Audit of Axis Bank

Executive Summary
Banking companies are required to maintain the books of accounts in accordance with section
209 of the companies act, 2013. Banking is generally a sound internal control system their day to
day transaction. The auditor has to evaluate such system carefully. The fundamental requirement
of an audit, as regards reporting on statement of account can be discharged from the examination
of the internal checked and verification of assets and liabilities by making a comparison and
reconciliation of balance with those in the year and that of amount of income and expenses by
application of test checks. The banking regulation act casts greater responsibilities on the
directors of banks as compared to those of other companies in the matter of supervision over
their working. Therefore, they exercise, or are expected to exercise greater supervision over the
affairs of bank. The auditor is entities to rely on such supervision and to limit his checking to test
checks. The financial position of a bank is depended on the condition of assets, loan, investment,
cash balanced and those of its liabilities and fund. Their verification forms an important part of
the balance sheet. Most of the banks have their own internal audit or inspection department
entrusted with the responsibilities of checking the account of various branches. The statutory
auditor may not, therefore, duplicate work.

CHP 1 - Introduction
The audit of banking companies plays a very important role in India as it helps to regulate the
banking companies in right manner. In audit of banks includes various types of audit which are
normally carried out in banking companies such as statutory audit, revenue/income expenditure
audit, concurrent audit, computer and system audit etc. the above audit is mainly conducted by
the banks own staff or external auditor. However, the rules and the regulation relating to the
conduct of various types of audit or inspections differ from a bank to bank expect the statutory
audit for which the RBI guidelines is applicable. In this, more importance has been given on the
overall bank audit system with reference to Axis Bank. In todays competitive world audit is very
much necessary as well as compulsory , because investor investing decision is depend on that
particular concept if auditor has expressing his view about particular organization is true and fair
then investor can get his ideas about how much he should invest in particular companies.
1.1 Definition of Auditing
Various persons such as the owners, shareholders, investors, creditors, lenders, government etc.
use the final account of business concern for different purposes. All these users need to be sure
that the final accounts prepared by the management are reliable. An auditor is an independent
expert who examines the accounts of a business concern and reports whether the final accounts
are reliable or not. Different authorities have defined auditing as follows.
Mautz
defines the auditing as auditing is concerned with the verification of accounting data, with
determining the accuracy and reliability of accounting statement and reports.
International auditing guidelines
defines the auditing as auditing is an independent examination of financial information of any
entity with a view to expressing an opinion thereon.
1.2 Basic Principles of Bank Auditing
1. Integrity, objectivity and independence:
The auditor should be honest and sincere in his audit work. He must be fair and objective. He
should also be independent.
2. Confidentiality:
The auditor should keep the information obtained during audit, confidential. He should not
disclose such information to any third party. He should, keep his eyes and ears open but his
mouth shut.

3. Skill and competence:

The auditor should have adequate training, experience and competence in Auditing. He should
have a professional qualification (i.e. be a Chartered Accountant) and practical experience. He
should be aware of recent developments in the field of auditing such as statement of ICAI,
changes in company law, decisions of courts etc.
4. Working papers:
The auditor should maintain working papers of important matters to prove that audit was
conducted with due care according to the basic principles.

5. Planning:
The auditor should plan his audit work. He should prepare an audit programmed to complete the
audit efficiently and in time.
6. Audit evidence:
The report of the auditor should be base on evidence obtained in the course of audit. The
evidence may be obtained through vouching of transactions, verification of assets and liabilities,
ratio analysis etc.
7. Evaluation of accounting system and internal control:
The auditor should ensure that the accounting system is adequate. He should see that all the
transactions have been properly recorded. He should study and evaluate the internal controls.
8. Opinion and report:
The auditor should arrive at his opinion on the account based on the audit evidence and submit
his report. The opinion may be unqualified, qualified or adverse. The audit report should clearly
express his opinion. Law should require the content and form of audit report
History of Axis Bank
Axis Bank established in 1993 was the first of the new private banks to have begun operations in 1994 after the Government of India
allowed new private banks to be established.Axis Bank Ltd. has been promoted by the largest and the best Financial Institution of
the country, UTI. The Bank was set up with a capital of Rs. 115 crore, with UTI contributing Rs. 100 crore, LIC Rs. 7.5 crore and
GIC and its four subsidiaries contributing Rs. 1.5 crore each.Axis Bank is one of the first new generation private sector banks to
have begun operations in 1994. The Bank was promoted in 1993, jointly by Specified Undertaking of Unit Trust of India (SUUTI)
(then known as Unit Trust of India),Life Insurance Corporation of India (LIC), General Insurance Corporation of India (GIC), National
Insurance Company Ltd., The New India Assurance Company Ltd., The Oriental Insurance Company Ltd. and United India
Insurance Company Ltd. The shareholding of Unit Trust of India was subsequently transferred to SUUTI, an entity established in
2003.
Erstwhile Unit Trust of India was set up as a body corporate under the UTI Act, 1963, with a view to encourage savings and
investment. In December 2002, the UTI Act, 1963 was repealed with the passage of Unit Trust of India (Transfer of Undertaking and
Repeal) Act, 2002 by the Parliament, paving the way for the bifurcation of UTI into 2 entities, UTII and UTIII with effect from 1st
February 2003. In accordance with the Act, the Undertaking specified as UTI I has been transferred and vested in the Administrator

of the Specified Undertaking of the Unit Trust of India (SUUTI), who manages assured return schemes along with 6.75% US64
Bonds, 6.60% ARS Bonds with a Unit Capital of over Rs. 14167.59 crores.
The Bank has strengths in both retail and corporate banking and is committed to adopting the best industry practices internationally
in order to achieve excellence.
Axis Bank entered a deal in November 2010 to buy the investment banking and equities units of Enam Securities for $456 million.
Axis Securities, the equities arm of Axis Bank, will merge with the investment banking business of Enam Securities.As per the deal,
Enam will demerge its investment banking, institutional equities, retail equities and distribution of financial products, and non
banking finance businesses and merge them with Axis Securities.
Services offered by the bank:
Personal Banking
Corporate Banking
NRI Banking
Priority Banking
VBV Online purchases using Credit Card
VBV / MSC Online purchases using Debit Card
Milestones:
2013Axis Bank voted for Most Trusted Private Sector Bank in the country in the Most Trusted Brands survey 2013 by
Brand Equity.
2012 Reached 2 lakh installed EDC machines the highest for any bank in India
Becomes the first Bank in the world to reach $2 billion loading on prepaid Travel CurrencyCards
2011 Launches India travel card India's first and only Indian currency prepaid travel card for foreign nationals
Nov10 Axis Bank enters a deal to buy the investment banking and equities units of Enam Securities
April09 Board of the bank recommended the appointment of Shikha Sharma, head of ICICI Prudential? Life Insurance
Co. Ltd, as its managing director and chief executive officer.
Mar08 Axis Bank launches Platinum Credit Card, India's first EMV chip based card
Dec07 Axis Bank gets AAA National LongTerm Rating from Fitch Ratings
Sept07 Axis Bank ties up with Banque Prive Edmond de Rothschild Europe for Wealth Management
July07 UTI Bank rebrands itself as Axis Bank
July07 UTI Bank successfully raises USD 1050 million
July07 UTI Bank ties up with Tata Motors Ltd. for Car Loans
June07 UTI Bank's expansion into Asia supported by FRS
May07 UTI Bank launches 'Spice Rewards' on the bankcards India's firstever merchantsupported rewards
program
April07 UTI Bank opens a Financial Services Category I Branch in the DIFC in Dubai
Mar07 UTI Bank ties up with Hyundai Motor India Ltd. for Car Loans
Mar07 UTI Bank ties up with IIFCL to provide finance for infrastructural projects in the country
Mar07 UTI Bank launches Car Loans in association with Maruti Udyog Ltd
Mar07 UTI Bank opens a Full Licence Bank Branch in Hong Kong
Feb07 Finance Minister Shri P. Chidambaram Launches Shriram UTI Bank Co Branded Credit Card Exclusively
For Small Road Transport Operators (SRTOS)
Feb07 UTI Bank announces the launch of its Meal Card
Feb07 UTI Bank announces the launch of its Gift Card
Feb07 LIC Premium payment now through UTI Bank Branches
Jan07 UTI bank opens Priority Banking branch in Mumbai and Kolkata
Nov06 UTI Bank opens Priority Banking Lounge in Pune
Sep06 UTI Bank launches operations of UBL Sales, its Sales Subsidiary Inaugurates its first office in Bangalore
Aug06 UTI Bank announces the launch of its Credit Card Business
Aug06 UTI Bank becomes the first Indian Bank to successfully issue Foreign Currency Hybrid Capital in the
International Market
Aug06 UTI Bank Business Gold Debit Card MasterCard Launched Designed for business related spending by SMEs
and self employed professionals
Aug06 UTI Bank announces the scheme of issuance of 'Senior Citizen ID Card' in association with Dignity Foundation
Aug06 UTI Bank rolls out its 2000th ATM
July06 UTI Bank opens Representative Office in Shanghai
May06 UTI Bank and LIC join hands to launch an Annuity Card for group pensioners of LIC
May06 UTI Bank ties up with Geojit Financial Services to offer Online Trading service to its customers
Apr06 UTI Bank opens its first international branch in Singapore
Jan06 UTI Bank and UTI Mutual Fund to launch a new service for sale and redemption of mutual fund schemes through
the Bank's ATMs across the country
Dec05 UTI Bank wins International Financing Review (IFR) Asia 'India Bond House' award for the year 2005
Oct05 UTI Bank extends banking services to the rural milk producers in Anand and Kheda districts in Gujarat
July05 UTI Bank and Visa International launch Mobile Refill facility Anytime, Anywhere PrePaid Mobile Refill for all
Visa Cardholders in India
May05 UTI Bank and Bajaj Allianz join hands to distribute general insurance products

