Analysis of Revised Format of

Long Form Audit Report (LFAR)

CA. Rohit Porwal

(M.Com., ACA, DISA(ICAI), CCFAFD, CCCAB, CCFXTM)
Email:- [email protected]
Mob. No.+91-7566958480

1
 Disclaimer
These are my personal views and can not be construed to be the
views of the ICAI/RBI/Bank or my firm, Member applied his
decision with his professional skepticism and concept of
Materiality (SA – 320).
No representations or warranties are made by the Study
Circle/Branch/bank/RBI with regard to this presentation.

These views are my personal views and shall not be considered as a

professional advice.
Example given during the session is only for the academic purpose.
This presentation should not be reproduced in part or in whole, in
any manner or form, without our written permission.

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Background:-

• LFAR is a detailed questionnaire prepared by RBI for the

branches as well as Bank as whole.

• It is be submitted by the auditor of Public Sector/ Private

sector/ foreign banks and Co Op Banks (Including their
branches )

• LFAR was first introduced in the year 1985 and subsequently

revised in the year 1993, 2003 and recently in the year 2021.
• On 05th Sep, 2020 RBI issued revised format of LFAR which is
applicable for audit period from 31-03-2021

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Why new format is important:-

• New Format is exhaustive. We have to spend more time in

branches to prepare report this time.

• Many new issues are added in this format which can be

commented only if CBS generated reports are ready at branch
for auditors.

• Asked for the details in advance from branch before your visit.
• Some items are specifically added in new format which were
already there in ICAI Guidance note issued earlier.

• Scope of new format increased which bring more liability on

part of Chartered Accountants.

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Approach to prepare LFAR :-

• Read and study the LFAR thoroughly at least once.

• Plan the LFAR along with audit from the day one.

• Use the question of LFAR to plan and design audit program.

• Prepare your audit checklist and include question of LFAR in
that. You will not leave the point to me mentioned in LFAR

• Prepare the LFAR from your own and update it on daily basis
(Not after finishing the audit on the last day).

• Be specific while answering the question and try to reduce your

risk at reasonable level.

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Highlight on Modification/ Newly added Point in LFAR
• Definition of large advances
• Transaction audit/ specific details for large advances
• List and Percentage of Accounts examined
• Data integrity
• Details of ECGC claims
• Verification of documents and record held at CPC/ HO/CO Level;
• Impact of Interchangeability between FB and NFB facilities
• Compliances of minimum balance requirement ;
• Interest rate verification & Credit Rating
• DP Computation and Stock statement

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Important Points for CSA

Addition can be done in format by SCA:-

The mandate and scope of the audit will be as per this format
and if the SCA feels the need of any material additions, etc.,
this may be done by giving specific justification by the SCA
and with the prior intimation of the bank’s Audit Committee
of board (ACB).

Revised Format of LFAR:-

Annexure II LFAR.pdf

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I ASSETS
1 Cash
(a) Does the system ensure that cash maintained Joint Custody of Key
is in effective joint custody of two or more
officials, as per the instructions of the
controlling authorities of the bank?
(b) Have the cash balances at the branch/ATMs ATM has been specifically
been checked at periodic intervals as per the added in new format .
procedure prescribed by the controlling ATM was not mentioned in
earlier format but, we were
authorities of the bank?
already doing the same .

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I ASSETS
1 Cash
(c) (i) Does the branch generally maintain / carry
cash balances, which vary significantly from the
limits fixed by the controlling authorities
of the bank?
(ii) Does the figure of the balance in the branch This para is newly added
books in respect of cash with its ATM(s) tally with for ATM machines .
the amounts of balances with the respective ATM was not mentioned
ATMs, based on the year end scrolls generated by in earlier format but, we
the ATMs? If there is any were already doing the
difference, same should be reported. same .
(d) Whether the insurance cover available with the
branch adequately meets the requirement
to cover the cash-in hand and cash-in transit?

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I ASSETS
2 Balance with RBI ,SBI , and other banks ( For branches with Treasury
Operations )
Were balance confirmation certificates Take Balance Confirmation
(a) obtained in respect of outstanding balances as from other Banks and RBI.
at the year-end and whether the aforesaid
balances have been reconciled? The nature and
extent of differences should be reported.

