BANK AUDIT
There are mainly 4 types of Banks :
(1) Commercial Bank (2) Regional Rural Bank
(3) Co-operative Banks (4) Development Bank.
Special Features of Banks :
1. Custody of Large Volume of Monetary Item.
2. Large Volume and Variety of Transactions.
3. Wide Network of Branches and Departments.
4. Off-Balance Sheet items (no entry like guarantees etc.)
5. Regulated by Government authorities.
FORM & CONTENT OF FINANCIAL STATEMENT [Vertical form)
Capital and Liabilities (5 heads)
• Capital
• Reserve and Surplus
• Deposits
• Borrowings
• Other liabilities and provision
Assets (6 heads)
• Cash and Balance with RBI
• Balance with Banks and money at call and short notice.
• Investment
• Advances
• Fixed Assets
• Other assets
Contingent Liabilities and Bills for collection (aggregate amount to be shown on face of Balance sheet and details by way of a note.
ON FACE OF PROFIT AND LOSS ACCOUNT
1. Income - Interest Earned
- Other Income
2. Expenditure - Interest expended
- Operating expenses
- Provision and Contingencies
3. Profit / Loss - Net profit (loss) for the year
- Profit / Loss brought forward
4. Appropriations - Transfer to Statutory Reserve
- Transfer to other Reserves
- Transfer to Government / Proposed Dividend
- Balance carried over to Balance Sheet.
Signature : Financial statements of a banking company incorporated in India to be signed by manager / principal officer and by at least 3 directors. That of foreign Banking Company to be signed by Manager / Agent of the Principal Office in India.
Appointment of Auditor : Appointment of Auditor of Banking Company to be appointed at AGM of shareholders wherein fee is also determined. (Approval of RBI regarding appointment). Appointment of Auditor of Nationalised Bank by Bank concerned acting through its BOD (approval of RBI) their fee determined by RBI in consultation with Central Government.
Auditor of subsidiaries of SBI as well as their remuneration is decided by SBI.
Auditor of SBI and their remuneration by RBI in consultation with Government Bank.
RRB’s auditors and their fee determined by Bank concerned with approval of Central Government.
Auditor’s Report
For Nationalised Bank, Report to Central Government stating :
(i) Balance Sheet is full and properly drawn up and True and Fair View.
(ii) Transactions of Banks within their powers.
(iii) Returns received from offices and branches of Banks are adequate.
(iv) P & L A/c. shows true balance of profit or loss.
For Banking Companies, in addition to reporting u/s 227, also to state whether –
(i) Information and Explanations are satisfactory.
(ii) Transactions of company within power of company.
(iii) Returns received from branches are adequate.
(iv) P&L shows true balance of profit or loss.
(v) Any other matter to be brought to notice of the share holders of the company.
Audit of Compliance with SLR Requirement
Statutory Central Auditor to verify compliance with SLR requirements on 12 odd dates in different months of a financial year not being Fridays.
Report of Management and RBI.
Examination of 2 Aspects
(i) Correctness of figures of DTL (Demand & Time Liabilities) on reporting Friday (last Friday of second preceding fortnight), and
(ii) Maintenance of liquid asset on selected date.
Steps :
i. See circulars of RBI regarding composition of DTL;
ii. Branch auditor to verify correctness of cash on 12 odd dates (Br. Not maintain assets / securities);
iii. Review Return from un-audited branches.
iv. It is examination on test basis consolidation regarding DTL position prepared by the Bank.
v. Examine exclusions and inclusions from / in the liabilities.
vi. Verify computation of liquid Assets and following are treated as cash :
(a) Deposits with RBI by Banking Company incorporated outside India.
(b) Cash/Balance by Banking Companies with itself or with RBI.
(c) Balance maintained by Scheduled Bank with RBI in excess of balance required to be maintained.
(d) Net Balance in current A/c. in India by Scheduled Bank.
(e) Balance by RRB with Sponsor Bank.
vii. Price of gold shouldn’t exceed current market price.
viii. Verify amount of unencumbered approved security.
ix. Provision for Expenses and Liabilities not to be included in DTL.
x. Number of unaudited branch and reliance on returns, etc. to be disclosed by central statutory auditor in his report.
CAPITAL ADEQUACY
“Adequacy of capital resources of a Bank in relation to risks associated with its operation” All Indian scheduled commercial Banks (excluding RRB) & foreign Banks operating in India to maintain CA Ratio at a minimum of 10%. Banking operations are risky thus it is more appropriate for a bank to maintain adequate capital funds corresponding to risk associated with its operations.
From 1st November 04 public sector bank require to maintain it at 9% and private sector bank at 10%.
Capital Adequacy Ratio = × 100
Capital Funds
(1) Tier I Capital = (Paid up capital + St. reserve + disclosed free Reserves)
(Equity investments in subsidiary + Intangible Assets + current & B/f loss)
(2) Tier II Capital = It includes following i.e. undisclosed Reserve, general Provision & Loss
reserves, Hybrid debt capital instruments & subordinated debt.
Tier II Capital can be maximum 100% of Tier I capital
Various assets after exposing to varying degrees of risk as specified.
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