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Security deposit receipt template for Operations

e e a very good afternoon to all my dear students how are you all I hope your preparation for auditing and ethics subject is done till chapter number nine which we have covered in the last session right so today students we'll be starting with the revision of chapter number 10 which is audit of banks but before starting with that I would really like all of you to reply whether you have have gone through all the chapters till chapter number nine the way I have told you that you need to revise the earlier chapters also quickly send in in your replies meanwhile I'll share the file so we'll be starting with chapter number 10 which is audit of Banks and Sh is saying that yes he has done so sh sh have you covered all the chapters till chapter number nine starting from the very first chapter so see students chapter number nine along with chapter number 10 the the weightage that is given is 8 to 12% to both the chapters together form the weightage of 8 to 12% which is uh high so far as your marks are uh your audit exam is concerned so a very important chapter and a very easy chapter also so so sh is saying yes ma'am I flipped the pages but but flipping the pages means that you have revised flipping say I just I always uh tell you that before coming for the next session you should uh revise the earlier chapters by flipping going through the paper to the pages of the earlier chapters so it does not mean that you will just flip on the papers and you'll not revise you have to revise also and Su is saying that uh she has done till chapter number eight which is good okay sh be saying that yes I consider all the things that is good that is good right so audit of banks so students first of all the first topic that we are going to cover is types of banks right there are six types of bank that are given in your module that is the Commercial Bank the rural Regional Banks rrbs Cooperative Banks payments Bank development Banks and small Finance Bank Banks right so you may get a short note uh on any of the types of bank or any two type or three types of banks so commercial banks are the most widespread banks these have a large number of products and services that they offer to the general public as well as to the other segments of the economy and the main functions of the Commercial Bank is accepting the deposits and granting the loans your Banks like HDFC IC ICI so these are what what the commercial Banks and the main function is to accept the deposit and granting of advances right Regional rural banks that is rrb these are set up in rural areas of different states for providing the basic Banking and Financial needs of rural communities right example is Punjab gramine bank or your tipura gramine bank so a very simp topic so I'll just quickly take you through this topic Cooperative Banks so these Banks basically function like commercial Banks but these are set up on the basis of Cooperative principles right we all have done the audit of Cooperative Society in chapter number n so you all must you all are now aware as to what is cooperative principle and these may be registered Under The Cooperative Society act or the multi-state Cooperative Society act right and they cater to the needs of the Agriculture and the rural sectors example can be Gujarat State Cooperative Bank limited right then the fourth one is payment bank which is a new type of Bank recently introduced by RBI and here the banks are allowed to accept restricted deposits so restricted deposits are accepted however these Banks cannot issue loans or credit card but yes current account or savings account can be opened with these Banks ATM debit card Internet banking mobile banking all these facilities are available with these payments Bank example your ATL payment bank then the next one is development Banks as the name suggest it provides fund for infrastructural fa facilities for the economic growth example your idbi or your sidb that is Industrial Development Bank of India or small Industries Development Bank of India India and the last is small Finance bank which is set up by RBI to make available basic financial and and banking facilities to the unserved and unorganized sectors like the marginal Farmers the small and micro small uh micro business units right example is your au small Finance Bank simple so very simple topic but yes uh you can always get uh to write short note on these on any of these right now the next topic is about RBI so you I'm sure that you have been studying about RBI you have studied about RBI in a number of times so let us just have a look as to how RBI is the regulating body for the banking industry so basically the entire functioning of the banking industry is regulated by the Reserve Bank of India and RBI acts as a central bank right and RBI is responsible for development and supervision of the constituents of Indian Financial system constituents is basically your participant so it can be the banks or the non-banking financial institution and RBI determines in conjunction with central government about the monetary and the credit policies right and RBI is responsible for regulating the activities of the the commercial Banks and the other Banks so what are the various functions of RBI so issuance of currency right regulation of currency issue B it acts as a banker to Central and state government acts as a banker to Commercial and other types other types of Banks and the term lending institutions it regulates the activities of commercial and other bands just a minute just give me a minute so the important functions are issuance of currency regulation of currency issue Banker to it acts as a banker Central and state government it acts as a banker to Commercial and other types of Banks and term lending institution and regulating the activities of commercial and other Banks right so RBI has a part to inspect any bank and most importantly no Bank can commence business of banking or open new branches without obtaining license from RBI right so very simple right now uh there is a topic given on page number uh 10.6 of your module just a minute so the topic is with respect to the operations of the bank being conducted at the branches this is given on page number 10.6 of your module so you all must be aware that the banking operations are conducted only at the branches so what is done at the other head office or the zonal offices so the banking operations are conducted only at the branches the other offices they act as what controlling authorities or the administrative offices right and what is their work they lay down the policies systems and internal control procedures for conduct of business in compliance with statutory and Regulatory impositions and compliance of accepted accounting principles and practices right and these offices they also delegate the powers and they fix the responsibilities and accountabilities and they are basically the other offices other than the branches they are basically involved in effective supervision monitoring and control over the business activities right and in case of any deviations in there any deficiency in the working of branches or the entire bank is there so they deal with such deviations right so the banking operations are conducted only at the branches the other offices they act as controlling authorities or the administrative offices clear now the regulatory framework another topic that is given is regulatory framework so here basically we are discussing about the various acts that are applicable with respect to the fing of a bank so first and foremost The Reserve Bank of India act 1934 then you have banking regulation act 1949 State Bank of India act 1955 right companies act 2013 then your uh banking companies acquisition and transfer of undertakings act 1970 read rrb act that is region rural Banks act 1976 banking companies acquisition and transfer of undertaking act 1980 Information Technology act 2000 the uh prevention of money money laundering act 2002 and securitization and