Group 14: Bank Audit

A new payments channel, an old audit plan A branch adds a high-volume digital-payment channel. Prior inspection noted reconciliation delays, but the team copies last-year procedures without reviewing the channel or delays. Required: Explain three bank-specific planning corrections. (3 marks)

The trader approves their own settlement At a bank desk, the same person originates trades, approves settlement, records positions and clears reconciliation exceptions. Management says system timestamps make segregation unnecessary. Required: Explain five control/evidence considerations. (5 marks)

The control exists only in a policy manual A daily bank reconciliation control is described in a manual. The named employee left, no replacement is identified, logs are missing, and the manager says the policy title is sufficient evidence of performance. Required: Apply five control-understanding questions to the evidence gaps. (5 marks)

One new branch and several reports The team finds a prior-year adverse advance comment, a recent internal inspection warning, an RBI inspection provisioning variation and a security-verification defect. Management says only the annual statutory report matters and that prior findings become irrelevant once a new manager takes charge. Required: Explain five review actions. (5 marks)

Bank risk governance with an unusable dashboard A bank expands into a new lending product. Its risk policy predates the product, risk limits are approved only verbally, the front office changes model assumptions without independent review, and the dashboard arrives late with inconsistent exposure totals. Management says the dashboard colour remains green, so the statutory auditor can rely on all controls. Required: Prepare a risk-process review and responsive audit plan grounded in these facts. (10 marks)

Outsourced reconciliation is not outsourced responsibility A bank outsources a reconciliation process. The team removes the process from its risk assessment because the vendor advertises specialist staff. Required: Explain three audit implications. (3 marks)

Problem advances outside a random sample The branch sample omits an account repeatedly criticised by internal inspection and includes only routine low-risk balances. Management argues that random selection forbids adding a problem account. No universal large-advance threshold is supplied. Required: Explain five selection/evidence corrections. (5 marks)

A guarantee is not an ordinary funded loan A bank has an undrawn guarantee and an undrawn letter of credit, plus a term loan already disbursed. The draft lists all three as transferred loan funds and omits further review of contingent exposures. Assume no guarantee or credit has devolved/invoked on supplied facts. Required: Distinguish facilities and plan evidence. (5 marks)

A risk meeting without the specialists A branch uses complex interfaces. The engagement partner excludes the contracted specialist from planning discussions, does not discuss prior errors or possible staff manipulation, and keeps no record of the discussion. Management offers an assurance that all interfaces are safe. Required: Explain five planning-discussion corrections. (5 marks)

A branch planning memorandum that says only "repeat last year" The branch has changed its loan-processing system, unresolved previous-report exceptions and a higher volume of cross-branch transactions. The draft memorandum says repeat last-year tests, rely on every control and choose materiality only from last-year fees. Key team members have not been involved and the opening-balance evidence for this initial engagement is not yet planned. Required: Set out a bank-specific planning/completion framework with justified evidence decisions. (10 marks)

Three overdue labels, three different tests For three unrelated borrowers, a term loan is overdue exactly 90 days, a purchased bill 91 days, and a CC account has remained below limit/DP with no credits for 90 continuous days. Management uses one rule, "only more than 90 days matters", for all three. Assume the bank is within paragraph 3 of the current RBI commercial-bank Directions, not an excluded bank class; no restructuring or other special exception applies unless stated. Required: Apply the distinct triggers without a blanket all-standard conclusion. (5 marks)

Credits arrive, but do not cover interest A CC balance is below limit/DP. Credits during the previous 90 day period total Rs 18,000; interest debited in the same period is Rs 24,000. Management calls it regular because credits exist. Assume the bank is within paragraph 3 of the current RBI commercial-bank Directions, not an excluded bank class; no restructuring or other special exception applies unless stated. Required: Apply the interest-coverage criterion and audit evidence. (5 marks)

