audit planning , report - wirc-icai.org plan1.pdf · detailed check list on audit ... advances,...

AUDIT PLANNING , REPORT

&

Ca. Ramesha Shetty, RAV & CO1

CERTIFICATION

_______

Ca. Ramesha Shetty FCA, MBA, DISA(ICAI), CISA(USA)

Stages

� Planning - Home work

� Planning - Documentation

� Execution

� Report & Certification


AUDIT PLANNING AUDIT PLANNING AUDIT PLANNING AUDIT PLANNING ---- OBJECTIVESOBJECTIVESOBJECTIVESOBJECTIVES

� Compliance with RBI / ICAI Guidelines� Compliance with Bank Guidelines� Compliance with Terms of Appointment� Compliance with AS & AAS� Effective Reporting / Completion in Time schedules� Completion of the audit in time.� Certifying Balance Sheet & Profit & Loss account & Annexure� Certifying Balance Sheet & Profit & Loss account & Annexure� Simultaneous coverage of allied assignments including:

� Recommendations of Ghosh & Jilani Committee Reports� Responses to the LFAR questionnaire� Tax Audit� Other certification work indicated in the letter of appointment like –

� DICGC Claims, etc� PMRY Scheme, Provident Fund Scheme

3 Ca. Ramesha Shetty, RAV & CO

BRANCH AUDITBRANCH AUDITBRANCH AUDITBRANCH AUDIT----SCHEDULESCHEDULESCHEDULESCHEDULE

March 21 : Attended Bank Audit Seminar

March 15-25 : Appointment letter

March 26-30 : Acceptance / NOC, Visit Branch

MR letters, Suggests not to start


MR letters, Suggests not to start

any audit before April 3.

March 31 Cash Verification only.

March 31 : Cash verification

April 3 to 10 : Audit done. LFAR took most of time

PREPREPREPRE----AUDIT PLANNING AUDIT PLANNING AUDIT PLANNING AUDIT PLANNING (Home Work)(Home Work)(Home Work)(Home Work)

� Pre audit plan – Plan the work

� Audit under Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970.

� Guidance Note of ICAI/Bank Branch Audit

� RBI Circular issued on July 1, 2010

� Old Audit reports – Working papers, certifications, etc.– Refresh yourself

� Identify the staff - Experienced, train the staff (CBS system)

- Allot the work


- Allot the work

� Visiting the branches, etc. – Before 31st , if possible

� Go thru Standards on Auditing like � Knowledge of Business, Terms of Audit Engagement

� Audit Planning, Audit Sampling, Audit Documentation, Using the work of another auditor, Audit Evidence, Audit Materiality, Written Representations, Analytical Procedures

� Documentation – Audit Checklist, Audit programme, Other documentation, etc. (Peer review, ICAI, etc.)

� Timely Completion of the assignment

AUDIT PLANNING

Have knowledge of the :

� Economy

� Banking Industry

� Government Policies

� Rules & Regulations applicable to the Bank� Rules & Regulations applicable to the Bank

� Products handled by Bank

� Complexities involved

� Applicability of Accounting Standards

� Applicability Auditing and Assurance Standards.

� FEDAI Guidelines


PLANNING PLANNING PLANNING PLANNING ---- DocumentationDocumentationDocumentationDocumentation

� Appointment letter

� Acceptance, Engagement letter (Opinion/AS/ Management Responsibility, etc), Declarations

� NOC from previous auditors

� Requirement letter to Branch

� Management Representation letter

Communicate with the branch


� Communicate with the branch

� Visit the branch – before year end & meet the staff

� Discuss with the Concurrent Auditors

� Liaison with Branch staff for access and other arrangements

� Detailed Check list on audit(WIRC)

PRELIMINARY WORKPRELIMINARY WORKPRELIMINARY WORKPRELIMINARY WORK (At Branch)

� Obtaining knowledge of business of bank/branch -Advances, Deposits, Large borrowers, NPA A/cs, CBS, etc.

� First hand feel of the branch� Document the discussions� Review of reports, viz:

� Closing Guidelines issued by the bank� Circulars (interest & Service charges)� Credit Policy� Delegation of Authority & Financial powers


� Delegation of Authority & Financial powers� Charge Handover Report � Branch Audit Report/ LFAR of previous year� Latest Internal Inspection/ Concurrent Audit report/s,

Special Audit Report, System Audit Report, Stock Audit Reports in case of large advances, Report from vigilance Department, Revenue Audit Report, etcs

� Branch’s RBI Inspection Report, if any� Status and level of compliance by the branch, on

adverse features pointed out in reports

AUDIT PLANNINGAUDIT PLANNINGAUDIT PLANNINGAUDIT PLANNING (at branch)

� Ascertain the thrust of operations and nature of banking activities at the branch (deposits/advances)

� Relook - Audit Program to cover all heads like Liabilities, Asset, Income, Expenditure, Off Balance Sheet items, with special emphasis on verification of advances, deposits and Inter- Branch accounts

� Manpower requirement - Allocate the work (Deposits, Advances, Misc. items, etc.), decide who does what?, how many days/hours, time constraints, outstation audits, other arrangements, etc.