reconstruction of financial assets and enfor enforcement of security interest act 2002 so as such you must be aware about the regulatory framework so if you get a question with respect to the regulatory framework of a bank to you must be able to write five six names of the acts that are applicable and I'm sure that you'll be able to write like companies act 2013 then your um Information Technology Act 000 then your prevention of money laundering act 2002 RBI act 1934 banking regulation act 1949 State Bank of India 1955 so like this you can learn the names of the acts that you find easy to learn right then what are the various features which are peculiar in Banks you do one thing you send me reply what ing to you are the various features which are peculiar to Banks quickly sending your replies so this topic is given on page number 10.7 of your module I'm waiting for your replies peculiarities are the specific features of Bank sukina sh please reply so sh is saying excessive use of technology that is correct others also please reply so the various features which are peculiar to bands are huge volume and complexity of transaction wide geographical spread of banks Network so a number of branches are there geographically they are spread across the country and in fact across the world large range of products and services are offered extensive use of technology and strict V uh vigilance by the banking regulator who is the banking regulator RBI right now what are the various types of audit report that are to be issued right so this is our next topic types of Bank audit reports that are to be issued so this statutory Central auditor he has to furnish the following reports so what are those so first is relating to the op uh the adequacy and operating effectiveness of internal control over financial reporting and we all have done this under Section 143 subsection 3 Clause I right so uh this is report on adequacy and operating effectiveness of internal control over the financial reporting right then is the long form audit report then report on compliance with this SL are requirements then report whether the treasury functions in are in ance with the instructions issued by RBI then Report with respect to the income recognition the asset classification and provisioning whether all these are as per the guidelines of RBI then the report regarding the serious irregularities noticed while working uh while conducting the audit that requires immediate action and last is Report with respect to the status of compliance with two committees what are these two committees Goos committee and gilani committee so Goos committee has given recommendations with respect to fraud and malpractices and gilani committee has given the recommendation with respect to internal control and inspection and the credit system so this is the second last and the last one is the report on the instances of adverse credit deposit ratio in rural areas so basically where the uh more credit has been given and the deposit is very less and specifically in case of rural areas so these are the eight reports you can always get a four mark question here so first is the report with respect to the adequacy and operating effectiveness of internal control over financial reporting in terms of section 143 subsection 3 Clause I the long form audit report report on compliance with the SLR requirements Report with respect to the treasury operations whether these are in ance with the instructions of RBI report as to whether the income recognition the asset classification provisioning of the bank is as per the guideline of the RBI then the report whether uh any serious irregularity was noticed while conducting the audit which requires immediate attention the report with respect to the status of compliance to Goos committee which is uh related to fraud and malpractices which gave the recommendation related to fraud and Mal pract practices and galani committee which gave the recommendations relating to the internal control and inspection of the credit system then the last is the report on the instances of adverse credit deposit ratio in case of the rural areas right so these are the various reports that the auditor has to give with respect to the bank now understanding the accounting system of banks so if an auditor has to conduct the audit he needs to understand the accounting system so see when you understand the accounting system so basically the features of accounting system of the bank will be same as the features which are relating to the bank the way you said technology is there large volume of transaction is is there right so see in the recent time there has been a c change a vast change in the use of technology and there has been continuous evaluation Evolution which has led the bank to provide the customers the facility of anytime anywhere banking simple right and how is this become possible because of the availability of Internet the mobile connction activity all the monetary transactions can be carried out very quickly right in an ex expeditious manner that is very quickly right so I can say on Real Time basis so let me just Mark the keyword for you right for the students as you all know that transactions of the banks are voluminous they are huge in numbers right so auditor needs to consider he needs to understand the system of recording of the Transaction Transmission of the data and the storage of information also right and he needs an understanding about the internal control system of the banks right and in a computerized environment the audit needs to be familiar with the norms and parameters of RBI guidelines and whether the same are incorporated or built into the banking system of the bank for which he's conducting the audit but yes the auditor cannot go by the assumption that the system generated information is correct and can be relied upon without any evidence that demonstrates that the system is as per the required parameters so blind auditor cannot just rely on the system generated information he he will have to apply what professional skepticism or you can say prudence and wherever any calculation or any authenticity is to be checked manually auditor will consider that so this was with respect to what understanding the accounting system in Banks so first of all we said that there has been a huge change a c change due to the use of technology and continuous evolution and the banks are able to provide the customers with convenience and conf confort of anytime anywhere banking right and on realtime basis the customers can complete their transactions because of the availability of your internet mobile connectivity right further while understanding the accounting system in Banks the auditor needs to understand that the transactions are voluminous and the system and he needs to understand system of recording the transmission and the storage of the data along with the internal control systems within the organization and if there is any computerized environment see you may get a question that you are conducting the audit of so and so and one of the article cler says that since is it it is a computerized environment so the team can rely on the data generated by the system or it is implied that the banking regulations banking guidelines have been complied with so the answer will be that with respect to computerized Environ first of all the auditor needs to familiarize himself with the Norms parameters as per the latest RBI guidelines and whether the same as incorporated or built within the system of the uh bank right further he cannot go by the assumption that the system generated information is correct and he cannot rely on it without obtaining the evidence he will have to apply professional skepticism and prudence and if any data is to be checked uh if any authenticity or consistency of the information is to be checked manually he needs to consider that is it clear so very simple topics all the topics that we have covered so far so sh Sunil ganga sukina please reply whether you have understood these topics very simple topics and now we'll be starting