A Hand Book On Statutory Bank Branch Audit - Rajkumar S.

Adukia
BANK BRANCH AUDIT REPORTS

The result of the audit process is audit report. There are various kinds of audit reports issued by the auditor in bank audit like main audit report u/s 30 of banking regulation act, LFAR, Report on Ghosh and Jilani committee recommendations, Special purpose reports. Some of the special reports under bank audit are Report on audit of DICGC items Report on compliance with SLR requirements 3. Report on instances of adverse credit-deposit ratio in rural banks 4. Report on whether income recognition, asset classification, provisioning has been made as per guideline issued by RBI 5. Certificate for advances to infrastructure project and income generated thereon 6. Certificate of reconciliation of securities by the bank 7. Certificate on corporate governance 8. Certificate of advances exceeding 10 crores 9. Certificate pertaining to credit/deposit ratio 10. Certificate of cash and bank balances It is to be noted that statement of companies (Auditor?s Report) order 2003 is not applicable to banking company as defined in clause c of section 5 of Banking Regulation Act,1949
1. 2.

Banking company means any company, which transacts the business of banking in India; An Explanation is also added in the banking company definition saying that any company which is engaged in the manufacture of goods or carries on any trade and which accepts deposits of money from the public merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of this clause Banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise

Memorandum of hanges

The memorandum of changes generally accompanies the branch audit reports. Any changes which are material and which have an impact on assets and liabilities, classification of advances and profit and loss account are suggested through memorandum of changes, which form part of auditors report Normally before the final report auditors observations are incorporated in the books of account and modified financial statements are prepared while in case of banks by the time report is sent by auditors there is compilation at regional and Zonal level hence there is

another statement called Memorandum of Changes (MOC). Main report must state about this and also shall mention whether MOC is nil or contains observation The following points have to be noted about memorandum of change:
1. 2.

There should be clear justification for every change suggested by auditor The format of MOC in most banks will have both sides like a trial balance. It should be ensured that total of change suggested in balance sheet and profit and loss account is tallied on both accounts The total of reclassification of the advances suggested in secured , unsecured ,guaranteed advance and sector wise advance should be correctly brought out in the MOC and total of both sides should tally In case of change suggested as per prudential norms on income recognition, the impact, if any on the provisioning of the assets is also to be looked into It is to be ensured that a ?NIL MOC is invariably forwarded, even if there are no change to report Branch manager are required to report on each item reported in MOC

3.

4.

5.

6.

MOC can be of following natures a. Relating to suggested changes in Balance Sheet b. Relating to suggested changes in Profit and Loss Account c. Relating to suggested changes in advances portfolio of the bank d. Relating to outstanding balances of the advances e. Yearly return of provisions f. Details of accounts for various changes g. Reconciliation balances in interest not collected account h. Summary of advance return i. MOC for fixed assets Specimen copy of report of the auditors is give for your reference. Two different format are given for two kinds of banks i.e
1. 2.

Nationalised bank Banking company Specimen of Branch Auditors report of Nationalised Bank

To The Central Statutory auditors

1. We have audited the attached balance sheet of ______ Bank _____branch as at

31st March 2006 the Profit and Loss Account annexed thereto for the year ended on that date. We have also audited the cash flow statement annexed to the Balance Sheet for the year ended on that date. These financial statements are the responsibility of the Bank?s management. Our responsibility is to express an opinion on these financial statements based on our audit. in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement(s). An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by

2. We conducted our audit in accordance with the auditing standards generally accepted

management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3. The Balance Sheet and the Profit and Loss Account have been drawn up in Forms ?A?
and ?B? respectively of the Third Schedule to the Banking Regulation Act, 1949. purpose of identification as at 31st March 2006

4. We have also audited the under mentioned statements (countersigned) by us for the a. Fixed assets returns b. Weekly abstracts of reporting Fridays c. Capital adequacy returns d. DICGC certificate e. PMRY certificate f. Statement of commitment charges recovered from IDBI/SIDBI refinance
scheme

g. Certificate of compliance of Ghosh and Jilani committee recommendations h. Verification of branch cash balances i. Verification of ATM cash balances j. Returns relating to bills discounted and purchased k. Return of industrial export project - Engineering project l. Details of payment of premium against scrips and other eligible license for the
period from 1-4-2005 to 31-3-2006

m. Certificate for interest claims for foreign currency non resident accounts
(FCNRA) for the year ended 31-3-2006

n. Return of foreign exchange bills transactions o. Certificate of deposits of special deposits scheme p. Certificate for term loans under world bank industrial export project 5. Subject to annexed Memorandum of Changes and the adjustments to be made at
your office, we certify that

a. We have obtained all the information and explanations which to the best of
our knowledge and belief, were necessary for the purposes of our audit and have found them to be satisfactory. the powers of the Bank.

b. The transactions of the Bank, which have come to our notice have been within c. In our opinion and to the best of our information and according to the
explanations given to us and as shown by the books of the Bank:

i.