� Simultaneous compilation of data(checklist, etc)

� Any issues in getting the information or non-cooperation may be referred to Controlling Authorities

� Statutory Central Auditors, for queries if any

� Weak areas identified during the Audit be given extra focus.

� Also special emphasis on - Physical verification of cash and other securities / Sensitive Accounts, Frauds / Sundry Assets / Suspense Account / Inter Branch reconciliation , contingent liabilities

EXECUTION OF WORKEXECUTION OF WORKEXECUTION OF WORKEXECUTION OF WORK

� Staff to be adequately trained to carry out the assignment satisfactorily

� Execution must be done as per the audit programme

� Checks should be extended in areas of weaknesses, including those identified during the course of audit

� Modify the audit plan in certain areas depending on the inherent weaknesses existing in those areas


inherent weaknesses existing in those areas

� Obtaining Audit Evidence and Management Representations

� Audit working papers

� Timely discussion and rectification of queries

Evaluation of Internal Control Evaluation of Internal Control Evaluation of Internal Control Evaluation of Internal Control

� Evaluate the knowledge of accounting software, policies and strength/effectiveness of internal control systems existing at the branch

� Areas where deficiencies/wekaness have been noticed in earlier audit reports, actual transactions may be tested.

� Internal Control would include:

�Accounting Controls


�Accounting Controls

�Administrative Controls

� Determine the effectiveness of control systems –segregation of duties, exception reports, financial powers, roles & responsibilities of staff, awareness of circulars and systems.

� Emphasize on Risk prone areas, Control Weakness – Fraud

� Test Check or substantive checking

DOCUMENTATIONDOCUMENTATIONDOCUMENTATIONDOCUMENTATION

� Document ‘Evaluation of Internal Control Systems’ and its effectiveness

� Obtain copies of documents which have been relied upon, like internal/ concurrent/ revenue auditor’s report, branch’s RBI inspection report, etc.

� Document the Extent of check applied in all the areas and the names of persons who covered these areas of audit


the names of persons who covered these areas of audit

� Proper minutes should be made of important discussions held with the branch management on critical issues and how it was concluded. Obtain management’s representation on critical areas of branch operations

� Well- documented queries and responses should be also placed on record

� Obtain a Management Representation Letter, wherever applicable

DOCUMENTATIONDOCUMENTATIONDOCUMENTATIONDOCUMENTATION

� Auditors should document matters which are important in providing evidence that the audit was carried out in accordance with the basic principles governing an audit

� Address communication after accepting appointment for inquiring the readiness of financial statements & other statements and records requiring authentication as well as for carrying out certain year- end procedures


statements and records requiring authentication as well as for carrying out certain year- end procedures

� Auditor should address letters seeking information on matters where he desires to strengthen his procedures and substantiate his work.

� In case of non- readiness / partial readiness of branch records, non-co-operation of branch management, etc communicate and politely place on record, the facts of the case

Auditing in CBS EnvironmentAuditing in CBS EnvironmentAuditing in CBS EnvironmentAuditing in CBS Environment

� No visible audit trail

� Walk thru of the transactions – from start to end and document

� Inadequate segregation of duties and risk to integrity of data

� Check rights of access – to staff members & its level


� Check rights of access – to staff members & its level

� Computer generated “Error Reports” to verify accuracy of interest rates, date of NPA, etc, if available

� System suspense entries

� Exceptional reports

� Check whether the recurrence of such discrepancies is general or in respect of some specific clients

� Auditor to go to root cause of the problems

PROFIT & LOSS ACCOUNTPROFIT & LOSS ACCOUNTPROFIT & LOSS ACCOUNTPROFIT & LOSS ACCOUNT

Income/ Expenditure: Verify:Income/ Expenditure: Verify:Income/ Expenditure: Verify:Income/ Expenditure: Verify:

� Excess / short credit/ debit of interest & commission - Debit balances in income account and credit balances in expenses account

� In case the discrepancies are existing in large number of cases, the auditor should consider the impact of the same on the accounts

