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Practicle Guide on REVENUE AUDIT of Banks

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CA

[ Scorecard : 3884]
Posted On 03 October 2009 at 00:23 Report Abuse

 

REVENUE AUDIT PROCEDURE
 
                      Revenue audit is the audit of items governing income & expenditure of banks, basically this type of audits are conducted with a view to verify the accuracy, relevance of expenditure incurred & Incomes earned by the banks according to applicable latest circulars, notification , Auditors only required to concentrate on the areas which affect revenue items of the banks.
 
Normal Procedure to conduct the revenue audit is as under
 
1.      Study the relevant circulars pertaining to charges given by bank, Go through the Format of Audit Report & Annexure attached to the audit report. Design the Query Sheet in Format of annexure given to bank & get some print out copies of query sheet before going to audit.
2.      Prepare a separate file for audit & don’t forget to carry Audit engagement letter given by head office along with file & query sheet formats, circulars, r scales, audit pens, pencils calculators.
3.      Prepare the Short Audit Programme for audit covering which areas to be covered & to be covered by whom.
4.      Auditors are advised to keep in mind the period of audit so as to avoid haphazard way of audit.
5.      Scrutinize the previous revenue audit reports, latest concurrent audit reports of branch to get the idea of nature of leakage that can be possible to identify. Get Some idea about Bank Officials & Nature of their duties, positions,
6.      Get Some Basic idea about branch’s banking software (i.e. Putting A/c No, Period of Audit) so as to facilitate easy viewing of customer ledger.
7.      Ask the Bank manager to make available Advances Sanction Register for our Audit Period, Jottings of Some Important accounts.
¨     Total Cash Credit Accounts Of Branch
¨     Top 10 Saving Accounts
¨     Top 10 Current Accounts
¨     Top 10 Depositors of bank.
¨     Overdue Advances in Audit Period
¨     List of Special Advance Sanctions & Get its Sanction Letters.
¨     List of NPA Accounts of branch of Recoveries made during audit period against them.
 
8.      List of areas to be covered & procedure for its audit are as under :
¨     Incomes of Bank :-
a)     Interest Earned On Advances:-
ØSee that interest is charged in accordance with latest circulars of RBI
ØCheck the Interest Calculation on Selective basis
ØSee that for special sactions interest is charged according to sanction letter.
ØCheck that revised interest rates are properly applied in system from relevant date of applicability.
b)     Penal Interest On Overdue installments & On Late Submission of stock statement. – Generally 1% subject to maximum of 2%
ØIdentify the installment which are overdue & see that penal interest is charged to customer’s account accordingly.
ØPenal Interest on Overdrawn Amount exceeding Drawing Power is properly charged to customer’s account.
ØCheck that stock statements for each month are properly received & Receipt Dates are properly fed into the system & see that penal interest is accordingly charged to customer’s account.
ØAny discrepancy noted in above calculations should be noted of query sheets in proper format.
 
 
 
