Page 288 - CA Final PARAM Digital Book.

(ii)The auditor of a banking company is also required to state in the report the matters covered by
Section 143 of the Companies Act, 2013.

1. Report on adequacy and operating effectiveness of Internal Controls over Financial Reporting in
case of banks which are registered as companies under the Companies Act in terms of Section
143(3)(i) of the Companies Act, 2013 which is normally to be given as an Annexure to the main audit
report as per the Guidance Note on Audit of Internal Financial Controls over Financial Reporting
issued by the ICAI.
2. Report on whether any serious irregularity was noticed in the working of the bank which requires
immediate attention (in accordance with sec 143(12) of the Companies Act, 2013.)
3. As per reporting requirements cast through Rule 11 of the Companies (Audit and Auditors) Rules,
2014 the auditor’s report shall also include their views and comments on the following matters,
namely:

a) Whether the bank has disclosed the impact, if any, of the pending litigations on its financial
position in its financial statements.
b) Whether the bank has made provision, as required under the law or accounting standards, for
material foreseeable losses, if any, on long term contracts including derivative contracts.
c) Whether there has been any delay in transferring amounts, required to be transferred to the
Investor Education and Protection Fund by the bank.

(iii) Reporting requirements relating to the Companies (Auditor’s Report) Order, 2020 are not applicable
to a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949.

QNO Areas of credit appraisals and credit monitoring old Course – (N23R)
488.600 TITANIUM CNO -- Unique
CA. Sundaram is an engagement partner conducting a statutory audit of a nationalised bank. The bank
operates on the CBS platform, and the identification of NPAs is system based in accordance with RBI
guidelines on asset classification. He wants to be assured of satisfactory operation of internal control in
this respect. He wants to be sure that there exists an internal control system in the bank which not only
prevents and reduces the risk of loan assets becoming non-performing at the initial stages but also sends
out timely signals to the bank subsequently. He is putting considerable importance on effective credit
appraisals due to their role in preventing NPA slippages. While carrying out a walk-through of internal
control over advances of banks especially in areas of “credit appraisals” and “credit monitoring”, identify
any four specific controls which you may be looking for.
Answer The following controls may be considered by auditor in areas of credit appraisals and credit monitoring
for ensuring that internal control over advances is effective and the system is capable of not only
preventing and reducing the risk of NPAs at the sanction stage itself but also sending out timely signals to
the bank subsequently.

(i) Use of third-party data sources in the bank for comprehensive due diligence at the sanction
stage itself to mitigate risk on account of misrepresentation and fraud.

(ii) Classification of accounts as special mentioned accounts (SMA) for early recognition of signs of
incipient stress resulting in default in timely servicing of debt obligations. It can enable banks to
initiate timely remedial actions to prevent potential slippages into NPAs.

(iii) Institution of comprehensive, automated Early Warning Systems (EWS) in banks with EWS
triggers to detect stress and reduce slippage into NPAs.

(iv) Reporting of repayment behaviour of borrowers in their loan accounts to credit information
companies and inclusion of this information in the credit appraisal and decision-making process
for further sanctioning of loans to borrowers.

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