IndusInd Bank is a private sector bank established in 1994 with headquarters in Mumbai. It was one of the first new generation private banks established with contributions from Indian residents and NRIs. The bank offers commercial banking services including deposits, loans, credit and debit cards. It has expanded rapidly over the years and as of 2015 had over 700 branches across India as well as representative offices in London and Dubai. The bank focuses on retail banking and upgrading its technology to provide better services to customers.
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INDUSIND BANK
IndusInd Bank Limited is a Mumbai based Indian new generation bank, established in 1994.
The bank offers commercial, transactional and electronic banking products and services.
IndusInd Bank was inaugurated in April 1994 by then Union Finance Minister Manmohan
Singh. IndusInd Bank is the first among the new-generation private banks in India.
The bank started its operations with a capital amount of Rs. 1 billion among which Rs.
600 million was donated by the Indian Residents and Rs. 400 million was raised by the Non-
Resident Indians. A decade after its establishment i.e. in June 2004, IndusInd Bank was
merged with Ashok Leyland Finance Ltd, which was one of the largest leasing finance and
hire purchase companies in India, at that time. With this, the bank increased its customer base
and geographical penetration.
The bank has specialized in retail banking services and continuously upgrades its support
systems by introducing newer technologies. It is also working on expanding its network of
branches all across the country along with meeting the global benchmark. According to the
bank, its name is derived from the rich and vivid Indus Valley Civilisation.
IndusInd Bank has 745 branches, and 1635 ATMs spread across 392 geographic locations of
the country as on May 2015. It also has a representative office in London and another in
Dubai. Mumbai has the maximum number of bank branches followed by New Delhi and
Chennai. The bank has also proposed to double the branches count to 1200 by March 2017.
The idea behind IndusInd Bank, named after the Indus Valley civilization, was conceived by
Mr. Srichand P. Hinduja, the head of the Hinduja Group. One of the first new-generation
private banks in India, IndusInd Bank was inaugurated in April 1994. It was established with
the help of collective contributions from the NRI community, towards the economic and
social development of India.
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HISTORY
The bank was incorporated on January and obtained Certificate of Commencement of
Business in February 1994. The bank was promoted by IndusInd Enterprises and Finance
Ltd. (IEFL) and five Mauritius based companies’ viz. IndusInd International Holdings Ltd.
(IIHL) IndusInd (Mauritius) Holdings Ltd. (IMHL) IndusInd Ltd. (IL) IndusInd Investments
Ltd. (IIL) DeFive Mauritius Holdings Ltd. (DFMHL). The bank commenced commercial
operation in April. It undertook all kinds of banking business.
IndusInd Bank incorporated in April 1994 derives its name from the Indus Valley
civilization. The bank was the vision of Srichand P Hinduja, a Non–Resident Indian
businessman and head of the Hinduja Group.
A decade after its incorporation, June 2004, the bank was merged with Ashok Leyland
Finance, which is among the largest leasing finance and hire purchase companies in India.
IndusInd Bank has emerged as one of the fastest–growing banks in the banking sector in
India. Currently it has a network 180 branches along with 183 ATMs.
IndusInd Bank, which began in 1994, boats of 573 branches, and 1055 ATMs spread across
392 locations of the country. We also have representative offices in London and Dubai,
catering to every need of the customer.
It is the first Indian bank to receive ISO 9001:2000 certification for its corporate office and its
entire network of branches.
The bank has entered into a strategic alliance with Religare Securities for offering a value–
added 3–in–1 savings accounts–linked package to customers – comprising a savings bank
account, a depository account, and an Internet trading account.
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PRODUCTS & SERVICES
IndusInd Bank provides multi-channel facilities, which comprise of ATMs, Net Banking,
Mobile Banking, Phone Banking, Multi-city Banking and International Debit Cards. It is
also credited for being one of the first banks to become a part of RBI’s Real Time Gross
Settlement (RTGS) system. Enlisting the help of KPMG, IndusInd Bank has adopted an
enterprise-wide risk management system, including global best practices in the area of Risk
Management. The other products and services offered by the bank include:
Personal Banking
Accounts
Deposits
Loans
Cards - Debit Card, Credit Card, Gold Debit Card, Indus Money
Indus Protect
Wealth Management Services
Portfolio Management
Investments
Insurance
Corporate Banking
Fund Based Facilities
Non Fund Based Facilities
Value Added Facilities
Supply Chain Management
International Banking
Correspondent Banking
SWIFT
Rupee Drawing Arrangement R
Advisory Services A
Facilities to Exporters
Trade Finance
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RFC Account for Residents R
Gold Banking
Remittance Services
Suvarna Mudra
Others
Investment Banking
Treasury
NRI Services
Online Banking
RTGS/ NEFT
BRANCHES & ATMS
Within a few years of its foundation, IndusInd Bank started climbing the ladder of success
and became one of the fastest-growing banks in the Indian banking sector. By 2006, it had
expanded its branch network, from 61 in 2004, to 137. Apart from setting up 150 ATM
centers of its own, the bank also concluded multilateral arrangements with other banks,
taking the total number of authorized ATM outlets to 15,000. All the branches as well as
ATMs of IndusInd Bank are connected to its central database, via a satellite that operates on
the latest version of IBM’s AS400-720 hardware & Midas Kapiti (now Misys) software.
BUSINESSES
IndusInd Bank operates in a diverse range of businesses, which include Corporate Banking,
Retail Banking, Treasury and Foreign Exchange, Investment Banking, Capital Markets, Non-
Resident Indian (NRI) / High Networth Individual (HNI) Banking and Information
Technology (through a subsidiary). It also claims the distinction of being the first bank in
India that received ISO 9001:2000 certification for its Corporate Office and its entire network
of branches.
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BOARD OF DIRECTORS
Mr. Romesh Sobti has joined the bank as Managing Director & CEO, taking charge from Mr.