(b) Observations on the reconciliation statements

may be reported in the following manner:

(i) Cash transactions remaining un-responded

(give details)

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 I ASSETS
2 Balance with RBI ,SBI , and other banks ( For branches with
Treasury Operations )

(ii) Revenue items requiring adjustments / write-off

(give details)
Old para
Other credit and debit entries originated in the iii. Old outstanding balances
(iii) statements provided by RBI/other banks, remaining unexplained /
remaining un- responded for more than 15 days: unadjusted .Give details for
entries outstanding more than
15 days – Nothing new We
were doing earlier also

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I ASSETS
2 Balance with RBI ,SBI , and other banks ( For branches with Treasury
Operations )
(iv) Where the branch maintains an account This para is newly added
with RBI, the following additional matter
may be reported: Link branch to which currency chest attached
has originated deposit/ withdrawal entries
relating to operations in currency chest prior
Entries originated prior to, but to year end on the branch which maintains
communicated / recorded after the year end account with RBI .
in relation to currency chest operations at But the branch which maintains the account
the branch/other link branches, involving with RBI got communication for these entries
after the year end should be reported
deposits into/withdrawals from the
currency chest attached to such branches These entries will be lying in inter branch
(Give details) reconciliation and MOC for the should be
suggested

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I ASSETS
2 Balance with RBI ,SBI , and other banks ( For branches with Treasury
Operations )
(c ) In case, any matter deserves special attention
of the management, the same may be reported.

3 Money at call and short Notice

(a) Has the branch kept money-at-call and short

notice during the year?

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I ASSETS
3 Money at call and short Notice

(b) Has the year-end balance been duly This para is newly added
confirmed and reconciled? But, we were already doing the same

Has interest accrued up to the year-end This para is newly added

(c) been properly recorded? But, we were already doing the same

(d) Whether instructions/guidelines, if any,

laid down by the controlling authorities of
the bank have been complied with?

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I ASSETS
4. Investments (for branches outside India)

In respect of purchase and sale of investments, has the branch acted

(a) within its delegated authority, having regard to the instructions/
guidelines in this behalf issued by the controlling authorities of the
bank?
(b) Have the investments held by the branch whether on its own account or
on behalf of the Head Office/other branches been made available for
physical verification? Where the investments are not in the possession of
the branch, whether evidences with regard to their physical verification
have been produced?

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I ASSETS
4. Investments (for branches outside India)
(c) Is the mode of valuation of investments in accordance
with the RBI guidelines or the norms prescribed by the
relevant regulatory authority of the country in which the
branch is located whichever are more stringent?
(d) Whether there are any matured or overdue investments
which have not been encashed and / or has not been
serviced? If so, give details?

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I ASSETS
5 Advances
General Instructions
(i) The answers to the following questions may be based on the auditor’s examination
of all large advances.
For this purpose, large advances are those in respect of which the outstanding
amount is in excess of 10% of outstanding aggregate balance of fund based and
non-fund based advances of the branch or Rs.10 crores, whichever is less.

Care- For all accounts above the threshold, the transaction audit/account specific
details to be seen and commented, whereas below the threshold, the process needs
to be checked and commented upon.
Comments of the branch auditor on advances with significant adverse features,
which might need the attention of the management / Statutory Central Auditors,
should be appended to the LFAR.

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I ASSETS
5 Advances
General Instructions
Modification in definition of large advances :
Now it is 10% of outstanding aggregate balance of fund based and non fund
based advances of the branch or 10 CR which ever is less
Earlier it was in excess of 5% of the aggregate advances of the branch of RS.2
crore whichever is less
For all account above the threshold ,the transaction audit/account specific
details to seen and commented ,
For all account above the threshold ,the transaction audit/account specific
details to be seen and commented , whereas below the threshold, the process
needs to be checked and commented upon .
Transaction Audit – It is very wide term , it meant operations of account
Specific Details – Details provided by bank in large account format to be
verified.

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I ASSETS
5
Advances
General Instructions

The critical comments based on the review of the above and

other test check should be given in respective paragraphs as
(ii) given in LFAR given below.

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I ASSETS
5 Advances
(a) List of Account examined for audit
Account No Account Balance as at year Balance as at year Total
Name end –Funded end – Non-Funded
A B C = A+B
Total
X Y Z=X+Y
Total Outstanding
of the branch
Percentage A as % of X B as % of Y C as % of Z
Examined
Newly added clause :- This is new clause. Now onwards auditors have to give details of
all advances account examined during the audit.

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I ASSETS
5 Advances
(b) Credit Appraisal
(i) In your opinion, has the branch generally
complied with the procedures / instructions of
the controlling authorities of the bank regarding
loan applications, preparation of proposals for
grant/ renewal of advances, enhancement of
limits, etc., including adequate appraisal
documentation in respect thereof. What, in your
opinion, are the major shortcomings in credit
appraisal, etc.

