desirabe that the branch auditors* reports are adequate! in unambiguous
terms. As far as possibe, the financia impact of a quaification or ad#erse
comments on the branch accounts shoud be cear! brought out in the
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AUDIT OF BANK
branch audit report. &t woud assist the statutor! auditors if a standard pattern
of reporting, sa!, head wise, commencing with assets, then iabiities and
thereafter items reated to income and e$penditure, is foowed.
&n preparing the audit report, the auditor shoud keep in mind the concept of
materiait!. "hus, items which do not materia! affect the #iew presented b!
the financia statements ma! be ignored. (owe#er, in the 4udgement of the
auditor, an item though not materia, is contrar! to accounting principes or
an! pronouncements of the &nstitute of :hartered Accountants of &ndia or in
such as woud require a re#iew of the ree#ant procedure, it woud be
appropriate for him to draw the attention of the management to this aspect in
his ong form audit report. &n a cases, matters co#ering the statutor!
responsibiities of the auditor shoud be deat with in the main report. "he
,AA) shoud be used to further eaborate matters contained in the main
report and as substitute thereof. <imiar! whie framing his main report, the
auditor shoud consider, where#er practicabe, the significance of #arious
comments in his ,AA), where an! of the comments made b! the auditor
threrin is ad#erse, he shoud consider whether quaification in his main
report is necessar! b! using his discretion on the facts and circumstances of
each case. &n ma! be emphasi+ed that the main report shoud be sef7
contained document.

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AUDIT OF BANK
BOOKS OF ACCOUNTS OF BANKS
A banking compan! is required to maintain the books of accounts in
accordance with sec.209 of the companies act. "here are, howe#er, certain
imperati#es in banking business the! are the requirements to maintain
accurate and awa!s up to date account. Banks, therefore, de#ice their
accounting s!stem to suit these requirements. "he main characteristics of a
banks s!stem of book keeping are as foowsD
entries in the persona edgers are made direct! from #ouchers instead of
being posted from the books of prime entr!.
A. "he #ouchers entered into different persona edgers each da!
are summari+ed on summer! sheetC the totas of each are posted
to the contro accounts in the genera edger.
B. "he genera edger trai baance is e$tracted and agreed e#er!
da!.
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AUDIT OF BANK
:. A entries in the detai persona edgers and the summar! sheet
are check b! person other than those who ha#e made the
entries, with the genera resuts that most cerica mistakes are
detected before another da! begins.
8. A tria baance of the detaied persona edgers is prepared
periodica!, usua! e#er! two weeks, and agreed with the
genera edger contro accounts.
/. /$pecting for cash transactions, awa!s two #ouchers are
prepared for each transaction, one for debit and the other for
credit. "his s!stem ensures doube entr! at the basic e#e and
ob#iates the possibiit! of errors in posting.
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AUDIT OF BANK
1RINCI1AL BOOKS OF ACCOUNT
Gener*' 'e+ger!
&t contains contro accounts of a persona edgers, the profit and oss
account and different assets and iabiities accounts. "here are certain
additiona accounts known as contra accounts, which is unique feature of
bank accounting. "hese contra accounts are maintained with a #iew to
keeping contro o#er transactions, which ha#e no direct effect on the
banks positions.
Aor e.g. etter of credit opened, bis recei#ed for coection, guarantee is
gi#en etc.
1rofit *n+ Lo(( 'e+ger(<
<ome banks keep one account for profit and oss in this genera edger and
maintained separate books for the detaied accounts. "hese are coumnar
books ha#ing separate coumns for each re#enue receipt and e$pense head.
=ther banks keep separate books for debits and credits posted are entered in
to the profit and oss account in the genera edger.
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AUDIT OF BANK
SUBSIDIARY BOOKS OF ACCOUNTS
1er(on*' 'e+ger(!
<eparate edgers are maintained b! banks for different t!pes of accounts, i.e.
current account, sa#ing account, etc. As has been maintained earier, these
edgers are posted direct! from #ouchers and the entire #oucher entered in
each edger in a da! are summari+ed in to 3oucher <ummar! <heets.
