Andheri Branch of WIRC of ICAI Long Form Audit Report Long Form Audit Report Based on Presentation By CA. Niranjan Joshi Now spoilt By CA. Nitant Trilokekar Email: nitanttrilokekar @yahoo.com Internet: nptbanking.blogspot.com
Certain Definitions… GAAP The difference between Accounting theory & practice CPA Can’t Produce Anything Finally Caught Pinching Assets FCPA EBIDTA Earnings Before I Tricked the Dumb Auditor EBI T Earnings Before Irregularities & Tampering Chief Embezzlement Officer CEO CFO Chief Fraud Officer NAV Net Andersen Valuation EPS Eventual Prison Sentence LFAR Letting Fellow Accountants Rejoice
Background LFAR is a detailed questionnaire prepared LFAR is a detailed questionnaire prepared by RBI . by RBI . LFAR has been in use since 1992-93. LFAR has been in use since 1992-93. To be submitted by the Auditors of Public To be submitted by the Auditors of Public sector banks, Private sector banks and foreign banks sector banks, Private sector banks and foreign banks (including their branches). (including their branches). Current format is applicable from the Current format is applicable from the year ending 31.3.2003. year ending 31.3.2003.
General… Study LFAR Questionnaire thoroughly Study LFAR Questionnaire thoroughly Plan the LFAR along with statutory Plan the LFAR along with statutory audit right from day one audit right from day one Use the Questionnaire as an Audit Use the Questionnaire as an Audit Planning Tool Planning Tool Complete & submit Main Audit Report as Complete & submit Main Audit Report as well as LFAR simultaneously well as LFAR simultaneously
Teamwork Logistics Partner Admin Partner IT Partner Peer Review ICAI Communication Partner Client HR Partner P R QC/ QA Partner CA
General... Be specific while replying LFAR Be specific while replying LFAR No vague/ general comments No vague/ general comments Give instances of shortcomings/ weaknesses Give instances of shortcomings/ weaknesses Do not make current year’s Do not make current year’s LFAR a replica of previous year LFAR a replica of previous year Branch LFAR should be addressed Branch LFAR should be addressed to Bank’s Chairman and a copy thereof sent to CSAs to Bank’s Chairman and a copy thereof sent to CSAs
General... Main Audit Report and LFAR are Main Audit Report and LFAR are two separate reports. Comments in LFAR should two separate reports. Comments in LFAR should not be qualificatory in nature not be qualificatory in nature I nclude Audit Qualifications in Main I nclude Audit Qualifications in Main Audit Report and not in LFAR Audit Report and not in LFAR
General Main Audit Report should Main Audit Report should be a self contained document be a self contained document LFAR should be sufficiently detailed and LFAR should be sufficiently detailed and quantified for expeditious consolidation and quantified for expeditious consolidation and rectification by Bank rectification by Bank
Perspective Alert LFAR is not a substitution of LFAR is not a substitution of the statutory report, neither a part of the said report. the statutory report, neither a part of the said report. LFAR is actually a management Report. LFAR is actually a management Report. Every adverse comment would not result in Every adverse comment would not result in qualification in main audit report qualification in main audit report Complete LFAR before main report. Complete LFAR before main report.
Major Categories in LFAR Assets Assets Profit Profit Liabilities And Loss Liabilities And Loss Account Account General General
Assets » Cash » Balance with RBI ,SBI and other banks » Money at call and short notice » I nvestments » Advances » Other Assets
Cash Branches carry cash depending upon the Branches carry cash depending upon the limit fixed by controlling authority limit fixed by controlling authority Adequate insurance cover of Adequate insurance cover of the cash in hand and cash in transit the cash in hand and cash in transit Some small branches Some small branches Effective Joint Custody maintain cash in Effective Joint Custody maintain cash in custody of a single official custody of a single official Cash balance checked at proper intervals Cash balance checked at proper intervals
Cash – Sample Response As mentioned in management letter dated ________Head office /regional office vide letter dated __________has fixed cash retention limit of Rs. 10 lakhs . Xerox of letter is not produced to us. On 105 occasions carrying cash is more than retention limit. On 54 occasions it has exceeded 40lakhs. Excess carrying cash is not reported to controlling authorities.