Bhaskar Ghose. Mr. R. Seshasayee, a Chartered Accountant by profession is the current
Chairman. The other members on the board are Dr. T. T. Ram Mohan, Mr. Ajay Hinduja, Mr.
S. C. Tripathi, Mr. Ashok Kini, Mrs. Kanchan Chitale, Mr. Vijay Vaid, Mr. R. S. Sharma and
Mr. Y. M. Kale.
RATINGS
ICRA AA for Lower Tier II subordinate debt program by ICRA and ICRA AA- for Upper
Tier II bond program by ICRA. CRISIL A1+ for certificate of deposit program by CRISIL.
CARE AA for Lower Tier II subordinate debt program by CARE. Ind AA- for Upper Tier II
bond program by India Ratings and Research and Ind A1+ for Short Term Debt Instruments
by India Ratings and Research.
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AUDIT
MEANING OF AUDIT
‘Audit’ or ‘Auditing’ is an activity which is undertaken by any business organization on its
own or by the requirement under any law – to go through its accounts, transactions, and
documents – to ensure correctness, legality of it.
It is an examination of the accounts and can be conducted by internal or external agencies –
known as the auditors.
Auditing refers to a systematic and independent examination of books, accounts, documents
and vouchers of an organization to ascertain how far the financial statements present a true
and fair view of the concern. It also attempts to ensure that the books of accounts are properly
maintained by the concern as required by law. Auditing has become such an ubiquitous
phenomenon in the corporate and the public sector that academics started identifying an
"Audit Society". The auditor perceives and recognizes the propositions before him/her for
examination, obtains evidence, evaluates the same and formulates an opinion on the basis of
his judgement which is communicated through his audit report.
Any subject matter may be audited. Audits provide third party assurance to various
stakeholders that the subject matter is free from material misstatement. The term is most
frequently applied to audits of the financial information relating to a legal person. Other areas
which are commonly audited include: internal controls, quality management, project
management, water management, and energy conservation.
As a result of an audit, stakeholders may effectively evaluate and improve the effectiveness
of risk management, control, and the governance process over the subject matter.
The word audit is derived from a Latin word "audire" which means "to hear". During the
medieval times when manual book-keeping was prevalent, auditors in Britain used to hear the
accounts read out for them and checked that the organization's personnel were not negligent
or fraudulent.
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FEATURES OF AUDIT
No doubt auditing is the essential for an organization or individual account. There are some
most important characteristic / features of audit. The essential features of an audit can be
described as follows:
1. SYSTEMATIC PROCESS:
Auditing is a systematic and scientific process that follows a sequence of activities, which are
logical, structured, and organized.
2. THREE PARTY RELATIONSHIPS:
The audit process involves three parties, that is, shareholders, managers, and the auditors.
3. SUBJECT MATTER:
Auditors give assurance on a specific subject matter. However, the subject matter may differ
considerably, such as – data, systems or processes and behavior.
4. EVIDENCE:
Auditing process, requires collecting the evidence, that is, financial and non-financial data,
and examining thereof.
5. ESTABLISHED CRITERIA:
The evidence must be evaluated in terms of established criteria, which include
International Accounting Standards, International Financial Reporting Standards,
Generally Accepted Accounting Principles, industry practices, etc.
6. OPINION:
The auditor has to express an opinion as to the reasonable assurance on the financial
statements of the entity.
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ADVANTAGES OF AUDIT
Auditing has become a compulsory task in the business organization. All the organizations
like business, social, industries and trading organizations make audit of books of accounts.
Now-a-days, owner of business and its management are separate. So, to detect and prevent
frauds, auditing has become essential. Its advantages are as follows:
1. AUDIT HELPS TO DETECT AND PREVENT ERRORS AND
FRAUDS
An auditor's main duty is to detect errors and frauds, preventing such errors and frauds and
taking care to avoid such frauds. Thus, even though all organizations do not have compulsion
to audit, they make audit of all the books of accounts.
2. AUDIT HELPS TO MAINTAIN ACCOUNT REGULARLY
An auditor raises questions if accounts are not maintained properly. So, audit gives moral
pressure on maintaining accounts regularly.
3. AUDIT HELPS TO GET COMPENSATION
If there is any loss in the property of business, insurance company provides compensation on
the basis of audited statement of valuation made my the auditor. So, it helps to get
compensation.
4. AUDIT HELPS TO OBTAIN LOAN
Specially financial institutions provide loan on the basis of audited statements. A business
organization may obtain loan considering the audited statement of last five years. So, an
organization should make audit compulsory to obtain loan.
5. AUDIT FACILITATES THE SALE OF BUSINESS
Valuation of assets is made by the auditor. On the basis of valuation of assets and liabilities,
businessman can sell his business. It helps to determine the price of business.
6. AUDIT HELPS TO ASSESS TAX
Tax authorities assess taxes on the basis of profit calculated by the auditor. In the same way
sales tax authority calculates sales tax on the basis of sales shown in the audited statement.
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7. AUDIT FACILITATES TO COMPARE
An auditor instructs an accountant in the same way which helps to compare books of
accounts of current year with the accounting of the previous year. So, comparing the accounts
of current with previous years helps to detect errors and frauds.
8. AUDIT HELPS TO ADJUST ACCOUNT OF DECEASED PARTNER
Valuation of all the assets and liabilities of the business is made by the auditor while auditing
books of account. Such valuation helps to clear the amount of deceased partner.
9. AUDIT HELPS TO PRESENT A PROOF
If any case is filed against the auditor regarding negligence, auditor can present audited report
as a proof to settle such case. So, it helps to present proof to settle such cases.
10. AUDIT PROVIDES INFORMATION ABOUT PROFIT OR LOSS
A businessman wants to know profit or loss of his business after a certain period of time. So,
the owner of the business can get information about profit or loss after auditing the books of
accounts.