Bi'' Regi(ter(!
8etais of different t!pes of bis are kept in separate registers, which
ha#e suitabe coumns. Aor e.g. bi purchased, inward bi for coection,
outward bis for coection etc are entered seria! da! to da! in separate
registers. /ntries in these registers are made b! reference to the origina
documents.
Ot/er (&3(i+i*r) regi(ter(!
"here are different registers for #arious t!pes of transaction. "heir number,
#oume and detais, which differ according to the indi#idua needs of each
bank. Aor e$ampe, there wi be registers forD
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AUDIT OF BANK
A. 8emand drafts, teegraphic and mai transfers issued on branches or
agencies.
B. 8emand drafts, teegraphic and mai transfers recei#ed from branches
and agencies.
:. ,etters of credit.
8. ,etter of guarantee.
8epartmenta 4ournasD
/ach department of bank maintains a 4ourna to note the transfer
entries passed b! it. "hese 4ournas are memoranda book on!, as
a the entries made there are aso made in the da!book, through
#oucher summar! sheets. "he purpose is to maintain a record of a
transfer entries originated b! each department.
=ther memoranda booksD
Besides the book mentioned abo#e, #arious departments of a
bank ha#e to mention a number of memoranda books to
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AUDIT OF BANK
faciitate their work. <ome of the important books are
described beowD
o )ecei#ing cashiers cash book
o Ba!ing cashiers cash book
o %ain cash book
o :ash baance book
"he main cashbook is maintained b! a person other than cashier. /ach
cashier keeps a separate cashbook. 5hen cash is recei#ed, it is accompanied
b! pa!7in7sips or other simiar documents. "he cashier makes entr! in his
book, which is check b! the chief cashier.
O&t:*r+ #'e*ring(D
A person checks the #ouchers and ist with the cearing cheques recei#ed
books. "he #oucher are then sent to appropriate departments, where
customers account are immediate! credited. @orma! no drawings are
aowed against cearing cheques deposited the same da! but e$ceptions are
often made b! the manager in the case of estabished customer.
In:*r+ #'e*ring!
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AUDIT OF BANK
:heques recei#ed are check with the accompan!ing ist. "hese are then
distributed to differed department and number of cheques gi#en to each
department is noted in a memo book. 5hen the cheques are passed and
posted in to edger, there number is independent! agreed with the memo
book. &f the cheques are found unpa!abe, the! are return to cearing house.
,oans and o#erdrafts departmentsD
a; )egisters for shares and other securities hed on behaf of its customer
b; <ummar! books of securities gi#e in detais of go#ernment securities.
c; 0odown registers maintained b! the 0odown keepers of bank.
d; =#erdraft sanction register
e; 8rawing power book.
f; 8ei#er! order books.
g; <torage books.
8eposit departmentD
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AUDIT OF BANK
a; Account opening and cosing registers.
b; Ai$ed deposits rate register.
c; 8ue date dair!.
d; <pecimen signature book.
/stabishment departmentD
a; <aar! and aied registers.
b; )egister of fi$ed assets.
c; <tationar! registers
d; =d record registers
0eneraD
a; <ignature books of bank officers
b; Bri#ate teegraphic code and ciphers
<tatica! booksD
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AUDIT OF BANK
<tatica! records kept b! different books are in accordance with their
indi#idua needs. Aor e$ampe, there ma! be books for recordingD
a; A#erage baances in oans etc.
b; 8eposits recei#ed and amounts paid out each month in the #arious
departments.
c; @umber of cheques paid.
d; @umber of cheques, bis and other items coected.
In#o%'ete re#or+(!
&n some situations, the auditor ma! find that certain accounting and other
records are not up to date. &n such a situations, the auditor shoud first
ascertain the e$tent of arrears in housekeeping and the areas in which
accounting and other records are not up to date. &t ma! aso be noted that in
,ong Aorm Audit )eport 9,AA)0;, the auditor has to make detaied
obser#ation on such arrears.
