budget highlights bank audit

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For any information / assistance

XYZ & Co

Contact Name:

Address | Phone | Mail id

Disclaimer: These are a few of the Highlights of the Union Budget – 2015. Expert advice

and user discretion is recommended prior to application of the contents of this document to

specific situations

Budget Highlights 2015

Budget Highlights – Direct Taxes

Budget Highlights – Indirect Taxes

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Budget Highlights - Direct taxes

Tax Rates

Income Tax rates remain the same for

individuals and corporates for the FY 2015-

16. Corporate taxes are proposed to be

reduced from the existing rate of 30% to

25% over the next 4 years

Non Corporate Assesses

Assesses less than 60 years

FY 2015-16 Tax rate

0-250,000 Nil

250,001-500,000* 10%

500,001-1,000,000 20%

1,000,000+ 30%

For senior citizen assesses 60 years or more

but less than 80 years

FY 2015-16 Tax rate

0-300,000 Nil

300,001-500,000* 10%

500,001-1,000,000 20%

1,000,000+ 30%

Senior citizen assesses > 80 years

FY 2015-16 Tax rate

0-500,000 Nil

500,001-1,000,000 20%

1,000,000+ 30%

Surcharge

Txbl Income FY

2014-15

FY

2015-16

<10,000,000 0 0

>10,000,000 10% 12%

Corporate Assesses

Domestic Companies

Taxable Income FY

2014-15

FY

2015-16

Tax Rate 30% 30%

Surcharge :

<10,000,000 0 0

>10,000,000 and

<100,000,000

5% 7%

>100,000,000 10% 12%

Foreign Companies

Taxable Income FY

2014-15

FY

2015-16

Tax Rate 40% 40%

Surcharge :

<10,000,000 0 0

>10,000,000 and

<100,000,000

2% 2%

>100,000,000 5% 5%

Wealth tax

Abolish the levy of Wealth-tax with effect

from 2016-17 (Assessment Year)

The revenue loss on account of such

abolition is proposed to be compensated by

increase in the existing surcharge by 2% in

case of domestic companies and all non

corporate taxpayers.

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Key Changes in Income Tax

Individuals

Section Applicability FY 2014-15 FY 2015-16

Transport Allowance Rs 800 per month Rs 1600 per month

80C Sukanya Samriddhi Scheme –

Investments made by parent or

guardian

Nil New

80D Non senior citizen 15000 – Premium 25000

Senior Citizen 20000 – Premium 30000

Very Senior Citizen not eligible

for insurance

Nil 30000 ( Expenditure )

80DDB Very Senior Citizens – Specified

diseases * ( in the speech )

60000 80000

80DD Maintenance, including medical

treatment of a dependant who is a

person with disability

50000 75000

Severe disability 100000 125000

80U Person with disability 50000 75000

Severe disability 100000 125000

80CCC Contribution to a pension fund of

LIC or IRDA approved insurer

100000 150000

80CCD Contribution by the employee to

National Pension Scheme (NPS)

Deduction of upto Rs 50,000 over

and above the limit of Rs 1.50

lakh in respect of contributions

made to NPS

100000 150000

80G Swachh Bharat Kosh

Clean Ganga Fund

National Fund for Control of

Drug Abuse

Nil 100%

Tax deductions referred to in Budget

Deduction u/s 80C 1,50,000

Deduction u/s 80CCD 50,000

Interest onSelf Occupied property 2,00,000

80D Insurance premium 25,000

Transport allowance 19,200

Total 4,44,200

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Other Key Changes

Residential Status

Sec 6 A Company is considered as resident in

India if its place of effective management

(POEM), at any time in that year, is in India

The term ‘PoEM’ has been explained to mean a

place where key management and commercial

decisions that are necessary for the conduct of

the business of an entity as a whole are, in

substance made.

Value substantially from the assets in India

Section 9 (1)(i)(A) the term substantially from

the assets located in India would mean the

following:

1. Excess of Rs. 1 Crore and

2. Represents at least 50% of the value of

all the assets owned by the entity

Domestic Transfer Pricing

Section 92BA -increase the threshold limit for

applicability of transfer pricing regulations to

specified domestic transactions from Rs 5 crore

to Rs 20 crore

GAAR

Defer applicability of General Anti Avoidance

Rule (GAAR) by 2 years

2(15) of Income tax act

‘Yoga’ included as a specific category of

activity in the definition of ‘charitable purpose’

and also to provide relief for activities in the

nature of business undertaken by genuine

charitable organizations subject to the condition

that aggregate receipts from such activity is less

than 20% of the total receipts

Additional depreciation on P & M

Additional depreciation @ 20% is allowed on

new plant and machinery installed by a

manufacturing unit or a unit engaged in

generation and distribution of power.

If the asset is installed after 30th September of

the previous year only 10% of the additional

depreciation was allowed. Now the remaining

10% of the additional depreciation will be

allowed in the subsequent previous year.

Tax Deduction at Source

Sec 194 C : Transport operators exemption

from TDS is only where the operator has 10 or

less than 10 goods carriages ( Pan to be

provided )

Sec 192 A : EPF Trustees while paying the

accumulated PF balance should deduct 10%

TDS ( for payments of Rs 30000 or more )

Sec 192 : The person responsible for making the

payment of salary has to obtain from the assesse

the evidence or proof or particulars of

prescribed claims (including claim for set-off of

loss).