with bank audit approach quickly send in your so sh sh and Sunil ganga are saying clear others also please reply so the next topic that will be covering is the bank audit approach so see when the auditor is going to conduct the audit of a bank so the audit approach will consist of three steps first of all drawing and audit plan then control environment understanding the control environment at the bank and then the engagement team discussions okay so what is the topic Bank audit approach so drawing an audit plan so students you will see that when we are covering various aspects with respect to this chapter audit of banks you will see that more or less whatever you have understood and learned so far in terms of SE 2110 220 300 320 2 40 250 everything is going to come here because see the the basis would be the same whether it is the audit of a company or whether it is the audit of a Banking Company right so whatever you have understood in the earlier chapters and and for all those who have learned those chapters they are going to find this these discussions that we are just going to have very easy right so see drawing an audit plan so when the auditor draws an audit plan the audit plan should be based on the nature and level of operations of the bank right the nature of adverse features associated with that bank the level of compliance based on previous reports so whether the bank has complied with uh the various guidelines so last year if the auditor conducted the audit what was his um what was his opinion or if any other auditor conducted the audit then their opinion audit risks based on inadequacy or breach of internal control and familiarization of the exercise carried out so basically when the auditor is drawing an audit plan he will consider the nature and level of operations the nature of adverse features if any the level of compliance based on previous report and the audit risk associated and the brege of internal control if any if auditor is familiar with any kind of brege of internal control that has happened with respect to the internal control of the bank auditor will take that into account right then the control environment at the bank so the bank has to apply appropriate controls in order to mitigate its risk so what can be various kind of controls see segregation of Duty we all know that this is one of the internal control and accurate measurement reporting of positions verification and approval of transaction reconciliation of positions and results setting up limits physical security of banks so I can say cctvs and all so these are what internal control which is implemented by home the client or and in this case the banks right so auditor will consider he will consider the understanding of what the control environment at Banks right now when the auditor is considering the the control environmental Bank he may an he may ask the various various kind of questions so the following are certain common questions or steps which have to be kept in mind while undertaking or performing the control activities so when auditor is taking a particular control that has been implemented by by the bank so he will consider as to who performs the control does the above person has the requisite knowledge and authority to perform the control what what evidence is available to demonstrate of proof that the control is performed when when and with what frequency is the control performed is the frequency uh enough to prevent detect and correct material misstatement where where where is the evidence of performance for how long evidence is rained is an Evidence accessible why is control being performed what type of errors are prevented right how is control performed what are the control activities can these activities be pip passed so he will ask all these question when he's obtaining an understanding about the control environment of the bank right and the next topic is with respect to engagement team discussions so once the auditor has drawn the audit plan so while audit plan while drawing an audit plan we have seen that all these factors will be considered then auditor will obtain an understanding of the control environment of the bank and then there will be engagement team discussions see all the personal of the engagement team along with the if any experts are contracted by The Firm all this will form what your engagement team and the engagement team should hold discussions for better better understanding of the bank its environment and the internal control quickly tell me where have you uh studied this earlier that the auditor should obtain an understanding of the entity its environment including internal control quickly tell me the essay number sh correct and very quick also Sunil ganga Suk sukina so it is SC 315 identifying and assessing the risk of material misstatement through understanding The Entity and its environment right so we were studying what engagement team discussions so we have seen that all personals and the experts who are contracted by Farm firm they form the part of Engagement team and they should hold discussions in order to have a better understanding of the bank its environment and the internal control plus if there is any assessment with respect to potential for misstatement that is whether misstatement can happen and all the discussion should be documented for future reference right and the discussions between the engagement team partners and engagement Partners should be done on account of susceptibility of bank's Branch financial statement of material misstatement so they will have a discussion as to whether the bank branch financial statement or the respective branches can H can the financial statement of the respective branches whether these can be susceptible to material misstatement and or ordinarily all the this discussion take place at the planning stage right so with respect to the uh Bank audit approach we have seen that there will be what drawing and audit plan control environment at the bank and then engagement team discussions so um an important topic you may get a three or four mark question as to what are the various what are the various steps of the bank audit approach and then students when we were discussing about engagement team discussion see these engagement team discussions that that can be on various matters like what are the errors that may be more likely to occur or what are the errors which have been identified in the prior ER so these two points are related to errors or the next two points uh relating to professional skepticism so need to maintain professional skepticism throughout the audit team need to be alert for information and other conditions that indicate a material misstatement that may have occurred right then audit responses to engagement risk pervasive risk specific risk pervasive is having an impact on the financial statement as a whole then method by which fraud might be perpetrated by Bank personal or within particular account balances or disclosure so this point relating to fraud so the engagement team discussion can be with respect to various matters and these are the matters like errors that may be likely to occur or that have been identified in Prior period then the method by which fraud may be perpetrated by Bank personal that is fraud may be committed by the bank personal and others within the particular account balances or disclosures then your audit responses to engagement risk so the risk that are associated with the particular audit engagement pervasive risk risk that have an impact on the financial statement as a whole and specific risk can be risk which have an impact on specific assertions right then the need to maintain professional skepticism throughout the audit that is the auditor need to be alert for information and other condition that indicate that a material misstatement may have occurred right and if I ask you that what will be the advantages of such discussion if such discussion is taking place what are the advantages of such discussion so what are these discussion these are the engagement team discussions