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TMI BlogBANK BRANCH AUDIT 2016 - Independent Bank Branch Auditor’s Report (Illustrative format) for Modified Report – Qualified or Adverse OpinionX X X X Extracts X X X X X X X X Extracts X X X X ..... BANK BRANCH AUDIT 2016 - Independent Bank Branch Auditor’s Report (Illustrative format) for Modified Report – Qualified or Adverse Opinion - By: - CA GOPALJI AGRAWAL - Accounting - Auditing - Dated:- 23-3-2016 - - Independent Bank Branch Auditor s Report (Illustrative format) for Modified Report Qualified or Adverse Opinion To, The Statutory Central Auditors, Name of the bank Region _______________ 1. We have audited the accompanying Financial Statements of _XYZ_ Branch of __ABC Bank____ which comprise the Balance Sheet as at 31 st March 2016, Profit and Loss Account for the year ended on that date and other explanatory information. Management s Responsibility for the Financial Statements 2. Management of the branch is responsible for the preparation of these financial statements that give true and fair view of the financial position and financial performance of the Branch in accordance with the Banking Regulation Act, 1949 c omplying with Reserve Bank of India guidelines, the provisions of the other Statute _________ (if any) and recognised accounting policies and practices, including the Accounting Standards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued by the Institute of Chartered Accountants of India (ICAI) . This responsibility includes the design, 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. Auditor s Responsibility 3. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. 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. 4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Branch s preparation and fair presenta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the financial statements in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the branch internal control {329 th meeting in JAN 2014-para 31(b) of 700} . An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 5. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion or adverse opinion . 6. Basis for qualified Opinion or Adverse Opinion Our test check reveals that there are several borrower accounts in the Annual Advance Statements carrying the following errors: Several borrower accounts have been classified as standard assets instead of non-performing assets (NPA) and unrealized interest for the current as well as prior periods have been accounted for resulting overstatement of the profit advances at branch level and would result the under provisioning for advances as per Reserve B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank of India prudential norms on income recognition, asset classification and provision for advances. Our test check identified 161 such borrower accounts amounting to ₹ 304 Lacs Approx as per annexure to this opinion which indicates that the system for classification of advances including recognition of NPA is not satisfactory. The branch could not ascertain the amount of NPA categorized into performing assets and the interest reversal of the current as well as prior periods. The possibility of claiming interest subvention on the irregular accounts cannot be ruled out. In case of non performing agriculture and government sponsored scheme advances, the security has been presumed without the physical verification and valuation of such tangible security, which would have been deteriorated or eroded due to efflux of time which might affect the provisions for advances materially. We also observed that the interest on KCC accounts which are irregular in payment, interest is being charged @ 7% resulting the lower rate of interest as well as claiming the interest subvention on such accounts. The advances categorized even under standard assets have been st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated as unsecured despite having security. The total standard advance at the year end is ₹ 3955 lac while ₹ 536 lac has been stated as unsecured. The total unsecured advances as stated in the summary advance statement is ₹ 876 lac (total advance is ₹ 4227 lac). This is materially misstated security wise classification and would result the overstatement of provisioning on advances. Our test check has further revealed that: The branch had not been following properly the prudential norms on income recognition, asset classification and provisioning pertaining to advances in the past periods hence the advances amounting to Rs. _____crore approximately were recognized as NPA (sub-standard) during the financial year 2016-16 or in the month of ______ or on _________, in terms of HO Letter No . to rectify the errors occurred in the past periods. The unrealized income including interest has been partially reversed in the current year. Therefore the income recognition, asset classification and provisioning are materially misstated due to the following reasons: These advance accounts