Sec 194I : Payment of Rent to Real Estate

Investment Trust (REIT) is exempt from TDS

194LBA and LBB : TDS to be deducted at 10%

by the business trust/Investment Fund on

payments to its unit holders

Sec 195 : Details of international payments (

whether tax is applicable or not ) to be disclosed

in the return filed

Restrictions on Cash Transactions

Section 269SS and 269T of the Income-tax Act

- prohibit acceptance or re-payment of advance

in cash of Rs 20,000 or more for any transaction

in immovable property

Tax on Royalty and Technical Services

Sec 115A :Income of the non-resident by way

of Royalty or Fees for technical services - the

tax rate is reduced from 25% to 10%.

State of AP

Additional investment allowance (@15%) and

additional depreciation (@15%) to new

manufacturing units set-up during the period

01.04.2015 to 31.03.2020 in notified areas of

Andhra Pradesh and Telangana

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80JJAA deduction

All manufacturing units are covered , shall be

available to a ‘person’ deriving profits from

manufacture of goods in a factory and paying

wages to new regular workmen. The eligibility

threshold of minimum 100 workmen is reduced

to fifty

Minimum Alternate Tax

Income from AOP and its corresponding

Expense is outside the ambit of MAT.

Also the amount of income and its

corresponding cost from transactions in

securities accruing or arising to an FII who has

invested in such securities in accordance with

the regulations made by SEBI

Administration

Section 255 of the Income-tax Act - increase

the monetary limit from Rs 5 lakh to Rs 15 lakh,

for a case to be heard by a Single Member

Bench of the ITAT.

Requirement for TAN

An individual buying an immovable property

from a resident is required to deduct tax but is

not required to obtain TAN for depositing the

tax so deducted. The Same benefit of not

requiring TAN has been extended to an

individual or HUF purchasing an immovable

property from a non-resident

Trusts

Any trust or institution registered under sec

12 AA cannot claim exemption under

section 10 except under Sec 10 (23C).

Registration under sec 12AA is permissible

for claiming tax exemption for earlier years

also

Sec 12AA widened to give more power to

commissioner to cancel approval.

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Budget Highlights - Indirect taxes

Customs and Excise

Reduction in number of levies:

Education Cess and Secondary & Higher

Education Cess leviable on excisable goods are

being subsumed in Basic Excise duty

Consequently, Education Cess and Secondary

& Higher Education Cess leviable on excisable

goods are being fully exempted.

The standard ad valorem rate of Basic

Excise Duty is being increased from 12% to

12.5%

Customs Education Cesses will continue to be

levied on imported goods.

Compliance Facilitation:

Online Central Excise/Service Tax

Registration within two working days.

Time limit for taking CENVAT Credit on

inputs and input services is being increased

from six months to one year.

Central Excise/Service Tax assessees are

being allowed to issue digitally signed

invoices and maintain other records

electronically.

Waiver of penalty if duty and interest is

paid within 30 days of the receipt of notice

and 15% penalty if paid after 30 days.

Section 11AC penalty without Mens Rea

shall be maximum 10% only

Clean Energy Cess

The Scheduled rate of Clean Energy Cess

levied on coal, lignite and peat is being

increased from Rs 100 per tonne to Rs 300

per tonne. The effective rate of Clean

Energy Cess is being increased from `100

per tonne to Rs 200 per tonne.

Service Tax

Rate increased from 12.36% to 14% with the

cess subsumed in the rate.

An enabling provision to empower the Central

Government to impose a Swachh Bharat Cess

on all or certain taxable services at a rate of 2%

on the value of such taxable services. This Cess

will be effective from a date to be notified.

Graded increase in interest rates for delay

beyond 6 months from 24% & 30%. 18% upto

6 months

Registration to be done in 2 days

Withdrawals from negative list:

Support Services provided by Government

or a Local Authority to a business entity

Access to Amusement Facilities.

Admission to Entertainment Events if fee

exceeds Rs. 500

Contract manufacturing /job work for

production of potable liquor for a

consideration

Betting, Gambling and Lottery

Exemptions withdrawn/restricted to

Exemption presently available on specified

services to the Government are restricted

further

Exemption to construction, erection,

commissioning or installation of original

works pertaining to an airport or port is

withdrawn

Exemption to services provided by a

performing artist in folk or classical art

form of music, or dance, or theatre is

limited only to such cases where amount

charged is up to Rs 1,00,000 for a

performance

Exemption to transportation of food stuff

by rail, or vessels or road is limited to food

grains including rice and pulses, flour, milk

and salt

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Transportation of agricultural produce is

separately exempt, and this exemption

would continue

Sec 65B (23A) Chit Foreman commission

is to get covered by the definition for

‘Service’[hereafter this cannot be

Transaction in Money /Actionable Claim]

Reimbursements are taxable

Lottery dealer/agents commission is

taxable

New Exemptions:

Service provided by way of exhibition of

movie by the exhibitor (theatre owner) to

the distributor or association of persons

consisting of such exhibitor as one of its

members

Services by way of pre-conditioning, pre-

cooling, ripening, waxing, retail packing,

labelling of fruits and vegetables

Service provided by a Common Effluent

Treatment Plant operator for treatment of

effluent

Admission to a museum, zoo, national park,

wild life sanctuary, tiger reserve

Life insurance service provided by way of

Varishtha Pension Bima Yojna

Ambulance services

Goods Transport Agency concept is now

extended to Land Customs Station

Other Amendments

Differential amounts of Penalty for normal

and Fraud or collusion cases introduced

Manpower supply and security services

when provided by an individual, HUF or

partnership firm to a body corporate are to

be considered under full reverse charge

Reverse charge basis to be adopted by

AMC for services mutual fund agents,

mutual fund distributors and agents of

lottery distributor

Abatements

Uniform rate of 30% on services by Rail,

GTA Road and Vessel

60% on services by way of Air transport of

passengers by Business Class

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Bank Branch Audit – Managing Risk

