Page 331 - CA Inter Audit PARAM

CA Ravi Taori
Or
CARD Ltd. is into the banking business and handles large amount of loans and advances of different kinds.
Non-performing assets are on the rise since last two quarters. The management is concerned with correct
provisioning for the same. CA R is appointed to check whether correct provisioning of NPA's is being made
by the bank or not. What are the aspects that will be verified by CA R for this purpose?
OR
You are the auditor of Plus Bank Limited. The bank has made following provisions for the year ended on
31.03.2024:
Particulars Amount ( ₹ in crores)
Provision for Bad Debts 66
Provision for Sub-standard Assets 78
Provision for Expenses 24
Provision for Income Tax 55

You are in the process of verifying the provisions and contingencies of the bank. What audit approach and
procedures will you adopt to verify the above?
Answer For audit of Provisions, the auditor should ensure that the compliances for various regulatory requirements
for provisioning as contained in the various circulars have been fulfilled. The auditor should obtain an
understanding as to how the bank computes provision on standard assets and non-performing assets. It will
primarily include checking the basis of classification of loans and receivables into standard, sub-standard,
doubtful, loss and non-performing assets. The auditor may verify the loan classification on a sample basis.

The auditor should obtain the detailed break up of standard loans, non-performing loans and agree the
outstanding balances with the general ledger. The auditor should obtain the tax provision computation from
the bank’s management and verify the nature of items debited and credited to profit and loss account to
ascertain that the same are appropriately considered in the tax provision computation. The other provisions
for expenses should be examined vis-à-vis the circumstances warranting the provisioning and the adequacy
of the same by discussing and obtaining the explanations from the bank’s management.

QNO Auditor's Report (Matters Required by Law) Old Course-- (N18M)
BA.21 Bhaskar CNO - BA.520
In the case of a nationalised bank, the auditor is required to make a report to the Central Government. The
report of auditors of State Bank of India is also to be made to the Central Government and is almost identical
to the auditor’s report in the case of a nationalised bank. Explain what would the auditor state in his report.
Answer  Matters prescribed by law
Reporting of SBI / Nationalized Banks / Other Banking Companies is similar.
 Whether or not the transactions of the company which have come to his notice have been
within the powers of the company; (Cannot give loan on the basis of own shares)
 Whether or not the returns received from the offices and branches of the bank have been
found adequate for the purpose of his audit;
 Whether, in his opinion, the balance sheet is a full and fair balance sheet containing all the
necessary particulars and is properly drawn up so as to exhibit a true and fair view of the
affairs of the bank.
 Whether the profit and loss account show a true balance of profit or loss for the period
covered by such account; and
 Whether or not the information and explanations required by him have been found to be
satisfactory;
 any other matter which he considers should be brought to the notice of the shareholders of
the company.
Author’s Note
 For simplicity and remembrance we have combined all unique points
 Transactions  Return from branches  B/S+P/L  All information &explanation  any
other matter

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