11. AUDIT HELPS TO PREPARE FUTURE PLAN
All the audited statements remain true and correct. Such true and correct account helps to
prepare for the future plans.
12. AUDIT HELPS TO INCREASE GOODWILL
Auditing shows the profitability and financial position of an organization which creates faith
of public over the business. Thus, auditing helps to increase goodwill of an organization.
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DISADVANTAGES OF AUDIT
The disadvantages of audit are as follows:
1. FRAUDS BY MANAGEMENT:
Auditing fails to check planned frauds. The management can play tricks to manipulate the
accounts in order to conceal their inefficiencies. The audited accounts could not show the true
view.
2. WRONG CERTIFICATE:
Auditing is based on many certificates taken from management and other persons. Auditing
may fail to provide the desired results when certificates provide wrong information.
3. MISLEADING CLARIFICATION:
Auditing fails to disclose correct information. The management may not provide correct
clarification. The auditor is bound to present his report even of the clarification is not true.
4. NO TRUE PICTURE:
The auditing does not present true picture. Auditing fails to disclose true picture when figures
have been manipulated.
5. NO CORRECT VIEW:
Auditing fails to present correct view. There are limitations of accounting so figures are not
facts. These figures are based on opinion. Thus auditing is unable to disclose correct view.
6. NO SUGGESTION:
Auditing is not concerned with the management policies. The auditor cannot guide
management for better use of capital. He is unable to suggest what should have been done.
7. ABSENCE OF HONESTY:
Honesty and independence are highly essential traits. The auditor must certify what is true.
The absence of honesty and independence means failure of audit purpose.
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8. BIAS OF AUDITOR:
The auditing fails to present fair view due to bias of an auditor. It is the quality of an auditor
that he should be independent. The bias auditing fails to help many people.
9. HIGH COST:
The audit work is completed without cost. The cost of audit should not exceed of errors and
frauds. Auditing fails to serve million of business entities.
10. PAST ACTION:
Auditing is nothing more than checking of past activities. It is not concerned with present or
future. The audit fees increase the cost of business. Such cost does not help to improve
market standing of enterprises.
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AUDIT OF BANKS
A well-organised and efficient banking system is a pre-requisite for economic growth. Banks
play an important role in the functioning of organised money markets. Presently, there are
four types of banking institutions in India. These are:
♦ Commercial banks
♦ Regional rural banks
♦ Co-operative banks
♦ Development banks (more commonly known as ‘term-lending institutions’)
Besides, the Reserve Bank of India (hereinafter referred to as RBI) acts as the central bank of
the country.
Commercial banks are by far the most widespread banking institutions in India. Typically,
commercial banks provide the following major products and services:
(a) Acceptance of Deposits; (b) Granting of Advances; (c) Remittances; (d) Collections; (e)
Cash Management Product; (f) Issuance of Letters of Credit and Guarantees; (g) Merchant
Banking Business; (h) Credit Cards;(i) Technology-based Services; (j) Dividend / Interest /
Refund Warrants; (k) Safe-keeping Services; (l) Lockers; (m) Handling Government
Business; (n) Depository Participant (DP) Services; (o) Automated Teller Machines (ATMs);
(p) Exchange of Notes, (q) Debit Cards, (r) Cross –selling, (s) Auto Sweep facility in saving
account, (t) Third party advertisement on ATM network, (u) Securitization of future lease
rentals, (v) Derivative business.
Commercial banks operating in India can be divided into two categories based on their
ownership – public sector banks and private sector banks. However, irrespective of the
pattern of ownership, all commercial banks in India function under the overall supervision
and control of the RBI.
Public sector banks comprise the State Bank of India, its seven subsidiaries (also called
‘associate banks’ of State Bank of India; these are State Bank of Bikaner and Jaipur, State
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Bank of Hyderabad, State Bank of Indore, State Bank of Mysore, State Bank of Patiala, State
Bank of Saurashtra, and State Bank of Travancore) and other nationalised banks.
The ownership of private sector banks is in private hands. They are of three types:
(a) Indian scheduled commercial banks other than public sector banks. (The term ‘scheduled
commercial banks’ refers to commercial banks which are included in the Second
Schedule to the Reserve Bank of India Act, 1934.) It may be noted that not all scheduled
banks are commercial banks; some co-operative banks are also scheduled banks.
Commonly known as ‘banking companies’, these banks are ‘companies’ registered under
the Companies Act, 1956 or an earlier Indian Companies Act.
(b) Non-scheduled banks.
(c) Indian branches of banks incorporated outside India, commonly referred to as ‘foreign
banks’.
Regional Rural Banks have been established “with a view to developing the rural economy
by providing, for the purpose of development of agriculture, trade, commerce, industry and
other productive activities in the rural areas, credit and other facilities, particularly to the
small and marginal farmers, agricultural labourers and artisans and small entrepreneurs”
(Preamble to the Regional Rural Banks Act, 1976).
Co-operative Banks are banks in the co-operative sector which cater primarily to the credit
needs of the farming and allied sectors. Co-operative banks include central co-operative
banks, state co-operative banks, primary co-operative banks and land development banks.
Development Banks were started with the objective of providing only long-term finance for
development purposes; they are referred to as ‘development banks’ or ‘term-lending
institutions’. There are a number of all-India level term-lending institutions.
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SPECIAL FEATURES
Banks have the following characteristics which distinguish them from most other commercial
enterprises:
♦ They have custody of large volumes of monetary items, including cash and negotiable
instruments, whose physical security has to be ensured. This applies to both the storage
and the transfer of monetary items and makes banks vulnerable to misappropriation and
fraud. They, therefore, need to establish formal operating procedures, well-defined limits
for individual discretion and rigorous systems of internal control.
