Chapter

INTRODUCTION
 EXECUTIVE SUMMERY

A banking companies are requires maintaining the books of account in accordance

with section 209 of the companies act, 1956. Banking generally a sound internal
control system their day to day transaction. The auditor has to evaluate such
system carefully. The fundamental requirement of an audit, as regards reporting
on statement of account can be discharged from the examination of the internal
checked and verification of assets and liabilities by making a comparison and
reconciliation of balance with those in the year and that of amount of income and
expenses by application of test checks. The banking regulation act casts greater
responsibilities on the directors of banks as compared to those of other companies
in the matter of supervision over their working. Therefore, they exercise, or are
expected to exercise greater supervision over the affairs of bank. The auditor is
entities to rely on such supervision and to limit his checking to test checks. The
financial position of a bank is depended on the condition of assets, loan,
investment, cash balanced and those of its liabilities and fund. Their verification
form an important part of the balance sheet. Most of the bank have their own
internal audit or inspection department entrusted with the responsibilities of
checking the account of various branches. The statutory auditor may not,
therefore, duplicate work.
  INTRODUCTION

The audit of banking companies plays a very important role in India as it help to regulate the banking
companies in right manner. In audit of banks includes various types of audit which are normally carried
out in banking companies such as statutory audit, revenue/income expenditure audit, concurrent audit,
computer and system audit etc. the above audit is mainly conducted by the banks own staff or external
auditor. However, the rules and the regulation relating to the conduct of various types of audit or
inspections differ from a bank to bank expect the statutory audit for which the RBI guidelines is applicable.
In this, I have given more importance on the overall bank audit system. In today’s competitive world audit
is very much necessary as well as compulsory, because investor investing decision is depend on that
particular concept if auditor has expressing his view about particular organization is true and fair then
investor can get his ideas about how much he should invest in particular companies.

• Objectives of study
1) To study whole process of bank audit .
2) To study and understand the balance sheet of bank .
3) To study the internal software of bank regarding audit .
4) To detect fraud and errors in posting books and records of enterprise.
5) To observe committee meeting held by the bank before auditing .
  Scope of study

The report basically has the scope to provide a brief overview on Janakalyan credit co-op
society and also the details about the auditing process. The report addresses the
following:

• Organisational overview:
This includes the history of Janakalyan credit co-op society as a whole along with
the details of its services, structure and vision and mission statement of bank.
• Job description:
This segment entails the task assigned to the employer, the nature of the job, the
lesson learned the limitation phase and the observation made about attained the
corporate experience. This was carried out in Karad region.

LIMITATION OF THE STUDY

1) The data was collected mainly from the secondary source as collecting data from primary source
was difficult.
2) Analysis was based on data provided by the bank.
3) The data provided by the bank was limited.
4) The period of project was 2 months which is not sufficient to cover all the parts of the work.
5) The finding and suggestions are limited to the time frame during which project was done.
CHAPTER 2 PROFILE OF ORGANISATION
 • ORGANISATION’S PROFILE

Name of the organization : Janakalyan Nagari Sahakari Pathasantha Ltd , Karad Head Office
: Somwar Peth , karad

Origin of organisation :
Janakalyan Nagari Sahakari Pathasantha Ltd. was established on 29th May 1995, under the Maharashtra
State Co-operative Societies Act, 1960 .
Transparent operations, personalised services and professional administration, coupled with social
commitment have been the hallmark of the Bank, which has shown steady growth over the past four
decades and is presently one of the leading Co-operative Banks in Maharashtra based on business mix.

The Bank has a shareholders base of over 45,000, depositors of over 2,18,000 and borrowers of over
8,800 which clearly demonstrates the reach of the Bank and the trust of the general public with including
14 branches in Maharashtra .

A compact group comprising professionals and social activists was brainstorming sometime in the middle
of the year 1995 on a select mission. The object was to create a role model which would be capable of
providing sustainable financial solutions in an affordable manner. The target beneficiaries would be those
in the vicinity who were financially excluded despite their potential, honesty and integrity on account of
their inability to fulfill stricter compliance requirements.

• Mission :

Janakalyan Nagari Sahakari Pathasantha Ltd (JKNSPL) will strive to be the Leader amongst the Co-
Operative Banks in terms of Profitability, Productivity and Innovation while striving to meet its social
commitments. It shall endeavour to be the most Modern and Model Bank in the emerging Financial Super
Market.

JKSBL aims at Total Customer Satisfaction by rendering Efficient, Quick and Diversified Services at
reasonable cost through the Use of Modern Technology.

JKSBL will build a Highly Motivated & Committed Team of staff through Professional Work Culture and
Good Governance to achieve individual and Collective Superior Performance and endeavour to make
JKNSPL a place of pride for all Stakeholders and Regulatory Authorities.
 • Organisational chart

Name of Director Position Qualification Business / Profession

Shri Chandrashekhar Mahadeo Agriculture, Construction ,

Chairman B.E., D.B.Mt
Deshpande Trading & Distribution

Dr. Milind Shankar Pendharkar Vice-Chairman B.A.M.S. Medical Practitioner

Dr. Prakash Vishnu Sapre Director M.B.B.S. Medical Practitioner

Dr. Avinash Govind Gargate Director M.D.(Medicine) Medical Practitioner

CA Shirish Narayan Godbole Director B.Com, F.C.A Practicing Chartered Accountant

Shri Eknath Vishu Phirange Director M.A., B.Ed. Retired Teacher,Agriculture

Shri Jitendra Bhogilal Shah Director B.Com Trading in Building Materials

Dr. Vijay Hari Karambelkar Director M.S.(Optho) Medical Practitioner

Shri Hindurao Dattatraya Dubal Director B.Com Fabrication Unit

Shri Mohan Laxman Sarvagod Director B.A.,D.Ed. Retired Teacher, Social Activist

Authorized Godrej Distributor (

Informal Experience &
Shri Atul Dinkar Shalgar Director Office Furniture & Security
Exposure
System )

B.Tech.(Mech.Engg.)D.B.M.,
Shri Vijaykumar Hanmant Joshi Director Service
D.I.E.

Dr. Sucheta Anil Huddedar Director B.A.M.S. Medical Practitioner

Sou. Varsha Anil Kulkarni Director B.A Social Activist

Sou. Poonam Nitin Vaske Director B.Sc. Coaching Classes

Shri.Jagdish Shankar Subhedhar Expert Director B.Com Social Activist

 • Services

Sadasarvada ATM Servies

 1st Patsanstha which provides round the clock service .

 Withdrawal up to Rs. 20,000/-
 Centralized Place in city
 Safe & Secured option

Demand Draft Service ( Courtesy Service)

 Demand Draft Services

 Moderate Commission charges
 Facility for 526 Cities in India
 9 am to 9 pm Facility for DD

Safe Deposit Locker Service

 Rent free locker

 9 am to 6 pm Facility

Cheque Clearing Service :

 Cheques Clearing service with support of other banks

 Acceptance of cheque from 9 am to 9 pm
 Local & out station clearing facility is also available.

Senior Citizen Special service counter :

Selective services at the door step

Immediate response to your telecall with service at your home.

Monthly Interest at your home, on 1st day of every month.

R.T.G.S. / N.E.F.T. SERVICES:

  Money Transfer without hassles
 As per your choice, sent & receive money any where in India.
 Minimum Charges.

BANK GUARNTEE & BANK DEMAND DRAFT SERVICE:

 For your business, we are always with you.

 As per your business requirement,bank guarantee available.
 Service available in all branches with support of Head Office.
 Private, Co-operative & Government Banks Demand Draft in low Charges.

E-TAXATION PAYMENT:

 No queue, No Writing Tension

 Immediate E-Payment of Income Tax, T.D.S., Excise Tax, Service Tax, Sales
Tax (MVAT) & Professional Tax.
 Simple & Speedy process with Low charges.
 Expand your business by easy E Tax Payment.

E-SERVICES BILL PAYMENT:

 Telephone bill Payment

 Special counter for easy service.
 Mobile bill Payment & Recharge
 DTH Recharge
 Light Bill Payment
 Tickets Booking Available - Air & Travels.