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AUDIT OF BANK
VERIFICATION OF ASSETS AND LIABILITES
C*%it*' *n+ Li*3i'itie(!
1) C*%it*'
"he foowing particuars ha#e to be gi#en in respect of share capita in the
baance sheet
Aor nationai+ed banks
"he capita owned b! centra go#ernment as on the date of baance sheet
incuding contribution from go#ernment, if an!, for participation in word
bank pro4ect shoud be shown.
Aor banks incorporated outside &ndia
:apita 9the amount brought in b! banks b! wa! of start up capita as
prescribed b! )B& shown under this head;
Amount of deposit kept with )B& under section 1192; of the banking
reguation act, 19>9.
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AUDIT OF BANK
Aor other banks
Authori+ed capita 9shares of )sFF.each;
&ssued capita 97do7;
<ubscribed capita 97do7;
:aed7up capita 97do7;
,essD cas unpaid
AddD forfeited shares
"he auditor shoud #erif! the opening baance of capita with reference to
the audited baance sheet of the pre#ious !ear. &n case there has been
increase in capita during the !ear, the auditor shoud e$amine the ree#ant
documents supporting the increase. Aor e$ampe, in case of an increase an
authori+ed capita of a banking compan!, the auditor shoud e$amine the
specia resoution of sharehoders and the memorandum of association. An
increase in subscribed and paid7up capita of a banking compan!, on the
other hand, shoud be #erified with reference to prospectus' other offer
document, reports recei#ed from registers to the issue, bank statement, etc.
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AUDIT OF BANK
2; Re(er-e( *n+ (&r%'&(!
"he foowing are required to be discosed in the baance sheet under the
head ?)eser#es and <urpus*.
a; <tatutor! reser#es.
b; :apita reser#es.
c; <hare premium.
d; )e#enue and other reser#es.
e; Baance in profit and oss account.
"he auditor shoud #erif! the opening baances of #arious reser#es with
reference to the audited baance sheet of the pre#ious !ear. Addition to or
deductions from reser#es shoud aso be #erified in the usua manner, e.g.
with reference to board resoution. &n the case of statutor! reser#es and share
premium, compiance with ega requirements shoud aso be e$amined.
"hus, the auditor shoud specifica! e$amine whether the requirements of
go#erning egisation regarding transfer of the prescribed percentage of
profits to reser#e fund ha#e been compied with. &n case the bank has been
1
AUDIT OF BANK
granted e$emption form such transfer, the auditor shoud e$amine the
ree#ant documents granting such e$emption. <imiar!, it shoud be
e$amined whether the appropriations from share premium account conform
to the ega requirements.
6; De%o(it(!
8eposits are required to be cassified in the baance sheet under the
foowing heads.
A. &. 8emand 8eposits
9i; from banks
9ii; from others
&&. <a#ing Bank 8eposits
&3. "erm 8eposits
9i; Arom banks.
9ii; Arom =thers.
B. &. 8eposits of Branches in &ndia.
&&. 8eposits of Branches outside &ndia.
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AUDIT OF BANK
"he auditor ma! #erif! t!pes of deposits in the foowing manner.
I= C&rrent *##o&nt!
"he auditor shoud #erif! the baances in indi#idua accounts on a samping
basis. (e shoud aso e$amine whether the baances as per subsidiar! edgers
ta! with the reated contro accounts in the genera edger.
"he auditor shoud consider the debit baances in current account are not
netted out on the iabiities side but appropriate! incuded under the
?ad#ances*.
&noperati#e accounts are a common area of frauds in banks. 5hie
e$amining current account, the auditor shoud specifica! co#er in his
sampe some of the inoperati#e account re#i#ed during the !ear. "he auditor
shoud ascertain whether inoperati#e are ?re#i#ed* on! with proper
authorit!. Aor this purpose, the auditor shoud identif! cases where there has
been a significant reduction in baances compared to the pre#ious !ear and
e$amine the authori+ation for withdrawas.