c)     Processing Fees :-
ØOn following advances sanctioned during the audit period.
Term Loans.
Housing Loans
Personal Loans
Vehicle Loans
Cash Credits
Bank Guarantee
Other Advances
Cash Credit Limit Expansion
Ø Scrutinize ledger of every sanction during the audit period & verify that processing charges are debited accordingly to borrower’s ledger as per circular of charges.
Ø Read Sanction Letter for any special sactions from controlling authorities & verify that charges mentioned in Sanction Letter are debited to borrower’s account accordingly.
Ø If any discrepancy observed that should be noted down in query sheets.
d)     Cash Credit Renewal Charges:-
ØCash Credit Limit should be renewed every year as per the Banking regulations. So Verify the Renewal Register if maintained by bank, & see that in every CC Account CC Renewal Charges are debited.
ØRenewal Charges are calculated on basis of applicable processing charges.
ØIf any discrepancy observed that should be noted down in query sheets.
e)     Inspection Charges:-
ØVerify that the charges are properly debited in borrower’s ledger as per circular of charges on basic of per inspection carried out.
Ø At Least Four times Inspections Charges should be debited in borrower’s ledger.
ØIf any discrepancy observed that should be noted down in query sheets.
f)      Documentation Charges:-
ØDocumentation charges should be debited in each sanction during the audit period as per the circular of charges
ØIf any discrepancy observed that should be noted down in query sheets.
g)     Minimum Balance Charges :-
ØThese Charges are generally debited on Saving Accounts & debited by Data Centre in Case of CBS branches
ØVerify Some Account on random basis that these charges are properly debited in accounts as per applicable circulars if account balance falls below minimum.
ØThese Charges are to be charged on per instance basis i.e. if in Six month Period ,four times minimum balance has not maintained then charges should be levied as (No. of Instances * Charges per instance). 
h)     Ledger Folio Charges:-
ØThese charges are to be charged to current accounts, cash credit accounts, saving accounts. On basis of per ledger folio.
ØGenerally these charges are debited by Data Centre in case of CBS Branches. So selective account should be checked to determine whether charges are debited as per circulars or not.
i)       Cash Recovery Against NPA Accounts :-
ØGet the list of all NPA Accounts
ØCheck whether any recoveries are made against it in Audit period.
ØConfirm that all Outstanding Charges, Interest Outstanding are adjusted against such recoveries, then principal amount of loan adjusted.
ØIf discrepancy is noted against above treatment same should be noted down.
j)      Locker rent Charges:-
ØGenerally Locker Rent Register maintained by bank & applicable charges are debited to saving account of customer.
ØAuditors have to check out whether charges as per circular have been debited to customer or not. Hence saving accounts of locker holder has to be checked.
k)    DD Commission, IBC/OBC Commission, Cheque Book Charges, Stop Payment Charges:-
ØObtain Pay Order DD Register, IBC OBC Register from branch & verify on selective basis that charges are properly debited to customer’s account.
ØObtain Cheque book register & verify that series of Cheque books properly entered in register & when Cheque book issued to customer that series fed into the system so that Cheque book charges are debited to customer’s ledger.
ØStop Payment Charges are debited on basis of per instrument basis i.e. (No of Instrument* Rate per Instrument).
l)       Income From Investment :-
ØVerify whether any investments are made by branch.
ØObtain investment register from branch & verify whether interest & dividend are timely collected & accounted by bank as per applicable rates. 
 
 
 
 
 
¨     Expenses Of Bank :-
a)     Interest Paid On Saving, Current Accounts:-
ØGenerally bank gives credit of interest to customer’s account on half yearly basis by giving command of Interest Credit in case of CBS Operation.
ØAuditors has to check on selective basis whether interest has been credited on due time & at appropriate rate as per circulars.
ØIf any irregularity observed auditor has to report the same.


Total thanks : 3 times

Online classes for CA CS CMA



Ankit 21 CA,CS,B.Com
CA

[ Scorecard : 3884]
Posted On 03 October 2009 at 00:27

 

I    SET OFF OF LOSSES (Sec 70 and 71)
 
 Set off of losses refers to adjustment of current year losses    `against current year incomes.
 
Rules A: Set off of losses – Intra head adjustments (Inter source adjustments)
 
Loss from one source of income can be adjusted against income from some other source of income under the same head.
 
Ø For example :Loss from HP1 can be adjusted against income from HP2
 
It is subject to the following exceptions
 
1.    Loss from speculation business cannot be set of against profit from an non speculation business
(Interpretation: Loss from non speculative business can be set-off against speculation income)
 
2.    LTCL can only be set off against LTCG and cannot be set off against STCG
(Interpretation: STCL can be set off against LTCG)
 
3.    No loss can be set-off against casual income
 
4.    No expenses can be claimed against casual income
 
5.    Loss from the activity of owning and maintaining race horses cannot be set off against other incomes
 
6.    Loss from an exempted source cannot be set off
(e.g. Share of loss of firm, agricultural losses, cultivation expenses)
 
 
Rules B: Set off of losses – Inter head adjustments
 
Loss from one head of income (HP) can be adjusted against income from some other head of income.(Salary Income): It is subject to the following exceptions
 
Ø For example: Loss from HP can be adjusted against Salary Income or Business Income
 
It is subject to the following exceptions:
 
1.    Loss from speculation cannot be set of against any other head.
 
(Interpretation: Loss from other heads can be set-off against business income)
 
Ø For Example: HP loss can be set-off against Speculative Incomes but speculation loss cannot be set off against HP
 
2.    Business loss cannot be set-off against salary income. (It can be set-off against other incomes)
 
3.    Loss under the head Capital Gains (LTCL or STCL) cannot be set-off against any other head.
      (Interpretation: Loss from other heads can be set-off against Capital Gains)
 
Ø For Example: HP loss can be set-off against CG but LTCL or STCL cannot be set off against HP
 
