Audit Project

A Study of Auditing And Audit of Union Bank of India
INDEX
Chapte Sub Particular Page no

r no chapter
no
1 1.1 Introduction Of Audit 5
1.2 Definition Of Auditing 6
1.3 Origin And Evaluation Of Auditing 7
1.4 Important concept of Auditing 8

1.5 Features of Auditing 9
1.6 Basic principal of Audit 10
1.7 N.P.A.Guidelines 12
2 2.1 Accounting concept Relevant to 15
auditing introduction
2.2 Advantage of Auditing 16
2.3 Limitation of Auditing 17
2.4 Audit Types 18
2.5 Types of Audit in Bank 19
2.6 Books of Accounts of Bank 21
2.7 Verification of Assets & Liabilities 22
3 3.1 Audit Committee 29
3.2 Objective of the study 30
3.3 Literature Review 31
3.4 Research Methodology 33
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3.5 What is a Bank ? 34
3.6 Features of a Bank 35
3.7 Bank in India 36
4 4.1 Bank profile (Union Bank of India) 38

4.2 History 39
4.3 Illustrative structure of Banking 40
Software
4.4 Structure of star Assurance Audit 41
Department
4.5 Audit Report Union Bank of India 42
5 5.1 Conclusion 46
5.2 Bibliography 47
Chapter no:-1
1.1: INTRODUCTION OF AUDIT
An audit is a systematic and independent examination of books, accounts,statutory records, documents

and vouchers of an organization to ascertain how far the financial statements as well as non-financial
disclosures 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 a
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 judgment 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:
secretarial & compliance audit, 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
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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 organizations personnel were not negligent or fraudulent.
1.2DEFINITION OF AUDITING
Various persons such as the owners, shareholders, investors, creditors, lenders, government
etc. use the final account of business concern for different purposes. All these users need to be sure that
the final accounts prepared by the management are reliable. An auditor is an independent expert who
examines the accounts of a business concern and reports whether the final accounts are reliable or not.
Different authorities have defined auditing as follows.
Mautz define the auditing as auditing is concerned with the verification of accounting data, with
determining the accuracy and reliability of accounting statement and reports.
International auditing guidelines defines the auditing as auditing is an independent

examination of financial information of any entity with a view to expressing an opinion thereon.
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1.3 ORIGIN AND EVOLUATION OF AUDITING
1. Origin of term :
The term audit is derived from the Latin term audire mean to hear. In early days, an
auditor used to listing to the account read out by the accountant in order to check them.
2.Ancient origin :
Auditing is as old as accounting. It was in use in all ancient countries such as Mesopotamia,
Egypt, Greece, Rome, U.K., and India. The Vedas,Ramayana, Mahabharata contain references to
accounting and auditing. Arthashasastra by Kautilya gives detailed rules for accounting and
auditing of public finances. The Mauryas, the Guptas and the Mughals had developed and
accounting and auditing system to control state finances. Thus, basically, accounting and auditing
had their origin in the need for the government to control the income and expenditure of the state
and the army. The original object of auditing was to detect and prevent errors and frauds.
3.Compulsory audits of companies:
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With increasing number of companies, the companies acts in different countries began
providing for compulsory audit of accounts of companies. Thus U.K. audit of accounts of limited
companies became compulsory in 1900. In India, the companies act, 1913 made audit of company
accounts compulsory. With increase in size of companies, the object of audit also shifted to
ascertaining whether the accounts were true and fair rather than true and correct. Thus, the
emphasis was not arithmetical accuracy but on fair representation of financial affairs.
4.Development of accounting and auditing standard:
The international accounting standards committee and the accounting standards board of
institute of chartered accountant of India have developed standard accounting and auditing practices
to guide the accountants and auditor in their day-to-day work.
5.Computer technology:
The latest development in auditing pertains to the use of computers in accounting as well as
auditing.
Really, auditing has come a long way from hearing the accounts in the ancient day to
using computers to examine computerized accounts of today.
1.4 IMPORNTANT CONCEPTS IN AUDTING
Auditing: Auditing is a systematic and scientific examination of the books of accounts and
records of business to enable the auditor to satisfy himself that the profit and loss account
and the balance sheet are properly drawn up so as to exhibit a true and fair view of the
financial state of affairs of the business and profit or loss for the financial period.
Continuous audit: An audit which involves a detailed and exhaustive examination of the
books of accounts at regular intervals throughout the year along with the accounting work.
Errors: Mistakes committed innocently and unknowingly while making entries in the
books of accounts.
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Frauds: Fictitious entries made in the books of accounts with certain motives.
Interim audit: An audit which is conducted for a part of the accounting period for some
specific purpose.
Investigation: Examination of accounts for special purpose.
Qualified auditor: A person who is a Chartered Accountant within the meaning of the
Chartered Accountants Act,1949.
Statutory audit: An audit undertaken under any specific statute or Act.
True and fair view: A phrase which means that the financial statements must not contain
anything which is untrue, unfair, unlawful, immoral and unethical i.e. the financial
statements must not contain errors and fraud.
1.5 FEATURES OF AUDITING