� Determine whether the discrepancies noticed are intentional or by error

� Check whether the recurrence of such discrepancies are general or in respect of some specific clients


or in respect of some specific clients

� Proper authority in sanction and disbursement of expenses as also the correctness of the accounting treatment given as to revenue/ capital/ deferred expenses

� Check accrual of income/ expenditure especially for the last month of the financial year

Divergent Trends:Divergent Trends:Divergent Trends:Divergent Trends:

� Divergent trends in income/ expenditure

REPORTINGREPORTINGREPORTINGREPORTING & MOC& MOC& MOC& MOC

� Check all the schedules/annexure & Check Balance Sheet and P&L account

� Balance Sheet, Profit & Loss Account and Statement of Particulars of Advances are generally not amended to make any further adjustment/Modifications as at year–end

� Notes / observations, properly segregated into a


� Notes / observations, properly segregated into a classificatory or qualificatory nature must be:� Properly drafted in clear, unambiguous language

� quantified as regards all material issues

� backed up by adequate documentation / data compiled during the course of audit and after considering Branch management’s explanations made out keeping in view the concept of materiality

REPORT ING & MOCREPORT ING & MOCREPORT ING & MOCREPORT ING & MOC

� Main Report should be a self contained document and should contain no reference of any point made in the LFAR

� Audit Qualifications in the Main Report only and not in LFAR

� Report needs to be made out in the form and manner prescribed, subject to the qualifications being incorporated in the report and duly quantifiedduly quantifiedduly quantifiedduly quantified in the Memorandum of Changes (MOC)


Changes (MOC)

� For suggesting any changes � Quantify in MOC (qualification)- MOC – Auditors prerogative and

need not take confirmations from the branch manager

� Its an annexure to Main report

LONG FORM AUDIT REPORTLONG FORM AUDIT REPORTLONG FORM AUDIT REPORTLONG FORM AUDIT REPORT

� Thorough understanding

� Audit Plan along with Main Audit report

� LFAR questionnaire is a useful tool for planning the statutory audit of a bank’s branch

� Main Audit Report & LFAR to be completed together.

� Clarity while replying the LFAR

� Detailed shortcomings/ weakness areas of the branch


� Detailed shortcomings/ weakness areas of the branch

� Sufficiently detailed and quantified so that they can be expeditiously consolidated by the bank

� LFAR - commenced alongwith main audit report- answers to LFAR should be specific, clear and unambiguous.

TAX AUDIT REPORTTAX AUDIT REPORTTAX AUDIT REPORTTAX AUDIT REPORT

�To be signed as per Section 44AB – both

Form 3CA & 3CD

� Importance may be given to –

�TDS – correct rates, no deduction, late deduction,

paid on time to the authorities


paid on time to the authorities

�Rule 6DD

�Section 43B

�Prior period items

�Letter heads

DISCLAIMERS::::

� Limited time – Random Check

� Mention that report drafted period - No. of days spent for the audit

� Extent of Checking

� Use of Audit sampling – Random Testing or substantive as the case may be

� Qualifications to be part of main audit report

Ca. Ramesha Shetty, RAV & CO

� Qualifications to be part of main audit report

� Written representations and observations recd..

� Extent of reliance placed on audit reports of others( mainly LFAR compiled from those reports)

� Reliance on the information systems in place & obtain representations

� KYC, Demat Accounts, Security arrangements, Statutory requirements, etc

� Non – receipt of Management representation letters

20

Ghosh & Jilani CommitteeGhosh & Jilani CommitteeGhosh & Jilani CommitteeGhosh & Jilani Committee

� Ghosh Committee – Fraud & Malpractices in banks at Branch level

� Jilani Committee – Internal Control and Audit/Inspection system in banks

� Internal Control and reporting at the branch level

� Compliances


� Compliances

� Questionnaire – To say Yes/No

� Beginning of the audit

� Discussion certification and written representations from the branch may be obtained

JILANI COMMITTEE JILANI COMMITTEE

RecommendationsRecommendations

� An attempt to strengthen Internal Control of Banks especially in the Computerised Environment

� Management is responsible for the implementation of Jilani committee recommendations, the statutory auditor is responsible to verify and report on the status of implementation of these


report on the status of implementation of these recommendations. The results of the verification carried out by the statutory auditor and his comments would be given in separate report

� The Implementation form is divided into 25 points,10 of them are applicable on a Bank branch

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GHOSH COMMITTEEGHOSH COMMITTEE

� BACKGROUND -

� High level Committee on fraud and malpractice

in banks under chairmanship of Shri A. Ghosh

ex Deputy Governor

� Enquire into various aspects of frauds and


� Enquire into various aspects of frauds and

malpractices in bank

� Make recommendations to reduce such

incidence.

