AUDIT PLANNING, REPORT & CERTIFICATION Ca. Ramesha Shetty FCA, MBA, DISA(ICAI), CISA(USA) 1
Stages Planning - Home work Planning - Documentation Execution Report & Certification 2
AUDIT PLANNING - OBJECTIVES Compliance with RBI / ICAI Guidelines Compliance with Bank Guidelines Compliance with Terms of Appointment Compliance with AS & AAS Effective Reporting / Completion in Time schedules Completion of the audit in time. Certifying Balance Sheet & Profit & Loss account & Annexure Simultaneous coverage of allied assignments including: Recommendations of Ghosh & Jilani Committee Reports Responses to the LFAR questionnaire Tax Audit Other certification work indicated in the letter of appointment like DICGC Claims, etc PMRY Scheme, Provident Fund Scheme 3
BRANCH AUDIT-SCHEDULE March 21 : Attended Bank Audit Seminar March 15-25 : Appointment letter March 26-30 : Acceptance / NOC, Visit Branch MR letters, Suggests not to start any audit before April 3. March 31 Cash Verification only. March 31 : Cash verification April 3 to 10 : Audit done. LFAR took most of time 4
PRE-AUDIT PLANNING (Home Work) Pre audit plan Plan the work Audit under Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970. Guidance Note of ICAI/Bank Branch Audit RBI Circular issued on July 1, 2010 Old Audit reports Working papers, certifications, etc. Refresh yourself Identify the staff - Experienced, train the staff (CBS system) - Allot the work Visiting the branches, etc. Before 31 st, if possible Go thru Standards on Auditing like Knowledge of Business, Terms of Audit Engagement Audit Planning, Audit Sampling, Audit Documentation, Using the work of another auditor, Audit Evidence, Audit Materiality, Written Representations, Analytical Procedures Documentation Audit Checklist, Audit programme, Other documentation, etc. (Peer review, ICAI, etc.) Timely Completion of the assignment 5
AUDIT PLANNING Have knowledge of the : Economy Banking Industry Government Policies Rules & Regulations applicable to the Bank Products handled by Bank Complexities involved Applicability of Accounting Standards Applicability Auditing and Assurance Standards. FEDAI Guidelines 6
PLANNING - Documentation Appointment letter Acceptance, Engagement letter (Opinion/AS/ Management Responsibility, etc), Declarations NOC from previous auditors Requirement letter to Branch Management Representation letter Communicate with the branch Visit the branch before year end & meet the staff Discuss with the Concurrent Auditors Liaison with Branch staff for access and other arrangements Detailed Check list on audit(wirc) 7
PRELIMINARY WORK (At Branch) Obtaining knowledge of business of bank/branch - Advances, Deposits, Large borrowers, NPA A/cs, CBS, etc. First hand feel of the branch Document the discussions Review of reports, viz: Closing Guidelines issued by the bank Circulars (interest & Service charges) Credit Policy Delegation of Authority & Financial powers Charge Handover Report Branch Audit Report/ LFAR of previous year Latest Internal Inspection/ Concurrent Audit report/s, Special Audit Report, System Audit Report, Stock Audit Reports in case of large advances, Report from vigilance Department, Revenue Audit Report, etcs Branch s RBI Inspection Report, if any Status and level of compliance by the branch, on adverse features pointed out in reports 8
AUDIT PLANNING (at branch) Ascertain the thrust of operations and nature of banking activities at the branch (deposits/advances) Relook - Audit Program to cover all heads like Liabilities, Asset, Income, Expenditure, Off Balance Sheet items, with special emphasis on verification of advances, deposits and Inter- Branch accounts Manpower requirement - Allocate the work (Deposits, Advances, Misc. items, etc.), decide who does what?, how many days/hours, time constraints, outstation audits, other arrangements, etc. Simultaneous compilation of data(checklist, etc) Any issues in getting the information or non-cooperation may be referred to Controlling Authorities Statutory Central Auditors, for queries if any Weak areas identified during the Audit be given extra focus. Also special emphasis on - Physical verification of cash and other securities / Sensitive Accounts, Frauds / Sundry Assets / Suspense Account / Inter Branch reconciliation, contingent liabilities 9
EXECUTION OF WORK Staff to be adequately trained to carry out the assignment satisfactorily Execution must be done as per the audit programme Checks should be extended in areas of weaknesses, including those identified during the course of audit Modify the audit plan in certain areas depending on the inherent weaknesses existing in those areas Obtaining Audit Evidence and Management Representations Audit working papers Timely discussion and rectification of queries 10