The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with in this report are in conformity with the accounting principles generally accepted in India including the applicable accounting standards.

ii.

The Balance Sheet read with the notes thereon is a full and fair Balance Sheet containing all the necessary particulars, and is properly drawn up so as to exhibit a true and fair view of the affairs of the Bank as at 31stMarch, 2006; The Profit and Loss Account read with the notes thereon shows a true balance of Profit/Loss for the year covered by the account. The Cash Flow Statement gives a true and fair view of the cash flows for the period covered by the Statement.

iii. iv.
For ABC and Co.

Chartered Accountants Signature (Name of the Member Signing the Audit Report) (Designation) Membership Number Specimen of Branch Auditor report of Banking Company To The Central statutory auditors We have audited the attached Balance Sheet of the ___Bank Limited ______branch as at 31st March, 2006 and also the attached Profit and Loss Account of the Bank and the cash flow statement for the year ended on that These financial statements are the responsibility of the Bank?s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement(s). An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Subject to annexed Memorandum of changes and the adjustments to be made at your office we report that: We have also audited the under mentioned statements (countersigned) by us for the purpose of identification as at 31st March 2006
i. ii. iii. iv.

Fixed assets returns Weekly abstracts of reporting Fridays Capital adequacy returns DICGC certificate

v. vi. vii. viii. ix. x. xi. xii.

PMRY certificate Statement of commitment charges recovered from IDBI/SIDBI refinance scheme Certificate of compliance of Ghosh and Jilani Committee recommendations Verification of branch cash balances Verification of ATM cash balances Returns relating to bills discounted and purchased Return of industrial export project - Engineering project Details of payment of premium against scrips and other eligible licence for the period from 1-4-2005 to 31-3-2006 Certificate for interest claims for foreign currency non resident accounts (FCNRA) for the year ended 31-3-2006 Return of foreign exchange bills transactions Certificate of deposits of special deposits scheme Certificate for term loans under World bank industrial export project

xiii.

xiv. xv. xvi.

Subject to annexed Memorandum of Changes and the adjustments to be made at your office we report that:

a. We have obtained all the information and explanations which, to the best of our
knowledge and belief, were necessary for the purpose of our audit.

b. The Balance Sheet and the Profit and Loss Account have been drawn up in
The transactions of the Bank, which have come to our notice, have been within the powers of the Bank. Bank so far as appears from our examination of those books.

accordance with the provisions of Section 29 of the Banking Regulation Act, 1949 read with Section 211 of the Companies Act, 1956.

c.

d. In our opinion, proper books of account as required by law have been kept by the
e.

The Bank?s Balance Sheet and Profit and Loss Account dealt with by this report, are in agreement with the books of account and the returns. this report comply with the Accounting Standards referred to in subsection (3C) of section 211 of the Companies Act, 1956.

f. The Balance Sheet, Profit and Loss Account and cash flow statement dealt with by

g. Since the Central Government has, till date, not prescribed the cess payable under
section 441A of the Companies Act, 1956, we are not in a position to comment on this clause. explanations given to us, the said accounts together with the notes thereon give the information required by the Banking Regulation Act, 1949 as well as the Companies Act, 1956, to the extent applicable and in the manner so required for the banking companies. We are further of the opinion that these accounts are in conformity with the accounting principles generally accepted in India and report that:

h. In our opinion and to the best of our information and according to the

i.

the said Balance Sheet gives a true and fair view of the state of affairs of the Banks as at March, 2006;

a.

the Profit and Loss Account shows a true balance of profit for the year ended on that date; and the cash flow statement shows a true and fair view of the cash flows for the period then ended.

b.

For ABC and Co. Chartered Accountants Signature (Name of the Member Signing the Audit Report) (Designation) Membership Number Place of Signature Date of Report