SMS Alert Facility :

 Transactions alerts .
 Balance Enquiry
 Last 5 Transactions
 Term Deposit Maturity alerts
 CHAPTER 3

PROJECT METHODOLOGY
 PROJECT METHODOLOGY

Research methodology is a way to systematically show the research problem. It may be understood as
a science of studying how research is done scientifically. It is necessary for the researcher to know not
only the research methods but also the methodology.

This whole activity is divided into various parts and after completion of that research we reach at certain
finding, which enable us to take market decision. It involves the diagnosis of information needed and the
relevant and interrelated variables.

 Source of data:

To fulfil the objectives of the study the data is collected from Primary and
secondary source.

1. Primary Source :

The important source of primary data is survey research ( personel , mail , computer , telephone )

By Observing each and evey part of the work done process by participant and non participants

By informal discussion with employee , staff , managers.

By interviewing structure and non structred

2. Secondary Source: It was collected from internal sources. The secondary data was collected
on the basis of organizational file, official records, newspapers, magazines, internet,
management books preserved information in the company’s database and website of the
company.

sources can be classified into four broad categories:

a) accounting records
b) salesforce reports
c) miscellaneous records
d) internal experts
e) client history
f) service records
 CHAPTER 4

CONCEPTUAL BACKGROUND
 CONCEPTUAL BACKGROUND

1) What is audit ?

Definition: Audit is the examination or inspection of various books of accounts by an auditor followed
by physical checking of inventory to make sure that all departments are following documented system
of recording transactions. It is done to ascertain the accuracy of financial statements provided by the
organisation.

Description: Audit can be done internally by employees or heads of a particular department and
externally by an outside firm or an independent auditor. The idea is to check and verify the accounts by
an independent authority to ensure that all books of accounts are done in a fair manner and there is no
misrepresentation or fraud that is being conducted.

All the public listed firms have to get their accounts audited by an independent auditor before they
declare their results for any quarter.

Who can perform an audit? In India, chartered accountants from ICAI or The Institute of Chartered
Accountants of India can do independent audits of any organisation. CPA or Certified Public
Accountant conducts audits in USA.

There are four main steps in the auditing process. The first one is to define the auditor’s role and the
terms of engagement which is usually in the form of a letter which is duly signed by the client.

The second step is to plan the audit which would include details of deadlines and the departments the
auditor would cover. Is it a single department or whole organisation which the auditor would be
covering. The audit could last a day or even a week depending upon the nature of the audit.

The next important step is compiling the information from the audit. When an auditor audits the
accounts or inspects key financial statements of a company, the findings are usually put out in a report
or compiled in a systematic manner.

The last and most important element of an audit is reporting the result. The results are documented in
the auditor’s report.
 TYPE OF AUDIT IN BANK

 Statutory audit:

The statutory audit, which is compulsory as per the law. The statutory audit of banks includes examination
and inspection of internal audit, concurrent audit, etc. The statutory audit of banks is like a post mortem
activity. The suggestions of the statutory auditors can assist the bank management in improving the
effectiveness of internal audit/concurrent audit/inspection functions, etc. In this way statutory plays a very
important role in regulating the banking companies.

 Internal audit:

Banks generally have a well-organized system of internal audit. There internal auditors pay frequent visit
to the branches. They are an important link in internal control of the bank. The systems of internal audit
in different banks also have a system of regular inspection of branches and head office. A separate
department within the banks by firms of chartered accountants carries out the internal audit and inspection
function.
  Concurrent audit:

Concurrent audit is the system which introduced by the RBI with the view that interval between the
occurrence of transaction and it’s over view kept to the minimum extent and examination of transactions
by the auditors take place as soon as the transaction take place. It has perceived the effective means of
control. The main view of concurrent auditors is to see that the transactions are properly recorded,
documented and vouched.

 System audit:

In today’s technological advancements, banking companies are using a well-organized computer system
to perform their transactions. So, it is very necessary to conduct ‘system audit’ in order to evaluate the
computer system for effectiveness.

System audit is the audit of such computer environment/system and comprises the following internal
controls over EDP activities and with application controls specific control procedures over accounting
applications/assuring that all transaction are recorded and authorized and completely, accurately, timely
processed manner which in turn are verified by computer.

 Revenue audit:

Revenue audit refers to the audit of revenues/ incomes. In revenue audit of banking companies, auditors
go through the various sources of revenues from which bank earn income. In revenue audit of banks, the
auditor inspects that all the records are showing true and fair picture of revenues or not.
 ADVANTAGES OF AUDITING

1) Assurance of true and fair accounts:

Audit provides an assurance to the various users of final accounts such as owners,
management, creditors, lenders, investors, government’s etc. that the accounts are true and fair.

2) True and Fair balance sheet:

The user accounts can be sure that the assets and liabilities shown in the audited
balance sheet show the concern, as it is i.e. neither more nor less.

3) True and fair profit and loss account:

The user can be confident that the audited profit and loss account shows the true amount of
profit or loss as it is i.e. neither more nor less.

4) Tally with books:

The audited final account can be taken to tally with the books of accounts. Thus, the income-
tax officer can start with the figure of audited books profit, make adjustments and compute the
taxable income. An outside user need not go through the entire books.

5) As per standard accounting and auditing practices:

 The audited final accounts follow the standard accounting and auditing principles laid down
by professional bodies. Thus, audited accounts are based on objectives standard and not on personal
whims and fancies of a particular accountant or auditor.

6) Detection and prevention of errors and frauds:

Audited accounts can be assumed reasonably free from errors and frauds. The auditor with
his expert knowledge would take due care to see that Errors and frauds are detected so that the
accounts shoe a true and fair view.

7) Advice on system, taxation, finance:

The auditor can also advise the client about the accounting system, internal control, internal
check, internal audit, taxation, finances etc.
 LIMITATIONS OF AUDIT

1. An auditor cannot check each and every transaction he has to check only the selected areas and
transaction on a sample basis.

2. Audit evidence is not conclusive in nature thus confirmation by a debtor is not conclusive evidence
that the amount will be collected. It is said evidence is rather than conclusive in nature.

3. An auditor cannot be expected to discover deeply laid frauds usually involves acts designed to
conceal them such as forgery , celibate failure to record transactions, false explanation and hence
are difficult to detect.

4. Audit cannot assure the users of account about the future profitability, prospects or the efficiency of
the management.

5. An auditor has to rely upon expert auditor may have to rely on expert in related field such as lawyers,
engineers, value’s etc. for estimating contingent liabilities, valuation of fixed assets etc.
 BASIC PRINCIPAL OF AUDITING:

1) Integrity, objectivity and independence:

The auditor should be honest and sincere in his audit work. He must be fair and objective. He
should also be independent.

2) Confidentiality:

The auditor should keep the information obtained during audit, confidential. He should not
disclose such information to any third party. He should, keep his eyes and ears open but his mouth
shut.

3) Skill and competence:

The auditor should have adequate training, experience and competence in Auditing. He
should have a professional qualification ( i.e. be a Chartered Accountant) and practical experience. He
should be aware of recent developments in the field of auditing such as statement of ICAI, changes in
company law, decisions of courts etc.
 4) Working papers:
The auditor should maintain working papers of important matters to prove that audit was
conducted with due care according to the basic principles.

5) Planning:
The auditor should plan his audit work. He should prepare an audit programmed to complete
the audit efficiently and in time.

6) Audit evidence:
The report of the auditor should be base on evidence obtained in the course of audit. The
evidence may be obtained through vouching of transactions, verification of assets and liabilities, ratio
analysis etc.

7) Evaluation of accounting system and internal control:

The auditor should ensure that the accounting system is adequate. He should see that all the
transaction have been properly recorded. He should study and evaluate the internal controls.

8) Opinion and report:

. The auditor should arrive at his opinion on the account based on the audit evidence and
submit his report. The opinion may be unqualified, qualified or adverse. The audit report should clearly
express his opinion. Law should require the content and form of audit report.
 AUDIT COMMITTEE

In pursuance of RBI circular September 26, 1995, a bank is required to constitute an Audit
Committee of its Board. The membership of the audit committee is restricted to the Executive Director,
nominees of Central Government and the RBI, Chartered Accountant director and one of the non-
official directors.

One of the functions of this committee is to provide direction and oversees the operations of the
total audit function in the bank. The committee also has to review the internal inspection function in the
bank, with special emphasis on the system, its quality and effectiveness in terms of follow up. The
committee has to review the system of appointment and remuneration of concurrent auditors.