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AUDIT OF BANK
II= S*-ing 3*n5 +e%o(it(!
"he auditor shoud #erif! the baances is indi#idua account on a samping
basis. (e shoud aso e$amine whether the baances as per subsidiar! edgers
ta! wit the reated contro accounts in the genera edger.
"he auditor shoud aso check the cacuations of interest on a samping
basis. &t is not usua for branches to interest sa#ing bank up to a date cose to
the end of the accounting period for e.g.25
th
%arch based on the actua
baances with interest of the remaining period on an estimated basis at the
head office e#e.
&&&. Ter +e%o(it(!
"erm deposits are deposits repa!abe after a specified period. "he! are
considered time iabiities of the bank.
"he auditor shoud #erif! the deposits with reference to the ree#ant
registers. "he auditor shoud aso e$amine, on a samping basis, the registers
with the counter7fois of the receipts issued and with the discharged receipts
returned to the bank.
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AUDIT OF BANK
&3= De%o(it( +e(ign*te+ in foreign #&rren#ie(!
&n the case of deposits designated in a foreign currenc!, for e.g. foreign
currenc! non7resident deposits, the auditor shoud e$amine whether the!
ha#e been con#erted into &ndian rupees at the rate notified in his behaf b!
the head office.
3. Intere(t *##r&e+ 3&t not +&e!
"he auditor shoud e$amine that interest accrued but not due on deposits is
not incuded under the deposited but is shown under the head ?other
iabiities ad pro#ision*
") Borro:ing!
Borrowings of a bank are required to be shown in baance sheet as foowsD
I= Borro:ing in In+i*=
a. )eser#es Bank of &ndia.
b. =ther banks.
c. =ther institution and agencies.
&&. Borrowing from )B&, other banks'financia institution etc. shoud be
#erified b! the auditors with reference to confirmation certificated and
other supporting document such as agreements, correspondence etc.
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AUDIT OF BANK
"he auditor shoud aso e$amine whether a cear distinction has been
made between ?rediscount* and ?refinance* for discosure of the
amount under the abo#e head since rediscount does not figure under
this head.
"he auditor shoud e$amine whether borrowing of mone! at ca and
short notice is proper! authori+ed. "he rate of interest paid'pa!abe
on as we as duration of , such borrowing shoud aso be e$amined b!
the auditor.
Ot/er #&rrent 'i*3i'itie(!
"he third schedue to the banking )eguation act, 19>9, requires discosure
of the foowing items under the head ?other iabiities and pro#ision*
Bis pa!abe
&nter office ad4ustments.
&nterest accrued
=ther 9incuding pro#isions;
"he auditor ma! #erif! the #arious items under the head other iabiities and
pro#ision in the foowing manner.
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AUDIT OF BANK
Bi''( %*)*3'e
Bis pa!abe represent instrument issued b! the ranch against mone!
recei#ed from customers, which are to be paid to the customers or as per his
order. "hese incude 8emand 8raft, "eegraphic "ransfer, and %ai transfer
and %ai "ransfer, "ra#eer cheques, Ba! order, Banker cheques, and
simiar instrument issued b! the bank but not presented for pa!ment unti the
baance sheet date.
Inter offi#e *+4&(tent!
"he baanced in inter office ad4ustment account, if in credit, is to be shown
under this head.
Intere(t *##r&e+!
&nterest accrued but not due on deposit is to be shown and borrowing is to
shown under this head. "he auditor shoud e$amine this with reference to
terms of #arious t!pe of deposits and borrowings. &t shoud be specia!
e$amined that such interest has not been cubbed with the deposits and
borrowing shown under the deposits and borrowing.
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AUDIT OF BANK
Ot/er
According to the notes and instructions for compiation of baance sheet and
profit and oss account, issued b! the )eser#e Bank of &ndia, the foowing
items are to be incuded under this head.
@et pro#ision for income ta$ and other ta$es ike interest ta$, ess
ad#ances pa!ment and ta$ deducted at source.
