Page 287 - CA Final PARAM Digital Book.

• Liability for partly paid investments
• Claims against the bank not acknowledged as debts
• Other items for which the bank is contingently liable

➢ Bills for Collection

QNO Management Representation For Contingent Old Course – (M22E)
485.005 Liability
TITANIUM CNO—UNIQUE

Your firm has been appointed as Central Statutory Auditors of a Nationalised Bank for the financial year
2021-22. During the course of audit your audit team observed that a lump sum amount has been
disclosed as Contingent Liability collectively though the components are correctly identified. In respect
of contingent liabilities, the auditor is primarily, concerned with seeking reasonable assurance that all
the contingent liabilities are identified and properly valued and the audit firm intends to obtain a
representation from the 'management. Highlight the points/checklists that are to be covered in the
management representation.
Answer Contingent Liabilities: In respect of contingent liabilities, the auditor is primarily concerned with seeking
reasonable assurance that all contingent liabilities are identified and properly valued. The auditor should

obtain representation from management that: -
(i) all off-balance sheet transactions have been accounted in the books of accounts as and when such
transaction has taken place;
(ii) all off balance sheet transactions have been entered into after following due procedure laid down;
(iii) all off balance sheet transactions are supported by the underlying documents;
(iv) all year end contingent liabilities have been disclosed;
(v) the disclosed contingent liabilities do not include any crystallised liabilities which are of the nature of
loss/ expense and which, therefore, require creation of a provision/adjustment in the financial statements;
(vi) the estimated amounts of financial effect of the contingent liabilities are based on the best estimates in
terms of Accounting Standard 29, including consideration of the possibility of any reimbursement;
(vii) in case of guarantees issued on behalf of the bank’s directors, the bank has taken appropriate steps to
ensure that adequate and effective arrangements have been made so that the commitments would be met
out of the party’s own resources and that the bank will not be called upon to grant any loan or advances to
meet the liability consequent upon the invocation of the said guarantee(s) and that no violation of
section 20 of the Banking Regulation Act, 1949 has arisen on account of such guarantee; and
(viii) such contingent liabilities which have not been disclosed on account of the fact that the possibility of
their outcome is remote include the management’s justification for reaching such a decision in respect of
those contingent liabilities.

Note: Students may be given due credit for any other relevant point quoted.

Bank Audit Report -- Submission, Requirement of Old Course – (M21E)
QNO Company's Act, Applicability of CARO
488.500
UNIQUE
M/s GH & Associates have been appointed as Central Statutory Auditors of BNH Bank, a nationalized
bank, headquartered in New Delhi for the F.Y 2020-2021. Bank functions in automated environment
using "FLC Software". While preparing audit report, one of the partners highlighted that some matters
covered by Companies Act. 2013 and the requirements of Companies (Auditor’s Report) Order, 2020
reporting. You are required to answer the following: -

(i) To which authority auditors should submit their audit report?
(ii) List the matters covered under Companies Act. 2013 and
(iii) Reporting under Companies (Auditor’s Report), Order, 2020.
Answer (i) Authority to whom Auditors to submit their Audit Report -
In the case of a nationalised bank, the auditor is required to make a report to the Central Government.
So, GH & Associates, Central Statutory Auditors of BNB Bank- a nationalized bank, would be required to
submit their report to Central Govt.

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