An Integrated Work Paper Model

Prepared by CA Sripriya Kumar

Member – SIRC of ICAI

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A FOREWORD

Dear Professional Colleague

This model working paper on Audit planning, Audit Program and a template of a Working Paper

Document file has been designed to assist Small and Medium Practitioners in the performance and

documentation of our Bank Branch audit engagements and to enable Peer review processes

There are 2 key risks associated with Bank Audits. One, the Audit risk that a material misstatement

could go undetected and two, a professional risk which may arise due to non-performance of

appropriate and relevant audit procedures or maintenance of working papers to demonstrate the

work done. This Standard template of work paper document will minimise, if not eliminate such risks

This is intended to ensure process standardization that will assure a base line quality in the work we

do as well as Common Minimum Standard that we will be able to display as a profession to mitigate

the above risks. This is an indicative document that helps us to approach the work we do on a Top

down basis as well as to ensure that we comprehensively cover and document the engagement

correctly and consistently. User discretion is recommended to modify this document to suit the needs

to the entity you are auditing

There is a tremendous amount of published data on Bank Branch Audits and I have merely attempted

to consolidate and compile some of this into an integrated template. This is my personal view and

does not necessarily reflect all Best Practices in Audit Planning and Work Paper Management that are

unique to every practicing professional.

This document will also enable an acceptable level of documentation for Peer Reviews whose key

expectation in a Bank Audit Peer review process would be the ability of the working papers to

demonstrate adequate work done to ensure :

Financial statements being true and fair and free from material misrepresentations

Compliance with RBI norms including master and other circulars

Compliance with relevant Accounting Standards as relevant to Bank Branches

Compliance with Audit, Review and Other Standards of the ICAI as relevant

One of the key changes in reporting as compared to the previous year is the introduction of a new

reporting format in line with SA700, SA705 and SA706. In addition to this we are required to provide

data on the number and value of Memorandum of Changes proposed by us on the face of the Main

Audit Report, a measurable output of the branch audit exercise.

This entire document may be printed at the end of the audit and working papers be organised and

cross referenced in the respective sections for user and reviewer convenience

I have for this compilation used certain audit plan tables / appendices from a publication tilted Hand

book on Bank Branch Audit by CA P R Suresh and gratefully acknowledge the same

CA Sripriya K

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BANK BRANCH AUDIT

INTEGRATED WORK PAPER FILE

Bank Name

Branch

Year 2013-14

Date of Commencement

Date of Completion

Partner In Charge

File reference

Number of Staff deployed

Advances Value

Address of the Branch

Name of the Manager

Phone Number

Circle Office Contact

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TABLE OF CONTENTS

1. Objective and Scope of audit ___________________________________________________ 13

2. Scope Limitations, if any _______________________________________________________ 15

3. Report, Returns and Certificates _________________________________________________ 16

4. Auditing Review and Other Standards ____________________________________________ 18

5. Engagement documentation ____________________________________________________ 20

6. Branch Overview _____________________________________________________________ 21

7. Review Notes of Concurrent, Risk Based Audit, Inspection Reports _____________________ 28

8. Audit Strategy _______________________________________________________________ 28

9. Standard Schedules ___________________________________________________________ 31

10. Advances and General Audit plan ______________________________________________ 34

11. Advances Verification – Large advances _________________________________________ 36

12. Special Note on Audit of Restructured Advances __________________________________ 39

13. Advances Verification – Cash Credit and overdraft accounts _________________________ 40

14. Advances Verification – Housing loans __________________________________________ 42

15. Advances Verification – Educational loans _______________________________________ 43

16. Advances Verification – Vehicle loans ___________________________________________ 44

17. Advances Verification – Jewel Loans ____________________________________________ 45

18. Advances Verification – Loans against Own Deposits _______________________________ 46

19. Advances Verification – Loans against financial assets ______________________________ 47

20. NPA Review _______________________________________________________________ 48

21. Verification of Deposits ______________________________________________________ 49

22. Check list for Long Form Audit Report ____________________ Error! Bookmark not defined.

23. Profit and Loss Account – Analytical review procedures ______ Error! Bookmark not defined.

24. Certification Related Working papers _____________________ Error! Bookmark not defined.

25. Tax Audit Workings ___________________________________ Error! Bookmark not defined.

26. Other Working papers _________________________________ Error! Bookmark not defined.

27. References __________________________________________ Error! Bookmark not defined.

28. Appendices _________________________________________ Error! Bookmark not defined.

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1. Objective and Scope of audit

1.1. We have been appointed as the Statutory Auditors of the ……………………… Branch of

……………………………………….. ……………………………… Bank for the year 2013-14

1.2. The appointment letter dated ………………… has been accepted by us on

……………………………………………. after due communication to the previous year auditor vide letter

dated …………………………………….

1.3. The key terms of reference is to certify the financial statements of the branch as at March 31,

2014 with reference to a True and Fair perspective

1.4. The Branch audit instructions as received from the Head / Circle office have been duly cognised

for in the preparation of this integrated work paper document

1.5. The following key reports / certificates are required to be issued by us

Branch Auditors report

Memorandum of Changes if any

Certified / Attested financial statements

Long Form Audit Report

Schedules and Certificates as per index attached in the next segment

Tax Audit report under Section 44AB of the Income tax Act

1.6. The audit was commenced on ……………. and completed on …………………. By the following team

1.7. The key risks in Bank Branch Audits are as under

Misstatement of income, expenses, Assets or Liabilities.