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I ASSETS
5 Advances
(b) Credit Appraisal
Have you come across cases of quick Newly added clause
(ii) mortality in accounts, where the facility
became non-performing within a period of Verify all newly detected NPA account
12 months from the date of first sanction? and see when same were first
Details of such accounts may be provided in sanctioned . This data can easily be
collected by auditor
following manner:-
 Account No.
 Account Name
 Balance as at year end

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I ASSETS
5 Advances
(b) Credit Appraisal
(iii) Whether in borrowal accounts the Newly added clause
applicable interest rate is correctly (a) Rate of interest ay the year end
(b) Modification during the year
fed into the system? Audit trails required – Ask for audit trail of modification
in rate of interest of loan with value date and verify with
the document verified.

(iv) Whether the interest rate is Newly added clause

reviewed periodically as per (a) Generally branch will reply that it is be modified in
system centrally
the guidelines applicable to (b) Rate of interest at the year end
floating rate loans linked to (c) Modification during the year
MCLR / EBLR (External Audit trails required – Ask for audit trail of modification
in rate of interest of loan with value date and verify with
Benchmark Lending Rate)? the document verified
Impact – MOC if any

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I ASSETS
5 Advances
(b) Credit Appraisal
(v) Have you come across cases of Newly added clause
frequent renewal / rollover of short-
Audit trails required- Ask for audit trail generated from
term loans? If yes, give the details of system with regards to accounts renewed/rolled over in
such accounts. system impact – MOC if any

Refer to RBI circular

RBI /2020-21/27 Dos.CO.PPG.BC.1/11.01.005/2020-21 August 21,2020
Ad-hoc / Short Review/Renewal of Credit Facilities

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I ASSETS
5 Advances
(b) Credit Appraisal

(vi) Whether correct and valid credit rating, if Newly added clause
available, of the credit facilities of bank's (1) Ask the bank policy in this regards
borrowers from RBI accredited Credit (2) Verify the credit rating obtained as per
Rating Agencies has been fed into the bank policy
system? (3) Verify whether in system it is correctly
updated
In terms of para 6 of the circular , six domestic credit rating agencies viz. CARE
,CRISIL, FITCH, ICRA BRICKWORK and SMERA have been accredited for
the purpose of risk weighting the banks claims for capital adequacy purposes.

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I ASSETS
5 Advances
(c) Sanctioning / Disbursement

(i) In the cases examined by you, have you come across instances of: Generally
(a)credit facilities having been sanctioned beyond the delegated happen in case
of short
authority or limit fixed for the branch?
renewal or
(b) Are such cases promptly reported to expiry
higher authorities?

(ii) Whether advances have been disbursed without complying with the
terms and conditions of the sanction? If so, give details of such cases.

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I ASSETS
5 Advances
(c) Sanctioning / Disbursement
(iii) Did the bank provide loans to Newly added clause
Auditors should verify whether any buy back
companies for buy-back of Shares
has taken place during the year
/securities?
It is controversial issues .
(a) Word “bank provide” means loan given by bank for buy-back of shares which seems
to be impossible as it is not permitted . It can be verified

(b) Loan given for “x” purpose but used for buy-back . It is difficult to very by auditor.

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I ASSETS
5 Advances
(d) Documentation
In the cases examined by you, have you
come across instances of:
(i) Credit facilities released by the branch without execution Like, Charge Creation,
of all the necessary documents? If so, give details of Mortgage, Guarantee
such cases. papers etc.
(ii) Deficiencies in documentation, including non-
registration of charges, non-obtaining of guarantees,
etc.? If so, give details of such cases.
The words “the related
(iii) Advances against lien of deposits have been granted
without marking a lien on the bank’s deposit receipts and account "added- means lien
the related accounts in accordance with the guidelines of marked in system also to
verified. We were doing
the controlling authorities of the bank.
earlier also

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I ASSETS
5 Advances
(e) Review/Monitoring/Supervision
Is the procedure laid down by the Line marked in red is newly added
(i) controlling authorities of the bank, for
periodic review of advances, including We were doing earlier also.
periodic balance confirmation /
acknowledgement of debts, followed by Period is modified in line of RBI NPA
the branch? Provide analysis of the guidelines
accounts overdue for review/renewal.
What, in your opinion, are major
shortcomings in monitoring, etc.
a) between 3 to 6 months, and In old format
it was “between 6 months and 1 year and

b) over 6 months In old format

It was ‘over one year

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I ASSET
5 Advances
(e) Review/Monitoring/Supervision
(ii) (a) Are the stock/book debt statements and
other periodic operational data and No Change
financial statements, etc., received
regularly from the borrowers and duly
scrutinized? Is suitable action taken on
the basis of such scrutiny in appropriate
cases?
(b) Is the DP properly computed? Newly added clause
Audit trails required : Ask for audit trails of
DP modification done system during the
year along with value date verify the data
updated in system with stock statement

(c) Whether the latest audited financial Newly added clause :

statements are obtained for accounts We were already doing this only specific
reviewed / renewed during the year? clause is given here

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I ASSET
5 Advances
(e) Review/Monitoring/Supervision
(iii) (a) Whether there exists a system of No Change
obtaining reports on stock audits
periodically?

