Bank Audit - Working Paper Manual-Part I

Bank Branch Audit – Managing Risk

An Integrated Work Paper Model

A Smart CA Update - CA Sripriya Kumar

Member – SIRC of ICAI

PART I

This document is published under the Smart CA professional initiative and is indicative only.

User discretion is highly recommended in the use of this document

Bank Branch Audit Working Paper Manual

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A FOREWORD

Dear Professional Colleague

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

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

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

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

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

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

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

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

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

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

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

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

to the entity you are auditing

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

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

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

unique to every practicing professional.

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

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

demonstrate adequate work done to ensure :

Financial statements being true and fair and free from material misrepresentations

Compliance with RBI norms including master and other circulars

Compliance with relevant Accounting Standards as relevant to Bank Branches

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

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

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

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

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

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

and cross referenced in the respective sections for user and reviewer convenience

CA Sripriya K


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BANK BRANCH AUDIT

INTEGRATED WORK PAPER FILE

Bank Name

Branch

Year

Date of Commencement

Date of Completion

Partner in Charge

File Reference


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TABLE OF CONTENTS

1. Objective and Scope of audit _______________________________________________________________________ 5

2. Scope Limitations, if any____________________________________________________________________________ 7

3. Report, Returns and Certificates ___________________________________________________________________ 8

4. Auditing Review and Other Standards ___________________________________________________________ 10

5. Engagement documentation ______________________________________________________________________ 12

6. Branch Overview ___________________________________________________________________________________ 13

7. Review Notes of Concurrent, Risk Based Audit, Inspection Reports ___________________________ 20

8. Audit Strategy ______________________________________________________________________________________ 22

9. Standard Schedules ________________________________________________________________________________ 24

10. Advances and General Audit plan ______________________________________________________________ 28

11. Advances Verification – Large advances _______________________________________________________ 30

12. Special Note on Audit of Restructured Advances _____________________________________________ 34

13. Advances Verification – Cash Credit and overdraft accounts ________________________________ 35

14. Advances Verification – Housing loans ________________________________________________________ 37

15. Advances Verification – Educational loans ____________________________________________________ 38

16. Advances Verification – Vehicle loans__________________________________________________________ 39

17. Advances Verification – Jewel Loans ___________________________________________________________ 40

18. Advances Verification – Loans against Own Deposits ________________________________________ 41

19. Advances Verification – Loans against financial assets _______________________________________ 42

20. NPA Review ______________________________________________________________________________________ 43

21. Verification of Deposits _________________________________________________________________________ 44

22. Check list for Long Form Audit Report ________________________________________________________ 45

23. Profit and Loss Account – Analytical review procedures_____________________________________ 48

24. Certification Related Working papers _________________________________________________________ 48

25. Tax Audit Workings _____________________________________________________________________________ 48

26. Other Working papers __________________________________________________________________________ 49

27. References _______________________________________________________________________________________ 49

28. Appendices ______________________________________________________________________________________ 49


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1. Objective and Scope of audit

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

……………………………………….. ……………………………… Bank for the year 2012-13

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

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

dated …………………………………….

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

2013 with reference to a True and Fair perspective

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

for in the preparation of this integrated work paper document

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

Branch Auditors report

Memorandum of Changes if any

Certified / Attested financial statements

Long Form Audit Report

Schedules and Certificates as per index attached in the next segment

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

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

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

Misstatement of income, expenses, Assets or Liabilities.

Unrecorded liabilities and contingent liabilities

Asset Classsification and NPA provisions not adequate for impaired assets

Asset Classification and Income Recognition especially for restructured assets

KYC / AML norm compliance related issues

Internal control failures over banking operations including potential / undetected

frauds

Wrong certification

Name Designation Days From To

Partner

Qualified Paid Assistant

Audit Assistant

Articleship trainee


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

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

Designation Name Grade

Branch Manager

Loans Officer

Deposit Officer

Other Officers


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2. Scope Limitations, if any

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

explanations in connection with the audit

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

Information requested and not provided

Amount Impact on audit, if any Management Comments

Information requested and not provided

Amount Impact on audit, if any Management Comments


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3. Report, Returns and Certificates

3.1. Key Deliverables

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

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

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

S No Index No

of

cop

ies

Co

mp

leti

on

St

atu

s

RETURNS

1 BS - 1 Liabilities

2 BS - 2 Assets

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

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

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

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

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

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

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

B Supplementary to BS Schedules

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

11 SUPP. C – CLASSIFICATION OF ADVANCES

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

13 SUPP. E1 & E2 – EXPOSURE TO SENSITIVE SECTOR

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

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

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

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

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

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

19 Loan Analysis Summary

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

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

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

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

24 Supp M - 30-09-12

25 SFVM inventory statement


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S No Index No

of

cop

ies

Co

mp

leti

on

St

atu

s

CERTIFICATES

26 Branch Audit Report

27 Annexure A to E ( Memorandum of Changes )

28 Questionnaire in addition to Branch Audit report

29 Special Deposit Scheme 1975

30 Compulsory Deposit scheme 1974

31 PMRY scheme

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

33 Interest Subvention claim

34 Interest relief on Rupee Export credit

35 Compliance of Accounting Standard 11 as per Annual Closing Circular

36 Technology upgradation fund scheme

37 Capital subsidy scheme for processing machinery

38 LFAR

39 Tax audit report

40 SLR / CRR

41 Ghosh Committee Report

42 Jhilani Committee Report

43 Statement of Capital Adequacy

44 Statement of Risk Weight Assets

45 Certificate of passing previous year MOC

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

47 Provision for sacrifice under NPV method for restructured advances

48 Provision held on upgraded restructured advances for two years

49 Sector wise, security wise and asset classification wise statement

50 Certificate of Lending to Sensitive Sector

51 Certificate of Cash Margin held

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

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

a seal as “Initialled for Identification purposes only”


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4. Auditing Review and Other Standards

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

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

applicable for the engagement

SA reference Description

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

SA210 AGREEING THE TERMS OF AUDIT ENGAGEMENTS.

