Bank Branch Audit Managing Risk

An Integrated Work Paper Model

A Smart CA Update - CA Sripriya Kumar Member SIRC of ICAI PART I This document is published under the Smart CA professional initiative and is indicative only. User discretion is highly recommended in the use of this document

Bank Branch Audit Working Paper Manual

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 CA Sripriya K

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Bank Branch Audit Working Paper Manual

BANK BRANCH AUDIT INTEGRATED WORK PAPER FILE

Bank Name Branch Year Date of Commencement Date of Completion Partner in Charge File Reference

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Bank Branch Audit Working Paper Manual

TABLE OF CONTENTS
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. Objective and Scope of audit _______________________________________________________________________ 5 Scope Limitations, if any____________________________________________________________________________ 7 Report, Returns and Certificates ___________________________________________________________________ 8 Auditing Review and Other Standards ___________________________________________________________10 Engagement documentation ______________________________________________________________________12 Branch Overview ___________________________________________________________________________________13 Review Notes of Concurrent, Risk Based Audit, Inspection Reports ___________________________20 Audit Strategy ______________________________________________________________________________________22 Standard Schedules ________________________________________________________________________________24 Advances and General Audit plan ______________________________________________________________28 Advances Verification Large advances _______________________________________________________30 Special Note on Audit of Restructured Advances _____________________________________________34 Advances Verification Cash Credit and overdraft accounts ________________________________35 Advances Verification Housing loans ________________________________________________________37 Advances Verification Educational loans ____________________________________________________38 Advances Verification Vehicle loans__________________________________________________________39 Advances Verification Jewel Loans ___________________________________________________________40 Advances Verification Loans against Own Deposits ________________________________________41 Advances Verification Loans against financial assets _______________________________________42 NPA Review ______________________________________________________________________________________43 Verification of Deposits _________________________________________________________________________44 Check list for Long Form Audit Report ________________________________________________________45 Profit and Loss Account Analytical review procedures_____________________________________48 Certification Related Working papers _________________________________________________________48 Tax Audit Workings _____________________________________________________________________________48 Other Working papers __________________________________________________________________________49 References _______________________________________________________________________________________49 Appendices ______________________________________________________________________________________49

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Bank Branch Audit Working Paper Manual

1. Objective and Scope of audit

1.1. We have been appointed as the Statutory Auditors of the Branch of .. Bank for the year 2012-13 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, 2013 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 Name Designation Partner Qualified Paid Assistant Audit Assistant Articleship trainee 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 Days From To

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Bank Branch Audit Working Paper Manual

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 Branch Manager Loans Officer Deposit Officer Other Officers

Name

Grade

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Bank Branch Audit Working Paper Manual

2. Scope Limitations, if any

2.1. The Branch management has not been able to furnish the following details / records / explanations in connection with the audit

Information requested and not provided

Amount

Impact on audit, if any

Management Comments

2.2. 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

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Bank Branch Audit Working Paper Manual

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

No of copies

S No 1 2 3 4 5 6 7 8 9 B 10 11 12 13 14 15 16 17 18 C 19 20 21 22 23 24 25

Index RETURNS BS - 1 Liabilities BS - 2 Assets BS - 3 Expenditure for the half year ended 31-03-13 BS - 4 Income for the half year ended 31-03-13 Final A & L as on 31-03-13 Final P & L for the year 31-03-13 BS 7 STATEMENT OF CLAIMS MADE AGAINST THE BANK NOT ACKNOWLEDGED AS DEBT BS 8 DETAILS OF RESTRUCTUTRED A/C (EXCLUDING CDR) BS 9 DETAILS OF COUNTRYWISE, RISK CATEGORY WISE EXPOSURE Supplementary to BS Schedules SUPP. B BREAK UP OF LCS, GUARANTEES, ETC. SUPP. C CLASSIFICATION OF ADVANCES Supp D - Break iup of sundry receivables and sundry depsoits SUPP. E1 & E2 EXPOSURE TO SENSITIVE SECTOR Supp F - information relating to DSB 1 and additional information SUPP. G CASH & BANK BALANCE FOR SELECT NON-FRIDAYS Supp H - Residual maturity pattern of forex advances / deposits SUPP. K - PARTICULARS OF EXPENDITURE AND INCOME RELATING TO PREVIOUS YEARS SUPP. M BREAK UP OF PAYMENTS TO AND PROVISIONS FOR EMPLOYEES LA General and LA Suit Filed as at 31-03-13 Loan Analysis Summary Recoveries made in Select Borrowal accounts from 01-04-12 to 31-03-13 Control Sheet for NPA, Income Recognition, Movement of NPA and Interest reversal of NPA BS - 3 Expenditure for the half year ended 30-09-12 BS - 4 Income for the half year ended 30-09-12 Supp M - 30-09-12 SFVM inventory statement