A wealthy guarantor does not make arrears disappear An ordinary term loan is overdue 120 days. A wealthy guarantor offers a comfort letter and the bank calls the loan standard on that ground alone. Assume the bank is within paragraph 3 of the current RBI commercial-bank Directions, not an excluded bank class; no restructuring or other special exception applies unless stated. Required: Apply recovery, security and classification. (3 marks)

One borrower, a hidden devolved guarantee An ordinary borrower has an NPA term loan and a regularly serviced second funded facility. An invoked guarantee amount is parked in a suspense-like separate account. Management proposes classifying only the term loan. No LC-bill or PACS/FSS exception applies. Assume the bank is within paragraph 3 of the current RBI commercial-bank Directions, not an excluded bank class; no restructuring or other special exception applies unless stated. Required: Apply borrower-wise treatment and account completeness. (5 marks)

A closing credit and the reversed cure A weak borrower account receives a solitary large credit just before year-end; it is reversed shortly after closing. The same file has a four-month-old stock statement used for DP, irregular drawings continuing 90 days and a manager-only system override with no audit trail. Management says the single credit and manual standard label settle classification. Assume the bank is within paragraph 3 of the current RBI commercial-bank Directions, not an excluded bank class; no restructuring or other special exception applies unless stated. Required: Review classification, stock age and override evidence without treating a temporary deficiency alone as sufficient for every NPA decision. (10 marks)

Crop seasons, not every agricultural label Two loans are verified eligible agricultural facilities under paragraph 57(2). Principal is overdue for two crop seasons on a short-duration crop and one season on a long-duration crop. A separate agricultural-labelled loan is verified outside that paragraph. Management uses a single harvest rule for all three. Assume the bank is within paragraph 3 of the current RBI commercial-bank Directions, not an excluded bank class; no restructuring or other special exception applies unless stated. Required: Explain the applicable distinctions and evidence. (5 marks)

The consortium leader has the cash Borrower remittances reach the consortium lead bank, but another member has not received its share and has no express consent for transfer. Its books show no servicing while management cites the lead-bank recovery as sufficient. Assume the bank is within paragraph 3 of the current RBI commercial-bank Directions, not an excluded bank class; no restructuring or other special exception applies unless stated. Required: Apply the member-bank recovery assessment. (5 marks)

A qualifying deposit and a gold ornament One overdue advance is against a term deposit with adequate margin verified. Another is against gold ornaments. Management applies the same exemption to both. Assume the bank is within paragraph 3 of the current RBI commercial-bank Directions, not an excluded bank class; no restructuring or other special exception applies unless stated. Required: Apply paragraph 55 and evidence boundaries. (5 marks)

DP from paid stock, not gross inventory Under a supplied bank-approved exercise policy, stock is Rs 900 lakh, unpaid stock Rs 300 lakh, stock margin 25 percent; debtors Rs 700 lakh, ineligible debtors Rs 200 lakh, debtor margin 40 percent. Sanctioned CC limit is Rs 800 lakh and outstanding Rs 790 lakh. The assistant says being below sanction is enough. Required: Compute DP and distinguish the irregularity from a time-based NPA conclusion. (5 marks)

Advance file with evidence gaps A branch ledger shows a large term loan. The file lacks signed loan documents and a clear sanction-condition completion record; a stock audit reports unpaid inventory incorrectly treated as paid. Another advance is absent from the main ledger but appears in disbursement records. Management treats the ledger total and borrower letter as sufficient for existence, rights, completeness and valuation. Required: Give an advances-evidence plan addressing the supplied risks without issuing a predetermined opinion. (10 marks)

A positive accrual on an ordinary NPA An ordinary loan becomes NPA. Rs 9 lakh prior accrued interest credited to income is unrealised. Another Rs 2 lakh uncollected accrued fee remains in income; staff continue current interest accrual as income and include later memorandum interest in gross advances. Assume eligible commercial-bank scope under paragraph 3 and no special restructuring, guarantee-cover, lease or other exception unless supplied. Required: Correct five income/recording treatments. (5 marks)