23

OBJECTIVESOBJECTIVESOBJECTIVESOBJECTIVESOBJECTIVESOBJECTIVESOBJECTIVESOBJECTIVES

� Proper systemsystemsystemsystem exists to ensure:

� Safety of assets

� Compliance with laid down policies and

procedures

� Accuracy and completeness of accounting and


� Accuracy and completeness of accounting and

other records

� Proper segregation of duties and

responsibilities of staff

� Timely prevention and detection of frauds and

malpractices

24

CERTIFICATION IN BANK AUDITCERTIFICATION IN BANK AUDITCERTIFICATION IN BANK AUDITCERTIFICATION IN BANK AUDIT

AuditAuditAuditAudit ReportReportReportReport isisisis aaaa reasonablereasonablereasonablereasonable AssuranceAssuranceAssuranceAssurance

AuditAuditAuditAudit CertificateCertificateCertificateCertificate isisisis AbsoluteAbsoluteAbsoluteAbsolute AssuranceAssuranceAssuranceAssurance

TypesTypesTypesTypes ofofofof CertificatesCertificatesCertificatesCertificates

---- BranchBranchBranchBranch ReturnsReturnsReturnsReturns---- BranchBranchBranchBranch ReturnsReturnsReturnsReturns

---- AuditAuditAuditAudit ReportsReportsReportsReports

---- MemorandumMemorandumMemorandumMemorandum ofofofof ChangesChangesChangesChanges

---- LFARLFARLFARLFAR

---- TaxTaxTaxTax AuditAuditAuditAudit ReportsReportsReportsReports

---- CertificatesCertificatesCertificatesCertificates


GHOSH & JILANI REPORTSGHOSH & JILANI REPORTSGHOSH & JILANI REPORTSGHOSH & JILANI REPORTS

SUGGESTED REPORT ON STATUS OF COMPLIANCE OF GHOSH & JILANI

COMMITTEES’ RECOMMENDATIONS

We have reviewed the accompanying statements on status of

implementation of Ghosh and Jilani Committee recommendations for the

year ended 31st March 2009 in respect of [Name of the Branch] of [Name

of the Bank].

The responsibility of implementation of these recommendations is of the

bank’s management.bank’s management.

A review of status of implementation consists principally of considering

the latest reports thereon of the concurrent auditors/inspectors (in casethe reports are silent about the issue, give suitable remark) of the bank,

obtaining confirmations/making relevant inquiries of the

management/other appropriate persons and carrying out test checks,

which were limited to review of procedures and implementation thereof

adopted by the branch for ensuring compliance of Ghosh and Jilani

Committees’ Recommendations.


GHOSH & JILANI REPORTSGHOSH & JILANI REPORTSGHOSH & JILANI REPORTSGHOSH & JILANI REPORTS

A test check may not bring out all the observations whichotherwise would have been possible had a detailedinvestigation on the status of implementation beenundertaken. Further, it is neither an audit nor an expressionof opinion on the financial statements of the branch.

We further state that such implementation is neither anassurance as to the future compliance thereof at the branchassurance as to the future compliance thereof at the branchnor the overall efficiency of effectiveness with which themanagement has conducted the affairs of the branch.

Certain recommendations such as (specify the relevant clauses) could not be verified for the year under review and have accordingly been reported based on our observations made during the course of review.


GHOSH & JILANI REPORTSBased on our review as aforesaid, nothing has come to

our attention that causes us to believe that the branch

has not implemented the recommendations except for

our comments given in Annexure attached hereto

(specify all the adverse remarks and deficiencies including non-availability of records & information as including non-availability of records & information as suggested in the annexure given below).

Attach the Report with words

As per our report of even date attached.


OTHER CERTIFICATES

� Capital Adequacy – BASEL I & II Requirements Compliance

� DICGC Claims

� PMRY Certification

� Service Tax

� Cash Balance 12 odd days

� Investment on Behalf of Head Office� Investment on Behalf of Head Office

� Agricultural Debt Relief

� Fixed Assets & Depreciation

� IRAC / NPA Related Certificates

� Interest Subvention

� Restructured Advances

� Foreign Currency Assets & Liabilities


Thank YouThank YouThank YouThank You

for queries-

CA. RAMESHA SHETTYCA. RAMESHA SHETTYCA. RAMESHA SHETTYCA. RAMESHA SHETTY, 3/18/2011


CA. RAMESHA SHETTYCA. RAMESHA SHETTYCA. RAMESHA SHETTYCA. RAMESHA SHETTY, 3/18/2011

e-mail: [email protected] | Mob: 98694 33579

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