bank audit –planning & documentation bank audits...

Bank Audit – Planning &

Documentation

Bank Audits – Raising the Bar

Pune Branch of WIRC, ICAIPune Branch of WIRC, ICAI

March 18, 2014 March 18, 2014

Presented by :-

Anagha Thatte

Partner, M P Chitale & Co.

Disclaimers

� These are my personal views and can not be construed

to be the views of M/s.M. P. Chitale & Co., Chartered

Accountants

� ICAI has no responsibility for its contents

2Anagha Thatte, Partner, M. P. Chitale & Co.

� These views do not and shall not be considered as a

professional advice.

� This presentation should not be reproduced in part or in

whole, in any manner or form, without my written

permission.

A Classic Hierarchy

HeadCircle Zonal Regional


Head

officeCircle

officeZonal

officeRegional

office

Branch

office

Functions at Head Office

�� ConsolidationConsolidation ofof financialfinancial statementsstatements

�� ConsiderationConsideration ofof auditors’auditors’ reportsreports

�� ConsolidationConsolidation ofof LFARLFAR

�� OverallOverall projectproject managementmanagement ofof auditaudit

AuditAudit ofof centralcentral functionsfunctions suchsuch asas treasurytreasury operations,operations,


�� AuditAudit ofof centralcentral functionsfunctions suchsuch asas treasurytreasury operations,operations,fixedfixed assets,assets, internationalinternational division,division, CentralCentral AccountsAccountsDivision,Division, StationeryStationery division,division, Provisioning,Provisioning,ReconciliationReconciliation ofof InterInter branchbranch accountsaccounts

�� CoordinationCoordination withwith managementmanagement andand otherother auditorsauditors

�� FinalFinal decisiondecision onon disclosures,disclosures, accountingaccounting policies,policies, auditauditandand accountingaccounting mattersmatters

Contents of a Bank’s financial statements

Balance sheet

Assets

• Advances

• Investments

Profit & Loss account

Income

• Interest income

• Fees & commission


• Cash & bank balances

• Other assets

Liabilities

• Deposits

• Other liabilities

• Other income

Expenses

• Interest expenses

• Provision for doubtful debts

• Administrative expenses

Bank products

Liabilities

• Savings account

• Current account

• Fixed deposits

• Foreign Currency Accounts –NRE, NRO,

Assets

• Collaterized Loans

• Overdrafts/ Cash credit against hyp. of stock/ book debts

• Personal loans


Accounts –NRE, NRO, FCNR, EEFC, RFC

• Other services such as investment services, draft payments, balance sweeping, cash management, debit cards, ATMs, phone banking

• Personal loans

• Long term project loans

• Bills discounting

• Trade finance

• Auto finance

• Home finance

• Credit cards

• Non funded facilities

Audit assertions

•Completeness

•Existence

•Accuracy


•Accuracy

•Validations

•Ownership

•Presentation

Life Cycle of Branch Audit

Plan &Communicate

Meet Branch manager

Report

Debrief


HighLevelcontrols

Test of controlsAnalytic

review

Compliance review

Report to Head Office

Pre Audit Activities

�� CommunicationCommunication relating to Appointment

� Work out proposed time budget

� Planning and Risk Analysis

� Identify key RBI circulars, as applicable

� Team briefing


� Team briefing

� Identify critical audit areas

� Communicate to branch manager/ other key personnelmentioned in appointment letter

� Communicate list of requirements, agree upon dates &responsibility

� Identify the Deliverables for designing the Audit Program

� Design Audit Program

� Meeting with the Branch Head

� Inquire into branchbranch performanceperformance

� Get an update on status of “list of requirements” & HOinstructions/ notifications on year end financial closingrequirements

Pre Audit Activities…


requirements

� Inquire into any past inspections / special audits andobtain reports

� Inquire into presence of internal controls and their extentof operation

� CBS and Change management process

� Independent Applications used by the Branch, if any

�� GetGet entireentire listlist ofof reportsreports generatedgenerated fromfrom CBSCBS

�� GetGet listlist ofof reportsreports usedused byby thethe ConcurrentConcurrent AuditorsAuditors

Test of Controls - in and around CBS


�� GetGet listlist ofof reportsreports usedused byby thethe ConcurrentConcurrent AuditorsAuditorsandand InternalInternal AuditorsAuditors

�� StudyStudy “Exception“Exception Reports”Reports” andand “Action“Action TakenTaken report”report”

�� RequestRequest toto getget “A“A readread only”only” accessaccess toto CBSCBS

Documentation

� Document matters which are important in providing evidencethat audit was carried out in accordance with basic principlesgoverning an audit

� Obtain No objection certificate from previous auditor

� Issue Engagement Letter in response to the Appointment Letter

Communicate for inquiring readiness of financial statements &


� Communicate for inquiring readiness of financial statements &other statements and records requiring authentication as well asfor carrying out certain year–end procedures

� Address letters seeking information on matters where auditordesires to strengthen procedures and substantiate audit work

� In case of nonnon––readiness/readiness/ partialpartial readinessreadiness of branch records,non–co–operation of branch management, etc. communicate andplace facts on record

Documentation…

� Document ‘Study and Evaluation’ of Internal Control Systemsand its effectiveness

� Obtain copies of documents which have been relied upon, likeinternal/ concurrent/ revenue auditor’s report, branch’s RBIinspection report, etc

� Document Extent of Check applied in all areas and names of


� Document Extent of Check applied in all areas and names ofpersons who covered these areas

� Prepare minutes of important discussions held with branchmanagement on critical issues and how were they resolved

� Queries and responses should be also well–documented

� Obtain a Management Representation Letter on critical areas ofbranch operations

� Issuance of Audit Report, LFAR, Tax Audit reports, certificates

Thank You Thank You Thank You Thank You


Anagha Thatte

[email protected]

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