a. Audit is a systematic and scientific examination of the books of accounts of a business;
b. Audit is undertaken by an independent person or body of persons who are duly qualified for the
job.
c. Audit is a verification of the results shown by the profit and loss account and the state of affairs
as shown by the balance sheet.
d. Audit is a critical review of the system of accounting and internal control. Audit is done with
the help of vouchers, documents, information and explanations received from the authorities.
e. The auditor has to satisfy himself with the authenticity of the financial statements and report
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that they exhibit a true and fair view of the state of affairs of the concern.
f. The auditor has to inspect, compare, check, review, scrutinize the vouchers supporting the
transactions and examine correspondence, minute books of share holders, directors,
Memorandum of Association and Articles of association etc., in order to establish correctness of
the books of accounts.
1.6 BASIC PRINCIPLES OF AUDIT

AAS-1 describes the basic principles, which govern the auditor's professional responsibilities and
which should be complied with whenever an audit is carried out. These are:-
1. Integrity, objectivity and independence:
The auditor should be straightforward, honest and sincere in his approach to his professional
work. He must be fair and must not allow prejudice or bias to override his objectivity. He
should maintain an impartial attitude and appear to be free of any interest which might be
regarded. Whatever it's actual effect, as being incompatible with integrity and objectivity.
2. Confidentiality:
The auditor should respect the confidentiality of information acquired in the course of his work
and should not disclose any such information to a third party without specific authority or
unless there is legal or professional duty to disclose. It is remarked that an auditor should keep
his ears and eyes open but his mouth shut.
3. Skill and competence:
The audit should be performed and the report prepared with due professional care by persons
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who have adequate training, experience and competence. This can be acquired through a
combination of general education, technical knowledge obtained through study and formal
courses concluded by a qualifying examination recognized for this purpose and practical
experience under proper supervision.
4. Work performed by others:
When the auditor delegates work to assistant* or uses work performed by other auditors or
experts, he will continue to be responsible for forming and expressing his opinion on the
financial information. At the same time he is entitled to rely on work performed by others
provided he exercises adequate skills and care and is not aware of any reason to believe that he
should not have relied. The auditor should carefully direct, supervise & review work delegated
by assistants.
5. Documentation:
The auditor should document matters, which are important in providing evidence that the audit
was carried out in accordance with the basic principles.
6. Planning:
The auditor should plan his work to enable him to conduct an effective audit in an efficient and
timely manner. Plans should be based on knowledge of client's business. They should be further
developed and revised, if required, during the course of audit.
7. Audit evidence: The auditor should obtain sufficient appropriate audit evidence through the
performance of compliance and substantive test procedure. It will enable him to draw
reasonable conclusions there from on which he has to base his opinion on the financial
information.
8. Accounting system & internal control:
The auditor should gain an understanding of the accounting system and related internal controls.
He should study and evaluate the operation of those internal controls upon which he wishes to
rely in determining the nature, timing and extent of other audit procedures.
9. Audit conclusions and reporting:
The auditor should review and assess the conclusions drawn from the audit evidence obtained
and from his knowledge of business of the entity as the basis for the expression of his opinion
on the financial information.
The audit report should contain a written expression of opinion of the financial information. It should
comply with the legal requirements. In case of a qualified opinion, adverse opinion or disclaimer of
opinion is given or reservation on any matter is to be made reasons thereof.
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1.7 N.P.A.GUIDELINES
The guideline requires the banks to classify their advances in four broad categories as follows:-
1.Standard asset:-
A standard asset is one, which does not disclose any problems, and which does not carry more than