Apr05 UTI Bank launches Smart Privilege a special bank account designed for women
Mar05 MTNL ties up with UTI Bank for payment of telephone bills through the Bank's ATM network
Mar05 UTI Bank gets listed on the London Stock Exchange, raises US$ 239.30 million through Global
Mar05 Depositary Receipts (GDRs)
Feb05 UTI Bank appointed by Government of Karnataka as the sole banker for the Bangalore One (B1) project
Feb05 UTI Bank launches a powerful version of Kisan Credit Card
Jan05 UTI Bank ties up with Remit2India to launch the Remittance Card
Mar04 UTI Bank enables premium payment of LIC policies through its ATMs.
Feb04 Bilateral arrangement between State Bank of India (and its 7 associate member banks) and UTI Bank comes
into force with the commencement of operations (as on 3rd February '04) of the combined network of over 4000 ATMs
Feb04 UTI Bank (by pursuing a proactive strategy of forging bilateral agreements and being a progressive player in the
multilateral consortiums for shared ATM network) offers its customers access to over 7000 ATMs across the country the largest
to be offered by any bank in India so far.
Dec03 Bank inaugurated its ATM at Thegu near the Nathula Pass in Sikkim. This ATM is at the highest altitude in India.
Sep03 The Bank's ATMs across the country crosses the thousand mark
Sep03 Bank launches the Travel Currency Card.
Aug03 The Bank's Debit Card crosses the one million mark.
Aug03 Total Advances cross Rs 7,000 Crore.
May03 Bank declares a net profit of Rs 192.18 crores for FY03, a growth of 43% over the previous year
Mar03 Bank signs Agreement with Employees Provident Fund Organization (EPFO) for disbursement of Pension
Mar03 Bank crosses the 800 ATM mark
Mar03 The Bank issues 3,83,62,834 fully paid up equity shares totaling to Rs. 164.00 crores, through a
Mar03 Preferential offer to Life Insurance Corporation of India (now constituting 13.54% of
Mar03 The Bank's expanded equity), Citicorp Banking Corporation, Bahrain (holding 3.84%), ChrysCapital I,
Mar03 LLC, Mauritius (holding 3.84%) and Karur Vysya Bank Ltd.(constituting 1.00%) The Bank also
Mar03 Increases the authorised share capital of the Bank from Rs. 230 crores to Rs. 300 crores.
Feb03 Bank, in a pioneering move, launches the AT PAR Cheque facility, free of cost, for all its Savings Bank
customers.
Feb03 Bank wins mandate to set up 14 ATMs at the Western Railway stations along the Mumbai division.
Oct02 Bank launches Corporate iConnect? the Internet Banking facility for Corporates
Aug02 Bank signs MoU with BSNL regarding bill collection services across the country through both online and offline
channels.
Apr02 Bank opens its 500th ATM
Mar02 Deposits Cross Rs.12, 000 Crore
Jan02 The Bank's 100th branch opens at Tuticorin,Tamilnadu
Jan02 The Bank opens an ATM at the Gol DakKhana, i.e. the New Delhi GPO, making it the first instance of a
commercial bank setting up an ATM at any postoffice in the country.
Dec01 Total Advances cross Rs 5,000 Crore
Nov01 The deposit base for the Bank crosses Rs. 10,000 Crore
Sep01 Private placement of 26% stake in the Bank to CDC Capital Partners. UTI holding reduces to 44.88%
Aug01 Bank signs MoU with India Post for introducing value added financial products and services to customers of
both organizations, including setting up of UTI Bank ATMs in post offices.
July01 Bank ties up with Govt of Andhra Pradesh for collection of commercial tax
Dec00 Bank opens its 200th ATM. It becomes the 2nd largest ATM network in the country, a position held even today.
Oct00 Bank becomes fully networked
July00 Ecommerce initiatives announced
July00 Financial Advisory Services offered beginning with marketing of US 64
Apr00 UTI Bank calls off its proposed merger with Global Trust Bank and surges ahead on its own.
Apr00 Bank launches its Internet banking module, iConnect Retail loans introduced for the first time by the Bank
Mar00 Profits cross Rs 50 crore mark for the first time.
Feb00 Bank adopts Finacle software from Infosys for core banking
Jan00 Dr.P.J Nayak takes over as Chairman and Managing Director from Shri Supriya Gupta.

Sep99 Cash management services (CMS) launched, Co branded credit card launched
Mar99 Deposits cross Rs.3000 crores
Sep98 UTI Bank goes public with a Rs. 71 crore public issue; Issue oversubscribed 1.2 times, over 1 lakh retail
investors. UTI holding reduces to 60.85%
Jun96 Crosses Rs.1000 crore deposit mark
Mar95 Completes first profitable year in operation
Apr94 First branch of UTI Bank inaugurated at Ahmedabad by Dr. Manmohan Singh, Hon'ble Finance Minister,
Government of India.
Dec93 UTI Bank comes into being

Dec93 Registered office at Ahmedabad; Head office at Mumbai

Awards /Achievements:
Axis bank was awarded Best bank award in the private sector category at NDTV Profit Business Leadership Awards 2008.
Axis Bank was awarded Best Debt House India award at Euromoney 2008.
The bank was honoured Best Bond House in India award at The Finance Asia 2008.
Axis Bank was awarded Best Domestic Debt House award at the Asia Money 2008.
Business World ,Best Bank Awards Fastest Growing Large Bank
Business Today,Best Bank Awards India's Best Bank, India's Fastest Growing Bank, India's Most Consistent Bank
ET Intelligence GroupBest Bank 2009
NDTV Profit Business Leadership Awards 2009 Best bank Private Sector
Forbes Fab 50The Best of Asia Pacific's Biggest Listed Company
FE Best Banks AwardBest New Private Sector bank,Rank 1 Talisma Customer Appreciation Award 2009
D & B Best Bank Awards Best Private Bank
Lafferty Award Best Annual ReportIndia
1.Bank of the Year India The Banker Awards 2011
2.Best Bank in the Private Sector NDTV Profit Business Leadership Awards 2011
3.Best Bank Outlook Money Awards 2011
4.The Best Domestic Bank India The Asset Triple A Country Awards 2011
5.Fastest Growing Bank Bloomberg UTV Financial Leadership Awards 2012
6.Most Productive Private Sector Bank FIBAC 2011 Banking Awards
7.3rd Strongest Bank in Asia Pacific Region by Asian Banker
8.Brand Excellence Award 2011(BFSI Sector) Star News
9.Most Preferred Bank amongst retail consumers CLSA survey on personal banking trends
10.Best Bond House India 2011 by Finance Asia
11.Best Risk Master award (Private Sector Category) FIBAC 2011 Banking Awards
1.Bank of the Year Money Today FPCIL Awards 201213
2.Best Bank CNBCTV18 Indias Best Bank and Financial Institution Awards 2012
3.Best Bank Runner Up Outlook Money Awards 2012
4.Consistent Performer Indias Best Banks 2012 Survey by Business Today & KPMG
5.Fastest Growing Large Bank Dun & Bradstreet Polaris Financial Technology Banking Awards 2012
6.Fastest Growing Large Bank Businessworld Best Banks Survey 2012
7.Best Domestic Bond House The Asset Triple A Country Awards 2012 Our Bank has been honored with this award for the third year in a row.
8.India Bond House of the year IFR ASIA Country Awards 2012
9.Deal Maker of the Year in Rupee Bonds Businessworld Magna Awards India's Best Deal Makers 2012
10.The Best Emerging Bullion Dealing Bank 9th India International Gold Convention201112
11.Best Acquiring Institution in South Asia Visa LEADER Award at Visas 2012 APCEMEA Security Summit, Bali
12.Gold Shield for Excellence in Financial Reporting in the Private Banks category 201112 ICAI (Institute of Chartered Accountants of India)
1.Axis Bank voted for Most Trusted Private Sector Bank in the country in the Most Trusted Brands survey 2013 by Brand Equity.
2.Axis Bank ranked no. 1 bank in INDIA in both Primary & Secondary market of corporate bonds The Asset Benchmark Research
3.Best Debt House in India Euromoney Awards for Excellence 2013
4.Axis Bank ranked No 1 company to work for in the BFSI sector 'The Best Companies to Work for' survey by Business Today
5.Consistent Performer Indias Best Banks 2013 Survey by Business Today & KPMG
6.Runner up for Best Bank category Outlook Money Awards 2013
7.Fastest Growing Large Bank Business World PWC Survey of Indias best banks 2013
8.Banking frontiers Finnoviti 2013 Awards for FxConnect
9.Ranked No 1 in the IT Biz Award large enterprises category by Express IT Awards
10.Innovation for 2013 for Ladies First card under the Most Innovative Broad Based Product Offering category IBA Innovations Award
11.Axis Bank featured in Asia's Fab50 companies for 2013 by Forbes Asia
12.Gold Shield for second year in a row for Excellence in Financial Reporting in the Private Banks category 201213 ICAI (Institute of Chartered
Accountants of India)
13.Second Runners Up for Best Financial Inclusion Initiative amongst Private Sector Banks IBA Banking Technology Awards 2013
14.Second Runners Up for Best Technology Bank of the Year amongst Private Sector Banks IBA Banking Technology Awards 2013
15.Second Runners Up for Best Risk Management & Security Initiative amongst Private Sector Banks IBA Banking Technology Awards 2013
16.Second Runners Up for Best Internet Bank amongst Private Sector Banks IBA Banking Technology Awards 2013
Fastest Growing Large Bank BW Businessworld Magna Awards 2014