The audit committee is, therefore, connected with the functioning of the system of concurrent
audit. The method of appointment of auditors, their remuneration and the quality of their work is to be
reviewed by the Audit Committee. It is in this context that periodical meeting by the members of the audit
committee with the concurrent auditors help the audit committee to oversee the operations of the total
audit function in the bank.

Considering the coverage of this audit assignment and the specialized nature of work there is also a need
for training to be imported to the staff of the auditors. This training has to be given in specialized field
such as foreign exchange, computerization, and areas of income leakage, fraud prone areas, determination
of credit rating and other similar specialized areas. The bank can organize such training programmed at
various places so that it can ensure the quality of audit.
 INTERNAL CONTROL IN CERTAIN SELECTED AREAS

General

 The staff and officer of a bank should lift form one position to another frequently and without prior
notice.
 The work of one person should always be checked by another person in the normal course of
business.
 All arithmetical accuracy of the book should be proved independently every day.
 All bank form (e.g. books, demand draft book, ‘travellers’ cheque, etc.) should be kept in the
possession of an officer, and another responsible officer should occasionally verify the stock of such
stationary.
 The mail should be opened by responsible officers. Signature on all the letters and advice received
from other branches of the bank or its correspondence should be checked by an officer with signature
book.
 The signature book of the telegraphic codebook should be kept with responsible officers, used, and
seen by authorized officers only.
 The bank should take out insurance policies against loss and employees infidelity.
 The power of officers of different grade should be clearly defined.
 There should be surprise inspection of office and branches at periodic interval by the internal audit
department. The irregularities pointed out in the inspection reports should be promptly rectified.
Cash:

 Cash should be kept in the joint custody of two responsible people.

 In addition to normal checking by the chief cashier, cash should be test checked daily and counted
in full occasionally by responsible officers unconnected with the balanced shown the balanced
shown by the daybook every day.
 The cashier should have no access to the ledger account and the daybook. This is an important
safeguard. Bank management are often tempted to used cashier because of their shorter working
hours as a ledger clerks in the absence of regular staff on leave, etc. This cash can be a very expensive
price of economy.

Clearings:

 Cheques received by the bank in clearing should with the list accompanying them independent list
should be prepared for cheques debited to different customers account and those return unpaid and
these should be checked by officers.
 The total numbered and amount of cheques sent out the bank for clearing should be agreed with the
total of the clearing pay-in-slip, by an independent person.
 The unpaid cheques received back return clearing should be checked in the same manner as the
cheques received.
Constituent ledger:

 Before making payment, cheques should properly checked in respect of signature, date, balanced in
hand etc. and should be passed by an officers and entered into constituent’s account.
 No withdrawal should normally be allowed against cheques deposited on the same day.
 An officer should check all the entries made in the ledger with the original document particularly
nothing that the correct account have been debited or credited.
 Ledger keeper should not have access to voucher summary sheet after they have been checked by an
officer and to the daybook.
 Interest debited or credited to constituent account should be independently checked.

Bill of collection:

 All documents accompanying the bill should be received and entered in the register by a responsible
officer. All the time of dispatch, the officer should also see that all document sent along with the bills.
 The account of customers or principals should be credited only after bills have been collected or an
advice to that effect received form the branch or agent to which they were sent for collection.
 It should be ensured that bills sent by one, branch for collection to another branch of the bank, are not
in the collection twice in the amalgamated balance sheet of the bank. For this purpose, the receiving
branch should reverse the entries such as bills at the end of the receiving branch at the end of the year
fir closing purposes.
Bill purchased:

 At the time of purchased of bill, an officer should verify that all the document of titles are properly
assigned to the bank.
 Sufficient margin should be kept while purchased or discounting a bill to cover any decline in the
value of the security etc.
 If the bank is unable to collect a bill on the due date, immediately step should be taken to recoveries
the amount form the drawer against the security provided.
 All irregular outstanding account should be reported to the head office.
 In the case of purchased outstanding at the close of the year discount received thereon should
thereon should be properly apportioned between years.

Loan and advances:

 The bank should make advances only after satisfying itself as to the creditworthiness of the borrowers
and after obtaining sanction from the proper authorities of bank.
 The entire necessary document (e.g. agreement, demand promissory note, letter of hypothecation etc.)
 Sufficient margin should be kept against securities taken to cover any decline in the value thereof and
also to comply with proper authorities of directives. Such margin should be determined by the proper
authorities of the bank as a general policy or for particular account.
 All the securities should be received and returned by responsible officer. They should be kept in the
joint custody of two such officer
 In the case of good in possession of the bank, content of the package should be test checked at the time
of receipt.
 Surprise check should be made in respect of hypothecated goods not in the possession of the bank.
 Market value of good should be checked by officer of the bank by personal enquiry in addition to the
invoice to the invoice value given by the borrowers.
 As soon as any increased or decreased takes take place in the value of securities proper entries should
be made in the drawing power book and daily balance book. These entries should be checked by an
officer.
 All account should be kept within both the drawing power and the sanctioned limit at all times.
 At the account, which exceed the sanctioned limit or drawing power or are against unapproved
securities or are otherwise irregular, should be brought to the notice of the management/head office
regularly.

Demand draft:

 The signature on demand draft should be checked by an officer with signature book.
 All the best demand draft sold by should be immediately confirmed by the advice to the branches
concerned.
 If the branches does not receive does not received proper confirmation of ant demand draft form
the issuing branch or does not received credit in its account with that branches, it should take
immediate step to ascertain the reason.

Inter branch account:

 The account should be adjusted only on the basis of application with reasonably good credit
assessment.
 Prompt action should be taken preferably by central authorities, if any entries are not reasonably
time.

Credit card operation:

 There should be effective screening of application with reasonably good credit assessment.
 There should be strict control over storage and issues of card.
 There should be at system whereby a merchant confirm the statues of utilized limit of a credit
card holder form the bank before accepting the settlement in case the amount to be settled exceed
a specified percentage of the total limit of the credit holder.
 There should be system of prompt reporting by the merchant of all settlement accepted by them
through credit cards.
 Reimbursement to merchants should be made only after verification of the validity of merchant
acceptance of card.
 All the reimbursement should be made immediately charged to the customers account.
 There should be a system to ensure that statements are sent regularly and promptly to the
customers.
 There should be a system to monitor and follow up customer payment.
 Items overdue beyond a reasonable period should identification and attended to carefully. Credit
should be stopped by informing the merchant through periodic bulletin, as early as possibly to
avoid increased losses.
 There should be a system of periodic review of credit card holder account. On the basis, the limit
of customer may be revised; it necessary, the review should also includes determination of
doubtful amount and the provisioning in respect thereof.
 AUDIT COMMITTEE

In pursuance of RBI circular September 26, 1995, a bank is required to constitute an Audit
Committee of its Board. The membership of the audit committee is restricted to the Executive Director,
nominees of Central Government and the RBI, Chartered Accountant director and one of the non-official
directors.

One of the functions of this committee is to provide direction and oversees the operations of the
total audit function in the bank. The committee also has to review the internal inspection function in the
bank, with special emphasis on the system, its quality and effectiveness in terms of follow up. The
committee has to review the system of appointment and remuneration of concurrent auditors.

The audit committee is, therefore, connected with the functioning of the system of concurrent
audit. The method of appointment of auditors, their remuneration and the quality of their work is to be
reviewed by the Audit Committee. It is in this context that periodical meeting by the members of the audit
committee with the concurrent auditors help the audit committee to oversee the operations of the total
audit function in the bank.