Completion Status

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No of copies

S No 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51

Index CERTIFICATES Branch Audit Report Annexure A to E ( Memorandum of Changes ) Questionnaire in addition to Branch Audit report Special Deposit Scheme 1975 Compulsory Deposit scheme 1974 PMRY scheme Form of Certificate on sharing of recoveries in claim settled accounts under SLGS 1971/SLGS(SSI) 1981 Interest Subvention claim Interest relief on Rupee Export credit Compliance of Accounting Standard 11 as per Annual Closing Circular Technology upgradation fund scheme Capital subsidy scheme for processing machinery LFAR Tax audit report SLR / CRR Ghosh Committee Report Jhilani Committee Report Statement of Capital Adequacy Statement of Risk Weight Assets Certificate of passing previous year MOC Certificate of Compliance with Income recognition, Asset Classsification and provisioning norms Provision for sacrifice under NPV method for restructured advances Provision held on upgraded restructured advances for two years Sector wise, security wise and asset classification wise statement Certificate of Lending to Sensitive Sector 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 ( e.g. Sep 30 A/L, P/L etc) these may be signed with a seal as Initialled for Identification purposes only

Completion Status

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Bank Branch Audit Working Paper Manual

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 SA 200 SA210 SA220 SA230 SA240 SA250 SA260 SA265 SA299 SA300 SA315 SA320 SA330 SA402 SA450 SA500 SA501 SA505 SA510 SA520 SA530 SA540 SA550 SA560 SA570 SA580 SA600 SA610 SA620

Description OVERALL OBJECTIVES OF THE INDEPENDENT AUDITOR AND THE CONDUCT OF AN AUDIT IN ACCORDANCE WITH STANDARDS ON AUDITING. AGREEING THE TERMS OF AUDIT ENGAGEMENTS. QUALITY CONTROL FOR AN AUDIT OF FINANCIAL STATEMENTS. AUDIT DOCUMENTATION. THE AUDITORS RESPONSIBILITIES RELATING TO FRAUD IN AN AUDIT OF FINANCIAL STATEMENTS. CONSIDERATION OF LAWS AND REGULATIONS IN AN AUDIT OF FINANCIAL STATEMENTS. COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE. COMMUNICATING DEFICIENCIES IN INTERNAL CONTROL TO THOSE CHARGED WITH GOVERNANCE AND MANAGEMENT. RESPONSIBILITY OF JOINT AUDITORS. PLANNING AN AUDIT OF FINANCIAL STATEMENTS. IDENTIFYING AND ASSESSING THE RISK OF MATERIAL MISSTATEMENT THROUGH UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT. MATERIALITY IN PLANNING AND PERFORMING AN AUDIT. THE AUDITORS RESPONSES TO ASSESSED RISKS. AUDIT CONSIDERATIONS RELATING TO AN ENTITY USING A SERVICE ORGANISATION. EVALUATION OF MISSTATEMENTS IDENTIFIED DURING THE AUDIT. AUDIT EVIDENCE. AUDIT EVIDENCESPECIFIC CONSIDERATIONS FOR SELECTED ITEMS. EXTERNAL CONFIRMATIONS. INITIAL AUDIT ENGAGEMENTSOPENING BALANCES. ANALYTICAL PROCEDURES. AUDIT SAMPLING. AUDITING ACCOUNTING ESTIMATES, INCLUDING FAIR VALUE ACCOUNTING ESTIMATES, AND RELATED DISCLOSURES. RELATED PARTIES. SUBSEQUENT EVENTS. GOING CONCERN. WRITTEN REPRESENTATIONS. USING THE WORK OF ANOTHER AUDITOR. USING THE WORK OF INTERNAL AUDITORS. USING THE WORK OF AN AUDITORS EXPERT.