1.3 Bank Audit and Compliance Committee

In pursuance of RBI circular September 26, 1995, Axis bank is required to constitute an Audit
Committee of its Board. The membership of the audit committee is restricted to the Executive
Director, nominees of Central Government and the RBI, Chartered Accountant director and one
of the non-official directors. One of the functions of this committee is to provide direction and
oversees the operations of the total audit function in the bank. The committee also has to review
the internal inspection function in the bank, with special emphasis on the system, its quality and
effectiveness in terms of follow up. The committee has to review the system of appointment and
remuneration of concurrent auditors. The audit committee is, therefore, connected with the

functioning of the system of concurrent audit. The method of appointment of auditors, their
remuneration and the quality of their work is to be reviewed by the Audit Committee. It is in this
context that periodical meeting by the members of the audit committee with the concurrent
auditors help the audit committee to oversee the operations of the total audit function in the bank.
Considering the coverage of this audit assignment and the specialized nature of work there is
also a need for training to be imported to the staff of the auditors. This training has to be given in
specialized field such as foreign exchange, computerization, and areas of income leakage, fraud
prone areas, determination of credit rating and other similar specialized areas. The bank can
organize such training programmed at various places so that it can ensure the quality of audit.
The Audit and Compliance Committee of the Bank comprises Mr. C. M. Vasudev, Dr. Pandit
Palande, Mr. Bobby Parikh and Mr. Partho Datta. The Committee is chaired by Mr. C. M.
Vasudev. Mr. Sanjay Dongre, the Company Secretary of the Bank, acts as the secretary of the
Committee.
The Committee met eight (8) times during the year. The meetings of the Committee were held on
April 22, 2014, June 7, 2014, July 16, 2015, September 10, 2014, October 14, 2014, December
24, 2014, January 16, 2015 and March 3, 2015.
The terms of reference of the Audit Committee are in accordance with Clause 49 of the Listing
Agreement entered into with the Stock Exchanges in India and include the following:
Overseeing the Bank's financial reporting process and ensuring correct, adequate and
credible disclosure of financial information
Recommending appointment and removal of external auditors and fixing of their fees;
Reviewing with management the annual financial statements before submission to the
Board with special emphasis on accounting policies and practices, compliance with
accounting standards and other legal requirements concerning financial statements;
Reviewing the adequacy of the Audit and Compliance functions, including their policies,
procedures, techniques and other regulatory requirements; and
Any other terms of reference as may be included from time to time in clause 49 of the
listing agreement.
The Board has also adopted a Charter for the Audit Committee in accordance with certain United
States regulatory standards as the Bank's securities are also listed on the New York Stock
Exchange.

1.4 Advantages of Audit

1. Assurance of true and fair accounts:
Audit provides an assurance to the various users of final accounts such as owners, management,
creditors, lenders, investors, governments etc., that the accounts are true and fair.
2. True and Fair balance sheet:
The user accounts can be sure that the assets and liabilities shown in the audited balance sheet
show the concern, as it is i.e. neither more nor less.
3. True and fair profit and loss account:
The user can be confident that the audited profit and loss account shows the true amount of profit
or loss as it is i.e. neither more nor less.
4. Tally with books:
The audited final account can be taken to tally with the books of accounts. Thus, the income-tax
officer can start with the figure of audited books profit, make adjustments and compute the
taxable income. An outside user need not go through the entire books.
5. As per standard accounting and auditing practices:
The audited final accounts follow the standard accounting and auditing principles laid down by
professional bodies. Thus, audited accounts are based on objectives standard and not on personal
whims and fancies of a particular accountant or auditor.
6. Detection and prevention of errors and frauds:
Audited accounts can be assumed reasonably free from errors and frauds. The auditor with his
expert knowledge would take due care to see that Errors and frauds are detected so that the
accounts shoe a true and fair view.
7. Advice on system, taxation, finance:
The auditor can also advise the client about the accounting system, internal control, internal
check, internal audit, taxation, finances etc.

1.5 Limitations of Auditing

An auditor cannot check each and every transaction he has to check only the selected
areas and transaction on a sample basis.
Audit evidence is not conclusive in nature thus confirmation by a debtor is not conclusive
evidence that the amount will be collected. It is said evidence is rather than conclusive in
nature.
An auditor cannot be expected to discover deeply laid frauds usually involves acts
designed to conceal them such as forgery, celibate failure to record transactions, false
explanation and hence are difficult to detect.
Audit cannot assure the users of account about the future profitability, prospects or the
efficiency of the management.
An auditor has to rely upon expert auditor may have to rely on expert in related field such
as lawyers, engineers, values etc. for estimating contingent liabilities, valuation of fixed
assets etc.

CHP 2 Review of Literature

2.1 Author C.A. (Dr.) Varsha Ainapure, C.A. Mukund Ainapure Advanced Auditing,
Commerce, Manan Prakashan, Mumbai.
2.2.1 Balances in Account of Foreign Banks
The auditor is required to:
1. Verify the ledger balances in each account with reference to the bank confirmation
certificates and reconciliation statements as at the year-end.
2. Review the reconciliation statements and pay particular attention to the following:
a. Examine that no debit for charges or credit for interest is outstanding and all the items
which ought to have been taken to revenue for the year have been so taken. This should
be particularly observed when the bills collected etc., are credited with net amount and
entries for commission, etc., are not made separately in the statement of account.
b. Examine that no cheque sent or received in clearing is outstanding. As per the practice
prevalent among the banks, any cheques returned unpaid are accounted for on the same
day on which they were sent in clearing or on the following day.
c. Examine that all bills or outstanding cheques sent for collection and outstanding as on the
closing date have been credited subsequently.
3. Examine the large transactions in inter-bank accounts, particularly towards the year-end,
to ensure that no transactions have been put through for window-dressing.
4. Check original deposit receipts in respect of balances in deposit accounts in addition to
confirmation certificates obtained from banks in respect of outstanding deposits.
5. Check whether these balances are converted into the Indian currency at the exchange
rates prevailing on the balance sheet date and ensure compliance with AS-11 on
Accounting for the Effects of Changes in Foreign Exchange Rates.
2.2.2 Nostro Account
Banks maintain stocks of foreign currencies in the form of Bank Accounts with their overseas
branches/ correspondents. Such foreign currency account maintained by Indian banks at other
overseas centres is designated by it as Nostro Account. For example all banks in India would
be maintaining a US Dollar Account with their New York office/ branch/ correspondents, such
account would be designated by the Indian office as Nostro Account.
While examining the transaction in foreign exchange, the auditor should also pay attention to
reconciliation of Nostro Accounts with the respective minor account. The amount in the Nostro

account is stock of foreign currency in the form of bank accounts with the overseas branches and
correspondents. Unreconciled Nostro Accounts, on an examination, may reveal unauthorized
payments from the foreign currency account, unauthorized withdrawals and unauthorized debit
to minor account. The auditor should also evaluate the internal control with regard to inward/
outward messages. The inward/ outward messages should be properly authenticated and
discrepancies noticed, should be properly dealt with, in the books of accounts.
2.2.3 Vostro Account
Vostro Account is the opposite of Nostro Accounts. Here a foreign bank in another country
maintains stocks of Indian Rupees with their Indian branch/ correspondent/ local bank. Such
Indian Rupee Accounts are designed as a Vostro Account. For example a German Bank might
maintain a Vostro Account in rupees in terms with Indian Bank.
The auditor should also verify whether prescribed procedure in relation to inter- bank
confirmation in the Vostro Account is followed or not. In case balance confirmation certificate
has been received but the same has not been reconciled or where confirmation has not been
received the same should be reported, in respect of each Vostro Account.
2.3 Summary
In addition to maintaining a balance with the Reserve Bank of India and with other banks, HDFC
Bank also maintains balances in foreign banks. It also maintains Nostro And Vostro Accounts for
convenience to its customers. Explanations to the above have been extracted from the book
mentioned above and the extract has been taken from page numbers 98 and 99.

CHP 3 Specifications related to HDFC Bank

3.1 Bank Audit and its Process in India followed by HDFC Bank
Audit or Auditing is an activity which is undertaken by any business organization on its own
or by the requirement under any law to go through its accounts, transactions, and documents
to ensure correctness, legality of it.
It is an examination of the accounts and can be conducted by internal or external agencies
known as the auditors.
Bank Audit can be classifies into 3 broad categories:
1. Concurrent Audit
2. Internal Audit/ Information Systems Audit
3. Statutory Audit
Concurrent Audit
Concurrent Audit means the audit or examination of transactions happening as and when a
transaction actually happens. It is a continuous audit, which goes on all the year around, usually
conducted by external auditors (Chartered Accountants) on monthly basis. In concurrent audits
daily basis transactions are examined and checked this ensures any irregularities are nipped at
the bud.
Banks have a huge number of daily transactions they also have many documentations and other
formalities that they have to conform too through concurrent audit any irregularities or
nonconformities are easily found out as and when it happens and rectified immediately; this
avoids piling up of irregularities which may become a huge problem for any branch when the
year - end audit comes around.
Concurrent Auditors check for daily maximum cash balance adherence compliance, KYC norm
compliance, proper documentation of new loan disbursement, checking if new loans have been
made as per rules and regulations, income leakage etc. among other things like putting any new
RBI instruction to work!; these are reported on in the concurrent audit report. Concurrent Audit
is a measure to help a Branch to work smoothly and rectify any mistakes to avoid cascading
effect of the irregularities.