Considering the coverage of this audit assignment and the specialized nature of work there is also a need
for training to be imported to the staff of the auditors. This training has to be given in specialized field
such as foreign exchange, computerization, and areas of income leakage, fraud prone areas, determination
of credit rating and other similar specialized areas. The bank can organize such training programmed at
various places so that it can ensure the quality of audit.
 INTERNAL CONTROL IN CERTAIN SELECTED AREAS

General

 The staff and officer of a bank should lift form one position to another frequently and without prior
notice.
 The work of one person should always be checked by another person in the normal course of
business.
 All arithmetical accuracy of the book should be proved independently every day.
 All bank form (e.g. books, demand draft book, ‘travellers’ cheque, etc.) should be kept in the
possession of an officer, and another responsible officer should occasionally verify the stock of such
stationary.
 The mail should be opened by responsible officers. Signature on all the letters and advice received
from other branches of the bank or its correspondence should be checked by an officer with signature
book.
 The signature book of the telegraphic codebook should be kept with responsible officers, used, and
seen by authorized officers only.
 The bank should take out insurance policies against loss and employees infidelity.
 The power of officers of different grade should be clearly defined.
 There should be surprise inspection of office and branches at periodic interval by the internal audit
department. The irregularities pointed out in the inspection reports should be promptly rectified.
Cash:

 Cash should be kept in the joint custody of two responsible people.

 In addition to normal checking by the chief cashier, cash should be test checked daily and counted
in full occasionally by responsible officers unconnected with the balanced shown the balanced
shown by the daybook every day.
 The cashier should have no access to the ledger account and the daybook. This is an important
safeguard. Bank management are often tempted to used cashier because of their shorter working
hours as a ledger clerks in the absence of regular staff on leave, etc. This cash can be a very expensive
price of economy.

Clearings:

 Cheques received by the bank in clearing should with the list accompanying them independent list
should be prepared for cheques debited to different customers account and those return unpaid and
these should be checked by officers.
 The total numbered and amount of cheques sent out the bank for clearing should be agreed with the
total of the clearing pay-in-slip, by an independent person.
 The unpaid cheques received back return clearing should be checked in the same manner as the
cheques received.

Constituent ledger:

 Before making payment, cheques should properly checked in respect of signature, date, balanced
in hand etc. and should be passed by an officers and entered into constituent’s account.
 No withdrawal should normally be allowed against cheques deposited on the same day.
 An officer should check all the entries made in the ledger with the original document particularly
nothing that the correct account have been debited or credited.
 Ledger keeper should not have access to voucher summary sheet after they have been checked by
an officer and to the daybook.
 Interest debited or credited to constituent account should be independently checked.
Bill of collection:

 All documents accompanying the bill should be received and entered in the register by a
responsible officer. All the time of dispatch, the officer should also see that all document sent
along with the bills.
 The account of customers or principals should be credited only after bills have been collected or
an advice to that effect received form the branch or agent to which they were sent for collection.
 It should be ensured that bills sent by one, branch for collection to another branch of the bank, are
not in the collection twice in the amalgamated balance sheet of the bank. For this purpose, the
receiving branch should reverse the entries such as bills at the end of the receiving branch at the
end of the year fir closing purposes.

Bill purchased:

 At the time of purchased of bill, an officer should verify that all the document of titles are properly
assigned to the bank.
 Sufficient margin should be kept while purchased or discounting a bill to cover any decline in the
value of the security etc.
 If the bank is unable to collect a bill on the due date, immediately step should be taken to recoveries
the amount form the drawer against the security provided.
 All irregular outstanding account should be reported to the head office.
 In the case of purchased outstanding at the close of the year discount received thereon should
thereon should be properly apportioned between years.

Loan and advances:

 The bank should make advances only after satisfying itself as to the creditworthiness of the
borrowers and after obtaining sanction from the proper authorities of bank.
  The entire necessary document (e.g. agreement, demand promissory note, letter of hypothecation
etc.)
 Sufficient margin should be kept against securities taken to cover any decline in the value thereof
and also to comply with proper authorities of directives. Such margin should be determined by the
proper authorities of the bank as a general policy or for particular account.
 All the securities should be received and returned by responsible officer. They should be kept in
the joint custody of two such officer
 In the case of good in possession of the bank, content of the package should be test checked at the
time of receipt.
 Surprise check should be made in respect of hypothecated goods not in the possession of the bank.
 Market value of good should be checked by officer of the bank by personal enquiry in addition to
the invoice to the invoice value given by the borrowers.
 As soon as any increased or decreased takes take place in the value of securities proper entries
should be made in the drawing power book and daily balance book. These entries should be
checked by an officer.
 All account should be kept within both the drawing power and the sanctioned limit at all times.
 At the account, which exceed the sanctioned limit or drawing power or are against unapproved
securities or are otherwise irregular, should be brought to the notice of the management/head office
regularly.

Demand draft:

 The signature on demand draft should be checked by an officer with signature book.
 All the best demand draft sold by should be immediately confirmed by the advice to the branches
concerned.
 If the branches does not receive does not received proper confirmation of ant demand draft form
the issuing branch or does not received credit in its account with that branches, it should take
immediate step to ascertain the reason.
Inter branch account:

 The account should be adjusted only on the basis of application with reasonably good credit
assessment.
 Prompt action should be taken preferably by central authorities, if any entries are not reasonably
time.
Credit card operation:

 There should be effective screening of application with reasonably good credit assessment.
 There should be strict control over storage and issues of card.
 There should be at system whereby a merchant confirm the statues of utilized limit of a credit
card holder form the bank before accepting the settlement in case the amount to be settled exceed
a specified percentage of the total limit of the credit holder.
 There should be system of prompt reporting by the merchant of all settlement accepted by them
through credit cards.
 Reimbursement to merchants should be made only after verification of the validity of merchant
acceptance of card.
 All the reimbursement should be made immediately charged to the customers account.
 There should be a system to ensure that statements are sent regularly and promptly to the
customers.
 There should be a system to monitor and follow up customer payment.
 Items overdue beyond a reasonable period should identification and attended to carefully. Credit
should be stopped by informing the merchant through periodic bulletin, as early as possibly to
avoid increased losses.
 There should be a system of periodic review of credit card holder account. On the basis, the limit
of customer may be revised; it necessary, the review should also includes determination of
doubtful amount and the provisioning in respect thereof.

BOOKS OF ACCOUNTS OF BANKS

A banking company is required to maintain the books of accounts in accordance with sec.209 of the
companies act. There are, however, certain imperatives in banking business they are the requirements to
maintain accurate and always up to date account. Banks, therefore, device their accounting system to suit
these requirements. The main characteristics of a banks system of book keeping are as follows:

entries in the personal ledgers are made directly from vouchers instead of being posted from the books of
prime entry.

A. The vouchers entered into different personal ledgers each day are summarized on summery
sheet; the totals of each are posted to the control accounts in the general ledger.

B. The general ledger trail balance is extracted and agreed every day.

C. All entries in the detail personal ledgers and the summary sheet are check by person other
than those who have made the entries, with the general results that most clerical mistakes
are detected before another day begins.

D. A trial balance of the detailed personal ledgers is prepared periodically, usually every two
weeks, and agreed with the general ledger control accounts.

E. Expecting for cash transactions, always two vouchers are prepared for each transaction,
one for debit and the other for credit. This system ensures double entry at the basic level
and obviates the possibility of errors in posting.
PRINCIPAL BOOKS OF ACCOUNT

 General ledger:

It contains control accounts of all personal ledgers, the profit and loss account and different assets and
liabilities accounts. There are certain additional accounts known as contra accounts, which is unique
feature of bank accounting. These contra accounts are maintained with a view to keeping control over
transactions, which have no direct effect on the banks positions.

For e.g. letter of credit opened, bills received for collection, guarantee is given etc.

 Profit and Loss ledgers;

Some banks keep one account for profit and loss in this general ledger and maintained separate books for
the detailed accounts. These are columnar books having separate columns for each revenue receipt and
expense head. Other banks keep separate books for debits and credits posted are entered in to the profit
and loss account in the general ledger.
SUBSIDIARY BOOKS OF ACCOUNTS

 Personal ledgers:

Separate ledgers are maintained by banks for different types of accounts, i.e. current account, saving
account, etc. As has been maintained earlier, these ledgers are posted directly from vouchers and the entire
voucher entered in each ledger in a day are summarized in to Voucher Summary Sheets.

 Bill Registers:

Details of different types of bills are kept in separate registers, which have suitable columns. For e.g.
bill purchased, inward bill for collection, outward bills for collection etc are entered serially day to
day in separate registers. Entries in these registers are made by reference to the original documents.