SA220 QUALITY CONTROL FOR AN AUDIT OF FINANCIAL STATEMENTS.

SA230 AUDIT DOCUMENTATION.

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

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

SA260 COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE.

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

SA299 RESPONSIBILITY OF JOINT AUDITORS.

SA300 PLANNING AN AUDIT OF FINANCIAL STATEMENTS.

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

SA320 MATERIALITY IN PLANNING AND PERFORMING AN AUDIT.

SA330 THE AUDITOR’S RESPONSES TO ASSESSED RISKS.

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

SA450 EVALUATION OF MISSTATEMENTS IDENTIFIED DURING THE AUDIT.

SA500 AUDIT EVIDENCE.

SA501 AUDIT EVIDENCE—SPECIFIC CONSIDERATIONS FOR SELECTED ITEMS.

SA505 EXTERNAL CONFIRMATIONS.

SA510 INITIAL AUDIT ENGAGEMENTS—OPENING BALANCES.

SA520 ANALYTICAL PROCEDURES.

SA530 AUDIT SAMPLING.

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

SA550 RELATED PARTIES.

SA560 SUBSEQUENT EVENTS.

SA570 GOING CONCERN.

SA580 WRITTEN REPRESENTATIONS.

SA600 USING THE WORK OF ANOTHER AUDITOR.

SA610 USING THE WORK OF INTERNAL AUDITORS.

SA620 USING THE WORK OF AN AUDITOR’S EXPERT.


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SA reference Description

SA700 FORMING AN OPINION AND REPORTING ON FINANCIAL STATEMENTS.

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

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

SA710 COMPARATIVE INFORMATION— CORRESPONDING FIGURES AND COMPARATIVE FINANCIAL STATEMENTS.

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

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

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

SA810 ENGAGEMENTS TO REPORT ON SUMMARY FINANCIAL STATEMENTS.

SRE2400 ENGAGEMENTS TO REVIEW FINANCIAL STATEMENTS.

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

SAE3400 THE EXAMINATION OF PROSPECTIVE FINANCIAL INFORMATION.

SAE3402 ASSURANCE REPORTS ON CONTROLS AT A SERVICE ORGANISATION.

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

SRS4410 ENGAGEMENTS TO COMPILE FINANCIAL INFORMATION.


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5. Engagement documentation

5.1. Audit Acceptance Letter

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

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

practice and Declaration of Indebtedness has also been attached to this section. Refer Appendix 1

for acceptance letter

5.2. Engagement Letter

An engagement letter has been issued and kept in Appendix 2

5.3. Letter of communication with previous auditor

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

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

Further the previous auditor has / has not been contacted over phone / e mail. Refer Appendix 3

for Communication sent and response received. Refer Appendix 3

5.4. Representation letter

Management Representation letter has been obtained and kept in Appendix 4


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6. Branch Overview

6.1. Key data

6.2. Target Vs Accomplishment

Description 2012-13 2011-12

Rs . lakhs Rs . lakhs

Total Assets

Total liabilities

Total Advances

Total Deposits

Income

Expenditure

Profit / Loss

Description 2012-13 2011-12

Target

Rs . lakhs

Actual

Rs . Lakhs

Total Advances

Total Deposits

Rating of the Branch


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

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

Rs . lakhs No of accts


1 Cash Credit

2 Overdraft

3 Term loans

4 Crop loans

5 Housing loans

6 Jewel loans

7

8..

10 Other advances

Total Advances


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6.4. Large Advance Profiling

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

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

6.5. Customer wise advances

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

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

all accounts

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



1

2

3

4

5

6

S No Customer Name Facilities 2012-13

Rs . lakhs

1 1

2

3

2 1

2

3

3 1

2

3


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6.6. Advance profiling by value

6.7. Deposit profiling

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


1 < Rs 1 lakh

2 Rs 1 – 5 lakhs

3 Rs 5 – 10 lakhs

4 Rs 10 - 50 lakhs

5 Rs 50 lakhs – Rs 1 Crore

6 Rs 1 to 2 Crores

7 Rs 2 to 5 Crores

8 Rs 5 to 10 Crores

9 > Rs 10 Crores

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



1

2

3

4

5

6 Others

Total Deposits


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6.8. Restructured advances

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

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

also be reviewed

6.9. Interest rate and other charges on major advances

Advances Type Interest % Charges % Charges % Charges %

S No Account reference / Name During

2012-13

Upto

2011-12

2012-13

Rs . lakhs Rs. Lakhs Rs . lakhs

1

2

3

4

5


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6.10. Interest rate on deposits

Deposit type Days Interest %

6.11. Any frauds reported

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


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6.12. Asset Classification as of date of audit

6.13. Review of previous year Audit report and LFAR

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

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

6.14. Any other matters for consideration to be included

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



1 Standard

2 Substandard

3 Doubtful

4 Loss

Total advances


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

Concurrent Audit

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

Amount Present Status – Rectified, LFAR,

MoC, Unadjusted

Impact, if any on audit strategy

Risk Based Internal Audit



MoC, Unadjusted


Inspection Reports



MoC, Unadjusted


Bank Audit - Working Paper Manual-Part I

Documents

document bank branch

audit risk

bank branch audit engagements

audit planning

branch audit exercise

audit program

bank branch audits

working paper document