Page 271 - CA Final PARAM Digital Book.

Part II -- Requirements of Relevant Standards & Laws
➢ Separation of Investment Functions:
The auditor needs to examine whether the bank, as required by the RBI, is maintaining separate
accounts for the investments made by it on their own Investment Account, PMS clients’ account,
and on behalf of other Constituents (including brokers). As per the RBI guidelines, banks are
required to get their investments under PMS separately audited by external auditors.
Part III – Case Discussion
➢ Thus, in the instant case, ABN Bank is required to prepare separate records for PMS and as per RBI
guidelines PMS investments need to be audited separately by the external auditors and the
auditors are required to give a certificate separately for the same.
Part IV – Conclusion
➢ So, in the above case the auditor should not verify the PMS transactions and advise the bank to
segregate the PMS transactions from its own investments and provide the certificate of external
auditor as described above. In case ABN Bank does not provide the same the auditor may report
accordingly.

Bank unable to check the work and records being small Old Course – (SM21, N21M, M23M)
QNO branch with shortage of manpower - New Course – (SM23)
447.006
Unique
You are auditing a small bank branch with staff strength of the manager, cashier and three other staff S1
,S2 and S3. Among allocation of work for other areas, S1 who is a peon also opens all the mail and
forwards it to the concerned person. He does not have a signature book so as to check the signatures on
important communications. S2 has possession of all bank forms (e.g., Cheque books, demand draft/pay

order books, travellers’ cheques, foreign currency cards etc.). He maintains a record meticulously which
you have test checked also. However, no one among staff regularly checks that. You are informed that
being a small branch with shortage of manpower, it is not possible to always check the work and
records. Give your comments.
➢ Banks are required to implement and maintain a system of internal controls for mitigating risks,
maintain good governance and to meet the regulatory requirements.

➢ Given below are examples of internal controls that are violated in the given situation:
• In the instant case, S1 who is a peon opens all the mail and forwards it to the concerned
person.
• Further, he does not have a signature book so as to check the signatures on important
communications are not in accordance with implementation and maintenance of general
internal control. As the mail should be opened by a responsible officer. Signatures on all
the letters and advices received from other branches of the bank or its correspondence
should be checked by an officer with the signature book.
• All bank forms (e.g. Cheque books, demand draft/pay order books, travelers’ cheques,
foreign currency cards etc.) should be kept in the possession of an officer, and another
responsible officer should verify the issuance and stock of such stationery.
• In the given case, S2 has possession of all bank forms (e.g. cheque books, demand draft/pay
order books, travelers’ cheques, foreign currency cards etc.). He maintains a record
meticulously which were also verified on test check basis.

➢ Further, contention of bank that being a small branch with shortage of manpower they are not
able to check the work and records on regular basis, is not tenable as such lapses in internal
control pose risk of fraud.
➢ The auditor should report the same in his report accordingly.

QNO NPA(Cash Credit Branch wise Sub Limits) Old Course – (M23R)
447.050 TITANIUM CNO-- BA.400
BOT Limited is enjoying cash credit facility sanctioned from Nariman Point, Mumbai branch of KNB Bank for
250 crore. However, for practical considerations, various sub-limits have been fixed for the borrower company
for operation at Solapur, Pune and Nashik branches of the same bank.

The manager of the Solapur branch notices that there are no credit transactions in sub - limit account being
st
operated at the Solapur branch for more than 90 days as on 31 March,2022.
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