 Other subsidiary registers:

There are different registers for various types of transaction. Their number, volume and details, which
differ according to the individual needs of each bank. For example, there will be registers for:

A. Demand drafts, telegraphic and mail transfers issued on branches or agencies.

B. Demand drafts, telegraphic and mail transfers received from branches and agencies.

C. Letters of credit.

D. Letter of guarantee.

 Departmental journals:
 Each department of bank maintains a journal to note the transfer entries passed by it. These
journals are memoranda book only, as all the entries made there are also made in the daybook,
through voucher summary sheets. The purpose is to maintain a record of all transfer entries
originated by each department.

 Other memoranda books:

 Besides the book mentioned above, various departments of a bank have to mention a
number of memoranda books to facilitate their work. Some of the important books are
described below:

o Receiving cashiers cash book

o Paying cashiers cash book

o Main cash book

o Cash balance book

The main cashbook is maintained by a person other than cashier. Each cashier keeps a separate cashbook.
When cash is received, it is accompanied by pay-in-slips or other similar documents. The cashier makes
entry in his book, which is check by the chief cashier.
N.P.A.GUIDELINES

The guideline requires the banks to classify their advances in four broad categories as follows:-

1. Standard asset:-

A standard asset is one, which does not disclose any problems, and which does not carry more than normal
risk attached to the business such asset is not a non-performing asset.

2. Sub-standard asset:

It is one, which has been classified as N.P.A. for period not exceeding not more than 18 months.

3. Doubtful asset:

It is one, which remained has N.P.A for period exceeding 18 months.

4. Loss asset:

It is one where the loss has been identified by the bank or the internal or external auditors or the RBI
inspection, but the amount has not been written off wholly or partly in other words such asset is considered
uncollectible and of such little value that its continuous as bankable asset is not warranted through
although there may be some salvage or recovery value.

With the view to moving towards international based practices and to ensure greater transference it has
been decided to adopt the 90 days overdue norms for identification. Of N.P.A. from the year ending 31st
March 2004, according with effect from 31st march 2004, a non-performing asset shall be a loan or
advances where,
 i. Interest and installment of principle remains overdue for the period of more than 90 days in
respect of term loan.

ii. The account remains out of order for period of more than 90 days. In respect of overdraft or
cash credit limit.

iii. The bill remains overdue for period of more than 90 days in the case of bills purchased and
discounted.

iv. Interest and installment of principle remains overdue for two harvest season but not exceeding
2.5 years in the case of advanced granted for agriculture purpose.

v. Any amount to be received remains overdue for a period of more than 90 days in of other
account.

The identification of N.P.A. is to be on the basis of the position as on balance sheet day if an account has
been regularized before the balance sheet day by payment of overdue amount through genuine sources
and not by sanction of additional facilities or transfer of funds between accounts, the accounts need not
be treated as N.P.A. the bank should however ensured that the accounts remains in order subsequently. If
the account is out of order or deficient for a temporary period due to non-availability of adequate drawing
power. Non-submission of stock statement, non-renewal of due date, will not classify as N.P.A.

N.P.A. classification will be as per borrower wise and not facility wise. It means that if any of the credit
facilities granted to a borrower becomes non-performing all the facilities granted to a borrower will have
to be treated as N.P.A. without having any regard to performing status of other facilities.

Some of the Exemptions are their as follows,

i. Project finance:
In the case of bank, finance given for industrial project or for agricultural status where moratorium period
is available for payment of interest, payment of interest becomes due after the moratorium period is over
and not on the date of debit of interest.

ii. Advance to Staff:

As in the case of project finance in respect of housing loan all similar advances granted to staff members
where interest is payable after recovery of principle. The overdue status should be recognized from the
date when there is default in payment of interest on due date of payment.

iii. Agricultural Advances Affected by Natural Calamities:

In terms of RBI instruction where Natural calamities in fairs the repayment capacity of agricultural
borrower the bank can convert short term production loan, in to term loan or reschedule the repayment
and sanction them short term loan loans in such cases the term loan as well as fresh short term may be
treated as current dues and need not be classified as N.P.A.

iv. Loans and Advances backed or supported by government:

Any loans and advances provided by the bank under any scheme introduced by GOVT. like PMRY.
Scheme will not be treated as N.P.A. though the account in overdue or outstanding for more than 90 days.

v. Advances secured against certain instruments:

Advances secured against Term Deposits, National Saving Certificate eligible for surrender, Indira Vikas
Pattra and Life Insurance Policies have been exempted from the above guidelines thus interest on such
advances may be taken to income account on due provided adequate margins available in respect of such
accounts.

In respect of consortium advances each bank may classify the borrower accounts according to the own
record of recovery and other aspect. Having a bearing on the recoverability of the advances.
Provisioning for Loans and Advances:

The guidelines require provisions for different classes of advances to be made as follows:-

 Standard Asset:

A general provision of minimum of 0.25% on total standard asset should be made.

 Sub-standard Asset:

A general provision of minimum of 10% on total Standard Asset should be made.

 Doubtful Asset:

Full provision to the extend of unsecured portion should be made in doing so the realizable value of the
security available to the bank should be determined on a realistic basis additionally 20% to 50% of the
secured portion should also be provided for depending upon the period for which the advances has been
considered as a doubtful are as follows

• Loss Asset:
The entire amount should be written off or full provision should be made for the mount outstanding
Treatment of Restructured Sub-Standard Accounts:

A rescheduling of installment of principle amount would render sub-standard asset eligible to be

continuing in sub-standard category for specified period provided loan or credit facility is fully secured.
A rescheduling of interest elements would rendered a sub-standard asset eligible to continue to classified
in sub-standard category for the specified period subject to the condition that amount of sacrifice if any in
present value terms is either written off or provision is made to the extend of sacrifice involved in the
amount of interest should either be written off or provision made to the extend of sacrifice involves.

Reversal of Interest or Income Recognition:

In respect of account classified as N.P.A. for the 1st time the unrealized portion of interest debited to the
borrower account and credited to the income account in the previous year as well as interest debited during
the current year has to be reversed, in respect of accounts that were classified as N.P.A. in the previous
year banks generally do not debit any interest to the account there is therefore no question of reversal of
interest. However in the case of operative cash credit or overdraft account some bank follows a practice
where by unrealized interest is reversed in the year in which the account is classified is N.P.A. for the 1st
time but redebited at the beginning of the next financial year during next financial year interest is debited
to the account in the usual manner unrealized interest is reversed and again redebited at the subsequent
financial year.
CHAPTER 5

DATA PRESENTATION, DATA ANALYSIS, DATA INTERPRETATION

 STAGES IN AUDITING

1) Preliminary work:

a) The auditor should acquire knowledge of the regulatory environment in which the bank operates.
Thus, the auditor should familiarize himself with the relevant provisions of applicable laws and
ascertain the scope of his duties and responsibilities in accordance with such laws. He should be
well acquainted with the provisions of the Banking Regulation act, 1956 in the case of audit of a
banking company as far as they relate of preparation and presentation of financial statements and
their audit.

b) The auditor should also acquire knowledge of the economic environment in which the bank
operates. Similarly, the auditor needs to acquire good working knowledge of the services offered
by the bank. In acquiring such knowledge, the auditor needs to be aware of the many variation in
the basic deposit, loan and treasury services that are offered and continue to be developed by banks
in response to market conditions. To do so, the auditor needs to understand the nature of services
rendered through instruments such as letters of credit, acceptances, forward contracts and other
similar instruments.

c) The auditor should also obtain and understanding of the nature of books and records maintained
and the terminology used by the bank to describe various types of transaction and operations. In
case of joint auditors, it would be preferable that the auditor also obtains a general understanding
of the books and records, etc, relating to the work of the other auditors, In addition to the above,
the auditor should undertake the following:

I. Obtaining internal audit reports, inspection reports, inspection reports and concurrent audit
reports pertaining to the bank/branch.