Audit Procedure of HDFC Bank

Internal Audit/ Information Systems Audit

Many banks instead of having concurrent audit or even in addition to having concurrent audits
may use internal auditing. Internal Auditing is when any organization, including a bank,
constitutes an audit team within its own organization to cater to its auditing requirements. These
internal auditors will visit branches one by one where and when required and carry out auditing.
Internal Audit may focus on any specified area or cover every aspect of the branch, depending on
its audit programme and requirement; main thing is it is conducted by the bank itself. However
one important thing in internal audit is information systems audit; information systems audit is
a new area gaining prominence in the last few years. With rapid computerization in banking
sector core banking, ATMs, mobile banking, internet banking, completely computerized
banking functions it becomes necessary to have a periodical review of how these systems are
working. Internal Control audit looks are the information flow, the channels, the security (of
information) etc. It also checks for the workability of new banking softwares and how it rates on
security and access.
Statutory Audit
Statutory Audit is conducted by a Statutory Auditor the word statute means mandated or
compulsorily required by any law or Act; in Banks case it is the RBIs mandate. Every year
around the very last days of March (end of financial year) and the beginning of April (first two
weeks of April) in every branch of every bank a very rigorous activity is held know as the
year end audit or the statutory audit! This audit is the most important event for a bank as this
decides among other things the NPA. NPA and its provisioning affect the profits of a bank and
hence the Balance Sheet and Profit and Loss Account and finally the shareholders dividends.
Thus Statutory Audit is very important. Statutory Auditors are appointed by RBI in association
with the ICAI, to empanel Chartered Accountants for the job. Statutory Audit does not look at the
nitty-grittys of the banking transactions (these are looked at by concurrent and internal audits);
instead they rely on the concurrent audit reports and test checking to form their opinion.
Statutory Audit mainly looks at the loans and advances, compliance with PSL requirements,
CRR, SLR etc. and other statutory norms compliance as per the latest RBI circulars. Thus, Bank
Audit is an important activity undertaken by internal and external auditors, to ensure no fraud is
being committed the overall aim to ensure fair and just banking practice.

3.2 Bank Reporting

The directors of banks are ultimately responsible for the information they present in annual
reports, and for the information on which the auditors, report. Bank reporting is therefore the
starting place of any discussion about the role of bank auditors. Bank reporting has been
criticised for not providing sufficient early warning of bank failures. Maturity transformation is a
key role performed by the banking system. This makes banks inherently risky as their services
involve holding long-dated assets, in the form of long-term loans, and short-dated liabilities, in
the form of customer deposits. The size of annual reports has increased significantly over a
number of years, both in the quantity and complexity of information provided in the audited
financial statements and in the unaudited front half of annual reports. Annual reports already
provide a significant amount of information on risks, exposures and business models. In addition
significant information is provided outside annual reports, for example through analyst
presentations, trading updates and Basel 2 Pillar 3 disclosures which are often presented
separately on bank websites. However, the volume and complexity of information and the way it
is presented has made annual reports less accessible to non-experts. There has been particular
concern that it is difficult to understand risk, business models or going concern assumptions from
reading annual reports.
3.3 Presentation of risk information
Increased levels of disclosures are adding complexity to bank reporting. The stakeholders we
interviewed agreed that more concise and easier to interpret risk disclosures are needed. The
concern is not so much about insufficient amounts of risk information but more about the way it
is presented. Reflecting numerous attempts to add to risk disclosures, risk information is
currently often presented in a piecemeal fashion, making it difficult to see the wood for the trees.
This lack of clarity undermines user confidence in reported financial information. The level of
information banks are providing on risk improved during the financial crisis. Initiatives such as
the development of a draft code for financial reporting disclosure by the British Bankers
Association are likely to help maintain a focus on the quality of reporting.
A particular issue raised is that relevant risk information is often provided in the annual report,
but due to the way in which it is presented, the relative importance of different risks is hard to
gauge. There is no short statement clearly setting out key issues for users to consider in order to
understand the business. Bank directors suggested alternative short statements which might help
explain the risks to their business more effectively. While there was agreement on the need for
clearer statements, there were different views on what form those statements might take and what
they would cover. The main suggestions were the inclusion of the following:
the business model and key business risks;
a source and application of capital statement showing which parts of the business require
large amounts of capital;
a detailed going concern statement, including risks and why the directors are satisfied
regarding the banks ability to continue as a going concern; and

 benchmarking information on certain areas of activity (for example, loan ratios) against
the market, so as to highlight areas where an aggressive business model is being
followed.
Without developing examples, it is difficult to assess which of the disclosures proposed above
would provide the most useful information over the longer term and which might provide the
best signalling of future problems. Banks could prepare and publish example statements, or
voluntarily include summarised risk disclosures in their annual reports. Auditors should work
with the banking industry to assist in the design of these statements but this is an area which the
industry should own. A degree of experimentation will be necessary to see which form of
disclosure is the most meaningful for investors.
A concern of investors was that risk statements provided by directors might not tell the full story,
and that they would have more confidence in the statements if they are reviewed by the auditor.
Once new risk statements are developed, auditors could be asked to provide assurance on them.
This could be accomplished by extending the scope of the statutory audit report or could form a
separate assurance engagement. Auditors should work with banks to develop an appropriate
framework, using the existing assurance framework set out in the International Auditing and
Assurance Standard Boards International Standard on Assurance Engagements 3000 as a
starting point for the provision of such assurance, as the content of new risk statements is
developed. If a better form of risk reporting emerges and if market demand exists for this
reporting to be subject to assurance from auditors, these developments should be formalised
through changes to the relevant regulatory requirements.
3.4 Reporting of critical estimates and judgements
One area where investors have said they that they would like more information is around the
sensitivity of critical accounting estimates and judgements.
Professional judgement is at the heart of financial reporting. Although accounting standards have
become increasingly technical, many areas retain the need for judgement. In particular, one
overall test is a subjective judgement over whether the financial statements provide a true and
fair view. Indeed, as the sophistication and complexity of accounting has increased, there are
more areas where estimates are needed, for example in fair value measurement when there is no
active, deep and liquid market and in estimating future pension liabilities for defined benefit
(final salary) schemes. These estimates may be based upon objective evidence, but the models
and inputs used impact the final measurements. As a result, there will often be a range of
acceptable outcomes that directors may present rather than a single true answer. The best
estimate is a matter of opinion.
Accounting standard-setters have addressed this issue by requiring disclosure of the critical
accounting estimates and judgements in the accounts. Good practice would be to draw them
together in one note to the accounts. These disclosures are already within the scope of the audit.

This is also an area where the industry has significantly improved its disclosures over the course
of the crisis and the British Bankers Association code referred to above is a further significant
step forward. It is important that these disclosures remain dynamic and are changed each year to
reflect the changing circumstances of each bank and the environment it operates in. This should
be a collaborative exercise between the industry and auditors.
It also emerged from some of our interviews that critical accounting estimate disclosures may not
be widely read by investors. Banks should therefore consider whether they give sufficient
prominence to these disclosures.
Auditor communication with audit committees
Audit committees play an important role in the governance surrounding the finalisation of
critical judgements, estimates and presentation affecting the accounts. The primary source of
information for audit committees is the executive management. Good quality reporting from
auditors to audit committees can add context to that and highlight gaps in management reporting.
Auditors have a duty to report matters of significance to those charged with governance. This
normally happens through the audit committee, for whom auditors typically produce a report.
The findings, including key areas of the audit such as the critical accounting estimates are then
discussed between the auditors and audit committees.
Auditors are expected to highlight in their reports to, and discussions with, audit committees any
concerns or areas where estimates are towards the extreme end of ranges of acceptable outcomes.
However, practice may vary as to how these issues are reported. Good practice is to use language
that makes it clear whether, in the auditors judgement, individual estimates fall within an
acceptable range, whether there is consistency with estimates made in prior years and if the
cumulative effect of, for example, moving from aggressive to conservative ranges of estimates,
or vice-versa, could have a significant impact. Auditors can also indicate how comparable the
definitions applied in financial statements, for example of particular types of financial
instruments, are with those used elsewhere in the sector. Armed with this information, audit
committees are more effective, for example because they are better able to challenge executive
directors on the judgements, estimates and presentation used in the accounts.
In order to make audit committee reporting more consistent, ICAEW will develop guidance for
bank auditors on good practice for reporting to audit committees.

3.5 Presentation of information in annual reports

As financial reporting standards have become increasingly complex, reflecting the growing
complexity of financial markets and business generally, the perceived focus of preparation of
true and fair financial statements may have shifted away from the big picture towards
compliance with the requirements of standards.
Financial reporting standards require various components of information which must be
presented in order to provide a true and fair view in the financial statements. They do not and are
not intended to cover every eventuality nor how information is put together. Compliance with
financial reporting standards is only one part of providing a true and fair view. The way that the
information is presented and ordered is also important. We encourage banks to continue to seek
further improvements in their reporting.
Directors are already expected to consider the presentation of information in preparing financial
statements as would auditors in providing an opinion on whether they provide a true and fair
view. However, there is no framework for directors presenting information in the front half of
annual reports. Such a framework could prevent key pieces of information from being lost in a
surfeit of detail.
Auditors should assist directors in this process by considering more carefully the ordering and
presentation of information in annual reports as a whole. This assessment could be clearly
communicated to audit committees to ensure that the directors also consider this.
Other sources of information
Annual reports are only one source of information to investors and users of financial
information. Analysts use information presented directly to them by the company as a major
source of information. The material included in analyst presentations, despite its heavy use, is not
subject to any auditor review, and while it may be provided to auditors, there is no obligation on
the company to do this routinely. Consideration should be given to introducing a requirement for
auditors to review material in analyst presentations similar to the extended auditor
responsibilities over the front-half of annual reports we propose in the Auditor Reporting section
of this report.
3.6 Internal Control of Selected Areas
General
1. The staff and officer of a bank should lift form one position to another frequently and
without prior notice.
2. The work of one person should always be checked by another person in the normal
course of business.
3. All arithmetical accuracy of the book should be proved independently every day.