Unrecorded liabilities and contingent liabilities

Asset Classsification and NPA provisions not adequate for impaired assets

Asset Classification and Income Recognition especially for restructured assets

KYC / AML norm compliance related issues

Internal control failures over banking operations including potential / undetected

frauds

Wrong certification

Name Designation Days From To

Partner

Qualified Paid Assistant

Audit Assistant

Articleship trainee

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1.8. The details of Bank Staff from whom data / records / information and explanations were

solicited / obtained for the purpose of this audit are as under

Designation Name Grade

Branch Manager

Loans Officer

Deposit Officer

Other Officers

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2. Scope Limitations, if any

2.1. The following scope limitations have been appropriately dealt with in the Audit report of the

branch / LFAR and suitably highlighted as matters of emphasis

2.2. The Branch management has not been able to furnish the following details / records /

explanations in connection with the audit

2.3. The following unit visits requested by us could not be undertaken due to the following reasons

Information requested and not provided

Amount Impact on audit, if any Management Comments

Information requested and not provided

Amount Impact on audit, if any Management Comments

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3. Report, Returns and Certificates

3.1. Key Deliverables

We are required to certify and complete the following individual reports / returns and certificates (

modify as necessary based on banks standard instructions ). The number of copies of each

submission, applicability and / or completion status is also as under

S No Index No

of

cop

ies

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St

atu

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RETURNS

1 BS - 1 Liabilities

2 BS - 2 Assets

3 BS - 3 Expenditure for the half year ended 31-03-13

4 BS - 4 Income for the half year ended 31-03-13

5 Final A & L as on 31-03-13

6 Final P & L for the year 31-03-13

7 BS 7 – STATEMENT OF CLAIMS MADE AGAINST THE BANK NOT ACKNOWLEDGED AS DEBT

8 BS 8 – DETAILS OF RESTRUCTUTRED A/C (EXCLUDING CDR)

9 BS 9 – DETAILS OF COUNTRYWISE, RISK CATEGORY WISE EXPOSURE

B Supplementary to BS Schedules

10 SUPP. B – BREAK UP OF LCS, GUARANTEES, ETC.

11 SUPP. C – CLASSIFICATION OF ADVANCES

12 Supp D - Break iup of sundry receivables and sundry depsoits

13 SUPP. E1 & E2 – EXPOSURE TO SENSITIVE SECTOR

14 Supp F - information relating to DSB 1 and additional information

15 SUPP. G – CASH & BANK BALANCE FOR SELECT NON-FRIDAYS

16 Supp H - Residual maturity pattern of forex advances / deposits

17 SUPP. K - PARTICULARS OF EXPENDITURE AND INCOME RELATING TO PREVIOUS YEARS

18 SUPP. M – BREAK UP OF PAYMENTS TO AND PROVISIONS FOR EMPLOYEES

C LA General and LA Suit Filed as at 31-03-13

19 Loan Analysis Summary

20 Recoveries made in Select Borrowal accounts from 01-04-12 to 31-03-13

21 Control Sheet for NPA, Income Recognition, Movement of NPA and Interest reversal of NPA

22 BS - 3 Expenditure for the half year ended 30-09-12

23 BS - 4 Income for the half year ended 30-09-12

24 Supp M - 30-09-12

25 SFVM inventory statement

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S No Index No

of

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CERTIFICATES

26 Branch Audit Report

27 Annexure A to E ( Memorandum of Changes )

28 Questionnaire in addition to Branch Audit report

29 Special Deposit Scheme 1975

30 Compulsory Deposit scheme 1974

31 PMRY scheme

32 Form of Certificate on sharing of recoveries in claim settled accounts under SLGS 1971/SLGS(SSI) 1981

33 Interest Subvention claim

34 Interest relief on Rupee Export credit

35 Compliance of Accounting Standard 11 as per Annual Closing Circular

36 Technology upgradation fund scheme

37 Capital subsidy scheme for processing machinery

38 LFAR

39 Tax audit report

40 SLR / CRR

41 Ghosh Committee Report

42 Jhilani Committee Report

43 Statement of Capital Adequacy

44 Statement of Risk Weight Assets

45 Certificate of passing previous year MOC

46 Certificate of Compliance with Income recognition, Asset Classsification and provisioning norms

47 Provision for sacrifice under NPV method for restructured advances

48 Provision held on upgraded restructured advances for two years

49 Sector wise, security wise and asset classification wise statement

50 Certificate of Lending to Sensitive Sector

51 Certificate of Cash Margin held

3.2. Attach final attested report, statements and certificates to be attached to this segment

3.3. In case of any schedules not audited by us ( eg. Sep 30 A/L, P/L etc) these may be signed with

a seal as “Initialled for Identification purposes only”

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4. Auditing Review and Other Standards

The work has been planned and performed in accordance with the following Auditing, Review and

Other Standards as prescribed by the Institute of Chartered Accountants of India to the extent

applicable for the engagement

SA reference Description

SA 200 OVERALL OBJECTIVES OF THE INDEPENDENT AUDITOR AND THE CONDUCT OF AN AUDIT IN ACCORDANCE WITH STANDARDS ON AUDITING.

SA210 AGREEING THE TERMS OF AUDIT ENGAGEMENTS.

SA220 QUALITY CONTROL FOR AN AUDIT OF FINANCIAL STATEMENTS.

SA230 AUDIT DOCUMENTATION.

SA240 THE AUDITOR’S RESPONSIBILITIES RELATING TO FRAUD IN AN AUDIT OF FINANCIAL STATEMENTS.

SA250 CONSIDERATION OF LAWS AND REGULATIONS IN AN AUDIT OF FINANCIAL STATEMENTS.

SA260 COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE.