II. Obtaining the latest report of revenue or income and expenditure audits, where available.
 III. In the case of branch auditors, obtaining the report given by the outgoing branch manager to
the incoming branch in the case of change in incumbent at the branch during the year under
audit, to the extent the same is relevant for the audit.

d) RBI has introduced and offsite surveillance system for commercial banks on various aspects of
operations including solvency, liquidity, asset quality, earnings, performance, insider trading etc.,
and has indicated that such reports shall be submitted at periodic intervals from the year
commencing 1-04-1995. It will be appropriate to be familiar with the reports submitted and to
review them to the event that they are relevant for the purpose of audit.

e) In a computerized environment the audit procedure may have to appropriately tuned to the
circumstances, particularly as the books are not authenticated as in manually maintained accounts
and the auditor may not have his in-house computer facility to taste the software programmes. The
emphasis would have to be laid on internal control procedure related to inputs, security in the
matter of access to EDP system, use of codes, passwords, data inputs being prepared by person
independent of key operators and other build-in procedure for data validation and system controls
as to ensure completeness and correctness of the transaction keyed in. system documentation of
the software may be obtained and examined.

f) One set of tests that the auditor at both the branch level and head office level may apply for audit
of banks in analytical procedure.

2) Evaluation of internal control system:

It may be noted that transaction in banks are voluminous and repetitive, and fall into limited
categories/heads of account. It may, therefore, be more appropriate that the evaluation of the internal
control is made for each class/category of transaction. If the exercise of internal control evaluation is
properly carried out, it assist the auditor to determine the effectiveness or otherwise of the control systems
and accordingly enable him to strengthen his audit procedures, and lay appropriate emphasis on the risk
prone areas. Internal control would include accounting control administrative controls.

a) Accounting controls:
Accounting controls cover areas directly concerned with recording of financial transactions and
maintenance of such registers/records as to ensure their reliability.

Internal accounting controls are also envisaging such procedures as would determine responsibility
and fix accountability with regard to safeguarding of the assets of the bank. It would not be out of
place of mention that there is a distinction between accounting system and internal accounting
controls. Accounting system envisages the processing of the transaction and events, their recognition,
and appropriate recording. Internal controls are techniques, method and procedures so designed and
usually built into systems, as would enable prevention as well as detection of errors, omissions or
irregularities in the process of execution and recording of transaction/events.

The internal accounting controls as would ensure prevention of errors, omissions and irregularities
would include following:

I. No transaction can be registered/recorded unless it is sanctioned/approved by the designated

authority.

II. Built- in dual control/supervisory procedures ensure that there is an independent automatic
check on input/vouchers.

III. No single person has authority to initiate transaction and record through all stages to the general
ledger. Each day transactions are accurately and promptly recorded, and the control and
subsidiary records are kept balanced through personnel independent of each other.

The auditor would be well advised to look into other areas may lead to detection of errors, omissions
and irregularities, inter alias in the following:

I. Missing/loss of security paper, stationery forms.

 II. Accumulation of transactions/balances in nominal heads of accounts like suspense, sundries,
inter-branch accounts, or other nominal head of accounts particularly if there accounts
particularly if these accounts are extensively used to balance books, despite availability of
information.

III. Accumulation of old/large unexplained/unsubstantiated entries in accounts with Reserve Bank

of India and other banks and institutions.

IV. Transaction represented by mere book adjustments not evidenced/substantiated or upon non-
honoring of contracts/commitments.

V. Origination debits I head office accounts/inter-branch accounts.

VI. Analytical review procedure.

VII. Serious irregularities pointer out in internal audit/inspection/special audit

VIII. Complaints/matters pending in the vigilance/grievances cell, as regards discrepancies in

accounts of constituents, etc.

IX. Results of periodic analytical review, if observed as adverse.

b) Administrative control:

These are broadly concerned with the decision making process and laying down of authority/delegation
of powers by the management. It may be noted that in the normal course, the head office use the
zonal/regional offices do not conduct any banking business. They are generally responsible for
administrative and policy decisions which are executed at the branch level.

3) Preparation of audit programme for substantive testing and its execution

Having familiarized him the requirements of audit, the auditor should prepare an audit programme for
substantive testing which should adequately cover the scope of his work. In framing the audit programme,
due weightage should be given by the auditor to areas where, in his view, there are weaknesses in the
internal controls. The audit programme for the statutory auditors would be different from that of the branch
auditor. At the branch level, basic banking operation are to be covered by the audit. On the other hand,
the statutory auditors at the head office (provisions for gratuity, inter- office accounts, etc.). The scope of
the work of the statutory auditors would also involve dealing with various accounting aspects and
disclosure requirements arising out of the branch returns.

4) Preparation and submission of audit report

The branch auditor forwards his report to the statutory auditors who have to deal with the same in such
manner, as they considered necessary. It is desirable that the branch auditors’ reports are adequately in
unambiguous terms. As far as possible, the financial impact of all qualification or adverse comments on
the branch accounts should be clearly brought out in the branch audit report. It would assist the statutory
auditors if a standard pattern of reporting, say, head wise, commencing with assets, then liabilities and
thereafter items related to income and expenditure, is followed.

In preparing the audit report, the auditor should keep in mind the concept of materiality. Thus, items which
do not materially affect the view presented by the financial statements may be ignored. However, in the
judgement of the auditor, an item though not material, is contrary to accounting principles or any
pronouncements of the Institute of Chartered Accountants of India or in such as would require a review
of the relevant procedure, it would be appropriate for him to draw the attention of the management to this
aspect in his long form audit report. In all cases, matters covering the statutory responsibilities of the
auditor should be dealt with in the main report. The LFAR should be used to further elaborate matters
contained in the main report and as substitute thereof. Similarly while framing his main report, the auditor
should consider, wherever practicable, the significance of various comments in his LFAR, where any of
the comments made by the auditor threrin is adverse, he should consider whether qualification in his main
report is necessary by using his discretion on the facts and circumstances of each case. In may be
emphasized that the main report should be self-contained document.
  Outward clearings:

A person checks the vouchers and list with the clearing cheques received books. The voucher are then
sent to appropriate departments, where customers account are immediately credited. Normally no
drawings are allowed against clearing cheques deposited the same day but exceptions are often made by
the manager in the case of established customer.

 Inward clearing:

Cheques received are check with the accompanying list. These are then distributed to differed department
and number of cheques given to each department is noted in a memo book. When the cheques are passed
and posted

in to ledger, there number is independently agreed with the memo book. If the cheques are found
unpayable, they are return to clearing house.

 Loans and overdrafts departments:

a) Registers for shares and other securities held on behalf of its customer

b) Summary books of securities give in details of government securities.

c) Godown registers maintained by the Godown keepers of bank.

d) Overdraft sanction register

e) Drawing power book.

f) Delivery order books.

g) Storage books.

 Deposit department:

a) Account opening and closing registers.

b) Fixed deposits rate register.

c) Due date dairy.

d) Specimen signature book.

 Establishment department:

a) Salary and allied registers.

b) Register of fixed assets.

c) Stationary registers

d) Old record registers

 General:
 a) Signature books of bank officers

b) Private telegraphic code and ciphers

 Statically books:

Statically records kept by different books are in accordance with their individual needs. For example, there
may be books for recording:

a) Average balances in loans etc.

b) Deposits received and amounts paid out each month in the various departments.

c) Number of cheques paid.

d) Number of cheques, bills and other items collected.

 Incomplete records:

In some situations, the auditor may find that certain accounting and other records are not up to date. In
such a situations, the auditor should first ascertain the extent of arrears in housekeeping and the areas in
which accounting and other records are not up to date. It may also be noted that in Long Form Audit
Report (LFAR0), the auditor has to make detailed observation on such arrears.
CREDIT CO-OPERATIVE SOCIETY AUDIT PROCESS

Bank audit process

Bank audit process consists of the following steps

Pre-commencement Work

Understanding the business of bank branch

Overall audit plan � Audit Programme

Audit Procedures:
Substantive Testing & Analytical
Procedure

Report

1. Pre-commencement Work

The following points have to be considered before commencing the audit

A. Receipt of appointment letter

B. Compliance u/s. 226(3) of Companies Act, 1956 with regard to qualifications and
disqualifications of auditors

None of the following persons shall be qualified for appointment as

auditor of a company-
 a. A body corporate;
b. An officer or employee of the company;
c. A person who is a partner, or who is in the employment, of an officer or
employee of the company;
d. A person who is indebted to the company for an amount exceeding one thousand
rupees, or who has given any guarantee or provided any security in connection

C. Internal Auditor can not be statutory auditor for the same financial year

D. The nature of audit work has to be ascertained as to whether it is Concurrent Audit, Stock
Audit, Revenue Audit, Credit Risk Auditor or any other Assignments of any branch of that
bank

E. Decision for Acceptance or Rejection of Assignment has to be communicated to the

concerned authority

F. It should be ensured that minimum fees are set as per RBI circular

G. The Objective and Scope of Work has to be considered with specific considerations to time
available for conducting audit AAS-2 deals with Objective and Scope of the audit of
financial statements

H. Before accepting the audit assignment, the availability /outsourcing of staff for
conducting bank audit has to be considered. In doing so the auditor should follow the
guidance given in AAS 10 which deals with using the work of another auditor.