4. All bank form (e.g. books, demand draft book, travellers cheque, etc.) should be kept in
the possession of an officer, and another responsible officer should occasionally verify
the stock of such stationary.
5. The mail should be opened by responsible officers. Signature on all the letters and advice
received from other branches of the bank or its correspondence should be checked by an
officer with signature book.
6. The signature book of the telegraphic codebook should be kept with responsible officers,
used, and seen by authorized officers only.
7. The bank should take out insurance policies against loss and employees infidelity.
8. The power of officers of different grade should be clearly defined.
Vouching or Auditing of Cash and Bank Transactions
The main objects of vouching or auditing of a cash book:
1.to ensure all the receipts are accounted for
2.to ensure that no fraudulent payment have been made
3.to justify both cash book and bank statement
4.to ensure that all receipts and payments are properly recorded.
What is Voucher and what is Vouching?
Voucher: A voucher is a documentary evidence which is used to support a transaction in a books
of account.
Vouching: The act of establishing authenticity and accuracy of all entries in a account book is
called Vouching.

Some important points when auditing a voucher which an auditor must keep in mind:

 All the vouchers should be consecutively arranged because if all the vouchers are not
consecutively arranged then lots of time will be lost to find out a specific voucher.
An auditor must pay attention to the dates, amount, name of the party who is using the
voucher and to whom the voucher is issued which must be similar with the cash book.
Auditors should put special attention to those vouchers which are in the name of
secretary, directors, partner and manager.
Auditors should also check that every voucher is properly issued by responsible officer.
He should also check the nature of the payment whether it related to business or not.
He should also check where the payment is posted, in revenue or in capital.
He should also pay attention to both amount and word figure.
He also has to make note if further evidence is required for any voucher.
If duplicate voucher for missing voucher is produced then it should be scrutinized more
carefully.
He should also check every voucher whether it is stamped or not if it is over a certain
amount.
An auditor cannot take any help from the staff or client while auditing vouchers.
He should also check that whether receipted invoice is consider as voucher or not if not
then it must be consider as voucher there is a danger of payment being made twice.
While check the voucher for insurance, rents, taxes ,etc the auditor should notice the
period because sometimes these payment are made in advance, so he should check
weather proper adjustment is made or not.
Verification of physical cash
The auditor should carry out physical verification of cash at the date of the balance sheet.
However, if this is not feasible, physical verification may be carried out, on a surprise basis, at

any time shortly before or after the date of the balance sheet. In the latter case, the auditor should
examine whether the cash balance shown in the financial statements reconciles with the results of
the physical verification after taking into account the cash receipts and cash payments between
the date of the physical verification and the date of the balance sheet. Besides physical
verification at or around the date of the balance sheet, the auditor should also carry out surprise
verification of cash during the year.
All cash balances in the same location should be verified simultaneously. Where petty cash is
maintained by one or more officials, the auditor should advise the entity to require the officials
concerned to deposit the entire petty cash on hand on the last day with the cashier. The auditor
should enquire whether the cashier also handles cash of sister concerns, staff societies, etc. In
such a case, cash pertaining to them should also be verified at the same time so as to avoid
chances of cash balances of one entity being presented as those of another.
If IOUs (I owe you) or other similar documents are found during physical verification, the
auditor should obtain explanations from a senior official of the entity as to the reasons for such
IOUs/other similar documents remaining pending. It should also be ensured that such IOUs/other
similar documents are not shown as cash-on-hand.
The quantum of torn or mutilated currency notes should be examined in the context of the size
and nature of business of the entity. The auditor should also examine whether such currency
notes are exchanged within a reasonable time.
If, during the course of the audit, it comes to the attention of the auditor that the entity is
consistently maintaining an unduly large balance of cash-on-hand, he should carry out surprise
verification of cash more frequently to ascertain whether the actual cash-on-hand agrees with the
balances as shown by the books. If the cash-on-hand is not in agreement with the balance as
shown in the books, he should seek explanations from a senior official of the entity. In case any
material difference is not satisfactorily explained, the auditor should state this fact appropriately
in his audit report. In any case, he should satisfy himself regarding the necessity for such large
balances having regard to the normal working requirements of the entity. The entity may also be
advised to deposit the whole or the major part of the cash balance in the bank at reasonable
intervals.
Where postdated cheques are on hand on the balance sheet date, the auditor should verify that
they have not been accounted for as collections during the period under audit.
The auditor should advise the entity to send a letter to all its bankers to, directly confirm the
balances to the auditor. The Appendix to this Guidance Note gives an illustrative proforma letter
of request for confirmation to be used for this purpose. The request for confirmation should also
cover dormant accounts as well as accounts closed during the year.

The auditor should examine the bank reconciliation statement prepared as on the last day of the
year. He may also examine the reconciliation statements as at other dates during the year. It
should be examined whether (i) cheques issued by the entity but not presented for payment, and
(ii) cheques deposited for collection by the entity but not credited in the bank account, have been
duly debited/credited in the subsequent period. For this purpose, the bank statements of the
relevant period should be examined. If the cheques issued before the end of the year have not
been presented within a reasonable time, it is possible that the entity might have prepared the
cheques before the end of the year but not delivered them to the parties concerned. In such a
case, the auditor should examine that the entity has reversed the relevant entries.
Where the auditor finds that post-dated cheques are issued by the entity, he should verify that any
cheques pertaining to the subsequent period have not been accounted for as payments during the
period under audit.
The auditor should pay special attention to those items in the reconciliation statements which are
outstanding for an unduly long period. The auditor should ascertain the reasons for such
outstanding items from the management. He should also examine whether any such items require
an adjustment/write-off.
The auditor should be alert to the possibility that even though the balance in an apparently
inoperative account may have remained stagnant, transactions may have taken place in that
account during the year.
Where a large number of cheques have been issued/ deposited in the last few days of the year,
and a sizeable proportion of such cheques have subsequently remained unpaid/ uncleared, this
may indicate an intention of understating creditors/debtors or understating/overstating bank
balances. In such a case, it may be appropriate for the auditor to obtain confirmations from the
parties concerned, especially in respect of cheques involving large amounts. The auditor should
also examine whether a reversal of the relevant entries would be appropriate under the
circumstances.
The procedures discussed in the above should also be considered by the auditor in cases where a
large number of cheques are on hand at the date of the balance sheet and a sizable proportion of
such cheques have subsequently remained undeposited/ uncleared.
In relation to balances/deposits with specific charge on them, or those held under the
requirements of any law, the auditor should examine that suitable disclosures are made in the
financial statements.
In respect of fixed deposits or any other type of deposits with banks, the relevant
receipts/certificates, duly supported by bank advices, should be examined.

Remittances shown as being in transit should be examined with reference to their credit in the
bank in the subsequent period. Where the auditor finds that such remittances have not been
credited in the subsequent period, he should ascertain the reasons for the same. He should also
examine whether the entity has reversed the relevant entries in appropriate cases.
The auditor should examine that suitable adjustments are made in respect of cheques which have
become stale as at the close of the year.
Where material amounts are held in bank accounts which are blocked, e.g., in foreign banks with
exchange control restrictions or any banks which are under moratorium or liquidation, the
auditor should examine whether the relevant facts have been suitably disclosed in the financial
statements. He should also examine whether suitable adjustments on this account have been
made in the financial statements in appropriate cases.
Where the auditor finds that the number of bank accounts maintained by the entity is
disproportionately large in relation to its size, the auditor should exercise greater care in
satisfying himself about the genuineness of banking transactions and balances.
Examination of Valuation and Disclosure
The auditor should satisfy himself that cash and bank balances have been valued and disclosed in
the financial statements in accordance with recognised accounting policies and practices and
relevant statutory requirements, if any.
In this regard, the auditor should examine that following items are not included in cash and bank
balances:
(a) Temporary advances
(b) Stale or dis-honoured cheques
Postage and revenue stamps, if material in amount, may be shown separately instead of being
included under cash and bank balances.
The auditor should also examine that there are suitable disclosures as mentioned in the above
paragraphs in relevant cases.