SA265 COMMUNICATING DEFICIENCIES IN INTERNAL CONTROL TO THOSE CHARGED WITH GOVERNANCE AND MANAGEMENT.

SA299 RESPONSIBILITY OF JOINT AUDITORS.

SA300 PLANNING AN AUDIT OF FINANCIAL STATEMENTS.

SA315 IDENTIFYING AND ASSESSING THE RISK OF MATERIAL MISSTATEMENT THROUGH UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT.

SA320 MATERIALITY IN PLANNING AND PERFORMING AN AUDIT.

SA330 THE AUDITOR’S RESPONSES TO ASSESSED RISKS.

SA402 AUDIT CONSIDERATIONS RELATING TO AN ENTITY USING A SERVICE ORGANISATION.

SA450 EVALUATION OF MISSTATEMENTS IDENTIFIED DURING THE AUDIT.

SA500 AUDIT EVIDENCE.

SA501 AUDIT EVIDENCE—SPECIFIC CONSIDERATIONS FOR SELECTED ITEMS.

SA505 EXTERNAL CONFIRMATIONS.

SA510 INITIAL AUDIT ENGAGEMENTS—OPENING BALANCES.

SA520 ANALYTICAL PROCEDURES.

SA530 AUDIT SAMPLING.

SA540 AUDITING ACCOUNTING ESTIMATES, INCLUDING FAIR VALUE ACCOUNTING ESTIMATES, AND RELATED DISCLOSURES.

SA550 RELATED PARTIES.

SA560 SUBSEQUENT EVENTS.

SA570 GOING CONCERN.

SA580 WRITTEN REPRESENTATIONS.

SA600 USING THE WORK OF ANOTHER AUDITOR.

SA610 USING THE WORK OF INTERNAL AUDITORS.

SA620 USING THE WORK OF AN AUDITOR’S EXPERT.

SA700 FORMING AN OPINION AND REPORTING ON FINANCIAL STATEMENTS.

SA705 MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT.

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SA reference Description

SA706 EMPHASIS OF MATTER PARAGRAPHS AND OTHER MATTER PARAGRAPHS IN THE INDEPENDENT AUDITOR’S REPORT.

SA710 COMPARATIVE INFORMATION— CORRESPONDING FIGURES AND COMPARATIVE FINANCIAL STATEMENTS.

SA720 THE AUDITOR’S RESPONSIBILITY IN RELATION TO OTHER INFORMATION IN DOCUMENTS CONTAINING AUDITED FINANCIAL STATEMENTS.

SA800 SPECIAL CONSIDERATIONS—AUDITS OF FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH SPECIAL PURPOSE FRAMEWORKS.

SA805 SPECIAL CONSIDERATIONS—AUDITS OF SINGLE FINANCIAL STATEMENTS AND SPECIFIC ELEMENTS, ACCOUNTS OR ITEMS OF A FINANCIAL STATEMENT.

SA810 ENGAGEMENTS TO REPORT ON SUMMARY FINANCIAL STATEMENTS.

SRE2400 ENGAGEMENTS TO REVIEW FINANCIAL STATEMENTS.

SRE2410 REVIEW OF INTERIM FINANCIAL INFORMATION PERFORMED BY THE INDEPENDENT AUDITOR OF THE ENTITY.

SAE3400 THE EXAMINATION OF PROSPECTIVE FINANCIAL INFORMATION.

SAE3402 ASSURANCE REPORTS ON CONTROLS AT A SERVICE ORGANISATION.

SRS4400 ENGAGEMENTS TO PERFORM AGREED-UPON PROCEDURES REGARDING FINANCIAL INFORMATION.

SRS4410 ENGAGEMENTS TO COMPILE FINANCIAL INFORMATION.

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5. Engagement documentation

5.1. Audit Acceptance Letter

The audit acceptance letter has been provided to the CO and a copy is kept in the next page.

Related documentation including Declaration of fidelity and secrecy, Declaration of full time

practice and Declaration of Indebtedness has also been attached to this section. Refer Appendix

1 for acceptance letter

5.2. Engagement Letter

An engagement letter has been issued and kept in Appendix 2

5.3. Letter of communication with previous auditor

Communication to the previous auditor M/s ………………………….. has been sent on ……………………….

Vide courier ref ……………………… dated ……………………… and response has / has not been received.

Further the previous auditor has / has not been contacted over phone / e mail. Refer Appendix

3 for Communication sent and response received. Refer Appendix 3

5.4. Representation letter

Management Representation letter has been obtained and kept in Appendix 4

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6. Branch Overview

6.1. Key data

6.2. Target Vs Accomplishment

Description 2012-13 2011-12

Rs . lakhs Rs . lakhs

Total Assets

Total liabilities

Total Advances

Total Deposits

Income

Expenditure

Profit / Loss

Description 2012-13 2011-12

Target Rs . lakhs

Actual Rs . Lakhs

Total Advances

Total Deposits

Rating of the Branch

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6.3. Advances Overview - top 10 advance categories of the branch

S No Category of advances 2012-13 2012-13 2011-12 2011-12

Rs . lakhs No of accts


1 Cash Credit

2 Overdraft

3 Term loans

4 Crop loans

5 Housing loans

6 Jewel loans

7

8..