I. The Previous Auditor must be communicated (Clause 8 of First Schedule of Chartered

Accountants Act, 1949)

J. Engagement Letter under AAS 26 has to be issued

K. There must be a Communication with joint auditor as per AAS 12

L. A list of accounting standard applicable to the branch must be prepared

M. Copy of all circulars of RBI applicable to branch have to be obtained and kept ready for
reference

N. Attending branch audit seminars could enhance the auditor�s knowledge on bank
audits

O. Banking terminology and schemes should be well understood

 P. A reading of Guidance Note on audit of banks by ICAI would provide valuable guidance.

2. Understanding the business of bank branch

The next step is in understanding the business of the branch with specific reference to

A. Type of constitution
B. Applicable Laws

Banking Regulation Act, 1949

1) Reserve Bank of India, 1934

2) Multi State Co-operative Act, 2002
3) Relevant State Co-operative Act
4) Companies Act, 1956
5) Circulars/Guidelines issued by RBI
6) Circulars/Guidelines issued by Head Office of bank
7) Service Tax Provisions
8) TDS Provisions under Income tax Act
9) Prevention of Money Laundering Act, 2002
10) Banking cash transaction tax

C. Type/Nature of transactions
D. Quantum of Transactions under various heads as detailed below:

Sr. Particulars Nos. Total Value

No.
A P & L Income

A1 Interest earned

A2 Other income

B P & L expenditure

B1 Interest expended

B2 Operating expenses

C
Balance Sheet � Assets
C1 Cash and balance with RBI

C2 Money at call and short notice

C3 Investments

C4 Advances

C5 Fixed assets

C6 Other assets

D.
Balance sheet � liabilities
D1 Deposits

D2 Borrowings

D3 Other liabilities and provisions

E. Other items

F. Security aspect of software, output of software, interlinking between various reports

 G. Internal Control � Risk Assessment

H. Risk Management � Back up system

In the branch, the following AAS would be relevant

AAS 6 Risk Assessments and Internal control

AAS 20 Knowledge of the business
AAS 21 Consideration of Laws and Regulations in an
audit of financial statement
AAS 23 Related parties
AAS 24 Audit considerations relating to entities using
service organizations
AAS 29 Auditing in CIS environment

3. Overall Audit Plan - Audit Programme

A. While drafting the audit programme, the type of reports to be submitted have to be considered.

There are four types of reports.

1. Unqualified Report

2. Qualified Report

3. Disclaimer of Opinion

4. Adverse Report
B. Various types of reports include:

a. Jilani Committee Report

b. Ghosh Committee Report
c. Special Reports as applicable (Prime Minister Rojgar Yojana Scheme Report etc.)
d. Long Form Audit Report
e. Tax Audit Report
f. Main Report (Sec. 30(3) of Banking Regulation Act, 1949)

C. Auditor should plan his work based on the clients business to enable him to conduct an effective
audit in an efficient and timely manner as per AAS 8

Specimen Audit Plan

Name of Auditee:

Financial Year:

Type of Audit: Statutory /Current/

Person in charge Memb. No. Signature: Experience

Team Members
Name Qualifications Experience

1.

2.
A. The auditor should design and select an audit sample, perform audit
procedures thereon, and evaluate sample results so as to provide
sufficient appropriate audit evidence as per AAS 15 Audit sampling
INFRIGMENT OF THE M.C.S. ACT 1960 RULES 1961 & THE BYE-LAWS OF
THE SOCIETY

Sr.No. Act Rules Bye-Laws Details Of Infringements

1 38 32 141(i) Member’s register in I form.
2>>> -- 26 32 NOMINATION NOT FULLY
RECEIVED
3 33 141(2) List of members in “j” form not kept on
record
4 82 73 153 Audit rectification report in prescribed
“O” form submission to registrar witin
prescribed limit.
5>>> 154 Conveyance of the property
6>>> 160 Insurance of building
7 071 (a) Defaulter member 3 months
8 127 (i) Managing committee meeting
9>>> 145 Payment beyond the limit in cash
10 75(iI) 95(9) A G M within prescribed limit
11>>> 24(a) 14 Education & Training fund collection
12>>> 70 54,55 15 Investment of fund
13>>> 65 141 (I to 16) Required registers to be kept (property
reg.)
14 73 115 Reservation for female member on the
managing committee.
15. 73FF 119 B Disqualification for membership of
managing committee.
16 29 Restriction of transfer of shares &
property.
17 9 Issue of share certificates to the
members witin the prescribed limit.
18. 61 146(a) Drafting financial statement after the
prescribed limit.
19 144 Cash in hand beyond the prescribed
limit..
20 160 124 Handover the charge to new committee.
22>>> 73 b 73 c 114 Strength of the meeting.

Pl.note : Only >>> mark breach are applicable to the society

SELECT FINANCIAL INDICATORS

Sr. No. Select Indicators 2014-15 % Incr/ 2015-16 % Incr/ 2016-17 % Incr/

(Decr) Over (Decr) Over (Decr) Over

Previous Previous Previous

Year Year Year

1 SHARE CAPITAL 60.56 (3.71) 58.52 (3.37) 56.93 (2.72)

2 DEPOSITS 2,000.26 1.94 2,094.01 4.69 2,249.12 7.41

3 LOANS AND ADVANCES 1,449.09 8.70 1,476.28 1.88 1,552.37 5.15

4 BUSINESS MIX 3,449.35 4.68 3,570.29 3.51 3,801.49 6.48

5 PERFORMING ADVANCES 1,353.56 9.24 1,360.22 0.49 1,416.37 4.13

6 INVESTMENTS 596.95 (11.05) 675.39 13.14 990.09 46.60

7 A) LOW COST DEPOSIT (SB/CA) 651.21 5.11 678.25 4.15 813.46 19.94

7 B) LOW COST DEPOSIT(SB/CA)% 32.56 3.11 32.39 (0.52) 36.17 11.67

8 NETWORTH 100.94 4.36 98.69 (2.23) 94.48 (4.27)

9 CRAR % 11.37 (6.67) 13.63 19.88 11.55 (15.26)

10 GROSS NPA % 6.59 (6.63) 7.86 19.27 8.76 11.45

11 NET NPA % 2.83 (33.23) 3.29 16.25 3.69 12.16

12 OPERATING PROFIT 15.93 4.10 15.68 (1.57) 16.61 5.93

13 NET PROFIT / (LOSS) 17.67 - 2.26 - 1.12 -

14 ACCUMULATED PROFIT / (LOSS) 15.22 - 15.22 - 15.37 -

15 TOTAL ASSETS 2,345.03 4.06 2,539.92 8.31 3,089.46 21.64

16 WORKING CAPITAL 2,342.33 4.08 2,537.42 8.33 3,080.84 21.42

17 COST OF DEPOSIT (%) 7.34 (1.74) 7.18 (2.18) 6.64 (7.52)

18 NET INTEREST INCOME 57.84 8.76 56.77 (1.85) 58.26 2.62

Share capital
61

60

59

58

57

56

55
2014-15 2015-16 2016-17

Share capital
 Deposits
2300
2250
2200
2150
2100
2050
2000
1950
1900
1850
2014-15 2015-16 2016-17

Deposits

INVESTMENTS
1200

1000

800

600

400

200

0
2014-15 2015-16 2016-17
INVESTMENTS
 GROSS NPA %
10
9
8
7
6
5
4
3
2
1
0
2014-15 2015-16 2016-17

GROSS NPA %

NET NPA %
4
3.5
3
2.5
2
1.5
1
0.5
0
2014-15 2015-16 2016-17
NET NPA %
 TOTAL ASSESTS
3,500.00
3,000.00
2,500.00
2,000.00
1,500.00
1,000.00
500.00
0.00
2014-15 2015-16 2016-17