Other Assets:
This is a very important head in the Bank Balance Sheet. There are two major heads:

1. Inter branch adjustment and

2. Others - There are other heads under this subhead such as suspense account, stationery &
Stamp account and sundry assets. Carefully scrutinize these accounts specially the sundry assets
a/c. While auditing this head, be forensic in your attitude.
Deposits:
See that debit balance in current accounts is not netted out on the liability side but are
appropriately included under the head ADVANCE. This may increase your audit fees too if the
debit balance is of substantial amount. Inoperative accounts are a common area of frauds in
Banks. See whether the revived accounts are under proper authority or not. Check the KYC
norms on a sample basis.
Contingent Liabilities:
Obtain a certificate from the branch management that all contingent liabilities are disclosed and
that the disclosed contingent liability do not include any contingencies which are likely to result
in a loss and which therefore require adjustment.
3.6 Long Form Audit Report (LFAR):
The first duty is to collect the information required to be provided in the LFAR from the Branch
Manager duly certified. We sent the questionnaire well in advance to the branch. So, I hope the
information has been furnished to me.
LFAR is a detailed questionnaire, the format of which is designed by RBI and used since 1985. It
was revised in 1992-93 and latest revision was made in the year 2003. This is a separate report to
the management. Both LFAR and main Audit Report should preferably be submitted
simultaneously but submission of main report should not be delayed merely because LFAR is not
complete.
There are many points in the LFAR which do not have any special point for discussion. Rather, I
will discuss the points which in my opinion merit a discussion.
Insurance cover for cash: A bank generally obtains a global insurance policy in respect of cash
and cash in transit. If this policy is available at the branch, the auditor should check the adequacy
of insurance cover for cash with reference to the cash balance generally carried by the branch
and not the retention limit. If the policy is not available at the branch, report that the bank has
taken a global insurance policy regarding cash and cash in transit. Regarding commenting on the
adequacy of the same, well, its your call, how you report it.
Balances with RBI, SBI and other Banks: There are three clauses under this item. In case any
item deserves special attention of the management, the same be reported here: Persistent defaults

by the branch in not following the procedure for obtaining balance confirmation certificates
and/or preparing reconciliation statements should be reported here.
Clause 5a of LFAR on credit appraisal of Advance accounts (regarding loan application,
renew/review of advances etc.): At the time of audit of advance accounts, see that document files
contain loan applications in appropriate forms. The exceptions are to be reported here. Also
check that accounts are reviewed and renewed in time. Working capital advances are generally
granted for one year at a time and require renewal if the borrower seeks continuation of facility.
Loans repayable over a period of time in installments are not renewed. However, some banks
have a system of reviewing these loans from time to time primarily with the objective of risk
evaluation. The accounts which are due for renewal and not renewed should be reported here.
Clause 5 d (ii) of LFAR on regular submission of stock statements: Please dont give a blanket
remark that parties are not submitting stock statements regularly. Because as per the Master
circular of RBI on IRAC, a working capital advance a/c would be deemed as irregular if the
outstanding in the account based on the drawing power calculated from stock statements are
older than three months. A working capital borrowing a/c will become NPA if such irregular
drawings are allowed for a continuous period of 90 days. Hence, imagine the situation and act
accordingly.
Clause 5 d (III) on Stock Audits : (Read page no III 10) of guidance note. The guidance note on
Bank Audit is silent in which cases stock audit reports are to be obtained. On a reading of the
guidance note, it appears that stock audit reports are to be obtained in the cases of large advance
as has been described elsewhere in the LFAR. The RBI vide its circular dt. 30.05.2002 on willful
defaulters have asked all scheduled commercial banks to introduce system of periodical stock
audit in case of working capital finance. Hence, every Bank fixes a suitable Cut-off Limit
above which all CC a/cs are to obtain stock audit reports .As the Auditor, we are to first ascertain
the cut-off limit for stock audit and then see whether the same has been carried out by all the
eligible cases.
Last point of LFAR ; Comments on any other item : One can give comments on additional items
which are not covered in the LFAR as the LFAR is indicative in nature , like, KYC compliances,
security arrangements, locker, ATM, operations in dematerialization a/c, risk build audit, BCTT,
Service tax, etc.
Observation on comments given in LFAR:
It is noticed that certain comments given in the LFAR is not well defined or vague in nature. The
SCA cannot understand what is actually meant by this remark. For example: In 30 cases, letter of
acknowledgement of debt has not been obtained. By this comment, The SCA cannot understand,
if the account is time barred, what in case the account is NPA, whether the security will be
considered or not. Frequent overdrawing in accounts, the SCAs do not know whether frequent
overdrawing affects NPA status or not. Creditors are not reduced in calculation of wing power,

The SCAs would ask whether reduction in drawing power would affect NPA status. Hence, it is
important to be specific in giving comments in LFAR. Auditors generally does not give
qualificatory audit reports or issue MOC due to management pressure and instead masquerades it
in the LFAR. This does not absolve him of his responsibilities of certifying the fairness of the
accounts.
Lastly, if any adverse remarks are to be reported in LFAR, the auditor should examine its impact
on the main audit report. He should decide whether a qualification is necessary in the main audit
report. It should not, however, be assumed that every adverse remarks in the LFAR would
necessarily result in a qualification in the main audit report. In deciding whether a qualification
in the main audit report is necessary, the auditor should use his judgement in the facts and
circumstances of the case. But if any adverse remarks are given in the LFAR, the auditor should
give the reasons for the same. Also, where relevant, instances of situations giving rise to their
reservation or adverse remarks should also be given.
Compliance with requirements relating to Statutory Liquidity Ratio:
Section 24 of the Banking regulation Act requires that every Banking Company shall maintain in
India in Cash, Gold or unencumbered approved securities an amount not less that 25% or such
other percentage not exceeding 40% of the total of its Demand and Time Liabilities in India as
on the last Friday of the second preceding fortnight. This is referred to as Statutory Liquidity
Ratio. Previously, all commercial banks were to maintain a uniform SLR of 25% of their total
net demand and time liabilities but vide circular dt. 03.11.2008, the ratio has been reduced to
24%.
The RBI has asked all Banks to advise their SCAs to verify the compliance with SLR
requirements on 12 odd dates in different months of a Financial Year not being Fridays. SLR is
verified at H.O. level. But SCAs require certificates from Branch Auditors in this respect.
Suppose out of the 12 dates where SLR would be verified, one date is Feb1, 2008. Hence the
DTL position to be examined will be as on last Friday of the second preceding fortnight, i.e., Jan,
12, 2008. Hence the branch auditor is required to verify DTL position as on Jan 12, 2008 and
cash position as on Feb 1, 2008. We are to verify the cash position only as branches normally do
not hold Gold or other securities. Now these 12 odd dates of different months of a financial year
are selected by the SCAs and informed to the Branch Auditors well in advance so as to enable
the branch auditors to draw their audit programme accordingly. Please see your guidelines for
closing returns where these dates are mentioned. So auditors are required to check:
Cash balance as on 12 non Fridays of different months of a financial year;
DTL position of 12 last Fridays of second preceding fortnights.
Capital Adequacy Ratio:

This area is very important since on the basis of our certificates, Basel II computation of capital
is done and which is subsequently disclosed under Notes on Accounts to the Balance-Sheet.
The term, Capital Adequacy Ratio (CAR) is used to describe the adequacy of capital resources of
a bank in relation to the risks associated with its operations. Under Basel I, the bank need to
maintain equal capital irrespective of the level of credit risk but under Basel II, credit risk will be
computed separately for each class of customers and accordingly capital requirements will be
calculated. Higher the risk profile, higher will be the need for capital. From Banks perspective,
there is always a cost of capital hence it will try to leverage by maintaining sufficient capital
only. In India, The foreign banks and those Indian Banks which have operations outside India
have already migrated to New Capital Adequacy framework by implementing Basel II
w.e.f.31.03.2008, i.e., last year and in respect of other Banks it will be effective from 31.03.2009
as per RBI guidelines.
Overview of Basel II: Basel is a place in Switzerland. In 1974, the G-10 countries formed a
committee on banking supervision comprising of central bank governors of the participating
countries. This is not a regulatory body but provides guidelines and recommendations in the
expectation that individual authorities will take steps to implement them. The first accord was
signed in Basel in Switzerland in 1988.
Auditors point of View: Basel II computation on capital adequacy is done at the head office
level based on the data provided by the branches. The statutory Central Auditors verify the
computation of capital adequacy as part of their attest function. We being Statutory Branch
auditors need to verify the data provided by the branch as one of the certificates we sign at the
branch is in regard to this, i.e. Data required for computation of capital Adequacy. Hence, from
auditors point of view, we need not go into the complexities of capital adequacy computation
but we will definitely pay sometime to the verification of Data required for computation at H.O.
level.
Guidance Note on Audit of Investments:
Investments are assets held by an entity for earning income by way of dividends, interest and
rentals, for capital appreciation, or for other benefits to the investing entity.3. Investments are
classified as 'current investments' and 'long term investments'. A current investment is an
investment that is by its nature readily realisable and is intended to be held for not more than one
year the date on which such investment is made. A long term investment is an investment other
than a current investment.
The following features of investments have an impact on the related auditing procedures:
(a) Investments constitute a significant portion of the total assets of some entities like banks,
insurance companies, investment companies, trusts, etc. In other cases, the nature, quantum and
type of investments may vary from case to case.
(b) Documentary evidence is generally available for audit verification. A detailed record of
acquisition, disposal, etc., of the investments is usually maintained.

(c) The market values of investments may keep on fluctuating. While in the case of some
investments, such fluctuations may not be wide, in the case of others, they may be significant.
(d) Physical location of documents of title to investments may be different from the one where
the acquisition disposal and recording thereof take place.
(e) Many investments are readily marketable or can be converted into cash.
Internal control evaluation:
The auditor should study and evaluate the system of internal control relating to investments to
determine the nature, timing and extent of his other audit procedures. He should particularly
review the following aspects of internal control relating to investments.5
(a) Control over acquisition, accretion and disposal of investments: There should be proper
authority for sanction, acquisition and disposal of investments (including renunciation of rights).
It should also be ensured that investments are made in accordance with the legal requirements
governing the entity as also with its internal regulations, e.g., the provisions of the articles of
association, rules and regulations, trust deed, etc.
(b) Safeguarding of investments: The investments should be in the name of the entity as far as
possible. The legal requirements in this behalf, if any, should be complied with. There should
exist a proper system for the safe custody of all scrips or other documents of title to the
investments belonging to the entity.
(c) Controls relating to title to investments: It should be ensured that in cases where the title does
not pass on to the entity immediately on acquisition, the same is transferred to the entity in due
course of time, along with the benefits that might have accrued since the acquisition of the
investments. It should be ensured that there is no undue time-lag in the execution of various
stages of the transactions.
(d) Information controls: These controls should ensure that reliable information is available for
recording acquisitions (including by way of conversion of securities, right issues or other
entitlements, under schemes of amalgamation, acquisition, etc.), accretions and disposals, and for
ascertaining the market values etc. Detailed records regarding acquisition, disposal etc. of the
investments should be maintained along with proper documentation.