(b) If so, whether the branch has No Change

complied with such system?
(c )Details of: Newly added clause
 cases where stock audit was We were already doing in item (a)
required but was not conducted. Item 2- after reading report we can
 where stock audit was conducted comment for action taken or not
but no action was taken on adverse features
(iv) Indicate the cases of advances to non- Now , no limit is specific by RBI it is
corporate entities with limits beyond that is mentioned the limit as set by the bank.
set by the bank where the branch has not
obtained the duly audited accounts of Ask for undertaking from bank for limit
borrowers. fixed by bank

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I ASSET
5 Advances
(e) Review/Monitoring/Supervision
(v) Does the branch have on its record, a dueNewly added clause
diligence report in the form and manner
required by the Reserve Bank of India inEarlier in seminars we were discussing
respect of advances under consortium andthis issues always and in borrower
multiple banking arrangements. Give the list ofand Consortium accounts we were
accounts where such certificate/report is notdoing .Now this clause has been
obtained or not available on record. (In case,specifically added to verify the
the branch is not the lead bank, copy ofcompliance of followings RBI circulars
certificate/report should be obtained from
lead bank for review and record)

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 Compliance of RBI guidelines :
 Lending –under lending under Consortium Arrangement / Multiple Banking Arrangement
 Auditor should verify that in case of lending under consortium Arrangement / Multiple banking
Arrangement/,’banks ,any sanction of fresh loans /ad hoc loans /renewal of loans to new/existing
borrowers should be done only after obtaining/ sharing necessary information among banks .
Report the case where prescribe guidelines are not followed
 Auditor should verify that bank branch has on its record a due diligence certificate / report in the
form and the manner required by the Reserve Bank of India in respect of advances under
consortium and multiple banking. Give the list of account where certificate is not obtain or on
record
For above auditors can refer to following circular issued by RBI
DBOD.NO.BP.BC.46/08.12.001/2008-09 dated September 19,2008
DBOD..BP.BC.94/08.12.001/2008-2009 dated December 8,2008
DBOD.NO.BP.BC.110/08.12.001/2008-2009 dated February 10,2009
DBOD..BP.BC.NO.62/21.04.103/2012-13 November 21,2012

 Transfer of Borrowal Account from One bank to Another Bank

 Verify that before taking over an account the transferor bank has obtained necessary credit
information from the transferor bank as per prescribe in following circulars issued by Reserve
Bank of India
DBOD..BP.BC.94/08.12.001/2008-2009 dated December 8,2008
DBOD. NO.BP.BC-104/21.04.048/2011-12May 10,2012.

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I ASSET
5 Advances
(e) Review/Monitoring/Supervision
(vi) Has the inspection or physical verification of
securities charged to the bank been carried out No Changes
by the branch as per the procedure laid down
by the controlling authorities of the bank?
Whether there is a substantial deterioration in Newly added clause
value of security during financial year as per We were already verifying this clause 4.2.9
latest valuation report in comparison with of master circular regarding erosion in
value of security
earlier valuation report on record?
Now specific clause is added in LFAR
IMPACT- MOC

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I ASSET
5 Advances
(e) Review/Monitoring/Supervision
(vii) In respect of advances examined by you, have
you come across cases of deficiencies,
including in value of securities and inspection
thereof or any other adverse features such as
frequent/ unauthorized overdrawing beyond
limits, inadequate insurance coverage, etc.?
(viii) Whether the branch has any red-flagged Newly added clause
account? If yes, whether any deviations were Ask for list of SMA, fraud and RED
observed related to compliance of bank's Flagged accounts reported branch
policy related with Red Flag Accounts? and bank , policy in this regards –
IMPACT – MOC

