Page 277 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori
Employee Status: Confirm that the advances relate to employees who are on the bank's rolls as of the date of
the financial statements.
Miscellaneous Debit Balances on Government Account
(Payments on behalf of government under various schemes→Only some designated branches→ Claim for
reimbursements have been lodged→Old outstanding / aging analysis→ Confirmations / Justifications→ If not
make provisions)

Claims for Reimbursement: Examine whether claims for reimbursement have been lodged by the branch in
accordance with the relevant terms and conditions.
Review Ageing Statements: Review the ageing statements pertaining to these items.
Recoverability of Old Items: Examine the recoverability of old outstanding items.
Provision: In case of old outstanding balances without any confirmation or proper justification of the same,
should be provided for in the accounts. For major variance as compared to the previous year figures, verify
whether reasons for the same have been recorded and reviewed.

Verification of Capital & Liabilities
(CNO-BA.480) Capital
The auditor may carry out the audit of various items under ‘Share Capital’ in the following manner:
CRAR & Components of Capital
Capital Risk Adequacy Ratio (CRAR)
• The CRAR is computed as follows:

x 100
−
• The RBI requires banks to maintain a minimum CRAR of 9 per cent on an ongoing basis. The

Master Circular on Capital Adequacy contains detailed guidelines on calculation of risk weighted
assets and off-balance sheet items for CRAR.
• Eg. For secured housing loans upto Rs 75 lakh, the risk weight, subject to some conditions is

50%.for those above Rs 75 lakhs, it is 75%, for loans to commercial real estate , it is 100%.Thus for
a housing loan of Rs 60 lakh given by the bank, the risk weighted asset will be taken at 60 x 50% =
Rs 30 lakhs for the purpose of the denominator in the above formula.
Components of Capital:

• The Master Circular on Capital Adequacy discusses the Capital Funds in two categories –
capital funds for Indian banks and capital funds of foreign banks operating in India. In case of
foreign banks operating in India, RBI’s Master Circular on Capital Adequacy also lays down

certain additional provisions in respect of capital to be followed by such banks.
• Capital is divided into tiers according to the characteristics/qualities of each qualifying
instrument. For supervisory purposes capital is split into two categories: Tier I and Tier II,
representing different instruments’ quality as capital

o Tier I capital consists mainly of share capital and disclosed reserves and it is a bank’s
highest quality capital because it is fully available to cover losses.
o Tier II capital consists of certain reserves and certain types of subordinated debt. The

loss absorption capacity of Tier II capital is lower than that of Tier I capital.
BASEL III framework
Basel III norms relate to the Capital Adequacy requirement compliance which the Bank has to achieve
as contained in the BASEL III accord. Basel capital adequacy norms are meant for the protection of
depositors and shareholders by prescriptive rules for measuring capital adequacy, thereby evolving

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