10 Other advances

Total Advances

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6.4. Large Advance Profiling

List of advances greater than Rs 2 Crores or individually accounting for 5% of the total advances

whichever is lower to be covered for detailed checking are as under

6.5. Customer wise advances

Based on our discussions with the branch manager, these advances belong to the same party and

are considered for checking on a collective basis as slippage in one account could result in NPA

status for all accounts

S No Account reference / name 2012-13 2012-13 2011-12 2011-12



1

2

3

4

5

6

S No Customer Name Facilities 2012-13

Rs . lakhs

1 1

2

3

2 1

2

3

3 1

2

3

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6.6. Advance profiling by value

6.7. Deposit profiling

S No Slab - Rs Lakhs outstanding 2012-13 2012-13


1 < Rs 1 lakh

2 Rs 1 – 5 lakhs

3 Rs 5 – 10 lakhs

4 Rs 10 - 50 lakhs

5 Rs 50 lakhs – Rs 1 Crore

6 Rs 1 to 2 Crores

7 Rs 2 to 5 Crores

8 Rs 5 to 10 Crores

9 > Rs 10 Crores

S No Category of deposit accounts 2012-13 2012-13 2011-12 2011-12



1

2

3

4

5

6 Others

Total Deposits

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6.8. Restructured advances

The following are the advances restructured by the branch and to be reviewed for compliance with

restructuring terms and conditions as per revised sanctions. Repeated restructured accounts will

also be reviewed

6.9. Interest rate and other charges on major advances

Advances Type Interest % Charges % Charges % Charges %

S No Account reference / Name During 2012-13

Upto 2011-12

2012-13

Rs . lakhs Rs. Lakhs Rs . lakhs

1

2

3

4

5

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6.10. Interest rate on deposits

Deposit type Days Interest %

6.11. Any frauds reported

Note on frauds reported at the branch in the last few years

6.12. Information in the public domain

We have scanned the public domain for information pertaining to the Bank and we report as under :

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6.13. Asset Classification as of date of audit

6.14. Review of previous year Audit report and LFAR

A short note on any significant issues noticed in the last years audit report , LFAR, NPA provisioning

and Note on frauds / large write offs at the branch in the last few years

6.15. Any other matters for consideration to be included

S No Category 2012-13 2012-13 2011-12 2011-12



1 Standard

2 Substandard

3 Doubtful

4 Loss

Total advances

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7. Review Notes of Concurrent, Risk Based Audit, Inspection Reports

Concurrent Audit

S No Account reference / nature of issue / date of report

Amount Present Status – Rectified, LFAR,

MoC, Unadjusted

Impact, if any on audit strategy

Risk Based Internal Audit



MoC, Unadjusted


Inspection Reports



MoC, Unadjusted


8. Audit Strategy

Based on our high level review of the branch data, loans and deposits CBS files and based on

discussions with the Branch manager the following is proposed as the audit strategy

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8.1. Top Down Approach to audit

The audit strategy will envisage a top down approach which involves understanding the Balance

Sheet and P & L and a drill down to perform compliance and substantive procedures at a component

/ transaction level

8.2. Utilisation of Other Audit reports

The branch has been covered under Concurrent audits / Risk based internal audits as well as

Inspections. These reports will be reviewed to gain a quick understanding of the control framework

and the efficient functioning at the branch.

8.3. Sample selection

CBS reports will be downloaded converted to excel and samples selected across loan types,

accounting periods, rates , value slabs

8.4. Advances

Understand and appreciate target related pressures and potential impact on misstatements

Top accounts ( Rs 2 Crs / 5% advance ) will be checked 100% to cover all accounts

Samples of ….. accounts will be taken across all categories of advances to check sanction,

documentation, income accrual and monitoring controls

Particular attention will be paid to the following accounts based on our review of the

Concurrent / inspection reports

o ………………..

o ……………….

o ……………….

The following unit visits will be undertaken to perform inspection of books / assets held by

customers

o ………………..

o ……………….

o ……………….

All accounts with irregularities as indicated in CBS ( based on loan balance file ) will be

undertaken for review with bank manager to identify potential NPA cases. The Irregular

loan balance report will also be reviewed in detail and documented

Sanity checks of advances file will be undertaken for interest rate inconsistencies / sub rate /

off standard rates for the particular categories

Interest and processing charge accruals will be test checked for 10 random months across

…. Loan files and CCOD files ( periodic / daily interest computation )

Large disbursements close to year / quarter end will be reviewed in detail on a test basis

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Clean loans / bullet loans to be reviewed in detail

Special emphasis on restructured advances

8.5. Deposits

Top deposit accounts will be checked to review completeness, adequacy , relevance of

documentation

Large deposits placed at year end will be reviewed in detail

Sanity checks of advances file will be undertaken for interest rate inconsistencies / sub plr /

off standard rates for the particular categories

8.6. Other items

Checklist driven approach guided by key control aspects as stated in the LFAR

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9. Standard Schedules

9.1. Top Notes for attention of Manager / Partner

S No Nature of Issue Amount LFAR MoC Fraud related Final Disposal Status

9.2. Items Adjusted –Memorandum of Changes

The following MoC’s have been recommended by us based on our audit of the financial

statements and on the basis of information and explanations provided to us

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S No Nature of Issue Debit Account

Credit Account

Amount Remarks

Rectification of Income recognition

Reclassification of NPA’s ( fresh )

Change in the status of Old NPA’s

Account reclassifications within P&L: and A&L

Reclassification of Loans and Advances where done differently by the branch

Assets put to use and not capitalised

Any other

9.3. Items ignored and not adjusted in the Financial Statements


Credit Account

Amount Remarks


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Account reclassifications with P&L: and A&L


Assets put to use and not capitalised

Any other

9.4. Minutes of discussions with Branch Manager including NPA review

S No Rationale for selection for NPA review

Account reference and name

Amount outstanding

Remarks LFAR / MoC / Unadjusted Differences

Inadequate documentation

Inadequate security cover

Irregularity in servicing principal and / or interest

Repeated restructuring

Drawing Power related issues

Failed sanity checks on limits vs financial data

Solitary credits in accounts

Inoperative accounts

Financials related issues observed

Public domain information

Suspected Frauds

Any other reason

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10. Avances and General Audit plan