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I ASSET
5 Advances
(e) Review/Monitoring/Supervision
For Red Flag reporting guideline refer to fraud circular clause 8.3.4-42 items of EWS
given in Annexure II
Classification and reporting by commercial banks dated July 1, 2016
(updated as on July 03,2017)
(ix) Comment on adverse features considered
Newly added clause
significant in top 5 standard large advancesThis issues are already being reporting in
and which need management's attention. large accounts statements if above
threshold
If there is no large account i.e.10% of
outstanding aggregate balance of fund
based and non-fund based advances of the
branch or Rs. 10 Croers whichever is less.
Comment at least 5 standard top accounts
of branch

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I ASSET
5 Advances
(e) Review/Monitoring/Supervision

(x) In respect of leasing finance activities, has the branch complied with the
guidelines issued by the controlling authorities of the bank relating to
security creation, asset inspection, insurance, etc.? Has the branch
complied with the accounting norms prescribed by the controlling
authorities of the bank relating to such leasing activities?

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I ASSET
5 Advances
(f) Asset Classification, Provisioning of Advances and Resolution of Stressed Assets

(i) (a) Has the branch identified and classified The words “ without manual
advances into standard / substandard / intervention “ newly added
doubtful / loss assets through the computer NPA classification statement are being
system, without manual intervention? prepared by HO and provided for audit

(b) Is this identification & classification in line No Change

with the norms prescribed by the Reserve Bank
of India
Refer to RBI Circular :- Automation of income Recognition ,asset classification and
Provisioning processes in bank Dated sept 14,2020….From 01st July 2021
Audit Trails Required – System Audit Report – Expectation …. Approvals
2.9 Bank shall Maintain logs for all exceptions i.e. manual intervention / over-rides
including's , but not limited to , the date and time stamp ;purpose /reasons ;users –IDs,
name and designation of those making such manual intervention and necessary account
detail. Log should maintain for 3 year and not be tampered with during the storage
period . These logs shall be system generated .
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I ASSET
5 Advances
(f) Asset Classification, Provisioning of Advances and Resolution of Stressed Assets
(i) (c) Whether the branch is following the Words marked in red colour added
system of classifying the account into SMA-0, Now SMA -0 1 to 30 days
SMA-1, and SMA-2. Whether the auditor SMA -1 31 to 60 days
disagrees with the branch classification of SMA -2 60 to 90 days
advances into standard (Including SMA-0, SMA- Concept is available in bank loan
1, SMA-2) / sub-standard / doubtful / loss statement itself hence there is no issue
assets, the details of such advances with We can ask for periodically SMA
reasons should be given. Statement from banks and ensure
classification is correct.
(d) Also indicate whether required changes No Change
have been incorporated/ suggested in the (Classification do not means only
Memorandum of Changes Standard/SS/Doubtful/loss it also sector
wise and other

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I ASSET
5 Advances
(f) Asset Classification, Provisioning of Advances and Resolution of Stressed Assets
(i)
(e) List the accounts (with outstanding in Newly added clause
excess of Rs. 10.00 crore) which have
either been downgraded or upgraded with We are already doing this only
regard to their classification as Non- specific clause added
Performing Asset or Standard Asset during
the year and the reason thereof.
(f) Whether RBI guidelines on income Newly added clause
recognition and provisioning have been Earlier covered on P&L and elsewhere
followed. only modified

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5 Advances
F Asset Classification, Provisioning of Advances and Resolution of Stressed Assets

(ii) (a) Whether the branch has reportedNewly added clause

accounts restructured or rephrased during
the year to Controlling Authority of theWe are already verifying restructured loan
bank? statement account if any deviation
reporting only separate clause added
(b) Whether the RBI Guidelines for Newly added clause
restructuring on all such cases have been
followed. We are already verifying restructured loan
statement account if any deviation
reporting only separate clause added
(c) Whether the branch complies withNewly added clause
the regulatory stance for resolution ofRBI/2018-19/ 203
stressed assets, including the complianceDBR. NO. BP. BC.45/21.04.048/2018-19
with board approved policies in thisJune 7, 2019
regard, tracking / reporting of defaultsPrudential framework for Resolution of
for resolution purposes among others? Stressed Assets
Covid-19
Verify-SMA account above 5 cr
41
5 Advances

f) Asset Classification, Provisioning of Advances and Resolution of Stressed Assets

(iii) (a) Whether the upgradations in non- Newly added clause

performing advances is in line with the We are already verifying only specific
norms of Reserve Bank of India clause added
(b) Where the auditor disagrees with Newly added clause
upgradation of accounts? If yes, give We are already verifying only specific
reasons thereof. clause added
(iv) Have you come across cases where the
relevant Controlling Authority of the bank
has authorized legal action for recovery of
advances or recalling of advances, but no
such action was taken by the branch.