4.    No loss can be set-off against casual income
 
5.    No expenses can be claimed against casual income
 
6.    Loss from the activity of owning and maintaining race horses cannot be set off
 
7.    Loss from an exempted source cannot be set off
      (e.g. Share of loss of firm, agricultural income, cultivation expenses)
 
 
 
 
 
 
II    CARRY FORWARD AND SET-OFF (Past losses)     (Section 73 and 74)
          
Unadjusted losses of past years can be carry forward and set-off against current year income subject to certain restrictions;
 
 
   1. Past year losses can be set-off against income from that respective head of income (Inter head adjustment is not possible)
 
(e. g. Unadjusted loss of HP for the year 2004-05 c/f Rs. 20,000. This loss can be set-off only against HP income of the year 2007-08 and not under any other head)
 
 
   2. The above rule (1) is not applicable to unabsorbed depreciation, which can be set-off against any other head
 
 
 
   3. All losses (Except loss due to owning and maintaining of race horses) can be carried forward and set-off for 8 subsequent financial years following the Previous Year in which such loss arose.
 
 
 
 
   4. Unadjusted loss due to owning and maintaining of race horses can be carried forward and set-off for 4 subsequent financial years following the Previous Year in which such loss arose.
 
 
 
   5. Unabsorbed depreciation can be carried forward for an unlimited period
 
 
 
 
 
 
Order of Set-off
 
In case where profits are insufficient to absorb brought forward losses, current depreciation and current business losses, the same should be deducted in the following order
 
ćCurrent scientific research expenditure [Sec. 35(1)].
ćCurrent depreciation [Sec. 32(1)].
ćBrought forward business losses [Sec. 72(1)].
ćUnabsorbed family planning promotion expenditure [Sec. 36(1)(ix)].
ćUnabsorbed depreciation [Sec. 32(2)].
ćUnabsorbed scientific research capital expenditure [Sec. 35(4)].
ćUnabsorbed development allowance [Sec. 33A(2)(ii)].
ćUnabsorbed investment allowance [Sec. 32A(3)(ii)].
 
 


Total thanks : 1 times




umakant Rajendra Bhadane
Artical

[ Scorecard : 30]
Posted On 09 October 2009 at 12:32

 thanks for information , umakant




Ankit 21 CA,CS,B.Com
CA

[ Scorecard : 3884]
Posted On 09 October 2009 at 19:42

thx




nikhar jain
student

[ Scorecard : 38]
Posted On 22 October 2009 at 18:12

Revenue Audit procedures has been stated very clearly and is eaily understandable.




Shekhar Kumar Shastri
Articleship

[ Scorecard : 22]
Posted On 01 June 2011 at 12:33

Can somebody send me bank software keys used for internal bank audit its very urgent because i am going on 8.06.11 on S.B.I. Bank  internal bank audit. Please do the favour with me.