10.1. Summary of advances of the branch ( as per Balance Comparison report)

Advance Category Amt 2012-13 Amt 2011-12

10.2. General Audit plan for advances

10.2.1. Obtain the Loan listing as at the Date of Audit

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10.2.2. Loans greater than Rs.2Crore limit or Rs 2 Cr balance outstanding to be taken up for

detailed review documentation for LFAR

10.2.3. Generate the following reports:

o Special Watch Report

o Restructured accounts report

o Suspended Accounts

o NPA Listing

10.2.4. Identify samples of loans to be checked.

10.2.5. Ensure 100% of files selected for samples are available to confirm that no file is lost

10.2.6. Review loans against checklist prepared category wise in relation to

o Application

o Credit appraisal

o Sanction letter

o Disbursement

o Master data updation in CBS

o Interest computation

o Principal repayment

o Fixation of drawing power

o Verification of securities

o Submission of stock and book debts

o Submission of financial statements

o Any other documentation

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11. Advances Verification – Large advances

11.1. Checklist for large advances

Obtain list of all large advances ( Rs 2 Crs / 5% ) and complete the following aspects

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Sl No Particulars Remarks Page Number ref

1 Name of the borrower

2 Date of Loan Application

Whether loan application is processed duly obtaining all records / documents, Audited Financial Statements and unit inspection

Date on which recommended by branch

Whether approved by competent authority

Date on which duly approved

3 Nature of Limit

Fund Based

Cash Credit

Overdraft

Term Loan

Bills purchase / discounting

Non Fund based

Letters of Credit

Bank Guarantees

Total Exposure

Classification Priority / NPS

4 Date of original Sanction

5 Due Date of renewal

Date of renewal / review

6 Number of days overdue since

7 Sanction terms

8 Primary security

9 Collateral security

10 Facility wise margin

11 Special terms and conditions for compliance

Documentation

Execution of Hypothecation and other documents

Registration of Charges if company

Legal opinion

Valuation report copy

Audited financial Statements

Margin requirement and additional capital infusions

others

12 Disbursement – is it done directly in term loan accounts

Are there bullet disbursement in Housing loan for construction

Deficiencies in disbursements

Is the operative account allowed to be utilised in single disbursement

Ensure end use of funds

Verify and if applicable, Report diversion of funds at the point of disbursement

13 Post disbursement monitoring

38 | P a g e

Is the facility operated with the limit, identify number of days when it is beyond limit / DP

Verify adhoc and the manner of adjustment of adhoc

Deviation from sanction terms

14 Whether stock statements are being obtained regularly

Whether book debt statements duly certified by CA’s / as per terms are obtained regularly

Is the Drawing power correctly marked in the system

Is there delay in obtaining the above

Whether penal interest is charged for delay in submission of stock / book debt statements

Whether stock statement are perused and checked by branch officials

Whether stock inspections are carried out by branch officials / concurrent auditors

Report of inspections / Concurrent auditors

Is the stock statement / book debt statement as at 31st March of previous year tallying with the Audited Financial Statement of the same date.

Deviations if any, how dealt with

If the deviation is significant whether it has any impact on the drawing power determination and consequent asset classification

Whether insurance cover is obtained

Is it fully insured or under insured – quantum of under insurance

Whether RC book, Key and transfer forms obtained for vehicle loans

Whether term loan disbursements are done directly

Whether receipts of payments made to vendors obtained

15 Operation in the account

Whether operation in the account is satisfactory

Whether frequent overdrawing is authorised / approved

Whether term loan repayments are regular

If overdue, number of instalments and whether any instalment is regularised by way of additional facility or accomodation

Any other observation / deficiency in the account

16 Whether processing and inspection charges are charged and recovered

17 Whether the Sector wise classification is correct

18 Whether the securities offered are in place to ensure correctness of security wise classification

19 Whether asset classification is correctly made

20 Whether interest and legal charges on NPA accounts are not debited to borrowers account.

11.2. Samples and Matters for Consideration

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12. Special Note on Audit of Restructured Advances

12.1. Indicative Checklist

Obtain a general understanding of the type of advance which has been restructured –

project / non project advances, prior to or after Commencement of Commercial production

etc as per the RBI master circular which deals in detail on manner and mode of treatment of

restructured advances

Restructured advances to be reviewed with reference to revised terms of sanction properly

approved by the relevant sanctioning authority

Repeated restructuring to be reviewed for NPA classification

All terms of revised sanction are complied with ( including but not limited to revision in

commercial production, interest rate revision, rescheduling of repayments, additional

security cover, promoters contribution enhancements, escrow requirements etc ). In case

of non compliance, appropriate reclassifications have been considered

12.2. Verification and results

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13. Advances Verification – Cash Credit and overdraft accounts