Evaluation of Internal Control Evaluate the knowledge of accounting software, policies and strength/effectiveness of internal control systems existing at the branch Areas where deficiencies/wekaness have been noticed in earlier audit reports, actual transactions may be tested. Internal Control would include: Accounting Controls Administrative Controls Determine the effectiveness of control systems segregation of duties, exception reports, financial powers, roles & responsibilities of staff, awareness of circulars and systems. Emphasize on Risk prone areas, Control Weakness Fraud Test Check or substantive checking 11
DOCUMENTATION Document Evaluation of Internal Control Systems and its effectiveness Obtain copies of documents which have been relied upon, like internal/ concurrent/ revenue auditor s report, branch s RBI inspection report, etc. Document the Extent of check applied in all the areas and the names of persons who covered these areas of audit Proper minutes should be made of important discussions held with the branch management on critical issues and how it was concluded. Obtain management s representation on critical areas of branch operations Well- documented queries and responses should be also placed on record Obtain a Management Representation Letter, wherever applicable 12
DOCUMENTATION Auditors should document matters which are important in providing evidence that the audit was carried out in accordance with the basic principles governing an audit Address communication after accepting appointment for inquiring the readiness of financial statements & other statements and records requiring authentication as well as for carrying out certain year- end procedures Auditor should address letters seeking information on matters where he desires to strengthen his procedures and substantiate his work. In case of non- readiness / partial readiness of branch records, non-co-operation of branch management, etc communicate and politely place on record, the facts of the case 13
Auditing in CBS Environment No visible audit trail Walk thru of the transactions from start to end and document Inadequate segregation of duties and risk to integrity of data Check rights of access to staff members & its level Computer generated Error Reports to verify accuracy of interest rates, date of NPA, etc, if available System suspense entries Exceptional reports Check whether the recurrence of such discrepancies is general or in respect of some specific clients Auditor to go to root cause of the problems 14
PROFIT & LOSS ACCOUNT Income/ Expenditure: Verify: Excess / short credit/ debit of interest & commission - Debit balances in income account and credit balances in expenses account In case the discrepancies are existing in large number of cases, the auditor should consider the impact of the same on the accounts Determine whether the discrepancies noticed are intentional or by error Check whether the recurrence of such discrepancies are general or in respect of some specific clients Proper authority in sanction and disbursement of expenses as also the correctness of the accounting treatment given as to revenue/ capital/ deferred expenses Check accrual of income/ expenditure especially for the last month of the financial year Divergent Trends: Divergent trends in income/ expenditure 15
REPORTING & MOC Check all the schedules/annexure & Check Balance Sheet and P&L account Balance Sheet, Profit & Loss Account and Statement of Particulars of Advances are generally not amended to make any further adjustment/modifications as at year end Notes / observations, properly segregated into a classificatory or qualificatory nature must be: Properly drafted in clear, unambiguous language quantified as regards all material issues backed up by adequate documentation / data compiled during the course of audit and after considering Branch management s explanations made out keeping in view the concept of materiality 16
REPORT ING & MOC Main Report should be a self contained document and should contain no reference of any point made in the LFAR Audit Qualifications in the Main Report only and not in LFAR Report needs to be made out in the form and manner prescribed, subject to the qualifications being incorporated in the report and duly quantified in the Memorandum of Changes (MOC) For suggesting any changes Quantify in MOC (qualification)- MOC Auditors prerogative and need not take confirmations from the branch manager Its an annexure to Main report 17
LONG FORM AUDIT REPORT Thorough understanding Audit Plan along with Main Audit report LFAR questionnaire is a useful tool for planning the statutory audit of a bank s branch Main Audit Report & LFAR to be completed together. Clarity while replying the LFAR Detailed shortcomings/ weakness areas of the branch Sufficiently detailed and quantified so that they can be expeditiously consolidated by the bank LFAR - commenced alongwith main audit report - answers to LFAR should be specific, clear and unambiguous. 18
