Page 280 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori
External confirmations received directly by the auditor from appropriate confirming parties may assist
the auditor in obtaining audit evidence that the auditor requires to respond to significant risks of
material misstatement. The auditor is required to comply with the requirements of SA 505 “External
Confirmations” which contains guidance on designing and performing external confirmation
procedures to obtain relevant and reliable audit evidence.

(CNO-BA.540) Other Liabilities and Provisions
Bills Payable
1. Internal Controls Over Bills Payable
Evaluate the existence, effectiveness and continuity of internal controls over bills payable. Such controls should
usually include the following-
• Standard Printed Forms: Drafts, mail transfers, traveller’s cheques, etc. should be made out in standard
printed forms.
• Custody of Unused Forms: Unused forms relating to drafts, traveller’s cheques, etc. should be kept under
the custody of a responsible officer.
• Private Code Protocol: The bank should have a reliable private code known only to the responsible
officers of its branches, coding and decoding of the telegrams should be done only by such officers.
• Signature Verification: The signatures on a demand draft should be checked by an officer with the
specimen signature book.
• Confirmation and Debit Advice: All the telegraphic transfers and demand drafts issued by a branch
should be immediately confirmed by advices to the branches concerned. On payment of these
instruments, the paying branch should send a debit advice to the originating branch.
2. Sample Examination of Outstanding Items
Examine an appropriate sample of outstanding items comprised in bills payable accounts with the relevant
registers. Reasons for old outstanding debits in respect of drafts or other similar instruments paid without
advice should be ascertained.
3. Year-end Correspondence with Branches
Correspondence with other branches after the year-end (e.g., responding advices received from other branches,
advices received from other branches in respect of drafts issued by the branch and paid by the other branches
without advice) should be examined specially in so far as large value items outstanding on the balance sheet
date are concerned.
Inter-office Adjustments

The balance in inter-office adjustments account, if in credit, is to be shown under this head.
Interest Accrued
Terms Review: Examine the terms associated with various types of deposits and borrowings to ensure accurate
interest accrual.
Interest Segregation: Specifically verify that accrued interest has not been combined with the principal
amounts under the 'Deposits and Borrowings' head.
Others (Including Provisions)
Figure of Advances & Investments: It may be noted that the figure of advances and investments in the
balance sheet of a bank excludes provisions in respect thereof made to the satisfaction of auditors.
Examine Other Provisions: The auditor should examine other provisions and other items of liabilities in the
same manner as in the case of other entities.

(CNO-BA.560) Contingent Liabilities
The Third Schedule to the Banking Regulation Act, 1949, requires the disclosure of the following as a footnote
to the balance sheet.
Contingent Liabilities

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