that are happening as the bank audit approach so the advantages can be see if fraud has been discussed right susceptibility of the bank's financial statement to material misstatement due to fraud if this has been discussed then it enables the engagement to him to consider appropriate responses to fraud risk right because all these discussions have taken place so the it enables the engagement to to consider the appropriate responses to fraud risk related to again engagement risk pervasive risk and the specific risk further if discussions are there within the team it will enable the engagement partner to delegate the work to experienced engagement team members right and determine the procedure that is to be followed if the fraud is identified right and last it will enable the engagement partner to review the need to involve specialist to address the matters relating to fraud so if discussions with respect to fraud are been done at the planning stage to obviously it is going to help the engagement partner to see as to whether there is a need to involve The Specialist and to address uh these uh matters relating to the fraud so this was your topic relating to bank audit approach let me just take you through this topic from the book and then we'll be starting with the next topic so Bank audit approach me we are discussing about drawing an audit plan control environment at the bank then engagement team discussions right so when we talk about drawing an audit plan so it should be based upon various features associated with the bank like the nature level of operations the nature of adverse features level of compliance based on previous reports and audit risk based on inadequacy of breach of internal control right control environment at the bank may we have seen so when we talk about control environment it is basically the various internal control that has been implemented by the management in the bank so it can be segregation of Duty physical security physical security is like putting CCTV cameras or any such physical security for the protection of the um assets you can say setting up the limits authorizations right approval of the transactions and whenever auditor is considering the control environment he'll ask these U officials all these things right then engagement team discussions may we have seen just a minute so engagement team discussions we have seen that it will involve the all personal of the team as well as the experts who are contracted by the audit firm they form what engagement team and why are the discussions required so that they gain better understanding of the banks and its environment and the internal control system right and these discussions are to be documented and these are to be done based on the susceptibility of the bank's Branch financial statement to material misstatement and generally these are done at the planning state so what are the various matters you may get a question that you are uh conducting the engagement in discussions with respect to your bank audit approach what are the matters that can be discussed within the team so so these will be the matters that you are going to write and you may get another question in it that what will the will be the advantages that will follow so these are the three advantages that is if the susceptibility of bank's financial statement to material misstatement due to fraud is considered it will enable the engagement team to consider an appropriate response to the fraud risk and it enables the audit engagement partner to delegate the work ing to the experience of the engagement team members and to determine the procedure to be followed if fraud is identified and last but not the least it further uh helps the audit engagement partner to review the need to involve what specialist right is it clear quickly sending a replies is this Bank audit approach topic clear to all of you quickly sending your replies this is a very simple topic but yes you will have to Once understood the terms the various um um terms like B advances then we'll be doing drawing limit we'll be doing a number of topics in this morage PL so you need to First understand and then the learning is going to be very easy with respect to this chapter so sh is saying clear Sunil ganga sukina please reply so with respect to this topic income recognition policy I'll be taking this later on now the form and content of financial statement of a bank so section 29 subsection 1 and subsection two of the banking regulation act 1949 is applicable with respect to the form and content of the financial statement of the bank right so section 29 subsection one and subsection two it deals with the form and content of financial statement of banking company and their authentication right and this is also applicable with respect to the nationalized banks SBI and the RB re Regional rer Bank so ing to section 29 subsection one and subsection two so every banking company has to prepare the balance sheet and the pnl as required in third schedule of this act so form a is there with respect to balance sheet and Form B is there with respect to pnl so the bank has to follow this format right further in case it is a company that is a banking company so disclosure requirements as per the accounting standard also needs to be followed so this was with respect to what your form and content of financial statements who is uh who will prepare the the uh financial statement it is the bank who is going to prepare so the next topic is relating to audit of the accounts the financial statements which have been prepared by the bank management now the audit of such accounts so section 30 there which says that the balance sheet and pnl of a banking company will be audit by audited by a person who is duly qualified under any law to be an auditor of the company right so any person who is qualified to be an auditor of the company is qualified to be an auditor of a bank simple the next topic eligibility qualification disqualification of auditor so you just have to understand that it is the same as is applicable to a company Auditor in terms of section 141 now appointment of auditor important question so basically in case of a Banking Company the auditor is appointed in AGM by the shareholders in case of nationalized Bank the auditor is appointed by Bank acting through its board of directors so board of directors will appoint the auditor however in both the cases whether it is a banking company or whether it is a nationalized bank so in a case of a Banking Company we have seen that the shareholders are going to appoint the auditor in ADM and nationalized Bank me Bank acted through its bod in both of these the approval of RBI before the appointment is made so the approval of RBI is required right and in case of RB the auditor is appointed by the bank along with the approval taken from the central government simple so nothing to understand as it just U like see company may you all know that shareholders so AGM nationalized Bank board of directors in both the cases RBI approval is required rrb in case of reg Ral Bank bank along with the approval of central government remuneration of auditor you all are aware that in case of the Banking Company it is section 142 so the auditor in case of the remuneration of the auditor in case of banking company will be determined in terms of section 142 of the companies act 2013 that is it will be decided in the general meeting or as it is determined in the general meeting the way it is determined in the general meeting right and in case of the auditor of a nationalized bank SBI it will be fixed by RBI in consultation with the central government clear now again the powers of Auditors so the powers of Auditors of all the Banks be it a Banking Company nationalized Bank SBI RB it will be the same as that of the company Auditor in so far as the matters of access to books accounts vouchers documents are concerned simple simple now the auditor's report to whom the auditor's report will be made so the auditor's report in case of nationalized Bank the auditor is going to make the report to the