<urpus in aggregate in pro#ision for bad and doubtfu debts pro#ision
account.
:ontingenc! funds, which are actua! in the nature of reser#ed but
are not discosed as such.
Bro#ision towards standard assets. "hese are to shown separate! as
contingent standard assets.
Broposed di#idend'transfer to go#ernment.
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AUDIT OF BANK
ASSETS!
C*(/2 3*n5 3*'*n#e+ *n+ one) *t #*'' *n+ (/ort noti#e!
"he third schedue to the Banking )eguation act, 19>9, requires foowing
discosure to the be made in the made in the baance sheet regarding cash,
baances with )eser#e Bank of &ndia., baance with other bank, and mone!
at ca and short notice.
C*(/ *n+ 3*'*n#e :it/ Re(er-e B*n5 of In+i*=
&. :ash in hand 9incuding foreign currenc! notes;
&&. Baance with )eser#e Bank of &ndia
a; &n current account
b; &n other account
Baanced with banks mone! at ca and short notice
&. &n &ndia
A) B*'*n#e+ :it/ 3*n5(
1. &n current account
2. &n other deposits account.
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AUDIT OF BANK
B) Mone) *t #*'' *n+ (/ort noti#e
1. 5ith banks
2. 5ith other institutions
II O&t(i+e in In+i*
1. &n current accounts.
2. &n other deposits account.
6. %one! at ca and short notice.
C*(/ Re(er-e+!
=ne of the determinants of cash baance to be maintained b! banking
companies and other schedue is the requirement for maintenance of certain
minimum cash reser#e. 5hie the requirement for maintenance of cash
reser#e b! banking companies is contained in the banking reguation
act,19>9 corresponding requirements for schedue bank is contain in the
)eser#e Bank of &ndia.
St*t&tor) 'i>&i+it) r*tio!
<ection of 2> the act requires that e#er! banking compan! sha maintain in
&ndia in cash, god or unencumbered appro#ed securities an amount which
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AUDIT OF BANK
sha not, at the cose of business on an! da!, be ess than twent! fi#e
percent, or such other percentage not e$ceeding fort!, as the )B& bank form
time to time, of tota demand and time iabiities in &ndia as on ast Arida! of
the second preceding fortnight.
De%o(it( 3) foreign 3*n5ing #o%*n)!
<ection 1192; of the act requires the banking companies incorporated outside
&ndia to deposit with )B& certain amount either in cash or in unencumbered
securities or part! in cash and part! in such securities.
") In-e(tent!
"he auditor shoud #erif! the in#estment scripts ph!sica! at the cose of
business on the date of baance sheet. &n e$ceptiona cases where ph!sica
#erification of in#estment scripts on the baance sheet date is not possibe
the auditor shoud carr! out the ph!sica #erification on a shoud take in to
consideration an! ad4ustment for subsequent transaction of purchase, sae
etc. he shoud take particuar care to see that on! genuine in#estment are
produced before him.
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AUDIT OF BANK
$) A+-*n#e(!
&n carr!ing out of audit of ad#ances, the auditor of ad#ances, the auditor is
primari! concerned with obtaining e#idence about foowing
*) Amount incuded in baance sheet in respect of ad#ances are
outstanding at the date of baance sheet.
3) Ad#ances represent amount due to the bank.
#) "here are no unrecorded ad#ances.
+) "he stated basis of #auation of ad#ances is appropriate and
proper! appied, and that the reco#erabiit! of ad#ances is
recogni+ed in their #auation.
e) "he ad#ances are discosed, cassified and describe accordance
with recogni+ed accounting poicies and ree#ant statutor! and
reguator! requirements.
f) "he auditor shoud ascertain the statues of baancing of
subsidiar! edger reating to ad#ances.
g) "he auditor shoud re#iew the operation other ad#ances
accounts.
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AUDIT OF BANK
,) Fi;e+ *((et(!
&n carr!ing out an audit of fi$ed assets, the auditor is concerned primari!
with obtaining e#idence about their e$istence and #auation.