♦ They engage in a large volume and variety of transactions in terms of both number and
value. This necessarily requires complex accounting and internal control systems.
♦ They normally operate through a wide network of branches and departments which are
geographically dispersed. This necessarily involves a greater decentralisation of authority
and dispersal of accounting and control functions, with consequent difficulties in
maintaining uniform operating practices and accounting systems, particularly when the
branch network transcends national boundaries.
♦ They often assume significant commitments without any transfer of funds. These items,
commonly called 'off-balance-sheet' items, may not involve accounting entries and,
consequently, the failure to record such items may be difficult to detect.
♦ They are regulated by governmental authorities and the resultant regulatory requirements
often influence accounting and auditing practices in the banking sector.
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LEGAL FRAMEWORK
There is an elaborate legal framework governing the functioning of banks
in India. The principal enactments which govern the functioning of various
types of banks are:
♦ Banking Regulation Act, 1949
♦ State Bank of India Act, 1955
♦ Companies Act, 2013
♦ State Bank of India (Subsidiary Banks) Act, 1959
♦ Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970
♦ Regional Rural Banks Act, 1976
♦ Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980
♦ Information Technology Act, 2000
♦ Prevention of Money Laundering Act, 2002
♦ Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002
♦ Credit Information Companies Regulation Act, 2005
♦ Payment and Settlement Systems Act, 2007
Besides, the above enactments, the provisions of the Reserve Bank of India Act, 1934, also
affect the functioning of banks. The Act gives wide powers to the RBI to give directions to
banks which also have considerable effect on the functioning of banks.
Appointment of Auditor
As per the provisions of the relevant enactments, the auditor of a banking company is to be
appointed at the annual general meeting of the shareholders, whereas the auditor of a
nationalised bank is to be appointed by the bank concerned acting through its Board of
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Directors. In either case, approval of the Reserve Bank is required before the appointment is
made. The auditors of the State Bank of India are to be appointed by the Comptroller and
Auditor General of India in consultation with the Central Government. The auditors of the
subsidiaries of the State Bank of India are to be appointed by the State Bank of India. The
auditors of regional rural banks are to be appointed by the bank concerned with the approval
of the Central Government. As mentioned earlier, the State Bank of India Act, 1955,
specifically provides for appointment of two or more auditors. Besides, nationalised banks
and subsidiaries of State Bank of India also generally appoint two or more firms as joint
auditors.
Powers of Auditor
The auditor of a banking company or of a nationalised bank, State Bank of India, a subsidiary
of State Bank of India, or a regional rural bank has the same powers as those of a company
auditor in the matter of access to the books, accounts, documents and vouchers.
Auditor's Report
In the case of a nationalised bank, the auditor is required to make a report to the Central
Government in which he has to state the following:
(a) Whether, in his opinion, the balance sheet is a full and fair balance sheet containing all the
necessary particulars and is properly drawn up so as to exhibit a true and fair view of the
affairs of the bank, and in case he had called for any explanation or information, whether it
has been given and whether it is satisfactory;
(b) Whether or not the transactions of the bank, which have come to his notice, have been
within the powers of that bank;
(c) Whether or not the returns received from the offices and branches of the bank have been
found adequate for the purpose of his audit;
(d) Whether the profit and loss account shows a true balance of profit or loss for the period
covered by such account; and
(e) Any other matter which he considers should be brought to the notice of the Central
Government.
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Long Form Audit Report
Besides the audit report as per the statutory requirements discussed above, the terms of
appointment of auditors of public sector banks, private sector banks and foreign banks [as
well as their branches, require the auditors to also furnish a long form audit report (LFAR)].
The matters which the banks require their auditors to deal with in the long form audit report
have been specified by the Reserve Bank of India.
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TYPES OF AUDIT
It is well known that no any day of the year, there will be at least one auditor working in the
bank branch. The following are the popular types of audits conducted in a bank branch. The
titles may be modified in some banks especially for Internal Audit and system Audit but the
content remains the same.
I. Statutory Audit:
This is an annual audit determined by statute and done normally at the end of the financial
year while some of the larger branches are similarly audited half yearly. A bank’s statutory
audit is essentially a balance sheet audit including the Long Audit Report though there is no
scope restriction of the statutory auditor to perform certain actions of other auditors as part of
his duty or if some findings lead him into the domain of the auditors such as Revenue,
inspector and even concurrent.
II. Concurrent Audit:
Concurrent audit, as the name suggests, is an audit or verification of transactions or activities
of an organisation concurrently as the transaction/activity takes place. It is not a pre-audit.
The concept in this audit is to verify the authenticity of the transaction/activity within the
shortest possible time after the same takes place. It is akin to internal audit which is a concept
recognised under the Companies Act. In view of the complexities of economic activities it is
now well recognised that there must by a system of someone, other than the person involved
in the operations, verifying the authenticity of the transaction/activity on a regular basis so
that any deviation from the laid down procedures can be noticed in the shortest possible time
and remedial action can be taken. The concept of concurrent audit in the public as well as the
private sector banks has gained acceptance in recent years. In some banks this task has been
entrusted to the internal inspection staff who are not engaged in operational activities. In
other banks, this work is allotted to outside professional firms of chartered accountants. The
Reserve Bank of India (RBI) has issued certain guidelines for the conduct of this audit.
These guidelines are mandatory and all banks are required to cover 50 percent of total
deposits and 50 per cent of total advances under this audit. This will mean that all banks will
have to put their large branches under this audit.
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III. RBI Audit:
The Central Bank of the country also sends its own auditors to the Banks for their own
inspection. Their actions cannot be covered in this project because it is more of a supervisory
implementation of a Government Policy existing from time to time. The primary aim of this
audit is as follows.
Overall assessment of the assets and liabilities of the Bank, whether its financial position is
satisfactory, whether it is in position to pay its depositors in full as and when their claims
accrue, and in the event of loss, whether it has sufficient cushion of owned funds to safeguard
the interests of depositors.