central government stating the following and students in case of SBI also the report is given to CG and the format the points that we are going to discuss these are almost the same as in case of the nationalized bank so nationalized M May report is given to CG stating the following and SBI M it is given to CG and the matters that are mentioned below are almost the same so there there are four points that uh the auditor's report will contain that whether in the opinion of the auditor the financial statement reflected true and Fair View of the Affairs of the bank plus if any explanation or information was called by the auditor whether the same has been given to him and the same is satisfactory or not right so two things are there whether in the opinion of the auditor the financial statement reflect a true and Fair View of the State of Affairs of the bank and if any information has been called or any explanation has been called by the auditor whether it has been given to him and the same is satisfactory simple then whether the transactions of the bank that came to his notice so whether all such transaction are within the powers of the bank whether the returns that have been received from the offices or the branches whether these are adequate for the purpose of bank and any other matter which the auditor considers should be brought to the notice of the central government so we have seen that the topic is what where the auditor's report will be submitted so we have seen that in case of nationalized Bank auditor shall make the report to CG stating the following and same will be the case of SBI also so first is whether in the opinion of the auditor the financial statement reflect a true and Fair View of the State of Affairs of the bank and if any information or explanation has been called upon whether it has been given or and the same is satisfactory the transactions of the bank that the auditor becomes aware whether these are within the powers of the bank the returns from the offices and the branches received whether these are adequate for the purpose of audit and any other matters which is considered uh important to be brought to the notice of the CG by the auditor that will be included right in the format of report it basically says that the auditor whether it is a central or a branch auditor they need to comply with standards on auditing and one important point that you need to consider is in the report not only the information relating to the UN audited branches so for example let's say XYZ bank is there and there are number of branches of this bank so when the report of this bank is given the auditor is going to mention in the bank not in the sorry in the audit report the information about not only the relating to the number of un audited branches that is these are the number of branches which are un audited not only this information this information will be given along with the number of un audited branches what information is to be given the quantification of advances interest income interest expense of these un audited branches will be disclosed in the audit report this why because this is a useful information for the users of the financial statement and these are in the best International trends that is globally this is done right so not only the information relating to the number of un audited branches but quantification of advances the interest income interest expense and un audited branches also right further if the auditor is conducting the audit of a Banking Company the report shall include the matters as given in section 143 so I hope you remember chapter number eight that we have done so the matters are specified there and we have discussed those matters in detail there right and you all must be aware we have done uh in chapter number eight that car 2020 is not applicable to a banking company so these matters are not to be reported now if you remember we did a topic of long form audit report that one of the reports is long form audit report so as such the entire format of this long form audit report is not in your um syllabus so far as your intermediate course is concerned so basically what is there in your syllabus with respect to long form report is that see this is the audit report along with the audit report which is required as per the statutory requirements of the company's act the terms of appointment of the auditor of a public sector Bank private sector bank or the foreign Bank it may contain that there is a requirement of what long form audit report that the auditor needs to submit long form audit report and the matters on which the report is to be given these are the matters which are specified by the RBI and the statutory Central auditor they need to submit this to the banks so this report is submit to the respective banks by 30th June of every year right and in order to ensure timely submission of these uh this report long form audit report popularly known as LF auditor must do proper planning so that he can complete LF on time and can provide it to the bank by 30th June right further as such in the format of the audit of the long form audit report there is no requirement to give executive s summary that is the summary of the entire report however the members may consider it uh consider is good to bring the key observation from the whole document so executive summary is basically a summary of the import important aspects of the entire report so as such in the format there is no requirement of executive summary but if the same is given that is going to be helpful for the members those who are going to the uh report right so long form audit report is apart from the report as per the statut requirements these are so there is a this may be a requirement in the terms of appointment of the auditor of public sector Bank private sector bank or the foreign Banks so matters are specified by RBA and the last date is what 30th June so LF uh the uh the auditor is provide going to submit the LF to the banks latest by 30th June right and in order to complete the LF on time the proper planning is required is it clear is it clear quickly tell me the next topic that we are going to cover now is reporting to RBI which is on page number 10.14 but before that I want all of you to reply uh whether uh whatever we have done so far is clear so the next topic is reporting to RBI right so see with respect to reporting to RBI RBI has issued a circular with respect to implementation of recommendations of the committee relating to legal aspects of bank fraud which is applicable to all the scheduled Banks excluding the regional rural Banks right so now we are starting what reporting to RBI so first of all let us just read the extract from the circular so the circular says that if an accounting professional whether in the course of internal or external audit or in the process of institutional audit finds anything susceptible to be fraud susceptible is prone to be fraud or doubtful or fraudulent activity or act of Excess power or smell any foul play in any transaction he should refer the matter to the regulator who is the regulator here RBI any deliberate failure on part of the auditor should render himself liable for Action so this is the extract of one of the circulars of the RBI which says that whether in the course of internal external audit or in the process of institutional audit the accounting professional he finds anything susceptible to fraud or fraudulent activity or access power or smell any Foul Play then matter needs to be reported to the regulator right so here we are talking about essay uh the reporting relating to fraud quickly tell me the essay number we have uh though not done the essay in detail but we have uh we have done the ESS in detail so what is the number of the essay relating to front quickly tell me it is essay 240 right so it says that reporting to RBI so the RBI has issued a circular with respect to implementation of recommendation of the committee on legal aspects of bank fraud applicable to scheduled Banks excluding RBS right so the members the auditor he is required