Balances with RBI , SBI & Other Banks Whether balance Whether balance Cash transactions Cash transactions confirmation certificates confirmation certificates remaining unresponded remaining unresponded obtained & reconciled obtained & reconciled Revenue items requiring Revenue items requiring adjustments/ write–off adjustments/ write–off I tem deserves I tem deserves special attention special attention Old outstanding balances Old outstanding balances remaining unexplained/ unadjusted remaining unexplained/ unadjusted
I nvestments I nvestments portfolio I nvestments portfolio is managed at H O is managed at H O Kept for safe custody Kept for safe custody at some branches at some branches Physically verify Physically verify I nvestments – Certificate I nvestments – Certificate Dividend/ interest received/ Dividend/ interest received/ credited to H O account credited to H O account
I nvestments-2 Income on investments kept at Branch for safe custody Income on investments kept at Branch for safe custody reported to Head office reported to Head office Matured or overdue investments should have been Matured or overdue investments should have been encashed encashed RBI guidelines regarding valuation of Investments RBI guidelines regarding valuation of Investments complied with complied with
Advances… Outstanding amount is in excess of 5% of the Outstanding amount is in excess of 5% of the aggregate advances of the branch or Rs.2 crore aggregate advances of the branch or Rs.2 crore whichever is less are LARGE ADVANCES whichever is less are LARGE ADVANCES Fresh Loans: Whether appraised properly? Fresh Loans: Whether appraised properly? Whether adverse remarks of field Whether adverse remarks of field officer are over ruled by seniors ? officer are over ruled by seniors ? Sensitive Areas identified by RBI: Real Sensitive Areas identified by RBI: Real Estate/ Securities/ Commodities Estate/ Securities/ Commodities Housing Loans Housing Loans Advances given to a specific Advances given to a specific group during the year? group during the year?
Advances… Loans approved by an authority just Loans approved by an authority just prior to his/ her retirement prior to his/ her retirement Stipulated installments/interests are being Stipulated installments/interests are being paid regularly paid regularly Terms and conditions of the loan complied Terms and conditions of the loan complied Credit facilities sanctioned beyond delegated Credit facilities sanctioned beyond delegated authority or limit fixed by Bank authority or limit fixed by Bank
Advances …. Review/ monitoring/ supervision Assess procedures for Periodic balance confirmation/ Assess procedures for Periodic balance confirmation/ acknowledgement of debts. acknowledgement of debts. Analysis of accounts overdue for review/renewal between 6 Analysis of accounts overdue for review/renewal between 6 months & 1 year and over 1 year months & 1 year and over 1 year Stock/debts statements and other periodic operational data Stock/debts statements and other periodic operational data and financial statements etc received regularly from and financial statements etc received regularly from borrowers and duly scrutinized borrowers and duly scrutinized Physical verification of securities charged to banks Physical verification of securities charged to banks
Advances …. (contd) Review/ monitoring/ supervision Frequent/ unauthorized overdrawing beyond limits Frequent/ unauthorized overdrawing beyond limits Guidelines of security creation, asset inspection, insurance Guidelines of security creation, asset inspection, insurance etc in case of leasing finance activities etc in case of leasing finance activities Branch identified and classified advances Branch identified and classified advances into standard/sub-standard/doubtful assets as per RBI into standard/sub-standard/doubtful assets as per RBI Physical verification of securities charged to banks Physical verification of securities charged to banks
Guarantees and LCs Critically Scrutinise Sanctioning Critically Scrutinise Sanctioning Devolvements/ Invocations Devolvements/ Invocations Sanctioning huge non–fund Sanctioning huge non–fund based limits without proper margins based limits without proper margins Over–exposure of Over–exposure of such facilities to certain parties such facilities to certain parties Whether opening of such Whether opening of such documents are for genuine trade documents are for genuine trade transactions – LCs, Financial guarantees transactions – LCs, Financial guarantees
Recommend
More recommend