IV. Revenue Audit
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.
V. Internal Audit
Internal audit is part of the ongoing monitoring of the bank's system of internal controls and
of its internal capital assessment procedure. Internal audit provides an independent
assessment of the adequacy of, and compliance with, the bank’s established policies and
procedures. As such, the internal audit function assists senior management and the board of
directors in the efficient and effective discharge of their responsibilities
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TYPES OF AUDIT REPORT
Audits are conducted to express a true and fair view of a company’s financial statements.
Therefore, the auditor’s opinion expressed in the ultimate report is based on the information
reviewed and analyzed during the verification of financial statements. Upon completing the
report, the auditor may express one of the following four opinions:
Unqualified Opinion
Qualified Opinion
Disclaimer of Opinion
Adverse Opinion
Unqualified Opinion
An unqualified opinion is expressed when the auditor concludes that the financial statements
give a true and fair view in accordance with the financial reporting framework used for the
preparation and presentation of the financial statements. It indicates that:
Generally accepted accounting principles are consistently applied in the preparation of
financial statements;
Financial statements comply with the relevant statutory requirements and regulations;
and
There is adequate disclosure of all material matters relevant to the proper presentation
of financial information (subject to statutory requirements).
Qualified Opinion
A qualified opinion is expressed when the auditor concludes that an unqualified opinion
cannot be expressed, but that the effect of any disagreement with management is not so
material and pervasive as to require an adverse opinion, or the limitation of scope is not so
material and pervasive as to require a disclaimer of opinion. A qualified opinion should be
expressed as being “subject to’” or “except for” the effects of the matter to which the
qualification relates.
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Disclaimer of Opinion
A disclaimer of opinion is expressed when the possible effect of a limitation on scope is so
material and pervasive that the auditor has not been able to obtain sufficient appropriate audit
evidence and is, therefore, unable to express an opinion on the financial statements.
Adverse Opinion
An adverse opinion is expressed when the effect of a disagreement is so material and
pervasive to the financial statements that the auditor concludes that a qualification of the
report is not adequate to disclose the misleading or incomplete nature of the financial
statements.
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PROFILE OF B S R & Co. LLP
Legal Status
B S R & Co. (‘the firm’) was constituted on 27th March 1990 having firm registration no. is
101248W. It was converted into limited liability partnership i.e. B S R & Co. LLP on 4th
October 2013 thereby having a new firm registration no. 101248W/W-100022. The registered
office of the firm is at 1st Floor, Lodha Excellus, Apollo Mills Compound, N M Joshi,
Mahalaxmi, Mumbai-400011.
Offices
BSR & Co. LLP is registered in Mumbai, Gurgaon, Bangalore, Kolkata, Hyderabad, Pune,
Chennai, Chandigarh, Noida and Kochi. Other B S R entities have offices in Ahmedabad.
Partners
The firm has 54 partners all over India as on 1st January 2015
Affiliation (Local)
B S R & Affiliates is a network of eight Indian chartered accountant firms i.e. B S R & Co.
LLP, B S R & Associates LLP, B S R & Company, B S R And Co., B S R And Associates, B
S R And Company, B S S R & Co., B S S R & Co. registered with the institute of chartered
accountants of India (ICAI). The network has been set up in accordance with the guidelines
issued by ICAI (“the guidelines”).
The object of network is to pool the common resources and exhibit them together before the
service user as those belonging to one particular set of professionals. The network itself does
not carry on any business for acquisition of gain for itself and only acts as a facilitator for the
firms to pursue their professional jobs.
Operational byelaws have been formulated for the network. The network complies with all
applicable ethical requirements prescribed by ICAI from time to time in general and the
specific requirements of guidelines.
Affiliation (International)
B S R & Co. LLP is a sub-licensee of KPMG International and KPMG India
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The sub-licensees are entitled to share professional knowledge, ethics and independence,
quality control and professional standards.
Staff
B S R & Affiliates consists of a team of over 2600+ professionals led by over 100 partners.
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NOSTRO ACCOUNT
MEANING:
Banks maintain stocks of foreign currencies in the form of bank accounts with their overseas
branches/ correspondents. Such foreign currency accounts maintained by Indian banks at
other overseas centres are designated by it as “Nostro Account”. for example all banks in
India would be maintaining a US Dollar Account with their New York office/ branch/
correspondents, such account would be designated by Indian office as Nostro Account.
DEFINITION:
A bank account held in a foreign country by a domestic bank, denominated in the currency of
that country. Nostro accounts are used to facilitate settlement of foreign exchange and trade
transactions. The term is derived from the Latin word for "ours."
VERIFICATION:
While examining the transaction in foreign exchange, the auditor should also pay attention to
reconciliation of Nostro Accounts with the respective minor account. The amount in the
Nostro Account is stock of foreign currency in the form of bank accounts with the overseas
branches and correspondents. Unreconciled Nostro Accounts, on an examination, may reveal
unauthorized payments from the foreign currency account, unauthorized withdrawals, and
unauthorized debit to minor account. The auditor should also evaluate the internal control
with regard to inward/ outward messages. The inward/ outward messages should be properly
authenticated and discrepancies noticed, should be properly dealt with, in the books of
accounts.
All operating outlets have direct access to Nostro accounts through
sophisticated computerized system “SWIFT”.
25. 25
BALANCE SHEET OF INDUSIND BANK
Parameter
MAR'15
(Rs. Cr.)
MAR'14
(Rs. Cr.)