TOTAL ASSESTS

WORKING CAPITAL
3,500.00

3,000.00

2,500.00

2,000.00

1,500.00

1,000.00

500.00

0.00
2014-15 2015-16 2016-17

WORKING CAPITAL
 Balance Sheet as at March 31, 2017
(Amount in `)

Capital and Liabilities Notes Current Year Previous Year

A Share Capital 1 56,93,37,540 58,51,50,690

B Reserve Fund and Other Reserves 2 2,11,08,71,171 2,00,95,86,387

C Profit and Loss Account 3 15,37,09,768 15,21,86,300

D Principal/Subsidiary State - -

E Partnership Fund Deposits - -

F Deposits 4 22,49,12,07,964 20,94,00,88,280

G Borrowings 5 4,71,78,38,463 1,27,26,63,512

H Securities sold under RBI - REPO / REPO 45,89,19,750 -

I Bills for Collection as per Contra 4,65,257 10,38,532

J Branch Adjustment (Net) 7,32,473 2,65,93,155

K Overdue Interest Reserve 6 2,02,20,390 2,39,70,514

L Interest Payable 2,31,06,467 5,11,11,014

M Other Liabilities & Provisions 7 34,82,27,527 33,68,61,283

Total 30,89,46,36,770 25,39,92,49,667

N CONTINGENT LIABILITIES 32 48,52,59,254 43,11,31,075

 (Amount in `)

Assets Notes Current Year Previous Year

A Cash and Bank Balances with RBI, SBI

and State & Central Co-op Bank 8 2,10,38,88,425 1,34,41,59,972

B Balances with Other Banks 9 1,72,01,14,108 95,27,33,795

C Money at Call & Short Notice 10 9,99,56,868 5,00,00,000

D Investments 11 9,44,19,89,621 6,75,38,54,449

E Securities sold under RBI - REPO / REPO 45,89,19,750 -

F Deferred Tax Asset 28 28,62,54,434 24,41,60,102

G Advances 12 15,52,36,52,737 14,76,27,84,052

H Interest Receivable 13 27,52,43,063 24,25,33,076

I Bills for Collection as per Contra 4,65,257 10,38,532

J Branch Adjustment (Net) - -

K Fixed Assets 14 83,92,56,351 92,09,69,058

L Other Assets 15 14,47,09,277 12,68,29,751

M Non-banking assets acquired in

satisfaction of Claims 35 1,86,879 1,86,879

Total 30,89,46,36,770 25,39,92,49,667

N SIGNIFICANT ACCOUNTING POLICIES

AND NOTES ON ACCOUNTS FORMING

PART OF FINANCIAL STATEMENTS 1 to 44

 Profit & Loss Account for the year ended March 31, 2017
(Amount in `)

Particulars Notes Current Year Previous Year

I Income

Interest earned 16 2,02,38,17,929 2,04,60,60,374

Other Income 17 15,88,93,584 14,99,35,345

Total 2,18,27,11,513 2,19,59,95,719

II Expenditure

Interest expended 18 1,44,12,19,949 1,47,83,65,878

Operating expenses 19 57,53,59,766 56,07,89,050

2,01,65,79,715 2,03,91,54,929

III Operating Profit 16,61,31,798 15,68,40,791

Less: Provision and Contingencies 20 18,55,51,426 14,85,51,930

Add: Provisions no longer Required 21 34,86,054 25,81,000

IV Profit / (Loss) Before Tax (1,59,33,574) 1,08,69,861

Less: Current Tax 1,44,81,668 1,76,47,654

Less: Tax for Previous Year 5,10,641 -

(Add)/Less : Deferred Tax (4,20,94,332) (2,93,56,109)

V Net Profit for the year carried to Balance Sheet 1,11,68,449 2,25,78,316

VI SIGNIFICANT ACCOUNTING POLICIES

AND NOTES ON ACCOUNTS FORMING

PART OF FINANCIAL STATEMENTS 1 to 44

Basic and Diluted Earning Per Share (EPS) 0.19 0.38

Cash Flow Statement for the year ended March 31, 2017

(Amount in `)

Particulars Current Year Previous Year

Cash Flows from Operating Activities:

Profit Before Tax (1,59,33,574) 1,08,69,861

Adjustments to reconcile net income to net cash

provided by operating activities

Depreciation on bank’s property 2,60,36,866 2,41,15,541

(Profit) / Loss on sale of assets 1,01,100 3,96,078

Amortisation of Premium on Investments 1,92,97,844 1,73,89,806

Provisions and Contingencies 18,20,65,372 14,59,70,930

Cash Flow before adjustment for Working Capital Changes 21,15,67,608 19,87,42,216

Adjustments for changes in working capital:

Increase in Deposits 1,55,11,19,685 93,74,99,620

Increase in Borrowings 3,90,40,94,701 57,32,54,099

Increase / (Decrease) in Interest Payable (2,80,04,547) 1,55,04,070

Add: Decrease in Branch Adjustments (Asset)

Increase / (Decrease) in Interest Receivable (3,29,74,057) -1,49,04,518

Increase in Other Assets (2,57,68,058) -49,56,614

Increase in Other Liabilities and Provisions (2,89,29,521) -13,71,80,779

Increase / Decrease in Investments (3,16,63,52,766) -80,17,58,345

Increase in Advances (77,45,08,345) -27,19,12,231

Cash Flow after adjustment for Working Capital Changes 1,61,02,44,700 49,42,87,518

Less: Taxes Paid / (Refunds Received) (78,88,533) 2,03,11,585

Net Cash flow from operating activities (A) 1,61,81,33,233 47,39,75,933

Cash Flows from Investing Activities:

Purchase of Fixed Assets (2,78,04,293) -2,61,72,686

Sale of Fixed Assets 25,49,843 28,69,674

Net Cash flow from Investing activities (B) (2,52,54,450) -2,33,03,012

Cash Flows from Financing Activities:

Share Capital issued (Net) (1,58,13,150) -2,04,07,450

Net Cash flow from Financing activities (C) (1,58,13,150) -2,04,07,450

Net Increase in Cash & Cash Equivalents D = (A + B + C) 1,57,70,65,633 43,02,65,471

Cash & Cash Equivalents at the beginning of the year 2,34,68,93,768 1,91,66,28,297

Cash & Cash Equivalents at the end of the year 3,92,39,59,401 2,34,68,93,768
 FINDINGS

1. It has been observed that the auditing process takes 3 months of time to

complete.

2. The auditing is a big process with lot of documentations.

3. CA can extend time limit of audit.

4. Sample techniques helps auditor to check and every part of auditing.

5. Sample techniques are used to detect any fraud.

SUGGESTIONS

1. The communication between auditor and employees must be more

effective.

2. The system audit must be checked time to time to avoid any frauds or

illegal transactions.

3. A board meeting should be held every month to make auditing more

effective.

4. When the transaction of some customers are more than 1 lakh the

security should be asked as some of the customers are taken lightly by

the bank.
 UTILITY OF PROJECT

1. This Project Titled “A Study of Audit practice with case study of Janakalyan
credit co-op society’’ helped bank to find what are the drawbacks of their
auditing process.
2. It helped bank to know in which area they are lagging where they should
improve.
3. It helped me to understand the audit process of banks and it helped me to analyse
balance sheet.
 CONCLUSION

The project the position of Indian banking system as well as the principal laid down by

the Basel Committee on banking supervision. This assessment was done in seven major

areas, which are core principals, concurrent audit, internal audit, deposit, loan

accounting and transparency . The project concluded that, given the complexity and

development of Indian banking sector, the overall level of compliances with the

standards and codes is of high order. This project gives the correct ideas about how the

major areas can be found by way of effective auditing system i.e. errors, frauds,

manipulations etc. form this auditor get the clear ideas how to recommend on the banks

position. Project also contain that how to conduct of audit of the banks, what are the

various procedure through which audit of banks should be done. Form auditing point

of view, there is proper follow up of work done in every organization whether it is

banking company or any other company or any other company there no misconduct of

transactions is taken places for that purpose the auditing is very important aspect in

today’s scenario form company and point of view.

 BIBLIOGRAPHY

 www.janakalyankarad.com
 Final advance auditing and professional ethics
 Auditing principal and techniques- S.K. Basu
 www.mhcooperative.org