42
5 Advances

f) Asset Classification, Provisioning of Advances and Resolution of Stressed Assets

(v) Whether there are any accounts wherein Newly added clause
a) Ask the list of cases, wherein
process under IBC is mandated but not process under IBC has been
initiated by the branch? mandated by bank- but same is
not initiated.
Whether there are any borrowers at the
branch against whom the process of IBC is b) If yes give list and verify
adequate provision has been
initiated by any of the creditors including made or not. Provision we are
bank? If yes, provide the list of such already verifying
accounts and comment on the adequacy of
provision made thereto?

43
5 Advances

f) Asset Classification, Provisioning of Advances and Resolution of Stressed Assets

(vi) (a) Have appropriate claims for credit Item c newly added
guarantee (ECGC and others), if any, been
duly lodged and settled? IMPACT - MOC

(b) Give details of claims rejected? (As per

the given table)

(c) Whether the rejection is appropriately

considered while determining the provisioning
requirements

44
5 Advances

f) Asset Classification, Provisioning of Advances and Resolution of Stressed Assets

(vii) In respect of non-performing assets, has the branch obtained valuation

reports from approved values for the immovable charged to the bank, once in
three years, unless the circumstances warrant a shorter duration?

(viii) In the cases examined by you, has the branch complied with the Recovery
Policy prescribed by the controlling authorities of the bank with respect to
compromise/settlement and write-off cases? Details of the cases of
compromise/settlement and write-off cases involving write-offs/waivers in
excess of Rs.50.00 lakhs may be given.

45
5. Advances

f) Asset Classification, Provisioning of Advances and Resolution of Stressed Assets

(ix) Is the branch prompt in ensuring execution Newly added clause

of decrees obtained for recovery from the
defaulting borrowers? Give Age-wise analysis Obtain this data from branch
of decrees obtained and pending execution.
1) Ask the list of all suit-filed cases along with latest status
2) For decreed cases ask for latest position with regard to execution done
or pending
(x) Whether in the cases concluded the Newly added clause
recoveries have been properly appropriated We are already verifying only specific
against the principal/ Interest as per the policyclause added
of the bank?

46
5 Advances

f) Asset Classification, Provisioning of Advances and Resolution of Stressed Assets

(xi) In cases where documents are held at Newly added clause

centralized processing centres/office,
whether the auditor has received the If document not made available,
relevant documents as asked by them on Give the list for the same
test check basis and satisfied themselves.
Report the exceptions, if any

(xii) List the major deficiencies in credit review,

monitoring and supervision.

47
5 Advances

(g) Non-Fund Based facilities

(i) List of borrowers with details of LCs devolved Earlier it was at the end of the year
or guarantees invoked during the year. Obtain these details through audit
trail from bank
Verify where debit is being done
Sr. No. Invocation Party Name Beneficiary Amt Recovery Date
Date Name

(ii) List of borrowers where the LCs have been Only New format given below
devolved or guarantees have been invoked
but not paid with amount thereof.
Sr. No. Invocation Party Name Beneficiary Amt Reason for
Date Name Non
Payment

48
5 Advances

g) Non-Fund Based facilities

(iii) List of instances where interchangeability Newly added clause- Very

between fund based and non-fund-based Important clause
facilities was allowed subsequent to
devolvement of LC/invocation of BG. It should be duly checked. As per
sanction or else

49
6 Other Assets

a) Suspense Accounts/ Sundry Assets

(i) Does the system of the bank ensure Period for 90 days added only for
expeditious clearance of items debited to outstanding entries
Suspense Account? Details of outstanding
entries in excess of 90 days may be obtained No other change
from the branch and the reasons for delay in
Amount not recoverable required
adjusting the entries may be ascertained.
provision/write-off no period limit
Does your scrutiny of the accounts under
various sub-heads reveal balances, which in
your opinion are not recoverable and would
require a provision/write-off? If so, give
details.

50
6 Other Assets

a) Suspense Accounts/ Sundry Assets

(ii) Does your test check indicate any unusual Red marked items added
items in these accounts? If so, report their
nature and the amounts involved. Are there We are already
any intangible items under this head e.g. recommending provision of any
losses not provided/pending investigation? losses not provided for bank

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II. LIABILITIES

1. Deposits
(a) Does the bank have a system of identification of
dormant/inoperative accounts and internal
controls with regard to operations in such
accounts? In the cases examined by you, have
you come across instances where the guidelines
laid down in this regard have not been followed?
If yes, give details thereof.
(b) After the balance sheet date and till the date of
audit, whether there have been Any unusual
large movements (whether increase or decrease)
in the aggregate deposits held at the year-end? If
so, obtain the clarifications from the branch
And give your comments thereon.

