Simple Project On Audit of Bank
Simple Project On Audit of Bank
Simple Project On Audit of Bank
Table of Contents
Executive Summary.....................................................................................................2
Introduction..................................................................................................................3
Definition Of Auditing.5
Audit Committee..8
Advantage Of Auditing9
Limit Of Auditing..11
Internal Control.12
Stages In Auditing.13
N.P.A. Guidelines..22
Conclusion.28
Bibliography..............................................................................................................30
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EXECUTIVE SUMMARY
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INTRODUCTION
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1) Origin of term :
The term audit is derived from the Latin term audire mean to
hear. In early days, an auditor used to listing to the account read out by
the accountant in order to check them.
2) Ancient origin :
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true and fair rather than true and correct. Thus, the emphasis was not
arithmetical accuracy but on fair representation of financial affairs.
5) Computer technology:
The latest development in auditing pertains to the use of computers
in accounting as well as auditing.
Really, auditing has come a long way from hearing the accounts
in the ancient day to using computers to examine computerized accounts
of today.
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DEFINITION OF AUDITING
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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.
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:
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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.
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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.
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.
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ADVANTAGES OF AUDITING
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.
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.
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.
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accounts are based on objectives standard and not on personal whims and
fancies of a particular accountant or auditor.
The auditor can also advise the client about the accounting system,
internal control, internal check, internal audit, taxation, finances etc.
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LIMITATIONS OF AUDITING
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, values etc. for estimating
contingent liabilities, valuation of fixed assets etc.
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INTERNAL CONTROL
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.
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STAGES IN AUDITING
1) Preliminary work:
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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.
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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.
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:
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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:
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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.
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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.
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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.
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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.
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.
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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:
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:
C. Letters of credit.
D. Letter of guarantee.
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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:
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 31 st March 2004,
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according with effect from 31st march 2004, a non-performing asset shall be
a loan or advances where,
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.
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-
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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.
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.
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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:
Concurrent audit:
Concurrent audit is the system which introduced by the RBI with the view
that interval between the occurrence of transaction and its 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.
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System audit:
Revenue audit:
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CONCLUSION
The project the position of Indian banking system as well as the principal
laid down by the Basel Committee on banking supervision. 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 todays
scenario form company and point of view.
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BIBLIOGRAPHY
Websites
www.google.com
www.icai.org
Books
Auditing