SOURCES OF FUNDS
Share Capital 529.45 525.64
Share warrants & Outstandings 14.05 11.02
Total Reserve 10,101.03 8,506.30
Shareholder's Funds 10,644.53 9,042.96
Deposits 74,134.36 60,502.29
Borrowings 20,618.06 14,761.96
Other Liabilities & Provisions 3,718.96 2,718.73
TOTAL LIABILITIES 1,09,115.92 87,025.93
APPLICATION OF FUNDS:
Cash and balance with Reserve Bank of India 4,035.14 4,413.92
Balances with banks and money at call and short notice 6,744.00 2,355.53
Investments 24,859.37 21,562.95
Advances 68,788.20 55,101.84
Gross Block 1,828.34 1,605.18
Less : Accumulated Depreciation 708.78 613.93
Less : Impairment of Assets 0.00 0.00
Net Block 1,119.56 991.26
Lease Adjustment 0.00 0.00
Capital Work in Progress 38.02 25.19
26. 26
Other Assets 3,531.63 2,575.25
TOTAL ASSETS 1,09,115.92 87,025.93
Contingent Liability 2,08,973.10 1,47,804.26
Bills for collection 6,728.92 5,774.57
27. 27
PROFIT AND LOSS ACCOUNT OF INDUSIND BANK
Parameter
MAR'15
(Rs. Cr.)
MAR'14
(Rs. Cr.)
I. INCOME
Interest Earned 9,691.96 8,253.53
Other Income 2,403.87 1,890.53
Total Income 12,095.84 10,144.06
II. EXPENDITURE
Interest Expended 6,271.69 5,362.82
Operating Expenses 2,725.93 2,185.28
PBIDT 3,098.22 2,595.96
Provisions and Contingencies 389.05 467.63
Profit Before Tax 2,709.17 2,128.33
Taxes 915.45 720.31
Total 10,302.12 8,736.04
III. Profit & Loss
PAT 1,793.72 1,408.02
Extraordinary Items 0.00 0.00
Profit brought forward 2,623.33 1,790.93
Adjusted Net Profit 0.00 0.00
Total Profit & Loss 1,793.72 1,408.02
Appropriations 4,417.05 3,198.95
Equity Dividend (%) 40.00 35.00
29. 29
CASH FLOW STATEMENT OF INDUSIND BANK
Parameter
MAR'15
(Rs. Cr.)
MAR'14
(Rs. Cr.)
Net Profit Before Taxes 2,709.17 2,128.33
Adjustments for Expenses & Provisions 1,652.05 1,572.46
Adjustments for Liabilities & Assets -3,560.64
-
7,027.31
Cash Flow from operating activities -321.43
-
4,105.76
Cash Flow from investing activities -276.16 -173.70
Cash Flow from financing activities 4,607.29 4,200.17
Effect of exchange fluctuation on translation reserve 0.00 0.00
Net increase/(decrease) in cash and cash equivalents 4,009.70 -79.29
Opening Cash & Cash Equivalents 6,769.44 6,848.73
Cash & Cash Equivalent on Amalgamation / Take over / Merger 0.00 0.00
Cash & Cash Equivalent of Subsidiaries under liquidations 0.00 0.00
Translation adjustment on reserves / op cash balances foreign
subsidiaries 0.00 0.00
Effect of Foreign Exchange Fluctuations 0.00 0.00
Closing Cash & Cash Equivalent 10,779.14 6,769.44
30. 30
HOW AUDITOR CHECK THE ACCOUNTS
Bank Audit Process
Bank audit process consists of the following steps:
1. Pre-commencement Work
The following points have to be considered before commencing the audit
Receipt of appointment letter
Compliance u/s. 226(3) of Companies Act, 1956 with regard to qualifications and
disqualifications of auditors
None of the following persons shall be qualified for appointment as auditor of a company-
A body corporate;
An officer or employee of the company;
A person who is a partner, or who is in the employment, of an officer or employee of
the company;
A person who is indebted to the company for an amount exceeding one thousand
rupees, or who has given any guarantee or provided any security in connection with
Pre-commencement Work
Undersdtanding The Business Of
Bank Branch
Overall Audit Plan/Audit Programme
Audit Procedures: Substantive
Testing & Analytical Procedure
Audit Report
31. 31
the indebtedness of any third person to the company for an amount exceeding one
thousand rupees;
A person holding any security of that company after a period of one year from the
date of the companies (Amendment) Act, 2000
Internal Auditor cannot be statutory auditor for the same financial year
The nature of audit work has to be ascertained as to whether it is Concurrent Audit,
Stock Audit, Revenue Audit, Credit Risk Auditor or any other Assignments of any
branch of that bank
Decision for Acceptance or Rejection of Assignment has to be communicated to the
concerned authority
It should be ensured that minimum fees are set as per RBI circular
The Objective and Scope of Work has to be considered with specific considerations to
time available for conducting audit AAS-2 deals with Objective and Scope of the
audit of financial statements
Before accepting the audit assignment, the availability /outsourcing of staff for
conducting bank audit has to be considered. In doing so the auditor should follow the
guidance given in AAS 10 which deals with using the work of another auditor.
The Previous Auditor must be communicated (Clause 8 of First Schedule of
Chartered Accountants Act, 1949)
Engagement Letter under AAS 26 has to be issued
There must be a Communication with joint auditor as per AAS 12
A list of accounting standard applicable to the branch must be prepared
Copy of all circulars of RBI applicable to branch have to be obtained and kept ready
for reference
Attending branch audit seminars could enhance the auditors knowledge on bank
audits
Banking terminology and schemes should be well understood
A reading of Guidance Note on audit of banks by ICAI would provide valuable
guidance.
32. 32
2. Understanding the Business of Bank Branch
The next step is in understanding the business of the branch with specific reference to
A. Type of constitution
B. Applicable Laws
1. Banking Regulation Act, 1949
2. Reserve Bank of India, 1934
3. Multi State Co-operative Act, 2002
4. Relevant State Co-operative Act
5. Companies Act, 1956
6. Circulars/Guidelines issued by RBI
7. Circulars/Guidelines issued by Head Office of bank
8. Service Tax Provisions
9. TDS Provisions under Income tax Act
10. Prevention of Money Laundering Act, 2002
11. Banking cash transaction tax
C. Type/Nature of transactions
Quantum of Transactions under various heads as detailed below:
Sr.