TAX AUDIT REPORT To be signed as per Section 44AB both Form 3CA & 3CD Importance may be given to TDS correct rates, no deduction, late deduction, paid on time to the authorities Rule 6DD Section 43B Prior period items Letter heads 19
DISCLAIMERS: Limited time Random Check Mention that report drafted period - No. of days spent for the audit Extent of Checking Use of Audit sampling Random Testing or substantive as the case may be Qualifications to be part of main audit report Written representations and observations recd.. Extent of reliance placed on audit reports of others( mainly LFAR compiled from those reports) Reliance on the information systems in place & obtain representations KYC, Demat Accounts, Security arrangements, Statutory requirements, etc Non receipt of Management representation letters 20
Ghosh & Jilani Committee Ghosh Committee Fraud & Malpractices in banks at Branch level Jilani Committee Internal Control and Audit/Inspection system in banks Internal Control and reporting at the branch level Compliances Questionnaire To say Yes/No Beginning of the audit Discussion certification and written representations from the branch may be obtained 21
JILANI COMMITTEE Recommendations An attempt to strengthen Internal Control of Banks especially in the Computerised Environment Management is responsible for the implementation of Jilani committee recommendations, the statutory auditor is responsible to verify and report on the status of implementation of these recommendations. The results of the verification carried out by the statutory auditor and his comments would be given in separate report The Implementation form is divided into 25 points,10 of them are applicable on a Bank branch 22
GHOSH COMMITTEE BACKGROUND - High level Committee on fraud and malpractice in banks under chairmanship of Shri A. Ghosh ex Deputy Governor Enquire into various aspects of frauds and malpractices in bank Make recommendations to reduce such incidence. 23
OBJECTIVES Proper system exists to ensure: Safety of assets Compliance with laid down policies and procedures Accuracy and completeness of accounting and other records Proper segregation of duties and responsibilities of staff Timely prevention and detection of frauds and malpractices 24
CERTIFICATION IN BANK AUDIT Audit Report is a reasonable Assurance Audit Certificate is Absolute Assurance Types of Certificates - Branch Returns - Audit Reports - Memorandum of Changes - LFAR - Tax Audit Reports - Certificates 25
GHOSH & JILANI REPORTS SUGGESTED REPORT ON STATUS OF COMPLIANCE OF GHOSH & JILANI COMMITTEES RECOMMENDATIONS We have reviewed the accompanying statements on status of implementation of Ghosh and Jilani Committee recommendations for the year ended 31 st March 2009 in respect of [Name of the Branch] of [Name of the Bank]. The responsibility of implementation of these recommendations is of the bank s management. A review of status of implementation consists principally of considering the latest reports thereon of the concurrent auditors/inspectors (in case the reports are silent about the issue, give suitable remark) of the bank, obtaining confirmations/making relevant inquiries of the management/other appropriate persons and carrying out test checks, which were limited to review of procedures and implementation thereof adopted by the branch for ensuring compliance of Ghosh and Jilani Committees Recommendations. 26
GHOSH & JILANI REPORTS A test check may not bring out all the observations which otherwise would have been possible had a detailed investigation on the status of implementation been undertaken. Further, it is neither an audit nor an expression of opinion on the financial statements of the branch. We further state that such implementation is neither an assurance as to the future compliance thereof at the branch nor the overall efficiency of effectiveness with which the management has conducted the affairs of the branch. Certain recommendations such as (specify the relevant clauses) could not be verified for the year under review and have accordingly been reported based on our observations made during the course of review. 27
GHOSH & JILANI REPORTS Based on our review as aforesaid, nothing has come to our attention that causes us to believe that the branch has not implemented the recommendations except for our comments given in Annexure attached hereto (specify all the adverse remarks and deficiencies including non-availability of records & information as suggested in the annexure given below). Attach the Report with words As per our report of even date attached. 28
OTHER CERTIFICATES Capital Adequacy BASEL I & II Requirements Compliance DICGC Claims PMRY Certification Service Tax Cash Balance 12 odd days Investment on Behalf of Head Office Agricultural Debt Relief Fixed Assets & Depreciation IRAC / NPA Related Certificates Interest Subvention Restructured Advances Foreign Currency Assets & Liabilities 29
Thank You for queries- CA. RAMESHA SHETTY, 3/18/2011 e-mail: ca.rshetty@gmail.com Mob: 98694 33579 30