"he branch auditor shoud ascertain whether the accounts in respect of
premises and'or other fi$ed assets are maintained at the branch or centra!.
<imiar!, he shoud ascertain the ocation of documents of tite or other
documents e#idencing ownership of #arious items of fi$ed assets. "he
auditor shoud #erif! the opening baance of premises with reference to
schedue of fi$ed assets, edger or fi$ed asset register.
&n respect of fi$ed assets sod during the !ear, a cop! of the sae deed and
receipt of the sa#e #aue shoud e$amined b! the auditor.
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AUDIT OF BANK
5; Ot/er *((et(!
"he auditor shoud see that whether there are an! re#ersas entries indicating
the possibiit! of irreguar pa!ments or frauds in case of inter7 office
ad4ustments. "he auditor shoud aso pa! attention towards interest7accrued
part from the banks point of #iew. "he auditor shoud see that interna
contro o#er stationer! items. "he auditor shoud #erif! the stationer! and
stamps.
"he auditor shoud e$amine the non7interest bearing ad#ances to the staff
with reference to the ree#ant documentation. "he auditor shoud aso see
that the entries under the head ?suspense account*. "he auditor shoud aso
#erif! prepaid e$penses in the same manner as in the case of entities.
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AUDIT OF BANK
N=1=A=GUIDELINES
"he guideine requires the banks to cassif! their ad#ances in four broad
categories as foowsD7
1= St*n+*r+ *((et!?
A standard asset is one, which does not discose an! probems, and which
does not carr! more than norma risk attached to the business such asset is
not a non7performing asset.
"= S&3?(t*n+*r+ *((et!
&t is one, which has been cassified as @.B.A. for period not e$ceeding not
more than 1G months.
$= Do&3tf&' *((et!
&t is one, which remained has @.B.A for period e$ceeding 1G months.
,= Lo(( *((et!
&t is one where the oss has been identified b! the bank or the interna or
e$terna auditors or the )B& inspection, but the amount has not been written
off who! or part! in other words such asset is considered uncoectibe and
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AUDIT OF BANK
of such itte #aue that its continuous as bankabe asset is not warranted
through athough there ma! be some sa#age or reco#er! #aue.
5ith the #iew to mo#ing towards internationa based practices and to ensure
greater transference it has been decided to adopt the 90 da!s o#erdue norms
for identification. =f @.B.A. from the !ear ending 61
st
%arch 200>,
according with effect from 61
st
march 200>, a non7performing asset sha be
a oan or ad#ances where,
i. &nterest and instament of principe remains o#erdue for the period
of more than 90 da!s in respect of term oan.
ii. "he account remains out of order for period of more than 90 da!s.
&n respect of o#erdraft or cash credit imit.
iii. "he bi remains o#erdue for period of more than 90 da!s in the
case of bis purchased and discounted.
i#. &nterest and instament of principe remains o#erdue for two
har#est season but not e$ceeding 2.5 !ears in the case of ad#anced
granted for agricuture purpose.
#. An! amount to be recei#ed remains o#erdue for a period of more
than 90 da!s in of other account.
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AUDIT OF BANK
"he identification of @.B.A. is to be on the basis of the position as on
baance sheet da! if an account has been reguari+ed before the baance sheet
da! b! pa!ment of o#erdue amount through genuine sources and not b!
sanction of additiona faciities or transfer of funds between accounts, the
accounts need not be treated as @.B.A. the bank shoud howe#er ensured that
the accounts remains in order subsequent!. &f the account is out of order or
deficient for a temporar! period due to non7a#aiabiit! of adequate drawing
power. @on7submission of stock statement, non7renewa of due date, wi not
cassif! as @.B.A.
@.B.A. cassification wi be as per borrower wise and not faciit! wise. &t
means that if an! of the credit faciities granted to a borrower becomes non7
performing a the faciities granted to a borrower wi ha#e to be treated as
@.B.A. without ha#ing an! regard to performing status of other faciities.