No.
Particulars Nos. Total Value
A P & L Income
A1 Interest earned
A2 Other income
B P & L expenditure
B1 Interest expended
B2 Operating expenses
C Balance Sheet Assets
C1 Cash and balance with RBI
C2 Money at call and short notice
C3 Investments
C4 Advances
33. 33
C5 Fixed assets
C6 Other assets
D. Balance sheet liabilities
D1 Deposits
D2 Borrowings
D3 Other liabilities and provisions
E. Other items
E1 Contingent liabilities
E2 Bill for collection
D. Computerization System software used by the branch
E. Security aspect of software, output of software, interlinking between various reports
F. Internal Control Risk Assessment
G. Risk Management Backup system
3. Overall Audit Plan - Audit Programme
While drafting the audit programme, the type of reports to be submitted have to be
considered. There are four types of reports.
1. Unqualified Report
2. Qualified Report
3. Disclaimer of Opinion
4. Adverse Report
Auditor should plan his work based on the clients business to enable him to conduct
an effective audit in an efficient and timely manner as per AAS 8
The auditor should design and select an audit sample, perform audit procedures
thereon, and evaluate sample results so as to provide sufficient appropriate audit
evidence as per AAS 15
34. 34
4. Testing & Analytical Procedures Major Parameters
S. Item Important Audit Checks
1. Deposit
i. Term
ii. Saving
iii. Current
iv.FCNR/
NRE/ NRNR
Verify transactions during the year relating to:
New Accounts opened;
Accounts closed;
Dormant Accounts;
Interest calculations;
Test check account statements for unusual/ large/ overdraft
transactions;
Overdue Term deposits & banks policy for its renewal;
Accrual of interest;
RBI Norms for Non-resident deposits & its operations -with due
importance to opening and operation of accounts like NRE,
NRNR, FCNR, RFC, etc.;
Interest on various types of deposits; Tax Deducted at Source.
Large deposits placed at the end of the year (probable window
dressing).
Examine unusual trend in account opening or account closing,
dormant accounts that have suddenly been reactivated by heavy
cash withdrawals or deposits, overdrawing, etc.
Examine interest trends as compared to average annual deposits
(monthly average figures).
2. Advances Review monitoring reports (irregularity reports) sent by the
branch to the controlling authorities in respect of irregular
advances.
Review appraisal system, Files of large as well as critical
borrowers, sanctions, disbursement, renewals, documentation,
systems, securities, etc.
Review on test check basis operations in the Advances
35. 35
Accounts.
Compliance of sanction terms and conditions in the case of new
advances.
Whether the borrower is regular in submission of stock
statements, book debt statements, insurance policies, balance
sheets, half yearly results, etc. and whether penal interest is
charged in case of default/ delay in submission of such data.
Charge of interest and recovery for each quarter or as applicable
to be verified.
Review the monitoring system, i.e. monitoring end use of funds,
analytical system prevalent for the advances, cash flow
monitoring, branch follow-up, consortium meetings, inspection
reports, stock audit reports, market intelligence (industry
analysis), securities updation, etc.
Check classification of advances, income recognition and
provisioning as per RBI Norms/ Circulars.
Check whether Non-Fund based (Letter of Credits/ Bank
Guarantees) exposure of the borrowers is within the sanctioned
limits.
3. Profit & Loss
A/C
Income/ Expenditure: Verify:
Short debit of interest/ commission on advances;
Excess credit of interest on deposits;
In case the discrepancies are existing in large number of cases,
the auditor should consider the impact of the same on the
accounts;
Determine whether the discrepancies noticed are intentional or
by error;
Check whether the recurrence of such discrepancies are general
or in respect of some specific clients;
Divergent Trends:
Divergent trends in income/ expenditure of the current year may
be analysed with the figures of the previous year.
36. 36
Wherever a divergent trend is observed, obtain an explanation
along with supporting evidences like monthly average figures,
composition of the income/ expenditure, etc.
4. Balance sheet Cash & Bank Balances:
Physically verify the Cash Balance as on March 31 or reconcile
the cash balance from the date of verification.
Confirm and reconcile the Balances with banks.
Investments:
Physically verify the Investments held by the branch on behalf
of Head Office and issue certificate of physical verification of
investments to bank’s Investments
Check receipt of interest and its subsequent credit to be given to
Head Office.
Advances Provisioning:
As per RBI norms, unrealised interest on NPA accounts should
be reversed and not charged to “Advance Accounts”. Reversal
of unrealised interest of previous years in case of NPA accounts
is required to be checked.
Partial Recovery in respect of NPA accounts should be
generally appropriated against principal amount in respect of
doubtful assets.
Fixed Assets:
Understand the IBR system and accordingly prepare an audit
plan to review the IBR transactions. The large volume of Inter
Branch Transactions and the large number of unreconciled
entries in the banking system makes the area fraud-prone.
Check up head office inward communication to branch to
ascertain date up to which statements relating to inter-branch
reconciliation have been sent.
Suspense Accounts, Sundry Deposits, etc.:
37. 37
Ask for and analyse their year-wise break-up.
Check the nature of entries parked in such Accounts.
Check any movement in such old balances and whether the
same is genuine and has been properly authorised by the
competent authority.
Check for any revenue items lying in such accounts and
whether proper treatment has been given for the same.
38. 38
AUDITORS REPORT
Independent Auditor's Report
To the Members of IndusInd Bank Limited
Report on the Financial Statements
1. We have audited the accompanying financial statements of IndusInd Bank Limited ('the
Bank'), which comprise the Balance Sheet as at 31 March 2015, the Profit and Loss
Account, the Cash Flow Statement for the year then ended, a summary of significant
accounting policies and other explanatory information.