Verification of Investments:
Check whether a Register of Investment is maintained. (Manual / On computer)
Check that the Register of Investment gives the necessary details like
a. Description of the Investments
b. Name of the corporate bodies / other entities where the Investments have been made.
c. Distinctive number of certificates
d. No. of certificates / shares/ debentures / other securities.
e. Face value / paid up values of Investment made
Check that the certificates of investment are kept securely and in safe custody.
Ensure that a physical verification of investment scripts is carried out say at least once in
a year and physically found scripts are tallied with the details given in the Register of
Investment. Discrepancies if any should be reported.
Ensure that the proper record is made in the Register of Investment in respect of Bonus
Issue of shares and debentures, Rights Issue of shares/ debentures etc .
The entries in the Register of Investment should be tallied and reconciled with the entries
in the printed Annual Accounts - balance sheet - to locate any differences.
Ensure that all the investments made are in the name of the company and all the transfers
have been made and recorded and affected in the name of company.
Ensure that all the income accounted / due in respect of all the investment made is
received and accounted for in the name of company.
Ensure that all the transactions in investment are authorized by a resolution of the Board
of Directors or by the person to whom the powers have been delegated .
Check that where any shares or securities in which investment have been made by the
company are not held by it in its own name the company has entered the details in a
register in terms of section (7) of the Companies Act. The register shall disclose
a. the nature, value and such other particulars as may be necessary fully to identify the
shares or securities and
b. the bank and person in whose name or custody the shares or securities are held.

 Carry out a scrutiny of the investment account in the ledger to ensure that proper
accounting entries have been passed in the ledger account - .Vouchers may also be
verified to ensure proper authorization etc.
Verification of Transactions:
The auditor should ascertain whether the investments made by the entity are within its authority.
In this regard, the auditor should examine whether the legal requirements governing the entity,
insofar as they relate to investments, have been complied with and the investments made by the
entity are not ultra vires the entity. Apart from the above, the auditor should also ensure that any
other covenants or conditions which restrict, qualify or abridge the right of ownership and/or
disposal of investments, have been complied with by the entity.
The auditor should satisfy himself that the transactions for the purchase/sale of investments are
supported by due authority and documentation. The acquisition/disposal of investments should
be verified with reference to the broker's contract note, bill of costs, receipts and other similar
evidence. The auditor should pay special attention to ascertaining whether the investments have
been purchased or sold cum-dividend/ex-dividend, cum-interest/ex-interest, cum-right/ex-right,
or cum-bonus/ex-bonus. He should check whether proper adjustments in this regard have been
made in the cost/sales value of securities purchased or sold.
In the case of a right issue, the offer to the entity contained in the letter of rights should be
examined. Where the rights have been renounced or otherwise disposed of or not exercised, the
auditor should examine the relevant decision of the appropriate authority in this behalf, as also
that the sale proceeds, if any, have been duly accounted for.
As regards bonus shares, the intimation to the entity regarding such; sue should be examined
with a view to ascertaining the receipt and recording f the requisite number of shares by the
entity.
Where the amounts of purchases or sales of investments are substantial, the auditor may cheek
the prices paid/received with reference to the stock exchange quotations, where available, on or
about the date of purchase or sale.
Physical Inspection:
The auditor should carry out a physical inspection of investments in the form of shares,
debentures and other securities. In the case of certain entities (e.g., insurance companies),
physical inspection of investments is a statutory requirement.
The depository services and scripless trading are becoming increasingly popular in India.
Depository services involve custody of documents of title to investments such as certificates,

scrips and deeds and thus avoid their physical handling by the investor. The Public Debt Office
of the Reserve Bank of India offers such services to facilitate trading in Government Securities.
Authorised institutions such as banks, financial institutions etc. which have individual ledger
accounts with the Public Debt Office can trade in government securities between themselves by
issuing and accepting Bankers' Receipts. In case of such transactions, the auditor should verify
the periodic reconciliation of balances as per the records of the entity and those as per the Public
Debt office.
Apart from the Public Debt Office, there are now a number of other custodial organisations
whose services are being utilised by banks, large investors, institutional investors, mutual funds
etc. The concept of the National Depository System (NDS) is also under development. This
system is aimed at eliminating physical movement of securities for purchases and sales.
Whenever the services of any of these custodial or depository organisations are being used by the
entity under audit, the auditor should redesign his audit procedures to ensure that there is an
effective system of periodic reconciliation of balances as per the records of the entity and those
as per the records of the custodial or depository organisation. The auditor should also examine
the certificates issued by such organisations confirming the holdings of the entity. The concept of
scripless trading being introduced by the National Stock Exchange and the OTC Exchange of
India also envisage elimination of movement of title deeds of securities. In such cases, the
auditor should verify the interim and other acknowledgments issued by dealers as well as the
year-end confirmation certificates of the depository organisations.
The investments held by the entity in its own custody should normally be examined at the close
of business on the last day of the year. In case this is not possible, the auditor should carry out the
inspection on a date as near to the balance sheet date as possible. In such a case, he should take
into consideration any adjustments for subsequent transactions of purchase, sale, etc. Where a
substantial number of investments are kept by the entity in its custody, the auditor should carry
out a surprise inspection of the investments on hand at least once in the year in addition to his
year-end examination. He should take particular care to see that only the investments belonging
to the entity are produced to him. This aspect assumes special importance in the case of entities
like banks which hold investments on their own account, in the form of securities lodged by the
customers against loans and advances, and on behalf of the PMs clients.
Where investments are held by any other person on behalf of the entity, e.g. by banks, the auditor
should examine the certificates received from them. Such certificates should preferably be
received directly by the auditor.
In case investments are held by persons other than banks, the auditor should ensure that there is
justification for it, e.g., securities in the custody of brokers or with the company concerned for
transfer, consolidation, splitting up, conversion, etc. Evidence of securities held with others
should be examined and, in appropriate cases, physical inspection of the relevant documents may
be made, to the extent possible, in the course of audit. Where the investments are recorded at an
office other than the one where the documents of title thereto are physically located, the local
auditor may be requested to verify the same.

If the investments are held otherwise than in the name of the entity (e.g. in the name of
nominees/trustees), the auditor should ascertain the reasons for the same and examine the
relevant documentary evidence (e.g., written confirmations from from the nominees, trustees,
etc.) supporting the real/beneficial interest of the entity in the investments.
The auditor should also examine any other aspects required to be examined or reported upon by
the relevant statute.
Where shares are held not in the name of the company but in the name of a director, officer, etc.,
the auditor should examine whether the declaration referred to in section 187-C of the
Companies Act, 1956 has been properly made.
The auditor should keep in mind the provisions of section 227(1A)(c) which requires that the
auditor of a company, not being an investment company within the meaning of section 372 of the
Companies Act, 1956 or a banking company, should enquire whether so much of the assets of the
company as consists of shares, debentures and other securities have been sold at a price less than
that at which they are purchased by the company.6
In case the entity is a finance, investment, chit fund, nidhi or mutual benefit company and is
dealing or trading in shares, securities, debentures or other investments, the auditor has to state in
his report (by virtue of the requirements: of the Manufacturing and Other Companies (Auditor's
Report) Order, 1988 issued under section 227(4A) of the Companies Act, 1956) whether proper
'records have been maintained of the transactions and contracts and whether timely entries have
been made therein as also whether the shares, securities, debentures and other investments have
been held by the company in its own name except to the extent of exemptions granted under
section 49 of the Companies Act, 1956.
Immovable Properties:
Where immovable properties are held as investments, the auditor should verify them in the same
manner as in the case of immovable properties held as fixed assets.
Examination of Valuation and Disclosure:
The auditor should satisfy himself that the investments have been valued and disclosed in the
financial statements in accordance with recognised accounting policies and practices and
relevant statutory requirements, if any. Appendix to this Guidance Note discusses, by way of
illustration, the disclosure requirements of some of the Acts. The auditor should also examine
whether the method of valuation followed by the entity is consistently applied.
The auditor should examine whether, in computing the cost of investments, the expenditure
incurred on account of transfer fees, stamp duty, brokerage, etc. is included in the cost of
investments.