Financial Statements and solvency / capability of borrower / limit

Unaudited financial statements have been furnished for balances < Rs 1 lakh

Audited financial statements have been furnished for balances > Rs 1 lakh

Audited financial statements have been furnished for corporate borrowers

Income tax returns have been furnished

Limit fixation and approval

Proposal for assessment of Working capital needs is available

Sanction as per limits of branch

If immovable property has been offered as security ,

EC for continuous period is available and is clear

Title Deeds have been deposited with the bank

If immovable property , EM regn > Rs 25 lakhs

Legal opinion is available and indicates clean title deeds

Valuation report is present and is commensurate

Valuation report is less than three years old

Insurance policy available, adequate and comprehensive

Security of stock and book debts / other collaterals

Demand Promisory note has been furnished

Hypothecation agreement for stocks and Drs

Guarantee Agt has been executed properly

ROC regn of charge for cos for hyp of stock and book debts - Form 8

ROC regn of charge for cos for hyp of immov property

ROC search report once in 3 years

Others

Monitoring Actions

41 | P a g e

Submission of stock stts

Maintenance of drawing limit based on Working capital statements

Qtrly book debts certf by CA

Stock audit once a year by CA for > Rs 1 cr

Godown visit by banker - monthly or qtrly

Repayments / TOD / One off credits

Review of accounts to ensure continuous operation

Review of accounts featuring in Irregular report as per CBS

One off credits to be investigated

Drawing in excess of sanctioned limit on a continuous basis

Consistent excess over drawing power as per sanction

CBS Updation

Loan details recorded correctly in CBS

Test of repayments done

Test of interest accrual done

13.2. Sample verification and results

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14. Advances Verification – Housing loans


Loan application is available

Loan application is signed and properly executed

Sanction letter is available

Loan proposal indicating projections etc

Title deeds lodged with bank

Assessment of repayment capability - Sal cert / it returns / pl acct etc

Margin at XX% ( Land cost + constrn cost )

EC available

Legal opinion

Approved Building plan - CMDA

Insurance policy

Pledge deed

All documents refer to the same survey number

EM creation by deposit of title deeds

EM registered for Rs 25 lakhs

Direct payment to vendor of land / contractor

If client own construction, stage payment subj to original bills cert by civil engg for work done

Inspection of property by bank

Final valuation cert for completed properties

Valuation report is less than three years - available from expert




14.2. Samples verified

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15. Advances Verification – Educational loans



Loan appln is signed and properly executed


Loan for Grad / PG

Loan - Inland – Foregin

Plus 2 pass proof

Asst of repayment of parent

For loan to minor , parent should sign the application and all documents for self and on behalf of

Where minor > 18 yrs after disbursement, AOD and LOU counter signed by parent

Parent IT return

Parent Salary certificate / PL acct profit

Ceiling based on course

Not given for capitation fee

Margin maintained at X%

Less than max ceiling

, Rs 25K no sec

Rs 25 - 50K - surety apart from parent

> Rs 100 K – collateral

EM creation by deposit of title deeds

EM registered for . Rs 25 lakhs

All documents refer to the same survery number


Approved plan

Inspection of property by bank, if collaterial

Interest to be serviced before completion of course for loans to employed Persons






44 | P a g e

16. Advances Verification – Vehicle loans





DPN

Hypothecation agreement

Loan proposal indicating projections etc

Financials of the borrower prior to loan date

IT returns for period before loan sanc. Date

RC book - certified true copy

RC endorsed in favour of bank - Hypothecation endorsement

Loan is sanctioned net of margin for 'Cost and Accessories" not for charges

Disbursement amount , tenure and tenor as per sanction

Duplicate keys

Original invoice

Direct payment to dealer for vehicle

Guarantor signature

Comprehensive insurance - live now and bank clause in fav of Ind Bank

For second hand vehicle - valn report from approved valuer

Higher margin requirement for second hand vehicle





45 | P a g e

17. Advances Verification – Jewel Loans


Loan agreement is available and properly executed

Jewel packet verified for weight and purity

Letter of pledge is available

Rate of interest updated properly





46 | P a g e

18. Advances Verification – Loans against Own Deposits


Letter of pledge is available

Nature of security - RD / FD

Lien is marked in system against the FD

Deposit receipt is available with bank and discharged

Loan closed after due date of deposit





47 | P a g e

19. Advances Verification – Loans against financial assets




Loan amount original sanctioned is within powers

Securities in the name of the borrower

In case security not in the name of the borrower , consent letter is available

Shares - demat and pledged noting in demat

LIC - Assignment in favour of bank and regd

Govt instruments tfd as "Sec to Ind Bank " - NSC / KVP

Loan is within margin limits of surr. Value

Loan is within margin limits of mkt. Value for shares

Loan is within margin limits of face value for govt notified instmts

Shares erosion in market value

LIC erosion in surr. Value due to unpaid premium has been cognised for





48 | P a g e

20. NPA Review

20.1. General Audit plan for NPA review

The NPA file was obtained from CBS as at date of audit

The Specially Marked Accounts files were obtained

The irregular files were obtained

The files were cross referenced to the loan balance and CCOD file

Clean loans – top value were test checked to ensure that there are no impairments

Loans featuring in any of the above reports – NPA / SMA and IRR were considered for

the review

The accounts were reviewed individually with the Branch manager to determine the

extent of slippage, possibility of recovery and the need for reclassification

Additionally, accounts identified as potential NPA based on documentation / security

lapses were also considered for the review and rectification before the Balance Sheet

date

Restructured accounts listing was obtained and reviewed in detail

20.2. Details of MoC’s


Credit Account

Amount Remarks




Account reclassifications within P&L: and A&L


Assets put to use and not capitalized

49 | P a g e

21. Verification of Deposits

21.1. General Audit plan for deposits

Date of deposit

If SB acct holder, give SB ref

Application form and complete

Photograph

ID proof and age proof

Address Proof

Introducer

Pan copy

Pan related documentation

Rate as per norm

CBS updation done correctly

Interest Computation is accurate

Deposit file has been reviewed for interest rates on a substantive basis ( sanity checks )

21.2. Details of Sample selected

50 | P a g e

budget highlights bank audit

Documents

years fy

wealth tax

tax deductions

budget deduction

surcharge txbl income

union budget

corporate taxes

insurance nil