Management's Responsibility for the Financial Statements
2. The Bank's Board of Directors is responsible for the matters stated in section 134(5) of the
Companies Act, 2013 ('the Act') with respect to the preparation of these financial
statements that give a true and fair view of the financial position, financial performance
and cash flows of the Bank in accordance with the accounting principles generally
accepted in India, including the Accounting Standards specified under section 133 of the
Act read with Rule 7 of the Companies (Accounts) Rules, 2014 and provisions of Section
29 of the Banking Regulation Act, 1949 and circulars and guidelines issued by Reserve
Bank of India ('RBI') from time to time. This responsibility also includes maintenance of
adequate accounting records in accordance with the provisions of the Act for safeguarding
of the assets of the Bank and for preventing and detecting frauds and other irregularities,
selection and application of appropriate accounting policies, making judgments and
estimates that are reasonable and prudent, and the design, implementation and
maintenance of internal financial controls, that operate effectively for ensuring the
accuracy and completeness of the accounting records, relevant to the preparation and
presentation of the financial statements that give a true and fair view and are free from
material misstatement, whether due to fraud or error.
Auditor's Responsibility
3. Our responsibility is to express an opinion on these financial statements based on our audit.
We have taken into account the applicable provisions of the Act, the accounting and
39. 39
auditing standards and matters which are required to be included in the audit report under
the provisions of the Act and the Rules made there under. We conducted our audit of the
Bank including its branches in accordance with Standards on Auditing ('the Standards')
specified under section 143(10) of the Act. Those Standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatements.
4. An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor's
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the Bank's preparation of the financial statements that
give a true and fair view in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on whether the Bank has
in place an adequate internal financial controls system over financial reporting and the
operating effectiveness of such controls. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of the accounting
estimates made by the Bank's Directors, as well as evaluating the overall presentation of
the financial statements.
5. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our audit opinion.
Opinion
6. In our opinion and to the best of our information and according to the explanations given to
us, the aforesaid financial statements give the information required by the Banking
Regulation Act, 1949 as well as the Act, in the manner so required for banking companies
and give a true and fair view in conformity with accounting principles generally accepted
in India:
(a) In the case of the Balance Sheet, of the state of affairs of the Bank as at 31 March
2015;
(b) In the case of the Profit and Loss account, of the profit of the Bank for the year ended
on that date; and
40. 40
(c) In the case of the Cash Flow Statement, of the cash flows of the Bank for the year
ended on that date.
Report on Other Legal and Regulatory Requirements
7. The Balance Sheet and the Profit and Loss Account have been drawn up in accordance
with the provisions of Section 29 of the Banking Regulation Act, 1949 read with Section
133 of the Act read with Rule 7 of the Companies (Accounts) Rules, 2014.
8. As required sub section (3) of section 30 of the Banking Regulation Act, 1949, we report
that:
(a) We have obtained all the information and explanations which, to the best of our
knowledge and belief, were necessary for the purpose of our audit and have found
them to be satisfactory;
(b) The transactions of the Bank, which have come to our notice, have been within the
powers of the Bank; and
(c) During the course of our audit we have visited 27 branches. Since the key operations of
the Bank are automated with the key applications integrated to the core banking
systems, the audit is carried out centrally as all the necessary records and data required
for the purposes of our audit are available therein.
9. Further, as required by section 143(3) of the Act, we further report that:
(i) We have sought and obtained all the information and explanation which to the best of
our knowledge and belief were necessary for the purpose of our audit;
(ii) in our opinion, proper books of account as required by law have been kept by the Bank
so far as appears from our examination of those books;
(iii) The financial accounting systems of the Bank are centralized and, therefore, returns
are not necessary to be submitted by the branches;
(iv) The Balance Sheet, the Profit and Loss account and the Cash Flow Statement dealt
with by this report are in agreement with the books of account;
41. 41
(v) in our opinion, the aforesaid financial statements comply with the Accounting
Standards specified under Section 133 of the Act, read with Rule 7 of the Companies
(Accounts) Rules, 2014, to the extent they are not inconsistent with the accounting
policies prescribed by RBI;
(vi) on the basis of written representations received from the directors as on 31 March 2015
taken on record by the Board of directors, none of the directors is disqualified as on 31
March 2015 from being appointed as a director in terms of Section 164 (2) of the Act;
(vii) with respect to the other matters to be included in the Auditor's Report in accordance
with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and
to the best of our information and according to the explanations given to us:
(a) The Bank has disclosed the impact of pending litigations on its financial position
in its financial statements – Refer Schedule 18 – Note 9.4 to the financial
statements;
(b) The Bank has made provision, as required under the applicable law or accounting
standards, for material foreseeable losses, if any, on long–term contracts including
derivative contracts –Refer Schedule 18 –Note 9.5 to the financial statements; and
(c) There has been no delay in transferring amounts, required to be transferred, to the
Investor Education and Protection Fund by the Bank.
For B S R & Co. LLP
Chartered Accountants
Firm's Registration No: 101248W/W–100022
Akeel Master
Partner
Membership No: 046768
Mumbai
16 April, 2015
42. 42
CONCLUSION
This project gives the idea about the types of audit conducted by IndusInd Bank. How the
major areas of problems can be found by way of effective auditing system i.e. errors, frauds,
manipulations etc. Audit helps the auditor to get a proper view of the accounts of the bank
and helps him to give an opinion on the accounts of the bank. Project also contain that how to
conduct of audit of the banks, what is the procedure through which audit of banks should be
done. Form auditing point of view, there is proper follow up of work done in every
organization whether it is banking company or any other company. Proper and effective
auditing system helps in preventing errors and fraud. The auditor report gives an idea to the
stakeholders about the banks functioning.
