III. Profit and Loss Account

III. Profit and Loss Account

(a) Whether the branch has a system to compute discrepancies in interest / discount and for timely adjustment thereof in accordance with the guidelines laid down in this regard by the Controlling Authorities of the bank? Has the test checking of interest revealed excess / short credit of a material amount? If so, give details thereof.

 Refer concurrent audit / internal inspection audit / income & expenditure audit reports.

 Test check interest / discount calculations. Whether changes in interest rates are correctly captured.

 Generate Exceptional Transactions report and verify interest is applied to all applicable accounts

 Generally, interest application is a system-generated entry; hence test check may be applied for confirming interest calculations.

 Wherever excess / short credit of material amount is noticed, such cases may be reported in the following format.

 Test check cases of premature withdrawals for re-computing interest wrt revised tenor.

Sr.No

A/c No

Interest calculated by the systemmount (Rs.)

Interest calculated by us

Difference

 

(b) Has the branch complied with the Income Recognition norms prescribed by the RBI?

 Refer RBI Master circular on IRAC norms together with other circulars issued by RBI on IRAC norms from time to time.
 Ensure asset classification is being done through system and no manual intervention is in place.
 In case, the income recognition in NPA accounts is done manually and is not automated, then the auditor should also verify the system and process being followed by the branch to ascertain whether their exist a systematic manner of recognition of income and should also test whether the same complies with the Accounting Policy of the Bank relating to appropriation of recoveries

Confirm whether IRAC norms are followed strictly through system.

(c) Whether the branch has a system to compute discrepancies in interest on deposits and for timely adjustment of such discrepancies in accordance with the guidelines laid down in this regard by the Controlling Authorities of the bank? Has the test check of interest on deposits revealed any excess/ short debit of material amount? If so,
give details thereof.

 Refer the guidelines issued by Head Office/RBI in this regard.

 Whether, such guidelines are followed strictly.

 Check the correctness of interest rates fed in the system with the sanction terms on test check basis. Also, updation of base rates in the system, in case of changes may be verified.

 Generally, interest application is a system-generated entry; hence test check may be applied for confirming interest calculations.

 Wherever excess / short credit of material amount is noticed, such cases may be reported in the following format.

Sr.No

A/c No

Interest calculated by the system

Interest calculated by us

(Short) / Excess Interest calculated by the system

 

(d) Does the bank have a system of estimating and providing interest accrued on overdue / matured term deposits?

 Refer the guidelines issued by Head Office in this regard.

 Whether, such guidelines are followed strictly.

 In most of the Banks such exercise is carried out at Head Office through system.

(e) Are there any divergent trends in major items of income and expenditure, which are not satisfactorily explained by the branch? If so, the same may be reported upon. For this purpose, an appropriate statement may be obtained from the branch Management explaining the divergent trends in major items of income and expenditure.

 The divergent trends can be identified by way of comparison analysis on the basis of previous quarters / half year / previous year figures, keeping in mind the changes in business volumes and business mix.

 Compare the aggregate figures as on 15th March, 20XX, 31st March, 20XX and last day of audit. Also compare some of the transfers on the last two days of the year end and identify whether there are any transfers of undrawn portion from the loan accounts to current account or deposit account.