normal risk attached to the business such asset is not a non-performing asset.
2.Sub-standard asset:
It is one, which has been classified as N.P.A. for period not exceeding not more than 18 months.
3.Doubtful asset:
It is one, which remained has N.P.A for period exceeding 18 months.
4.Loss asset:
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It is one where the loss has been identified by the bank or the internal or external auditors or the RBI
inspection, but the amount has not been written off wholly or partly in other words such asset is
considered uncollectible and of such little value that its continuous as bankable asset is not warranted
through although there may be some salvage or recovery value.
With the view to moving towards international based practices and to ensure greater transference it has
been decided to adopt the 90 days overdue norms for identification. Of N.P.A. from the year ending 31 st
March 2004, according with effect from 31st march 2004, a non-performing asset shall be a loan or
advances where,
i Interest and installment of principle remains overdue for the period of more than 90 days in
respect of term loan.
ii The account remains out of order for period of more than 90 days. In respect of overdraft or
cash credit limit.
iii The bill remains overdue for period of more than 90 days in the case of bills purchased and
discounted.
iv Interest and installment of principle remains overdue for two harvest season but not
exceeding 2.5 years in the case of advanced granted for agriculture purpose.
v Any amount to be received remains overdue for a period of more than 90 days in of other
account.
The identification of N.P.A. is to be on the basis of the position as on balance sheet day if an account
has been regularized before the balance sheet day by payment of overdue amount through genuine
sources and not by sanction of additional facilities or transfer of funds between accounts, the accounts
need not be treated as N.P.A. the bank should however ensured that the accounts remains in order
subsequently. If the account is out of order or deficient for a temporary period due to non-availability of
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adequate drawing power. Non-submission of stock statement, non-renewal of due date, will not classify
as N.P.A.
N.P.A. classification will be as per borrower wise and not facility wise. It means that if any of the credit
facilities granted to a borrower becomes non-performing all the facilities granted to a borrower will
have to be treated as N.P.A. without having any regard to performing status of other facilities.
Some of the Exemptions are their as follows,
Project finance:
In the case of bank, finance given for industrial project or for agricultural status where moratorium
period is available for payment of interest, payment of interest becomes due after the moratorium
period is over and not on the date of debit of interest.
Advance to Staff:
As in the case of project finance in respect of housing loan all similar advances granted to staff
members where interest is payable after recovery of principle. The overdue status should be recognized
from the date when there is default in payment of interest on due date of payment.
Agricultural Advances Affected by Natural Calamities:

In terms of RBI instruction where Natural calamities in fairs the repayment capacity of agricultural
borrower the bank can convert short term production loan, in to term loan or reschedule the repayment
and sanction them short term loan loans in such cases the term loan as well as fresh short term may be
treated as current dues and need not be classified as N.P.A.
Loans and Advances backed or supported by government:
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Any loans and advances provided by the bank under any scheme introduced by GOVT. like PMRY.
Scheme will not be treated as N.P.A. though the account in overdue or outstanding for more than 90
days.
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CHAPTER NO 02
2.1 ACCOUNTING CONCEPT RELEVANT TO AUDITING
INTRODUCTION
The purpose of this standard is to establish standards on the concept of materiality and its relationship
with audit risk. 2. The auditor should consider materiality and its relationship with audit risk when
conducting an audit.
MATERIALITY:
1. Information is material if its misstatement (i.e., omission or erroneous Statement) could
influence the economic decisions of users taken on the Basis of the financial information.
Materiality depends on the size and Nature of the item, judged in the particular circumstances
of its misstatement. Thus, materiality provides a threshold or cut-off point rather than being a
primary qualitative characteristic which the information must have if it is to be useful.
2. The objective of an audit of financial information prepared within a framework of recognized