Mahesh Babu P M
articleship

[ Scorecard : 82]
Posted On 25 November 2013 at 13:41

  REVENUE AUDIT PROCEDURE                         Revenue audit is the audit of items governing income & expenditure of banks, basically this type of audits are conducted with a view to verify the accuracy, relevance of expenditure incurred & Incomes earned by the banks according to applicable latest circulars, notification , Auditors only required to concentrate on the areas which affect revenue items of the banks.   Normal Procedure to conduct the revenue audit is as under   1.      Study the relevant circulars pertaining to charges given by bank, Go through the Format of Audit Report & Annexure attached to the audit report. Design the Query Sheet in Format of annexure given to bank & get some print out copies of query sheet before going to audit. 2.      Prepare a separate file for audit & don’t forget to carry Audit engagement letter given by head office along with file & query sheet formats, circulars, r scales, audit pens, pencils calculators. 3.      Prepare the Short Audit Programme for audit covering which areas to be covered & to be covered by whom. 4.      Auditors are advised to keep in mind the period of audit so as to avoid haphazard way of audit. 5.      Scrutinize the previous revenue audit reports, latest concurrent audit reports of branch to get the idea of nature of leakage that can be possible to identify. Get Some idea about Bank Officials & Nature of their duties, positions, 6.      Get Some Basic idea about branch’s banking software (i.e. Putting A/c No, Period of Audit) so as to facilitate easy viewing of customer ledger. 7.      Ask the Bank manager to make available Advances Sanction Register for our Audit Period, Jottings of Some Important accounts. ¨     Total Cash Credit Accounts Of Branch ¨     Top 10 Saving Accounts ¨     Top 10 Current Accounts ¨     Top 10 Depositors of bank. ¨     Overdue Advances in Audit Period ¨     List of Special Advance Sanctions & Get its Sanction Letters. ¨     List of NPA Accounts of branch of Recoveries made during audit period against them.   8.      List of areas to be covered & procedure for its audit are as under : ¨     Incomes of Bank :- a)     Interest Earned On Advances:- ØSee that interest is charged in accordance with latest circulars of RBI ØCheck the Interest Calculation on Selective basis ØSee that for special sactions interest is charged according to sanction letter. ØCheck that revised interest rates are properly applied in system from relevant date of applicability. b)     Penal Interest On Overdue installments & On Late Submission of stock statement. – Generally 1% subject to maximum of 2% ØIdentify the installment which are overdue & see that penal interest is charged to customer’s account accordingly. ØPenal Interest on Overdrawn Amount exceeding Drawing Power is properly charged to customer’s account. ØCheck that stock statements for each month are properly received & Receipt Dates are properly fed into the system & see that penal interest is accordingly charged to customer’s account. ØAny discrepancy noted in above calculations should be noted of query sheets in proper format.       c)     Processing Fees :- ØOn following advances sanctioned during the audit period. Term Loans. Housing Loans Personal Loans Vehicle Loans Cash Credits Bank Guarantee Other Advances Cash Credit Limit Expansion Ø Scrutinize ledger of every sanction during the audit period & verify that processing charges are debited accordingly to borrower’s ledger as per circular of charges. Ø Read Sanction Letter for any special sactions from controlling authorities & verify that charges mentioned in Sanction Letter are debited to borrower’s account accordingly. Ø If any discrepancy observed that should be noted down in query sheets. d)     Cash Credit Renewal Charges:- ØCash Credit Limit should be renewed every year as per the Banking regulations. So Verify the Renewal Register if maintained by bank, & see that in every CC Account CC Renewal Charges are debited. ØRenewal Charges are calculated on basis of applicable processing charges. ØIf any discrepancy observed that should be noted down in query sheets. e)     Inspection Charges:- ØVerify that the charges are properly debited in borrower’s ledger as per circular of charges on basic of per inspection carried out. Ø At Least Four times Inspections Charges should be debited in borrower’s ledger. ØIf any discrepancy observed that should be noted down in query sheets. f)      Documentation Charges:- ØDocumentation charges should be debited in each sanction during the audit period as per the circular of charges ØIf any discrepancy observed that should be noted down in query sheets. g)     Minimum Balance Charges :- ØThese Charges are generally debited on Saving Accounts & debited by Data Centre in Case of CBS branches ØVerify Some Account on random basis that these charges are properly debited in accounts as per applicable circulars if account balance falls below minimum. ØThese Charges are to be charged on per instance basis i.e. if in Six month Period ,four times minimum balance has not maintained then charges should be levied as (No. of Instances * Charges per instance).  h)     Ledger Folio Charges:- ØThese charges are to be charged to current accounts, cash credit accounts, saving accounts. On basis of per ledger folio. ØGenerally these charges are debited by Data Centre in case of CBS Branches. So selective account should be checked to determine whether charges are debited as per circulars or not. i)       Cash Recovery Against NPA Accounts :- ØGet the list of all NPA Accounts ØCheck whether any recoveries are made against it in Audit period. ØConfirm that all Outstanding Charges, Interest Outstanding are adjusted against such recoveries, then principal amount of loan adjusted. ØIf discrepancy is noted against above treatment same should be noted down. j)      Locker rent Charges:- ØGenerally Locker Rent Register maintained by bank & applicable charges are debited to saving account of customer. ØAuditors have to check out whether charges as per circular have been debited to customer or not. Hence saving accounts of locker holder has to be checked. k)    DD Commission, IBC/OBC Commission, Cheque Book Charges, Stop Payment Charges:- ØObtain Pay Order DD Register, IBC OBC Register from branch & verify on selective basis that charges are properly debited to customer’s account. ØObtain Cheque book register & verify that series of Cheque books properly entered in register & when Cheque book issued to customer that series fed into the system so that Cheque book charges are debited to customer’s ledger. ØStop Payment Charges are debited on basis of per instrument basis i.e. (No of Instrument* Rate per Instrument). l)       Income From Investment :- ØVerify whether any investments are made by branch. ØObtain investment register from branch & verify whether interest & dividend are timely collected & accounted by bank as per applicable rates.            ¨     Expenses Of Bank :- a)     Interest Paid On Saving, Current Accounts:- ØGenerally bank gives credit of interest to customer’s account on half yearly basis by giving command of Interest Credit in case of CBS Operation. ØAuditors has to check on selective basis whether interest has been credited on due time & at appropriate rate as per circulars. ØIf any irregularity observed auditor has to report the same. 