<ome of the /$emptions are their as foows,
i= 1ro4e#t fin*n#e!
&n the case of bank, finance gi#en for industria pro4ect or for agricutura
status where moratorium period is a#aiabe for pa!ment of interest,
pa!ment of interest becomes due after the moratorium period is o#er and not
on the date of debit of interest.
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AUDIT OF BANK
ii= A+-*n#e to St*ff!
As in the case of pro4ect finance in respect of housing oan a simiar
ad#ances granted to staff members where interest is pa!abe after reco#er!
of principe. "he o#erdue status shoud be recogni+ed from the date when
there is defaut in pa!ment of interest on due date of pa!ment.
iii= Agri#&'t&r*' A+-*n#e( Affe#te+ 3) N*t&r*' C*'*itie(!
&n terms of )B& instruction where @atura caamities in fairs the repa!ment
capacit! of agricutura borrower the bank can con#ert short term production
oan, in to term oan or reschedue the repa!ment and sanction them short
term oan oans in such cases the term oan as we as fresh short term ma!
be treated as current dues and need not be cassified as @.B.A.
i-= Lo*n( *n+ A+-*n#e( 3*#5e+ or (&%%orte+ 3) go-ernent!
An! oans and ad#ances pro#ided b! the bank under an! scheme introduced
b! 0=3". ike B%)H. <cheme wi not be treated as @.B.A. though the
account in o#erdue or outstanding for more than 90 da!s.
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AUDIT OF BANK
-= A+-*n#e( (e#&re+ *g*in(t #ert*in in(tr&ent(!
Ad#ances secured against "erm 8eposits, @ationa <a#ing :ertificate
eigibe for surrender, &ndira 3ikas Battra and ,ife &nsurance Boicies ha#e
been e$empted from the abo#e guideines thus interest on such ad#ances
ma! be taken to income account on due pro#ided adequate margins a#aiabe
in respect of such accounts.
&n respect of consortium ad#ances each bank ma! cassif! the borrower
accounts according to the own record of reco#er! and other aspect. (a#ing a
bearing on the reco#erabiit! of the ad#ances.
1ro-i(ioning for Lo*n( *n+ A+-*n#e(!
"he guideines require pro#isions for different casses of ad#ances to be
made as foowsD7
St*n+*r+ A((et!
A genera pro#ision of minimum of 0.25I on tota standard asset shoud be
made.
S&3?(t*n+*r+ A((et!
A genera pro#ision of minimum of 10I on tota <tandard Asset shoud be
made.
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AUDIT OF BANK
Do&3tf&' A((et!
Au pro#ision to the e$tend of unsecured portion shoud be made in doing so
the reai+abe #aue of the securit! a#aiabe to the bank shoud be
determined on a reaistic basis additiona! 20I to 50I of the secured
portion shoud aso be pro#ided for depending upon the period for which the
ad#ances has been considered as a doubtfu are as foows
Lo(( A((et!
"he entire amount shoud be written off or fu pro#ision shoud be made for
the mount outstanding
"reatment of )estructured <ub7<tandard AccountsD
A rescheduing of instament of principe amount woud render sub7standard
asset eigibe to be continuing in sub7standard categor! for specified period
pro#ided oan or credit faciit! is fu! secured. A rescheduing of interest
eements woud rendered a sub7standard asset eigibe to continue to
cassified in sub7standard categor! for the specified period sub4ect to the
condition that amount of sacrifice if an! in present #aue terms is either
written off or pro#ision is made to the e$tend of sacrifice in#o#ed in the
amount of interest shoud either be written off or pro#ision made to the
e$tend of sacrifice in#o#es.