to report to RBI the matters that are stated in the circular so if the auditor he comes across any thing which is susceptible to be fraud or fraudulent activity or where there has been access par that has been used or which smells any foul play in any transaction then the same need to be reported to the RBI the regulator right now you may think you next question that may come to your mind is that if the auditor informs it to the RBI it may lead to uh violation of confidentiality right so SC 250 that is consideration of laws and regulations in an audit of financial statement it says that the duty of confidentiality is overridden by Statute law or court so if there is a requirement of any law court or statute that something is to be communicated to the regulator so the duty of confid confidentiality overridden by that right that is it will not be if the auditor out of the this circular out of following this circular the order communicate something to to RBI it will not lead to what violation of confidentiality right further in terms of s 240 24 is what Auditor's responsibility relating to fraud in an audit of financial statement see auditor is responsible for obtaining reasonable assurance that financial statement as a as a whole are free from Material misstatement right so as such auditor is not expected to look into each and every transaction but to evaluate the system as a whole right so auditor is not expected and it is not practically possible also we all have done inherent limitations of audit in chapter number one right but if auditor while perform ing his normal duties if he comes across any instance that should be reported to RBI plus to Chairman or managing director of chief executive of the bank right so this was the topic relating to what your reporting to RBI so first of all we have said we have seen that that the RBI has issued a circular with respect to implementation of Rec recommendation of the committee on see students these are the um keywords that you need to write if you want to fetch good marks so RBI has issued a circular on what on implementation or what recommendations whose recommendations of a committee on what legal aspects of bank fraud applicable to which is applicable to all scheduled Banks except for rrbs right so the members are required to report to the RBI the matter stated in the circular further SE 250 consideration of laws and regulations in an audit of finan statement the duty of confidentiality is overwritten by the statute Law Courts and I say 240 the auditor's responsibility relating to fraud in an audit of financial statement so the auditor is responsible for obtaining reasonable assurance that the financial statement as a whole are free from Material misstatement though but they he's not expected to look into each and every transaction but to evaluate the system as a whole however if the auditor while performing his duties come across any instance then there is reporting requirement to RBI or and to Chairman or managing director of chief executive of the bank is it clear important topic you can always get a for mark question with respect to reporting to RBI I hope it is clear and then a very important topic of what conducting an audit so this topic has in total 18 points conducting an audit so various aspects when the auditor is conducting an audit right so when the auditor is conducting the audit of the bank or the branches the audit of such bank or branches will involve the following stages so first let us just have a look at all the points what are these points and then we'll start discussing them one by one so this topic is given on page number 10.15 of your module so see when the auditor is conducting an audit so initial consideration by the statutary auditor will be there then identifying and assessing the risk of material misstatement understanding the bank it's and its environment including the internal control understanding the bank's accounting process understanding the risk management process whereby there are further sub points then engagement team discussions establishing the overall audit strategy s300 developing an audit plan again s a 300 audit planning memorandum determining audit materiality quickly tell me the ESS number relating to audit materiality quickly then consider going concern also tell me the essay number with respect to going concern see students when you will complete this topic now conducting an audit you will see you will be able to analyze as to what is your understanding and learning with respect to the earlier chapters because see I told you that though it is the audit of a bank but the basic Foundation is going to be the same ESS 2110 if it talks about agreeing to the terms of audit engagement it will be same which is applicable here same way as say 24 250 300 300 relating to planning and let me just have a look at your answers shave correct others also please reply so audit materialities essay 320 materiality in planning and Performing and audit and going concern is sa 570 right then the 12th is assessing the risk of fraud including money laundry right SE 240 will come into picture here assessing the specific risk risk associated with Outsourcing of activities responses to assess risk essay number is what essay 330 stress testing basil 3 framework and last is reliance on re review of other reports right so we are going to discuss all these points one by one and you can always get a question with respect to any of these points so this first point initial consideration by stash auditor so when the auditor is cons conducting an audit what will be the initial consideration so first of all Declaration of ineptness so all these uh points that are given these are nine points so these are the initial consideration matters of initial consideration by the statutary auditor so Declaration of indebtness internal assignments in bank by statutary Auditors planning communication with previous auditor terms of audit engagement see SE 2110 sa 300 H you all have done all these initial engagements s 510 assessment of Engagement risk then establish the engagement team and understanding the bank and its environment that is sa 315 so this topic may appear to be lengthy to you but when you uh after doing this topic you will see that it is the easiest topic of this chapter why because it is just the repetition of whatever we have done in our earlier chapters right so Declaration of indebtness let me take you through the notes so I've written DOI wherever I want to write Declaration of indebtness so the RBI has advised the banks that before appointing the statutory uh Central auditor or the branch auditor the banks need to obtain what declaration of indebtness what is meant by indebtness situation of owing money to the bank so whether they owe any money to the bank or not so this declaration of indebtness will be given by the auditor to the bank so who has asked for this requirement the RBI has advised the banks that before appointing the statutary central auditor or the branch auditor they need obtain the Declaration of indebtness right because see this is going to have an impact on the independence of the audit right internal assignments in Bank of statutary Auditors so if the statutary auditor are already handling any internal assignments like let's say the concurrent audit so in that case that particular audit firm cannot be appointed as the statutary central auditor of that bank during that year so the RBI decided that the audit firm should not undertake the statutory audit assignments while they are associated with the internal assignments in the bank during the same year and internal assignments example can be what concurrent audit right that is the internal audit of banks conducted monthly during the year so if any of the audit firm is there which is conducting concurrent audit they cannot be appointed as what statutary Auditors of the bank Bank same bank during that year clear so these are the matters of initial consideration by statutary auditor so first of all Declaration of solvency and then is internal assignments in bank