 

 

  I    SET OFF OF LOSSES (Sec 70 and 71)    Set off of losses refers to adjustment of current year losses    `against current year incomes.   Rules A: Set off of losses – Intra head adjustments (Inter source adjustments)   Loss from one source of income can be adjusted against income from some other source of income under the same head.   Ø For example :Loss from HP1 can be adjusted against income from HP2   It is subject to the following exceptions   1.    Loss from speculation business cannot be set of against profit from an non speculation business (Interpretation: Loss from non speculative business can be set-off against speculation income)   2.    LTCL can only be set off against LTCG and cannot be set off against STCG (Interpretation: STCL can be set off against LTCG)   3.    No loss can be set-off against casual income   4.    No expenses can be claimed against casual income   5.    Loss from the activity of owning and maintaining race horses cannot be set off against other incomes   6.    Loss from an exempted source cannot be set off (e.g. Share of loss of firm, agricultural losses, cultivation expenses)     Rules B: Set off of losses – Inter head adjustments   Loss from one head of income (HP) can be adjusted against income from some other head of income.(Salary Income): It is subject to the following exceptions   Ø For example: Loss from HP can be adjusted against Salary Income or Business Income   It is subject to the following exceptions:   1.    Loss from speculation cannot be set of against any other head.   (Interpretation: Loss from other heads can be set-off against business income)   Ø For Example: HP loss can be set-off against Speculative Incomes but speculation loss cannot be set off against HP   2.    Business loss cannot be set-off against salary income. (It can be set-off against other incomes)   3.    Loss under the head Capital Gains (LTCL or STCL) cannot be set-off against any other head.       (Interpretation: Loss from other heads can be set-off against Capital Gains)   Ø For Example: HP loss can be set-off against CG but LTCL or STCL cannot be set off against HP   4.    No loss can be set-off against casual income   5.    No expenses can be claimed against casual income   6.    Loss from the activity of owning and maintaining race horses cannot be set off   7.    Loss from an exempted source cannot be set off       (e.g. Share of loss of firm, agricultural income, cultivation expenses)             II    CARRY FORWARD AND SET-OFF (Past losses)     (Section 73 and 74)            Unadjusted losses of past years can be carry forward and set-off against current year income subject to certain restrictions;        1. Past year losses can be set-off against income from that respective head of income (Inter head adjustment is not possible)   (e. g. Unadjusted loss of HP for the year 2004-05 c/f Rs. 20,000. This loss can be set-off only against HP income of the year 2007-08 and not under any other head)        2. The above rule (1) is not applicable to unabsorbed depreciation, which can be set-off against any other head          3. All losses (Except loss due to owning and maintaining of race horses) can be carried forward and set-off for 8 subsequent financial years following the Previous Year in which such loss arose.            4. Unadjusted loss due to owning and maintaining of race horses can be carried forward and set-off for 4 subsequent financial years following the Previous Year in which such loss arose.          5. Unabsorbed depreciation can be carried forward for an unlimited period             Order of Set-off   In case where profits are insufficient to absorb brought forward losses, current depreciation and current business losses, the same should be deducted in the following order   ƒáCurrent scientific research expenditure [Sec. 35(1)]. ƒáCurrent depreciation [Sec. 32(1)]. ƒáBrought forward business losses [Sec. 72(1)]. ƒáUnabsorbed family planning promotion expenditure [Sec. 36(1)(ix)]. ƒáUnabsorbed depreciation [Sec. 32(2)]. ƒáUnabsorbed scientific research capital expenditure [Sec. 35(4)]. ƒáUnabsorbed development allowance [Sec. 33A(2)(ii)]. ƒáUnabsorbed investment allowance [Sec. 32A(3)(ii)].

Read more at: http://www.caclubindia.com/forum/practicle-guide-on-revenue-audit-of-banks-50234.asp#.UpMFG9KBmP0

Read more at: http://www.caclubindia.com/forum/practicle-guide-on-revenue-audit-of-banks-50234.asp#.UpMFG9KBmP0




raam yadav
articleship

[ Scorecard : 22]
Posted On 29 March 2014 at 17:55

respected one,

i have questions regarding how back can be revenue audit perform by the auditor with necessary refrences by the regulating authority

thanks,

raam yadav



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