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II. LIABILITIES

1. Deposits
(c) Whether the scheme of automatic renewal of deposits New Clause added
applies to FCNR(B) deposits? Where such deposits
have been renewed, report whether the branch has Ask for audit trail for the same
satisfied itself as to the ‘non-resident status' of the
depositor and whether the renewal is made as per the From the audit trail take sample and
applicable regulatory guidelines and the original ask the bank to provide proof of
receipts/ soft copy have been dispatched. non resident
(d) Is the branch complying with the regulations on Ask for audit trail of all the accounts
minimum balance requirement and levy of charges on at the year and having balances
non-maintenance of minimum balance in Individual below the minimum limit and verify
savings accounts? on sample basis the compliance in
this regard
Rbi cir No.
DBR.Dir.BC.No.47/13.03.00/2014-15
November 20, 2014)

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II. LIABILITIES

2. Other Liabilities – Bills Payable, Sundry Deposits, etc.

(a) The number of items and the aggregate amount of old
outstanding items pending for one years or more be
obtained from the branch and reported under
appropriate heads. Give details thereof.
(b) Does your test check indicate any unusual items or
material withdrawals or debits in these accounts? If so,
give details thereof.
3. Contingent Liabilities
List of major items of the contingent liabilities (other
than constituent’s liabilities such as guarantees, letter of
credit, acceptances, endorsements, etc.) Not
acknowledged by the branch?

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III. PROFIT AND LOSS ACCOUNT

(a) Has the test checking of interest/ discount/ commission/

fees etc. revealed excess/short credit of a material
amount? If so, give details thereof.

(b) Has the branch complied with the Income Recognition

norms prescribed by R.B.I.? (The Auditor may refer to
the instructions of the controlling authorities of the
bank regarding charging of Interest on non-performing
assets).

(c) Has the test check of interest on deposits revealed any

excess/short debit of material amount? If so, give details
thereof.

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III. PROFIT AND LOSS ACCOUNT

(d) Does the bank have a system of estimating and Words marked In red colour
providing interest accrued on overdue/ added.
matured/ unpaid/ unclaimed term deposits This policy is applicable to all
including in respect of deceased depositors? overdue deposits

(e) Are there any divergent trends in major items of

income and expenditure, in comparison with
corresponding previous year, which are not
satisfactorily explained by the branch? If so, the
same may be reported.

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IV. GENERAL

1. GOLD/ BULLION / SECURITY ITEMS

(a) Does the system ensure that gold/bullion is in New added clause
effective joint custody of two or more officials, If Branch holds any stock of
as per the instructions of the controlling Gold/ bullion only then
authorities of the bank? applicable. Few Branches in
Mumbai are doing gold business

Now a days branches are not

selling Gold. It should be
applicable only Gold bars not to
jewellery kept as security for
Gold loans

57
IV. GENERAL

1. GOLD/ BULLION / SECURITY ITEMS

(b) Does the branch maintain adequate records for New added clause
receipt, issues and balances of gold/bullion and If Branch holds any stock of
updated regularly? Does the periodic verification Gold/ bullion only then
reveal any excess/shortage of stocks as applicable
compared to book records and if any
discrepancies observed have been promptly Now a days branches are not
reported to controlling authorities of the bank? selling Gold. It should be
applicable only Gold bars not to
jewellery kept as security for
Gold loans

58
IV. GENERAL

1. GOLD/ BULLION / SECURITY ITEMS

(c) Does the system of the Bank ensure adequate
internal control over issue and custody of
security items (Term Deposit Receipts, Drafts,
Pay Orders, Cheque Books, Traveller‘s Cheques,
Gift Cheques, etc.)? Whether the system is
being followed by the branch? Have you Come
across cases of missing/ lost items?
2. Books and Records
(a) Whether there are any software/ systems New added clause
(manual or otherwise) used at the branch which
are not integrated with the CBS? If yes, give Obtain system audit report and
details thereof. understanding from the branch

59
IV. GENERAL

2. Books and Records

(b) (i) In case the branch has been subjected to IS New added clause
Audit whether there are any adverse features
reported and have a direct or indirect bearing Obtain IS audit report and comment
on the branch accounts and are pending
compliance? If Yes give details.
(ii) Whether branch is generating, and verifying Earlier it was only restricted to
exception reports at the periodicity as printing and now it is specifically
prescribed by the bank. mentioned verification.

