AUDIT OF BANKS

WHY SPECIALIZED?

 Some of the general audit procedures are not applicable and will not be able to
mitigate the risks for some of the Banks’ transactions
 Banks and financial institutions are highly regulated by Bangko Sentral ng Pilipinas
 Reliance on experts – (e.g. valuation of complex financial instruments
 Highly complex IT systems
STATEMENT OF FINANCIAL POSITION
STATEMENT OF FINANCIAL POSITION
STATEMENT OF INCOME
STATEMENT OF INCOME
SIGNIFICANT TRANSACTIONS

 Cash management process  Income recognition of service fees and commissions

 Start of day  Tagging of past due loans

 End of day  Loans impairment process

 Clearing and settlement (Outward and Inward)  Real and other properties acquired
 Cash Disbursement  ROPA foreclosure

 Treasury transactions  ROPA depreciation

 Purchase of marketable securities  ROPA sale or asset derecognition

 Sale of marketable securities  Deposits

 Treasury impairment provisioning  Account opening and deposit taking

 Loans transactions  Withdrawals and account closing

 Loan origination, credit evaluation and loan release  Interest accrual on deposits

 Loans collection and application of principal and  Recognition of service fees and commission
interest payments
 Loans interest income recognition
 AUDIT CONSIDERATIONS
BRANCH SCOPING

 Perform walkthroughs at selected branches

 Determine branches that are significant based on size (volume of transactions)
 Determine branches that are significand based on risk (branches where internal
audit determined to have high risk areas
 Select representative samples (locations)

Note: We should establish first that the process, IT applications and related controls are uniform.
AUDIT CONSIDERATIONS
CASH COUNT (TEST OF CONTROLS AND SUBSTANTIVE PROCEDURES)

 Test of controls for cash count are done all throughout the year
 Population should be the number of branches multiplied by number of days
 In cases when we cannot observe the cash count for some of our selected
samples, we should replace those samples with days when we actually perform
observation
 Perform cash count at year-end as part of substantive procedures on selected
branches
 AUDIT CONSIDERATIONS
BANK CONFIRMATION PROCEDURES
Due from Bangko Sentral ng Pilipinas
Accounts
Due from other banks
covered
Interbank loans receivable and securities purchased under resale agreements
Assertion Existence
Obtain a complete list of bank accounts. Obtain confirmation of bank balances for all major
depository and disbursements accounts, and bank accounts closed during the period.
Document in the working papers the rationale for the selection of bank accounts for
confirmation including why a bank account was not selected and whether additional audit
procedures are necessary for that item.

Procedures Send out positive blank confirmation letters

For electronic confirmation (e.g. sending through email), we perform the following:
• Call the recipient
• Agree the individual’s email address to the recipient’s letterhead, business
card, company website or trade directory
• Agree the domain of the email address to the entity’s domain based on its letterhead,
business card, website, website certificate or other reliable identifying source

Note: Depending on the audit plan, it is required to receive 100% of confirmation replies
for bank confirmations.
 AUDIT CONSIDERATIONS
CUSTODIAN CONFIRMATION PROCEDURES
Financial assets at fair value through profit of loss
Accounts
Financial assets at fair value through other comprehensive income
covered
Investment securities at amortized cost
Assertion Existence
Obtain a complete list of custodians. Obtain confirmation for major counterparty custodians

Send out positive blank confirmation letters

For electronic confirmation (e.g. sending through email), we perform the following:
Procedures • Call the recipient
• Agree the individual’s email address to the recipient’s letterhead, business
card, company website or trade directory
• Agree the domain of the email address to the entity’s domain based on its letterhead,
business card, website, website certificate or other reliable identifying source
 AUDIT CONSIDERATIONS
LOANS AND RECEIVABLES CONFIRMATION PROCEDURES
Accounts
Loans and receivables
covered
Assertion Existence
Obtain a complete list of promissory notes. Select samples and document the rationale on
the basis of the selection of samples.
Send out positive blank confirmation letters
For electronic confirmation (e.g. sending through email), we perform the following:
Procedures • Call the recipient
• Agree the individual’s email address to the recipient’s letterhead, business
card, company website or trade directory
• Agree the domain of the email address to the entity’s domain based on its letterhead,
business card, website, website certificate or other reliable identifying source
Perform alternative procedures for those borrowers with no response.
 AUDIT CONSIDERATIONS
DEPOSIT LIABILITIES CONFIRMATION PROCEDURES
Accounts
Deposit liabilities
covered
Assertion Existence
Usually done with the direct assistance from internal audit
Document the assessment of the competency of all the internal audit personnel who will
provide direct assistance (e.g. trainings attended and certifications obtained)
Procedures Document their procedure to ensure that internal audit is directly reporting to the Audit
Committee of the Bank.
Auditors controls the selection and sending of the confirmation letters are done by the
auditors
 AUDIT CONSIDERATIONS
AUDIT OF INTEREST INCOME
Accounts
Interest income
covered
Assertion Measurement, Occurrence
Document segmentation of interest income for substantive analytical procedures

Document assurance from other procedures performed:

- Test calculation of accrued interest receivables
Procedures - Loan review that covers validation of principal, interest rates and other relevant details
- Vouching of loan and interest collection
Document also the test of controls performed over interest to show that certain level of
assurance was obtained from it