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Chartered Accountants Mumbai

Statutory Audit 2012-13

Audit Presentation

Flow of Data:

(Routine operations takes place) & Return 6A & 6B

CLORET (for generating financials
Return 1 & 2


(For Asset classification & Provisioning

All other non advances related returns
All other advances related returns


Revenue Recognition Operations

Asset Classification Provisioning

Financial Statements

1. Operations and drawing powers are captured from the finacle. All other fields in the master are manually feeded. Like value of security, repayment schedules, etc. It has to be checked properly. 2. Branch auditors are advised to check the audit trail of ASCROM to identify the changes made by the branches in master.

3. Auditors should also verify whether restructuring codes (71/72/74/92) are marked in ASCROM. 4. Incase of Advance Bill (LC Devolvement) and Bill Past Due (Guarantee Invocation) devolvement and invocation dates and outstanding are not flowing from finacle. It has to be punched manually. Correctness of date to be checked at branch level. 5. If Interest to be serviced field in ASCROM is left blank/No, system will not capture the interest portion debited to the loan accounts as overdue, even though it is not serviced by the borrower. Field can be checked by the auditors.

6. All the fraud accounts need to be marked under special category code 87. 7. External credit rating wherever necessary to be updated in ASCROM for correct risk weightage for capital adequacy.

IRAC Norms:
1. If debits arising out of devolvement of LC or invoked guarantees are parked in a separate account, the balance outstanding in that account also should be treated as a part of the borrowers principal operating account for the purpose of application of prudential norms on income recognition, asset classification and provisioning. (para 4.2.7.ii of IRAC norms of RBI) 2. Provision Requirement: Sub-standard: Secured 15%, Unsecured 25% However Bank is making the provision of 20% on secured advances.

Restructuring Guidelines:
1. Mere extension of DCCO will also be treated as restructuring. ( para ( Branch auditors are advised to check the necessary marking of special code in ASCROM and verify and tally with the certificate for restructured Assets with that of ASCROM. 2. A loan for an infrastructure project and Non Infrastructure projects will be classified as NPA if it fails to commence commercial operations within two years(Infrastructure) and six month (non infrastructure) from the original DCCO, even if it is regular as per record of recovery. (para & 3. Bank cannot reschedule/restructure/renegotiate borrowal accounts with retrospective effect. While a restructuring proposal is under consideration, the usual asset classification norms would continue to apply. (para 11.1.2).

Restructuring Guidelines:
4. All restructured accounts which have been classified as non-performing assets upon restructuring, would be eligible for up-gradation to the standard category after observation of satisfactory performance during the specified period. (i.e specified period means a period of one year from the date when the first payment of interest or installment of principal falls due under the terms of restructuring package). (para 11.2.3). 5. In case of restructured asset, which is a standard asset on restructuring, is subjected to restructuring on a subsequent occasion, it should be classified as substandard. (para 11.2.6).

Restructuring Guidelines:
Recent RBI circular on CDR guidelines on Second Restructuring/ Re-work out: (DBOD.No.BP.11730/21.04.132/2012-13 dated 18.02.2013)

All the cases of reschedulement/ rephasement during the concession period of a first time restructured account should be treated as repeated restructuring and should be classified as NPA.

Key Points to be considered:

Drawing Power:
1. Analytical review of stock statements and debtors statements submitted by the borrower should be carried out to arrive at correct drawing power (DP). Slow moving and absolute stocks to be reduced. 2. Comparison of stock and book debt statement with that of audited balance sheet as on 31.03.2012. 3. Drawing power calculated by the stock auditors should be considered. 4. Regular up-dation of drawing power in finacle to be made. Branches are not updating the DP regularly. Old DP is carried forward. Timely receipt of Stock Statements to be checked.

Key Points to be considered: 5. Stock Statement Date in ASCROM to be checked.

Other Points for consideration:

Auditors are requested to give proper details in the branch LFAR and wherever MOC s are suggested in the LFAR, MOC to be given in 14 and 14D. MOC to be passed only for the amount exceeding Rs.50000. MOC in respect of subvention claim & interest reversals in case of fresh NPAs to be passed irrespective of the amount. Finacle is not calculating the interest on overdue bills. Necessary entries to be passed at branch level to recognize the income from due date to closing date i.e 31st March 2013. Auditors to check the same.

Other Points for consideration:

Branches are to open PC disbursement/offset through menu RPCTM. But branches are opening under TM, menu. Such circumstances system will not charge interest. Interest application in such accounts to be done before closing. (Annexure 13).

Other Points for consideration:

Movement of Restructured Advances to be certified at branch level as per the recent circular of RBI on Disclosure requirements on restructured advances (DBOD.BP.BC.No.80/21.04.132/2012-13 dated 31.01.2013. RBI AFI commented accounts to be properly verified. Reversal of unrealised interest in case of NPAs.

Other Points for consideration:

Data cleaning exercise of ASCROM is carried out by the bank during the year. Auditors to check all discrepancies reported are been rectified by the branch. Branches are making mistakes while calculating the sacrifice amount of restructured loans. Auditors are advised to check correctness of the credit ratings and discounting rate applied by the branches. (Refer circular No: BCC: BR: 95/59 dated 18.02.2003).

Closing Returns:
Closing Return no.1- Balance Sheet. Closing Return no.2 Profit & Loss Account.

Closing Return no.3- Return on inward/outward Bills for collection.

Closing Return no.4- Return on Claims against Bank not Acknowledged as debt. Closing Return no.6 (A)- Return on Gross Block of fixed Assets

Closing Return no.6 (B)- Return on Block of Depreciation.

Closing Returns:
Closing Return no.7- Return on outstanding balances and doubtful amount in accounts other than Advances and Suspense.

Closing Return no.8- Break-up of outstanding in suspense account.

Closing Return no.9- Certificate of Confirmation on cash, Security forms etc (Not to be Audited) Closing Return no.10- Important data for adjustment in Balance Sheet. (Stands Discontinued)

Closing Return no.11- Statement of Bad & Doubtful Debts written off during the period (Annual)
Closing Return no.13- Return on Capital Adequacy (System generated)

Closing Returns:
Closing Return no.14- Memorandum of Changes (Balance Sheet & P&L) Closing Return no. 14D For change in Classification of Advances Closing Return no.15 to 18- Return on classification of Advances (Std., Sub-std, Doubtful & Loss) Closing Return no.19- Master summary of Advances. Closing Return no.20- Sectoral classification of Advances. Closing Return no-21 Statement of outstanding Deposit & Advances at Rural Branches (Annual)

***Thank You***