Page 329 - CA Inter Audit PARAM

CA Ravi Taori
The auditor should, on a test check basis, verify the calculation of interest and satisfy himself that:
 Interest has been provided on all deposits up to the date of the balance sheet; and verify whether
there is any excess or short credit of material amount.
 Interest rates are in accordance with the bank’s internal regulations, of the RBI directives, and
agreements with the respective depositors;
 In case of Fixed Deposits, it should be examined whether the Interest Rate in the accounting system
are in accordance with the Interest Rate mentioned in the Fixed Deposit Receipt/ Certificate.
 Interest on Savings Account should be checked on a test check basis in accordance with the rules
framed by the bank in this behalf.
 Interest on inter–branch balances has been provided at the rates prescribed by the head office.
 Interest on overdue/ matured term deposits should be estimated and provided for.

The auditor should ascertain whether there are any changes in interest rate on saving deposits and term
deposits during the period. The auditor should obtain the interest rate card for various types of term
deposits and analyses the interest cost for the period. The auditor should examine the completeness that
there has been interest accrued on the entire borrowing portfolio by obtaining the detailed break up the
money market borrowing portfolio and the interest accrued and the same should agree with the GL code
wise break up. The auditor should re- compute the interest accrual on sample basis i.e., by referring to
the parameters like frequency of payment of interest amount, rate of interest, period elapsed till the
date of balance sheet, etc. from the term sheet, deal ticket, agreements, etc.

QNO Security (Nature of Securities) Old Course-- (M18E/N20R/M21M)
BA.19 Bhaskar CNO - BA.200
Mr. A approaches a bank for financial assistance for his upcoming project. The Bank Branch Manager, after
verifying the proposal, is agreeable to financing Mr. A, but asks for the security to be offered to the bank.
Discuss the nature of securities required to be offered to the bank.
Answer  Primary security refers to the security offered by the borrower for bank finance or the one against
which credit has been extended by the bank. This security is the principal security for an advance.
Collateral security is an additional security. Security can be in s i.e. tangible or intangible asset,
movable or immovable asset.
 Examples of most common types of securities accepted by banks are the following.
 Immovable Property (FA)
 Stock Exchange Securities and Other Instruments (INV)
 Gold Ornaments and Bullion (INV)
 Life Insurance Policies (INV)
 Goods/Stocks/Debtors /Trade Receivables (CA)
 Plantations (For Agricultural Advances) (CA)
 Personal Security of Guarantor (Notes)
 Third Party Guarantees (Notes)
 Banker’s General Lien (All)

Security (Different forms of Security/Mode of Old Course-- (N20R/N22M/M23M)
QNO. creation of security)
BA.19.50
Bhaskar CNO - BA.220
Depending on the nature of the item concerned, creation of security may take the form of a mortgage,

pledge, hypothecation, assignment, set-off or lien. Explain with specific reference to Audit of Banks.
Depending on the nature of the item concerned, creation of security may take the form of a mortgage,
pledge, hypothecation, assignment, set-off or lien.
 Mortgage: Mortgage are of several kinds but the most important are the Registered Mortgage and
the Equitable Mortgage.
 Registered Mortgage can be affected by a registered instrument called the ‘Mortgage Deed’
signed by the mortgagor. It registers the property to the mortgagee as a security.
 Equitable mortgage, on the other hand, is effected by a mere delivery of title deeds or other
documents of title with intent to create security thereof.

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