accounting policies and practices and relevant statutory requirements, if any, is to enable the
auditor to express an opinion on such financial information. The assessment of what is
materiality of professional judgment.
3. The concept of materiality recognizes that some matters, either individually or in the
aggregate, are relatively important for true and fair presentation of financial information in
conformity at both the overall financial information level and in relation to individual account
balances and classes of transactions. Materiality may also be influenced by other
considerations, such as the legal and regulatory requirements, non-compliance with which may
have a significant bearing on the financial information, and consideration relating to individual
account balances and relationships.
4. Although the auditor ordinary establishes an acceptable materiality level to detect
quantitatively material misstatements, both the amount (quantity) and nature (quality) of
misstatements need to be considered. An example of a qualitative misstatement would be the
inadequate or improper description of an accounting policy when it is likely that a user of the
financial statements would be misted by the description.
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2.2 ADVANTAGES OF AUDITING
1) Assurance of true and fair accounts:

Audit provides an assurance to the various users of final accounts such as owners, management,
creditors, lenders, investors, governments etc. that the accounts are true and fair.
2) True and Fair balance sheet:

The user accounts can be sure that the assets and liabilities shown in the audited balance sheet show the
concern, as it is i.e. neither more nor less.
3) True and fair profit and loss account:

The user can be confident that the audited profit and loss account shows the true amount of profit or loss
as it is i.e. neither more nor less.
4) Tally with books:

The audited final account can be taken to tally with the books of accounts. Thus, the income-tax officer
can start with the figure of audited books profit, make adjustments and compute the taxable income. An outside
user need not go through the entire books.
5) As per standard accounting and auditing practices:

The audited final accounts follow the standard accounting and auditing principles laid down by
professional bodies. Thus, audited accounts are based on objectives standard and not on personal whims and
fancies of a particular accountant or auditor.
6) Detection and prevention of errors and frauds:

Audited accounts can be assumed reasonably free from errors and frauds. The auditor with his expert
knowledge would take due care to see that Errors and frauds are detected so that the accounts shoe a true and fair
view.
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7) Advice on system, taxation, finance:
The auditor can also advise the client about the accounting system, internal control, internal check,
internal audit, taxation, finances etc.
2.3 LIMITATIONS OF AUDITING
1. An auditor cannot check each and every transaction he has to check only the selected areas and
transaction on a sample basis.
2. Audit evidence is not conclusive in nature thus confirmation by a debtor is not conclusive
evidence that the amount will be collected. It is said evidence is rather than conclusive in nature.
3. An auditor cannot be expected to discover deeply laid frauds usually involves acts designed to
conceal them such as forgery , celibate failure to record transactions, false explanation and hence
are difficult to detect.
4. Audit cannot assure the users of account about the future profitability, prospects or the efficiency
of the management.
5. An auditor has to rely upon expert auditor may have to rely on expert in related field such as
lawyers, engineers, values etc. for estimating contingent liabilities, valuation of fixed assets etc.
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2.4 AUDIT TYPES