Fresh lending funds an apparent interest receipt The bank credits Rs 4 lakh to an NPA interest account out of a fresh additional loan to that borrower. A separate genuine borrower-funded interest receipt Rs 1 lakh is verified. There is no clear recovery-appropriation agreement, and managers alternate principal-first and interest-first to improve quarterly income. Assume eligible commercial-bank scope under paragraph 3 and no special restructuring, guarantee-cover, lease or other exception unless supplied. Required: Explain income and appropriation limits. (5 marks)

A moratorium entry is not automatically overdue An industrial project loan has a valid sanction-time interest moratorium still running. Interest has been debited, but its contractual payment due date has not arrived. Staff count overdue days from that debit. Assume eligible commercial-bank scope under paragraph 3 and no special restructuring, guarantee-cover, lease or other exception unless supplied. Required: Explain the due-date and classification limits. (3 marks)

Central guarantee, state guarantee and income Two ordinary facilities are overdue 120 days. One has a verified Central Government guarantee which has not been repudiated when invoked; the other has a State Government guarantee. Staff apply identical standard classification and interest accrual to both. Assume eligible commercial-bank scope under paragraph 3 and no special restructuring, guarantee-cover, lease or other exception unless supplied. Required: Distinguish guarantee classification and income treatment. (5 marks)

Two substandard assets, one wrong security deduction An ordinary secured substandard advance is Rs 200 lakh. Another ordinary non-infrastructure substandard exposure is Rs 80 lakh and meets the Direction unsecured-exposure definition on verified facts. The bank has provided Rs 18 lakh and Rs 10 lakh respectively. Management wants to deduct collateral from the first base and use 15 percent for both. Assume eligible commercial-bank scope under paragraph 3 and no special restructuring, guarantee-cover, lease or other exception unless supplied. Required: Compute the ordinary requirements and shortfalls, explain the distinction and evidence checks. (10 marks)

Doubtful for two years, secured only in part An ordinary advance Rs 150 lakh has remained doubtful for two years. Realisable security with valid bank recourse is Rs 90 lakh, realistically verified. Recorded provision is Rs 60 lakh. Staff apply 40 percent to the whole amount. Assume eligible commercial-bank scope under paragraph 3 and no special restructuring, guarantee-cover, lease or other exception unless supplied. Required: Split and compute the correct provision and shortfall. (5 marks)

Security erosion crosses two different thresholds An NPA security was previously assessed Rs 100 lakh, now realistically Rs 45 lakh. Its outstanding is Rs 300 lakh. A separate borrower has security Rs 8 lakh against Rs 100 lakh outstanding. Management insists both must pass sequentially through substandard first. Assume eligible commercial-bank scope under paragraph 3 and no special restructuring, guarantee-cover, lease or other exception unless supplied. Required: Apply the erosion tests and distinguish denominators. (5 marks)

Partial write-off and an unfinished arrears cure A borrower has two NPA facilities. It clears principal arrears only on the first, leaving interest arrears on it and arrears on the second. The bank technically writes off part of the remaining exposure and proposes standard classification for the residual. Assume eligible commercial-bank scope under paragraph 3 and no special restructuring, guarantee-cover, lease or other exception unless supplied. Required: Apply upgradation and write-off limits. (5 marks)

Loss recognised, a small salvage estimate remains An ordinary advance Rs 40 lakh is verified a loss asset, remains in books and has only speculative salvage prospects. Management proposes a 20 percent provision because something might be recovered. Assume eligible commercial-bank scope under paragraph 3 and no special restructuring, guarantee-cover, lease or other exception unless supplied. Required: Apply the loss-asset treatment. (3 marks)

Short provisioning hidden only in LFAR The branch audit identifies a supported short provision and unreliable system overrides. Management offers to put the issues in LFAR, keep financial numbers unchanged and issue the main report clean. A system status screenshot is offered instead of override-authorisation trails; a proposed MOC is not yet posted. The question does not ask for an LFAR deadline or a universal sampling threshold. Required: Explain the distinct correction/reporting/evidence steps without automatic opinion selection. (10 marks)