In this article we will discuss about the verification of assets and liabilities in a bank: 1. Cash and Bank Balances 2. Deposits and Other Accounts 3. Acceptances, Endorsements and Other Obli­gations 4. Borrowings from Others 5. Loans and Advances 6. Investments 7. Bills Purchased and Discounted 8. Inter-Branch, Inter-Company, and Overseas Transactions 9. Money at Call and Short Notice.

1. Cash and Bank Balances:

The verifica­tion steps should be the following:

General:

Review of internal checks and internal accounting and administrative controls in opera­tion relating to the receipts and payments, rotation of ‘tellers’, delegation of authority and assignment of responsibilities, existence of cash-in-transit in­surance policy, fidelity guarantee, deputing a re­sponsible official (who has no connection with the cash department) for test checks every day, etc.

ADVERTISEMENTS:

Cash:

Joint custodian of cash by at least two re­sponsible officers, whether the payments are made only after the cheques, demand drafts, etc., have been passed for such by a responsible official, physical verification of cash in hand on the closing day of the year on the date of audit, agreement of cash in hand with the cash balance book, inspec­tion of foreign currency notes.

Bank Balances:

Scrutiny of the reconciliation statement of balances with the Reserve Bank of India and/or State Bank of India, Confirmation of balances with other banks against current accounts in and outside India.

2. Deposits and Other Accounts:

ADVERTISEMENTS:

The verifi­cation steps are:

Fixed Deposits:

Checking the Register of fixed deposits with the receipts’ counterfoil, endorsements in the receipts for discharge, lien, etc.; Review of internal accounting controls, re-computation of in­terest accrued up-to the balance sheet date; and Appraisal of the System of records including the control over the serial numbers of the deposit re­ceipts.

Saving Bank Deposits:

ADVERTISEMENTS:

Random checking of in­terest calculations, passbooks, and cross-check of the Savings Bank Account with individual ledger accounts.

Current Account:

Random checking to find out:

(i) the cases of dishonour of cheques

ADVERTISEMENTS:

(ii) the cases where the balances fall below the minimum limit and

(iii) the addition and deletion of individual accounts.

Contingencies Accounts:

Scrutiny of the amounts of different reserves maintained for meeting any known contingencies, such as provision for bad and doubtful debts, unadjusted suspense account, etc., and their adequacy under circumstances.

3. Acceptances, Endorsements and Other Obli­gations:

ADVERTISEMENTS:

The verification steps should be to:

(i) Examine the bank’s arrangements with the customers with respect to the secu­rities, charging of commission, payment of bills, etc.;

(ii) Scrutinize the details of the bills regis­ter to find out the outstanding dues;

(iii) See the validity of the securities provided as guarantees by the customers; and

ADVERTISEMENTS:

(iv) Cross check the constituents’ liabilities for these items appearing on the Assets side of the balance sheet.

Note:

The expression ‘other obligations’ includes letters of credit issued and guarantees given by the bank on behalf of its constituents.

4. Borrowings from Others:

The usual verifi­cation steps are to:

ADVERTISEMENTS:

(i) Examine the various sources of borrow­ings— other banks, agents, etc.;

(ii) Determine the amounts as to the classi­fication secured and unsecured, with ref­erence to the available evidential mat­ter, such as certificates of agents from whom borrowed etc.

5. Loans and Advances:

In case of a bank, such advances given to the customers may be of four types: loans, cash credits, overdrafts, and bills pur­chased and discounted.

However, the necessary verification steps are to:

(i) Estimate the credit worthiness of the borrowers ;

(ii) Ensure that such loans and advances, etc. do not exceed the prescribed limits and are allowed against the security of com­modities, hypothecated or pledged;

ADVERTISEMENTS:

(iii) Examine the hypothecation deeds and other agreements with the borrowers;

(iv) Check up whether these securities are valid and authentic; and

(v) See that appropriate interest is deter­mined and realised.

6. Investments:

The usual steps for verification are:

(i) Inspection of these investments, their valuation, and disclosures as required under the law;

(ii) Obtaining the confirmation certificates from the actual holders of such invest­ments; and

(iii) Confirming that these investments are valid, not time—barred from the invest­ment register.

7. Bills Purchased and Discounted:

The verifi­cation should be on the following lines:

(i) Whether the assignments of the titles to the bank are appropriate.

(ii) Whether a detailed classification state­ment is prepared by a reference to the relevant documents to pinpoint the outstanding.

(iii) Whether the margins are reasonable to cover decline in values.

In addition to the above, it is necessary to as­certain the bills on hand at the time of audit and check them with the relevant ledger. Further, it should be verified as to whether the discount relat­ing to the succeeding year is carried forward as a liability under the head ‘unexpired discounts’.

8. Inter-Branch, Inter-Company, and Overseas Transactions:

These may include all transactions relating to bank drafts, telegraphic transfers, bills for collection, etc. in and outside India.

The verifi­cation steps are to:

(i) See that the code system for Telegraphic Transfers is reliable and being operated by a responsible officer.

(ii) Ensure that the system of communica­tion between the issuing branch and the receiving branch is fool-proof.

(iii) Look for authorisation as to prices for inter-branch and inter-company deal­ings.

(iv) Check up the returns rendered by over­seas branches of these dealings.

(v) Confirm that any drafts and TT’s issued but remaining unpaid on the date of bal­ance sheet appear as a liability.

(vi) Ensure that:

(a) the bills for collection ‘ are consecutively numbered and their

particulars entered in the register, and

(b) on collection Cash Account is deb­ited with the full amount received and the Customer’s Account credited after deducting the bank’s collecting commis­sion.

9. Money at Call and Short Notice:

The verifi­cation steps for the purposes of audit are to:

(i) Ascertain and confirm as to (a) whether the branch is duly authorised to operate in call money market and (b) if so, whether the recording function is sepa­rate from the investment execution func­tion.

(ii) Examine physically each of the securi­ties on the date of the balance sheet.

(iii) Confirm that the totals of detailed records agree with the control account.

(iv) Ensure that this item is properly dis­closed under ‘Property and Assets’ — side of the balance sheet with the amounts (if any) separately for:

(a) Securities of the Central and State Governments and other Trustee securities, including treasury bills of the Central and State Govern­ments,

(b) Fully paid ordinary shares,

(c) Partly paid ordinary shares,

(d) Deben­tures or bonds,

(e) Other investments, and

(f) Gold.

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