had not been classified as NPA in the past periods in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the IRAC norms of RBI. All such aforesaid accounts have been classified as sub-standard instead of the correct classification into three categories viz. sub standard, doubtful and loss since the relevant date of each such account becoming NPA is more than 12 months. The unrealized income including interest on these accounts has been partially reversed. As required by Accounting Standard 5- The nature and amount of prior period items should be separately disclosed in the statement of profit and loss in a manner that their impact on the current profit or loss can be perceived but it has not been followed . Qualified Opinion 7. In our opinion, read with adjustments ( NOT SUBJECT TO )to be made at Head Office as given in para 11 below and Memorandum of Changes as given in Para 12 below and except for the effects of the matters described in the basis of qualified opinion in the aforesaid paragraph and to the best of the information and according to the explanations given to us and as shown by the books of the branch, we report that: (a) The aforesaid Balance Sheet read with summary of advances, is a full and fair b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alance sheet of the branch containing the necessary particulars and is drawn up so as to exhibit a true and fair view of the branch as at the 31 st March 2016 except the wrong classification of advances including errors in some fields of advance statements like irregular amount, date of NPA etc. (b) The aforesaid Profit and Loss account exhibits a true and fair view of the Operating Profit of the branch for the year ended the 31st March 2016; OR (Alternatively) Adverse Opinion In our opinion, because of the significance of the matters discussed in the basis for Adverse Opinion paragraph, the financial statements do not represent a true and fair view in conformity with the framework under which these have been prepared: In the case of Balance Sheet, of the state of affairs of the branch as at March 31, 2016 In the case of Statement of Profit Loss, of the profit /loss of the branch for the year ended on that date. Report on Other Legal and Regulatory Requirements : 8. The Balance Sheet and the Profit and Loss Account contains the data required to draw up the Balance Sheet and the Profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Loss Account in Form A and B respectively of the Third Schedule of the Banking Regulation Act, 1949; 9. Subject to the limitations of the audit indicated above in para 3 to 5 above and paragraph 11 below, we report that: (a) We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of the audit and have found them to be satisfactory. (b) The transactions of the branch which have come to our notice have been within the powers of the Bank. 10. We further report that: a. the Balance Sheet and Profit and Loss account dealt with by this report are in agreement with the books of account and returns; and b. in our opinion, proper books of account as required by law have been kept by the branch so far as appears from our examination of those books unless otherwise stated ; (not in 2016 GN) c. In our opinion, the Balance Sheet and Profit and Loss Account comply with the Accounting Standards (new 2016) Other matters {A 1, should be placed before report on other legal and regulatory requirements) 11. No adjustments/provisions have been made in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the accounts of the Branch in respect of matters usually dealt with at Head Office, including in respect of: a. Various disclosures are required by Accounting Standards, RBI guidelines and other rules and regulations (MUST READ CLOSING CIRCULAR) b. Bonus, ex-gratia, and other similar expenditure and allowances to branch employees; c. Terminal permissible benefits to eligible employees on their retirement (including additional retirement benefits), Gratuity, Pension, liability for leave encashment benefits and other benefits covered in terms of AS 15 Employee Benefits issued by the Institute of Chartered Accountants of India; d. Arrears of salary/wages/allowances, if any, payable to staff; e. Staff welfare contractual obligations; f. Old un-reconciled/unlinked entries at debit under various heads comprising Inter branch/office Adjustments; g. Auditors fees ; h. Taxation (Current Tax and Deferred Tax); i. Provision for Advances; j. Reversal of interest of new Non performing accounts k. Provision for office rent 12. We have given _____Memorandum of Changes on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the financial statements of the branch, which is summarized as below: MOC No. Increase Amount (Rs.) Decrease Amount (Rs.) In respect of Income In respect of expenditure In respect of Assets In respect of Liabilities In respect of Gross NPAs In respect of Provision on NPAs* In respect of Classification of Advances In respect of Risk Weighted Assets Other items (if any) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... *Provisions to be made at HO level For ____________________________ Chartered Accountants Firm registration number _________ Name of the Partner Partner Membership number _________ Place of Signature: Date: Encl: No. of MOCs /Annexure BANK AUDIT PROGRAMME 2016 - ILLUSTRATIVE CALENDAR OF RETURNS COPIES OF LATEST RETURNS AS PER CALENDAR COPY OF CLOSING CIRCULAR AND OTHER CIRCULARS COPY OF COMPLETE CLOSING RETURNS REVIEW OF REPORTS WITH COMPLIANCE REPORTS Statutory report L/Y 20XX-20XX Concurrent Inspection/Revenue Internal RBI others BALANCE SHEET Scrutiny of Balance Sheet Profit Loss Account (Including analysis of subsidiary records other than deposits advances) General Ledger / Profit loss Accounts Ledger Ratio analysis [comparison with previous year] Interest earned to net advances Interest paid on deposits Analytical comparison as per ICAI book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Inter branch Reconciliation/ Service branch (LFAR) Balance with RBI/SBI and other bank and reconciliation thereof ADVANCES Advances Ledger with Advances such as ascrom/book debts/turnaround statements Analysis of NPA statements with L/Y Last Quarter NPA statements List of upgraded/degraded advances List of fresh advances during the year Housing Loans documentation with lawyer report and stamp paper no. Demand Loan against NSC+LIC-method of charge creation Staff Loan-Title deed Fees and charges on NPA should be reversed FDRS matured against demand loan must be adjusted. STOCK/ INSURANCE REGISTER / PARTY INSPECTION REGISTER /DP - For LFAR reporting large advances [Lower of 5% of total or ₹ 2 crore] CC-Yearly renewal Register partywise details- Excess drawings Balance Confirmation (BC) Register Limitation Register- NPA Provisioning in case of NPAs with regard to security valuation Implementation of procedure for verification valuation of security LETTER FROM BRANCH MANAGER Cash Balance at at 31.03.2016 No personal /Capital expenses No frauds /audits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Housing Loans documents-staff DICGC Certificates No repayment of deposits in cash No investment held on behalf of HO- Register of Investment No audit other than disclosed one No violation of TDS, Service Tax and BCT ATM Balance confirmation MISC. WORK Day Book/Cash Book whether signed daily by two signatory Excess cash balance maximum balance to be noted for LFAR Periodical physical verification by senior officer fortnightly Excess cash reported to controlling authorities Scrutiny of inoperative accounts KYC-New customer account PHYSICAL VERIFICATION Cash with certificate Fixed assets register with few items Tokens (missing tokens records) Stationery items (test basis)/security register with working papers-certificate Gold Coins BALANCING OF DEPOSITS SUBSIDIARY RECORDS DEPOSITS- Balancing, interest calculation, matured term deposits and its treatment wit h circular for overdue deposits FIXED ASSETS DEPRECIATION LOCKER RENT REGISTER (ARREAR RECORDS) TO BE PREPARED BY BANK BANK CHARGE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S Bills (old outstanding for usanse/sight bills) Guarantees Inspection Charges Advance income to be c/f as per policy Commission on govt. transactions GUARANTEE /LC ETC TICKING OF BALANCE SHEET PROFIT LOSS ACCOUNT WITH GL TAX AUDIT Tds Non deduction of TDS Cash Above ₹ 20000/- for expenses/term deposits TDS demand on TDS CPC CURRENT ACCOUNTS LEDGER FOR THE PURPOSE OF OVERDRAWN ACCOUNTS TO BE CLASSIFIED UNDER UNSECURED ADVANCES INTEREST CALCUATIONS ON ADVANCES/DEPOSITS ON TEST BASIS LAST TWO DAYS DAY BOOK VOUCHING TOTALLING/CHECKING OF EACH RETURNS TO BE SIGNED LAST YEAR COMPARASION-NPA STATUS/SECURED AMOUNT/DATE OF NPA BREAK UP OF SUNDRIES AND SUSPENSE GHOSH COMMITTEE/JHILANI COMMITTEE REPORT WITH EVIDENCES EXCEPTIONAL REPORTING TO BE CHECKED-OVERDUE DEPOSITS, TRANSACTION ON OPERATIVE A/C, LOST TOEKNS ETC. NEW ACCOUNT OPENING FORM-S/A+C/A SERVICE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TAX REPORTING TO CONTROLLING AUTHORITIES CHECK VAT REPORTING (IN CASE OF GOLD COINS) TO CONTROLLING AUTHORITIES RBI REPORTING IF CURRENCY CHEST BRANCH BANK BRANCH Registers Whether maintained (Y/N) Updated till Auditor's Remarks Loan Application Sanction/Disbursement Pre-post Inspection EM/LIEN BMDP Insurance Stock/DP Irregularity NPA Movement Balance Confirmation/LAD/Limitation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Renewal/Review Recalled Assets Write off RC issued Recovery Suit Filed Compromise/settlement Rehabilitation OTS Bank Guarantee LC Bills purchased OTHERS Token Locker Rent BMCC Obsolete/destroyed Missing Voucher Increment Fixed assets Salary register ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Attendance register Dak Inward Dak Outward Exception Report - Reply By RAJESH MANGAL AGRAWAL as = Very Informative article. Thanks. Dated: 24-3-2016 - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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