by statutary Auditors then initial consideration will be what planning and what is the relevant essay essay 300 planning and audit of financial statement is the name of the essay so auditor has to undertake the following activities prior to starting and initial audit so these are to these are to be considered that is s 220 and S 2110 so under essay 220 what is uh essay 220 related to quality control for an audit work so auditor will consider whether to accept this client relationship and this specific audit engagement or not so regarding the acceptance of client relationship whether to accept the audit of this bank and the specific audit engagement this particular engagement right and in terms of SE 2110 auditor will establish an understanding of the terms of audit engagement in terms of SC 2110 which is agreeing the terms of audit engagement see these all are basically the work which is to be done before starting the audit work so first of all Declaration of indebtness then internal assignments in bank by statutary auditor and then the planning in terms of essay 300 whereby we talk about aay 220 and ESS 2110 then communication with the previous auditor very very important so as per Clause 8 part one of first schedule of the ca act 1949 the CA in practice a CA in practice cannot accept position as the auditor previously held by another CA without first communicating with him in writing so suppose with respect to part bank some other CA was there and now you have been appointed so Clause 8 part one of the first schedule of C act 1949 it requires that you need to First communicate with the previous year and that to in writing now what is the purpose of communicating so the incoming the new auditor or you in this example should take a should get no objection certificate nooc from the previous auditor through the communication that whether the previous auditor has any objection to such appointment made and if yes whether the reasons are valid or not right so another important initial consideration is what communicating with the previous auditor as required by Clause 8 part one to First of first schedule of the ca act 1949 then terms of audit engagement so now we are discussing the terms of audit engagement Point SC 2110 in little detail so the terms of audit engagement is required for each period to be audited and the auditor needs to agree on terms of audit and engagement with bank before be beginning the significant portions of the field work that is before beginning the audit work this is so obvious now that before beginning with the audit work you need to you need to U agree with the terms of audit uh agree the terms of audit engagement with the bank and these terms of audit engagement should be documented in order to prevent any confusion right further see in the terms of audit engagement the responsibilities of the Auditors and the management will be agreed at the beginning of the audit assignment itself so as it it is going to prevent any confusion so the fifth point is audit of audit terms of audit engagement in terms of ESS 2110 then is initial engagement essay 510 what was the name of essay we have already done or what is the name of this essay initial audit engagement opening balances right so if the auditor is conducting the audit um as an initial audit engagement so after performing the procedures as are required by SS 510 if the auditor concludes that the open opening balances of the financial statements contains misstatement which materially affect the financial statement of the current period and the effect of which has not been properly accounted or dis disclosed the auditor is going to give a qualified or adverse opinion with respect to the current year right so initial audit is what where the audit was not conducted or it was conducted by predecessor auditor remember we have done this in detail so if such is a situation so basically this aing the various procedures as are required in s 510 that the opening balances contain a misstatement that materially affect the current period financial statement and the effect is not properly accounted for a disclose in the financial statement the auditor is going to give a qualified or adverse opinion then the seventh is assessment of Engagement risk so see this assessment of Engagement risk is a critical part of the audit process and it is done prior to acceptance of audit engagement see let's say with respect to a particular Bank there are certain let's say RBI um certain fraud has already been detected and RBI is doing C certain investigations so now risk is there with respect to this particular engagement now so assessment of Engagement risk so which becomes a critical part of the audit process and this is done prior to acceptance of audit evidence why because whether to accept this audit engagement or not it is going to affect that decision also it is going to affect the planning decisions of the auditor so initial consideration another point is assessment of Engagement R then initial consideration will be what establishing the engagement team so after doing the above steps now the qualified the experienced professionals will be gathered to form the engagement team right and the how the engagement team will be formed the composition of the engagement team it is going to depend upon the size the nature the complexity of the van operation and getting an appropriate engagement is one of the it is really very important for managing the engagement risk right so uh this is the point and the last point is understanding the bank and its environment for this I'll just say ESS 315 so auditor will understand the he'll obtain an understanding of the entity its environment including the internal control in order to identify an assis the risk of material misstatement whether due to fraud or error and he'll obtain such an understanding which is sufficient to design and perform the further audit procedures so this is with respect to the initial consideration I'll just repeat all the points The Heading and then we'll start with the next point so conducting an audit so when the audit uh when the audit of bank or branches has been done so following stages will be there first is what initial consideration by the statutary auditor so Declaration of indebtness internal assignments by statutary Auditor in the bank planning that is s300 whereby we talked about s 220 and S 210 then communication with previous auditor Clause 8 part one of a schedule to C act 1949 then terms of audit engagement s 210 then initial engagements audit engagements opening balances which is s 510 assessment of Engagement risk then establish the engagement team understanding the bank and its environment so these are the various points with respect to the initial consideration by the statutary Auditors quickly tell me is it clear see sh practically to uh the previous auditor will tell the reasons H practically it uh the previous auditor is going to tell you all the reasons he's going to uh give you all explanations in detail because you basically it is a responsibility you will seen professional ethics there is a responsibility on the previous auditor to communicate to the incoming auditor also right sh is your doubt clear others also please reply whether this point initial consideration by statutary auditor clear because it is a really very important topic nine Clauses nine point sub points which are really very very important and Sh is your doubt clear so sinil ganga is saying clear others also please reply so we will do one thing before starting with the next topic which is identifying and assessing the risk of material misstatement let us just take a quick break of 10 minutes here and then we'll start with this topic and today I'll be taking up the topic of chapter number nine which was left in the last session I'll complete that also so quick break of 10 minutes here e e e e e e e e e e e e e e e e e e e e e e e e so we were discussing the various points of conducting an audit whereby we have studied the nine sub points with respect to initial consideration by the statutary