We have to verify whether branch is

evidencing verification of exception
report

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IV. GENERAL

2. Books and Records

(b) (iii) Whether the system of bank warrants First line is covered in above para. If
expeditious compliance of daily exception reports process of verification is there the see
and whether there are any major observations
pending such compliance at the year end. a) Whether there is system of recording
major observation
b) If yes: ask for list of all the
observations pending for compliance
(iv) Whether the bank has laid down procedures New added clause
for manual intervention to system generated data Ask for audit Trails
and proper authentication of the related a) Manual Debit Income
transactions arising there from along with proper b) Manual debit to Interest paid
audit trail of manual intervention has been account
obtained. c) Any other audit trail

61
IV. GENERAL

2. Books and Records

(b) (v) Furnish your comments on Data Integrity New added clause
(including data entry, checking correctness/integrity Not possible to verify.
of data, no back ended strategies etc.) which is
used for MIS at HO/ CO level.

3. Inter- Branch Accounts

Does the branch expeditiously comply with/ Modified- Ask for exceptional
respond to the communications from the report of all un-responded
designated cell/Head Office as regards unmatched entries as on 31.03.2021.
transactions? As at the year-end are there any un- MOC impact.
responded/un-complied queries or
Communications beyond 7 days? If so, give details?

62
IV. GENERAL

4. Frauds
Furnish particulars of: Newly added clause
(i) Frauds detected/ classified but confirmation Ask list of frauds detected
of reporting to RBI not available on record at from branch and verify
branch. reporting to RBI
(ii) Whether any suspected or likely fraud cases are Newly added clause
reported by branch to higher office during the Ask List of frauds detected and
year? If yes, provide the details there of related to reported from branch with
status of investigation. present status
(iii) In respect of fraud, based on your overall Newly added clause
observation, please provide your comments on the Give your observations on frauds
potential risk areas which might lead to
perpetuation of fraud

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IV. GENERAL

4. Frauds
(e.g. falsification of accounts/false representation by the borrower; misappropriation of funds especially
through related party/ shell company transactions; forgery and fabrication of financial documents like
invoices, debtor lists, stock statements, trade credit documents, shipping bills, work orders and
encumbrance certificates and avail credit; Use of current accounts outside consortium where Trust and
Retention Account(TRA) is maintained, to divert funds; List of Debtors/ Creditors were being fabricated and
receivables were not followed up/write off of debt of related parties; Fake export/shipping bill, etc.; Over
statement of invoice amounts, stock statements, shipping bills, turnover; fly by night operations- including
the cases where vendors, related/associate parties, manufacturing units etc. aren’t available on the
registered addresses; Round Tripping of funds, etc.)
(iv) Whether the system of Early Warning Newly added clause
Framework is working effectively and, as
required, the early warning signals form the Take list of SMA/ Red flag accounts
basis for classifying an account as RFA. and comment on process

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IV. GENERAL

5. Implementation of KYCAML guidelines

Whether the branch has adequate systems and KYC– Sample verification of AOF
processes, as required, to ensure adherence to AML– difficult issue- AC-ICAI
KYC/AML guidelines towards prevention ofshould issue guidelines- it is
concurrent audit issue
money Laundering and terrorist financing

Whether the branch followed the KYC/AML KYC – Sample verification of AOF
guidelines based on the test check carried out AML– difficult issue- AC-ICAI
by the branch auditors should issue guidelines- it is
concurrent audit issue

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IV. GENERAL

6. Management Information System

Whether the branch has the proper systems and Newly added clause
procedures to ensure data integrity relating to
all data inputs which are to be used for MIS at
corporate office level and for supervisory It pertains to HO
reporting purposes. Have you come across any
instances where data integrity was
compromised?

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IV. GENERAL

7. Miscellaneous
(a) In framing your audit report/LFAR, have you Modified clause coverage
considered the major adverse comments arising more specified
out of the latest reports such as:
i) Previous year’s Branch Audit Report/ LFAR;
ii) Internal audit/ Snap Audit/ concurrent audit
report(s);
iii) Credit Audit Report;
iv) Stock audit Report;
v) RBI Inspection Report, if such inspection took
place;
vi) Income and Expenditure (Revenue) Audit;
IS / IT/ Computer/ Systems Audit; and
vii) Any special inspection/ investigation report?

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IV.0 GENERAL

7. Miscellaneous

(b) Are there any other matters, which you, as Any special Point in relation to
branch auditor, would like to bring to the notice deficiency or any thing else you
of the management or the Statutory Central want to bring to the management
Auditors? or statutory auditor.

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[email protected]
CA. Rohit Porwal
+91-7566958480 M.Com, ACA, DISA, CCFAFD, CCCAB, CCFXTM

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