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Bank Branch Audit Working Paper Manual SA reference SA700 SA705 SA706 Description FORMING AN OPINION AND REPORTING ON FINANCIAL STATEMENTS. MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITORS REPORT. EMPHASIS OF MATTER PARAGRAPHS AND OTHER MATTER PARAGRAPHS IN THE INDEPENDENT AUDITORS REPORT. COMPARATIVE INFORMATION CORRESPONDING FIGURES AND COMPARATIVE FINANCIAL STATEMENTS. THE AUDITORS RESPONSIBILITY IN RELATION TO OTHER INFORMATION IN DOCUMENTS CONTAINING AUDITED FINANCIAL STATEMENTS. SPECIAL CONSIDERATIONSAUDITS OF FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH SPECIAL PURPOSE FRAMEWORKS. SPECIAL CONSIDERATIONSAUDITS OF SINGLE FINANCIAL STATEMENTS AND SPECIFIC ELEMENTS, ACCOUNTS OR ITEMS OF A FINANCIAL STATEMENT. ENGAGEMENTS TO REPORT ON SUMMARY FINANCIAL STATEMENTS. ENGAGEMENTS TO REVIEW FINANCIAL STATEMENTS. REVIEW OF INTERIM FINANCIAL INFORMATION PERFORMED BY THE INDEPENDENT AUDITOR OF THE ENTITY. THE EXAMINATION OF PROSPECTIVE FINANCIAL INFORMATION. ASSURANCE REPORTS ON CONTROLS AT A SERVICE ORGANISATION. ENGAGEMENTS TO PERFORM AGREED-UPON PROCEDURES REGARDING FINANCIAL INFORMATION. ENGAGEMENTS TO COMPILE FINANCIAL INFORMATION.

SA710

SA720

SA800

SA805

SA810 SRE2400 SRE2410

SAE3400 SAE3402 SRS4400

SRS4410

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Bank Branch Audit Working Paper Manual

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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Bank Branch Audit Working Paper Manual

6. Branch Overview
6.1. Key data

Description Total Assets Total liabilities Total Advances Total Deposits Income Expenditure Profit / Loss

2012-13 Rs . lakhs

2011-12 Rs . lakhs

6.2. Target Vs Accomplishment

Description

2012-13 Target Rs . lakhs

2011-12 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 Rs . lakhs

2012-13 No of accts

2011-12 Rs . lakhs

2011-12 No of accts

1 2 3 4 5 6 7 8.. 10

Cash Credit Overdraft Term loans Crop loans Housing loans Jewel loans

Other advances Total Advances

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Bank Branch Audit Working Paper Manual

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

S No

Account reference / name

2012-13 Rs . lakhs

2012-13 No of accts

2011-12 Rs . lakhs

2011-12 No of accts

1 2 3 4 5 6

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 1

Customer Name 1 2 3

Facilities

2012-13 Rs . lakhs

1 2 3

1 2 3

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6.6. Advance profiling by value

S No 1 2 3 4 5 6 7 8 9

Slab - Rs Lakhs outstanding < Rs 1 lakh Rs 1 5 lakhs Rs 5 10 lakhs Rs 10 - 50 lakhs Rs 50 lakhs Rs 1 Crore Rs 1 to 2 Crores Rs 2 to 5 Crores Rs 5 to 10 Crores > Rs 10 Crores

2012-13 Rs . lakhs

2012-13 No of accts

6.7. Deposit profiling

S No

Category of deposit accounts

2012-13 Rs . lakhs

2012-13 No of accts

2011-12 Rs . lakhs

2011-12 No of accts

1 2 3 4 5 6 Others Total Deposits

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Bank Branch Audit Working Paper Manual 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 S No Account reference / Name 2012-13 Rs . lakhs

During 2012-13 Rs . lakhs

Upto 2011-12 Rs. Lakhs

1 2 3 4 5

6.9. Interest rate and other charges on major advances Advances Type Interest % Charges % Charges % Charges %

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6.10. Deposit type

Interest rate on deposits Days Interest %

6.11.

Any frauds reported

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

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Bank Branch Audit Working Paper Manual 6.12. Asset Classification as of date of audit

S No

Category

2012-13 Rs . lakhs

2012-13 No of accts

2011-12 Rs . lakhs

2011-12 No of accts

1 2 3 4

Standard Substandard Doubtful Loss Total advances

6.13.

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 6.14. Any other matters for consideration to be included

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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 S No Account reference / nature of issue / date of report Amount Present Status Rectified, LFAR, MoC, Unadjusted Impact, if any on audit strategy

Inspection Reports S No Account reference / nature of issue / date of report Amount Present Status Rectified, LFAR, MoC, Unadjusted Impact, if any on audit strategy

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