The auditor may ascertain the market value of the quoted securities from official quotations of
the stock exchange, In case of unquoted securities, the auditor should ascertain the method
adopted by the entity for determining the market value of such securities. He should examine
whether the method adopted by the entity is one of the recognised methods of valuation of
securities such as break-up value method, capitalisation of yield method, yield to maturity
method, etc. In the case of investments other than in the form of securities (e.g. rare paintings),
the auditor should examine that the market value has been ascertained on the basis of authentic
market reports.
3.7 Independent Auditors Report HDFC Bank
To the Members of HDFC Bank Limited
Report on the Standalone Financial Statements We have audited the accompanying standalone
financial statements of HDFC BANK LIMITED (the Bank), which comprise the Balance
Sheet as at 31 March, 2015, the Statement of Profit and Loss, the Cash Flow Statement for the
year then ended and a summary of the significant accounting policies and other explanatory
information.
Managements Responsibility for the Standalone Financial Statements
The Banks Board of Directors is responsible for the matters stated in Section 134(5) of the
Companies Act, 2013 (the Act) with respect to the preparation of these standalone financial
statements that give a true and fair view of the financial position, financial performance and cash
flows of the Bank in accordance with the provisions of Section 29 of the Banking Regulation
Act, 1949, accounting principles generally accepted in India, including the Accounting Standards
specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules,
2014 in so far as they apply to banks and the guidelines issued by the Reserve Bank of India.
This responsibility also includes maintenance of adequate accounting records in accordance with
the provisions of the Act for safeguarding the assets of the Bank and for preventing and detecting
frauds and other irregularities; selection and application of appropriate accounting policies;
making judgments and estimates that are reasonable and prudent; and design, implementation
and maintenance of adequate internal financial controls, that are operating effectively for
ensuring the accuracy and completeness of the accounting records, relevant to the preparation
and presentation of the financial statements that give a true and fair view and are free from
material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these standalone financial statements based on our
audit. We have taken into account the provisions of the Act, the accounting and auditing
standards, and matters which are required to be included in the audit report under the provisions
of the Act and the Rules made there-under. We conducted our audit in accordance with the
Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that

we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and the
disclosures in the financial statements. The procedures selected depend on the auditors
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers
internal financial control relevant to the Banks preparation of the financial statements that give a
true and fair view in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on whether the Bank has in place an adequate
internal financial controls system over financial reporting and the operating effectiveness of such
controls. An audit also includes evaluating the appropriateness of the accounting policies used
and the reasonableness of the accounting estimates made by the Banks Directors and evaluating
the overall presentation of the financial statements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our audit opinion on the standalone
financial statements.
Opinion
In our opinion and to the best of our information and according to the explanations given to us,
the aforesaid standalone financial statements give the information required by the Banking
Regulation Act, 1949; the Companies Act, 2013 in the manner so required and give a true and
fair view in conformity with the accounting principles generally accepted in India, of the state of
affairs of the Bank as at 31 March, 2015 and its profit and its cash flows for the year ended on
that date.
Other Matters
The audit of standalone financial statements of the Bank for the year ended 31 March, 2014 was
carried out by the previous auditors of the Bank. Our opinion is not modified in respect of this
matter.
Report on Other Legal and Regulatory Requirements
1. As required by Section 143 (3) of the Companies Act, 2013 and Section 30 of the Banking
Regulation Act, 1949 we report that:
(a) We have sought and obtained all the information and explanations which to the best of
our knowledge and belief were necessary for the purposes of our audit and found them to
be satisfactory.
(b) In our opinion, the transactions of the Bank which have come to our notice have been
within the powers of the Bank.
(c) As explained in paragraph 2 below, the financial accounting systems of the Bank are
centralised and therefore, accounting returns are not required to be submitted by the
Branches.

(d) In our opinion, proper books of account as required by law have been kept by the Bank so
far as it appears from our examination of those books.
(e) The Balance Sheet, the Statement of Profit and Loss, and the Cash Flow Statement dealt
with by this Report are in agreement with the books of account.
(f) In our opinion, the aforesaid standalone financial statements comply with the Accounting
Standards specified under Section 133 of the Act, read with Rule 7 of the Companies
(Accounts) Rules, 2014.
(g) On the basis of the written representations received from the directors as on 31 March,
2015 taken on record by the Board of Directors, none of the directors are disqualified as
on 31 March, 2015 from being appointed as a director in terms of Section 164 (2) of the
Act.
(h) With respect to the other matters to be included in the Auditors Report in accordance
with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to
the best of our information and according to the explanations given to us:
The Bank has disclosed the impact of pending litigations on its financial position in its
financial statements - Refer Schedule 17/C-17 and Schedule 18 Note 15 (b) and Note 15
(c) to the financial statements;
The Bank has made provision, as required under the applicable law or accounting
standards, for material foreseeable losses, if any, on long term contracts including
derivative contracts - Refer Schedule 17/C-17 and Schedule 18 Note 15 to the financial
statements;
There has been no delay in transferring amounts, required to be transferred, to the
Investor Education and Protection Fund by the Bank.
2. We report that during the course of our audit we have performed select relevant procedures at
26 branches. Since the Bank considers its key operations to be automated, with the key
applications largely integrated to the core banking systems, it does not require its branches, to
submit any financial returns. Accordingly our audit is carried out centrally at the Head Office and
Central Processing Units based on the necessary records and data required for the purposes of the
audit being made available to us.
Appointment of the Auditor by HDFC Bank
HDFC hires Deloitte to conduct forensic audit
Asserting that it was committed to highest standards of compliance, corporate governance and
ethics, HDFC Bank on Saturday announced the appointment of accounting and audit firm

Deloitte Touche Tohmatsu India to carry out independent forensic enquiry into allegations of
some of its officials involvement in money laundering activities.
In addition to this, HDFC also announced appointment of Amarchand & Mangaldas and Suresh
A Shroff & Co to examine the breaches, if any, of the banks Code of Conduct and ethical
standards, by any bank officials, a statement issued by the HDFC Bank here said. ``The bank is
committed to the highest standards of compliance, corporate governance and ethics, and has in
place systems and procedures to ensure that its business is conducted in compliance with laws
and regulations, it stated.
The statement said, an internal departmental enquiry was already underway to verify the truth or
untruth or correctness, as the case may be, in the reported tapings of bank officials. This process
has been initiated without prejudice to the authentication of the video recordings or electronic
data
It added, "the internal and external audits and inspections undertaken previously, and the action
taken reports in this regard are being compiled and reviewed once again, to enable the Bank to
reiterate that the internal checks, balances and processes for ensuring compliance with KYC
norms and for prevention and detection of money laundering activities are robust and adequate."
Further it said the Bank was also proceeding to detail out the internal checks and balances and
procedural safeguards already in place to report on the robustness of the compliance of
regulatory guidelines and internal procedures, which would prevent, trap or enable pre-fact or
post-fact discovery of violation of KYC norms and of money laundering activity. The Bank is
also detailing the efficacy of induction and ongoing training provided for ingraining ethical
behaviour and conduct rules, as preventive and protective measures.

CHP 4 Financial Statements of HDFC Bank

4.1 Balance Sheet
Balance sheet of HDFC Bank as at
31st March, 2015

31st March, 2014

Capital and Liabilities

Total Share Capital
Equity Share Capital
Share Application Money
Preference Share Capital
Reserves
Net Worth
Deposits
Borrowings
Total Debt
Other Liabilities and Provisions
Total Liabilities

501.30
501.30
0.00
0.00
61,508.12
62,009.42
4,50,795.64
45,213.56
4,96,009.20
32,484.46
5,90,503.08

479.81
479.81
0.00
0.00
42,998.82
43,478.63
3,67,337.48
39,438.99
4,06,776.47
41,344.40
4,91,599.50

Assets
Cash and Balances with RBI
Balances with Banks, Money at Call
Advances
Investments
Gross Block
Revaluation Reserves
Accumulated Depreciation
Net Block
Capital Work-in-Progress
Other Assets
Total Assets
Contingent Liabilities
Bills for Collection
Book Value (Rs.)

27,410.45
8,821.00
3,65,495.03
1,66,459.95
3,121.73
0.00
0.00
3,121.73
0.00
19,094.91
5,90,503.07
9,97,538.88
0.00
247.39

25,345.63
14,238.01
3,03,000.27
1,20,951.07
2,939.92
0.00
0.00
2,939.92
0.00
25,124.60
4,91,599.50
7,44,097.98
0.00
181.23

Particulars

4.2 Profit and Loss Account

Profit and Loss Account for the Year ended

Particulars
Income
Interest Earned
Other Income
Total Income
Expenditure
Interest Expended
Employee Cost
Selling, Admin and Miscellaneous Expenses
Depreciation
Preoperative Expenses Capitalised
Operating Expenses
Provisions and Contingencies
Total Expenses
Net Profit for the Year
Extraordinary Items
Profit brought forward
Total
Preference Dividend
Equity Dividend
Corporate Dividend Tax
Per Share Data (annualized)
Earnings Per Share (Rs.)
Equity Dividend (%)
Book Value (Rs.)
Appropriations
Transfer to Statutory Reserves
Transfer to Other Reserves
Proposed Dividend/ Transfer to Government
Balance C/F to Balance Sheet
Total

31st March, 2015

31st March, 2014

48,469.90
8,996.35
57,466.25

41,135.53
7,919.64
49,055.17

26,074.24
4,750.96
15,768.85
656.30
0.00
13,987.55
7,188.56
47,250.35
10,215.92
0.00
14,654.15
24,870.07
0.00
2,005.20
408.21

22,652.90
4,178.98
13,073.31
671.61
0.00
12,042.20
5,881.70
40,576.80
8,478.38
0.00
11,132.18
19,610.56
0.00
1,643.35
279.29

40.76
400.00
247.39

35.34
342.50
181.23

2,807.28
1,021.59
2,413.41
18,627.79
24,870.07

2,185.93
847.84
1,922.64
14,654.15
19,610.56

CHP 5 Financial Analysis and Conclusion

An effective internal audit function provides independent assurance to the board of directors and
senior management on the quality and effectiveness of a banks internal control, risk
management and governance systems and processes, thereby helping the board and senior
management protect their organisation and its reputation.
The bank's internal audit function is independent of the audited activities, which requires the
internal audit function to have sufficient standing and authority within the bank, thereby enabling
internal auditors to carry out their assignments with objectivity.
Professional competence, including the knowledge and experience of each internal auditor and of
internal auditors collectively, is essential to the effectiveness of the banks internal audit function.
Internal auditors must act with integrity.
The bank has an internal audit charter that articulates the purpose, standing and authority of the
internal audit function within the bank in a manner that promotes an effective internal audit
function. Every activity (including outsourced activities) and every entity of the bank should fall
within the overall scope of the internal audit function. The scope of the internal audit functions
activities should ensure adequate coverage of matters of regulatory interest within the audit plan.
Each bank should have a permanent internal audit function, when the bank is within a banking
group or holding company.