auditor so now are as I've told you that for all those who have understood and who have learned the earlier chapters now you're are going to find these topics very easy so when the auditor is conducting an audit the next step after the initial considerations is what identifying and assessing the risk of material misstatement and the ESS number is 315 so auditor will identify and assess the risk of material misstatement at the financial statement level and at the assertion level of class of transaction account balances and disclosure which shall provide a basis for Designing and Performing the further audit procedure because based on his assessment of essay 315 auditor is going to determine the uh he'll design and perform the further audit procedures right then understanding the bank its environment including the internal control so when the auditor understands the bank its environment and the internal control it enables the auditor to identify and assess the uh risk and to develop an audit plan it to determine the operating effectiveness of controls and to address the specific risk so here we have identified the bank and en enement and including the internal control so obviously it is going to help the auditor to identify and assess the risk and to address those specific risk and to develop an Orient program to determine the uh the operating effectiveness of the internal control this was the third point the fourth is understanding the bank's accounting process now first was what initial audit consideration then identifying assessing the risk of material misstatement then the second part of ESS 315 is the third point which is understanding the bank and its environment and now the fourth is understanding the bank's accounting process so see the accounting process of a bank it produces the financial and operational information for management use further the banks accounting system contributes to the bank's internal process right right and understanding the bank's accounting process this is going to help again the auditor to identify and assess the risk of material misstatement whether to whether due to fraud and error so as to enable him to design and perform the further audit procedure so what is the topic understanding the bank's accounting process so first of all we have uh written that the bank's accounting process it produces the financial and operation information for the management use and it contributes to the Banks internal control because internal control in any which case is implemented on the banks accounting system process only this will help the auditor uh this is necessary to identify and assess the risk of material misstatement whether due to fraud and error so as to enable the auditor to design and perform the further audit procedures is it clear the fifth point is understanding the risk management process see management develops controls and uses various performance indicators in managing the key business and Financial Risk right effective risk management requires various things so if the uh the uh banking if you talk about the bank so Bank must have a risk management process and in order to identify the various in order to identify and manage the various business and Financial Risk Management develops controls and uses various performance indicators now there are various sub points to this point of understanding the risk management process that is oversight and involvement in Control process by those stge with governance identification measurement and monitoring of risk control activities monitoring activities reliable information system right so these are the five point uh six points that we are going to discuss understanding the risk management process so the next step for the auditor is see first was initial consideration then was identifying and assessing the risk of material misstatement third was understanding the bank its environment and internal control fourth was understanding the bank's accounting process now is understanding the risk management process of the bank right so first first of all auditor will understand as to whether those charge with governance is involved in the internal control process so those charge with governance can be in the form of board of directors or managing director so whether they approve the written risk management policies and whether the policies those which are approved whether those are consistent with the banks business objectives and strategies the bank's Capital strength Management's EXP expertise regulatory requirements type and amount of acceptable risk so auditor is going to understand that first and formost what we are understanding the banks uh the risk management process of the bank right so oversight and involvement in the Control process by those charge with governance so bod the managing director whether they approve the written risk management policies and such policies are consistent with the bank Banks uh business objectives strategies Capital strength management expertise required uh regulatory requirements type and amount of acceptable risk right then identification measurement and monitoring of risk so the risk which have a significant impact on the achievement of bank's goal against the preapproved limits and criterias so auditor is going to identify measure and monitor the risk which have significant impact on the achievement of the bank goals control activities again the control activities as we did uh earlier that is segregation of Dy physical security accurate measurement reporting of positions and then authorization approval of transactions so whether the bank has appropriate control to mitigate its risk that is the various internal controls that the bank has implemented monitoring activities so risk management model the methodology is the assumptions to measure and mitigate the risk whether all these act these methodologies assumption whether these are regularly assessed and updated whether the function conducted uh in uh the function that is conducted is independent risk Byer independent risk management unit so this is what monitoring activities and students all these things if you just uh remember uh the chapters that we have covered so far somewhere or the other we have already done the monitoring of the internal control it is whose responsibility it is on the part of the management now in the monitoring activity what will be seen that whether the risk management models the methodologies the assumptions which are uh required to measure and mitigate the risk whether these are regularly assessed and updated whe that function is conducted by independent risk management unit right then the next point is reliable information system so the bank requires a reliable information system which provides adequate Financial operation and com uh compliance information on a timely and consistent basis right those stand with governance or management may require the risk management information which is easily understandable so so as to enable them to assess the changing nature of bank's risk profile so the whether the company is having a reliable information system auditor is going to understand that now why a reliable information system is required because a reliable information system provides adequate Financial operation com compliance information on a timely and consistent basis so the those CH with governance and management require the risk management information which is in easily understandable why so as to enable them to assess the changing nature of Bank risk profile so whether the risk that are associated with the banking profile so whether these risk are changing or not for this we require the reliable information system because unless and until reliable information is available about the changing risk environment around the bank the those charge with governance of management cannot Implement a good risk management system is it clear here so these were the five points relating to understanding the risk management process that is oversight and involvement in the Control process by those start with governance ide