13-09-2012, 11:23 AM
BANK AUDIT
INVESTMENT AND TREASURY.ppt (Size: 455.5 KB / Downloads: 39)
How to approach the audit
Regulatory perspective takes in to account most of the aspects as RBI has given detailed guidance on accounting , internal control , risk management and accountability issues. Therefore compliance of RBI circular is the prime objective
Work allocation can be broadly in to (a)Asset classification(b) valuation © Verification of front office and back office operation including account examination and reconciliation (d) Examination of files , reports, board notes.
Getting acquainted with the system and software is the key
LFAR shall comprehensively cover observations on every point RBI has prescribed as compliance including from proprietary angle
Regulatory concerns this year
Tendency to stack up investment in HTM on one side and at the same time conducting sales from that portfolio in violation of RBI circular spirit.
Exposure to capital market –direct and indirect – correctness of data and system of data capturing
Exposure to NBFCs and using NBFC route for sensitive sector like Real estate
Compliance of guidelines in investing PTC and SCs issued by SC /RC
Private placement of Debt in the name of Infra structure without adhering to rating, listing requirements and other exposure to unlisted securities
Correctness of Valuation in view of rising yields and NPI in unlisted categories
Valuation
Valuation could be a laborious exercise
Master circular dt 1-7-09 , Paragraph 3.5 to 3.10.3 give detailed yard sticks for measurement
Market value in the case of unlisted securities could be a challenge.
Correctness of market quotes /YTM rate applied in government securities need thorough examination
Zero coupon Bonds , deep discount Bonds etc need special care
Investment in SR/PTC issued by SC/ RCs need care as lower of NBV of assets or redemption value is the norm
NPI Norms
General norms are 90 days delinquency
In case of NPA advances , securities issued by the same borrower also are NPI . If only preference shares are NPI and others are performing , then other accounts can continue Performing
State government guaranteed accounts also have to follow 90 days delinquency norms
Depreciation on account of these investments can not be set off with appreciation in the same classification
Restructured accounts
In case of restructure , verification of accounting for interest accrual on FITL, Sacrifice provision, Recalculation of sacrifice provision , upgradation done from NPA or not, reduction / reversal of provision , compliance of restructure terms etc need examination .
In case of conversion of principal and / or interest into equity, debentures, bonds, etc., such instruments should be treated as NPA abinitio in the same asset classification category as the loan if the loan's classification is substandard or doubtful on implementation of the restructuring package and provision should be made as per the norms.