Cut-off Procedures
In terms of testing completeness of investments balances at the reporting date, the auditor should carefully devise cut-off procedures. This should be designed after understanding the bank’s procedures for ensuring the appropriate period of accounting for investments. As mentioned in the master circular above, the banks should follow ‘Settlement Date’ accounting for recording transactions in Government securities. In respect of transactions other than in Government securities, the bank should follow the accounting policy consistently either ‘Trade Date’ or ‘Settlement Date’ accounting.
Some typical audit procedures would include:
Obtaining list of transactions executed on period end date and examining whether the same is correctly recorded and accounted.
Checking first few sample transactions of subsequent period and
ascertaining whether the same pertains to current reporting period.
Checking control over transaction numbering by the system and ascertaining whether the transaction with last number for period end is recorded in current period and next transaction is recorded in subsequent period.
In respect of BRs issued by other banks and on hand with the bank at the year-end, the auditor should examine confirmations of counterparty banks about such BRs. Where any BRs have been outstanding for an unduly long period, the auditor should obtain written explanation from the management for the reasons thereof. This procedure may not, however, be necessary where scrips are received from counterparty banks before the completion of the audit.
The auditor should examine the reconciliation of BRs issued by the bank. He should also examine whether the securities represented by BRs issued by the bank and outstanding at the year-end have been excluded from investments disclosed in the balance sheet.