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AUDIT OF BANK
)e#ersa of &nterest or &ncome )ecognitionD
&n respect of account cassified as @.B.A. for the 1
st
time the unreai+ed
portion of interest debited to the borrower account and credited to the
income account in the pre#ious !ear as we as interest debited during the
current !ear has to be re#ersed, in respect of accounts that were cassified as
@.B.A. in the pre#ious !ear banks genera! do not debit an! interest to the
account there is therefore no question of re#ersa of interest. (owe#er in the
case of operati#e cash credit or o#erdraft account some bank foows a
practice where b! unreai+ed interest is re#ersed in the !ear in which the
account is cassified is @.B.A. for the 1
st
time but redebited at the beginning
of the ne$t financia !ear during ne$t financia !ear interest is debited to the
account in the usua manner unreai+ed interest is re#ersed and again
redebited at the subsequent financia !ear.
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AUDIT OF BANK
TY1E OF AUDIT IN BANK
St*t&tor) *&+it!
"he statutor! audit, which is compusor! as per the aw. "he statutor! audit
of banks incudes e$amination and inspection of interna audit, concurrent
audit, etc. "he statutor! audit of banks is ike a post mortem acti#it!. "he
suggestions of the statutor! auditors can assist the bank management in
impro#ing the effecti#eness of interna audit'concurrent audit'inspection
functions, etc. &n this wa! statutor! pa!s a #er! important roe in reguating
the banking companies.
Intern*' *&+it!
Banks genera! ha#e a we7organi+ed s!stem of interna audit. "here
interna auditors pa! frequent #isit to the branches. "he! are an important
ink in interna contro of the bank. "he s!stems of interna audit in different
banks aso ha#e a s!stem of reguar inspection of branches and head office.
A separate department within the banks b! firms of chartered accountants
carries out the interna audit and inspection function.
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AUDIT OF BANK
Con#&rrent *&+it!
:oncurrent audit is the s!stem which introduced b! the )B& with the #iew
that inter#a between the occurrence of transaction and it*s o#er #iew kept to
the minimum e$tent and e$amination of transactions b! the auditors take
pace as soon as the transaction take pace. &t has percei#ed the effecti#e
means of contro. "he main #iew of concurrent auditors is to see that the
transactions are proper! recorded, documented and #ouched.
S)(te *&+it!
&n toda!*s technoogica ad#ancements, banking companies are using a we7
organi+ed computer s!stem to perform their transactions. <o, it is #er!
necessar! to conduct ?s!stem audit* in order to e#auate the computer s!stem
for effecti#eness.
<!stem audit is the audit of such computer en#ironment's!stem and
comprises the foowing interna contros o#er /8B acti#ities and with
appication contros specific contro procedures o#er accounting
appications'assuring that a transaction are recorded and authori+ed and
compete!, accurate!, time! processed manner which in turn are #erified
b! computer.
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AUDIT OF BANK
Re-en&e *&+it!
)e#enue audit refers to the audit of re#enues' incomes. &n re#enue audit of
banking companies, auditors go through the #arious sources of re#enues
from which bank earn income. &n re#enue audit of banks, the auditor
inspects that a the records are showing true and fair picture of re#enues or
not.
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AUDIT OF BANK
CONCLUSION
"he pro4ect the position of &ndian banking s!stem as we as the principa
aid down b! the Base :ommittee on banking super#ision. "his assessment
was done in se#en ma4or areas, which are core principas, concurrent audit,
interna audit, deposit, oan accounting and transparenc! and foreign
e$change transaction. "he pro4ect concuded that, gi#en the compe$it! and
de#eopment of &ndian banking sector, the o#era e#e of compiances with
the standards and codes is of high order. "his pro4ect gi#es the correct ideas
about how the ma4or areas can be found b! wa! of effecti#e auditing s!stem
i.e. errors, frauds, manipuations etc. form this auditor get the cear ideas
how to recommend on the banks position. Bro4ect aso contain that how to
conduct of audit of the banks, what are the #arious procedure through which
audit of banks shoud be done. Aorm auditing point of #iew, there is proper
foow up of work done in e#er! organi+ation whether it is banking compan!
or an! other compan! or an! other compan! there no misconduct of
transactions is taken paces for that purpose the auditing is #er! important
aspect in toda!*s scenario form compan! and point of #iew.
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AUDIT OF BANK
BIBLIOGRA1@Y
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