MEANING:
Audit is not legally obligatory for all types of business organizations or institutions. On this basis
audits may be of two broad categories i.e., audit required under law and voluntary audits.
(i) Audit required under law :
The organizations which require audit under law are the following: companies governed by the
Companies Act, 1956;
a. banking companies governed by the Banking Regulation Act, 1949;
b. electricity supply companies governed by the Electricity supply Act, 1948;
c. co-operative societies registered under the co-operative Societies Act, 1912;
d. public and charitable trusts registered under various Religious and Endowment Acts;
e. corporations set up under an Act of parliament or State Legislature such as the Life Insurance
Corporation of India.
f. Specified entities under various sections of the Income-tax Act, 1961.
(ii) In the voluntary category are the audits of the accounts of proprietary entities, partnership
firms, Hindu undivided families, etc. in respect of such accounts, there is no basic legal requirement of
audit. Many of such enterprises as a matter of internal rules require audit. Some may be required to get
their accounts audited on the directives of Government for various purpose like sanction of grants,
loans, etc. But the important motive for getting accounts audited lies in the advantages that follow
from an independent professional audit. This is perhaps the reason why large numbers of proprietary
and partnership business get their accounts audited.
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2.5 TYPE OF AUDIT IN BANK
1.Statutory audit:
The statutory audit, which is compulsory as per the law. The statutory audit of banks includes
examination and inspection of internal audit, concurrent audit, etc. The statutory audit of banks is like a
post mortem activity. The suggestions of the statutory auditors can assist the bank management in
improving the effectiveness of internal audit/concurrent audit/inspection functions, etc. In this way
statutory plays a very important role in regulating the banking companies.
2.Internal audit:
Banks generally have a well-organized system of internal audit. There internal auditors pay frequent
visit to the branches. They are an important link in internal control of the bank. The systems of internal
audit in different banks also have a system of regular inspection of branches and head office. A separate
department within the banks by firms of chartered accountants carries out the internal audit and
inspection function.
3.Concurrent audit:
Concurrent audit is the system which introduced by the RBI with the view that interval between the
occurrence of transaction and its over view kept to the minimum extent and examination of
transactions by the auditors take place as soon as the transaction take place. It has perceived the
effective means of control. The main view of concurrent auditors is to see that the transactions are
properly recorded, documented and vouched.
4.System audit:
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In todays technological advancements, banking companies are using a well-organized computer
system to perform their transactions. So, it is very necessary to conduct system audit in order to
evaluate the computer system for effectiveness.
System audit is the audit of such computer environment/system and comprises the following internal
controls over EDP activities and with application controls specific control procedures over accounting
applications/assuring that all transaction are recorded and authorized and completely, accurately, timely
processed manner which in turn are verified by computer.
5.Revenue audit:
Revenue audit refers to the audit of revenues/ incomes. In revenue audit of banking companies,
auditors go through the various sources of revenues from which bank earn income. In revenue audit of
banks, the auditor inspects that all the records are showing true and fair picture of revenues or not.
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2.6 BOOKS OF ACCOUNTS OF BANKS

A banking company is required to maintain the books of accounts in accordance with sec.209 of the
companies act. There are, however, certain imperatives in banking business they are the requirements
to maintain accurate and always up to date account. Banks, therefore, device their accounting system to
suit these requirements. The main characteristics of a banks system of book keeping are as follows:
A. The vouchers entered into different personal ledgers each day are summarized on summery sheet; the
totals of each are posted to the control accounts in the general ledger.
B. The general ledger trail balance is extracted and agreed every day.
C. A trial balance of the detailed personal ledgers is prepared periodically, usually every two weeks, and
agreed with the general ledger control accounts.
D. Expecting for cash transactions, always two vouchers are prepared for each transaction, one for debit
and the other for credit. This system ensures double entry at the basic level and obviates the possibility
of errors in posting
PRINCIPAL BOOKS OF ACCOUNT

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General ledger:
Profit and Loss ledgers;
SUBSIDIARY BOOKS OF ACCOUNTS

Personal ledgers:
Bill Registers:
Other subsidiary registers:
2.7 VERIFICATION OF ASSETS AND LIABILITES

Capital and Liabilities:
1 Capital
The following particulars have to be given in respect of share capital in the balance sheet
For nationalized banks

The capital owned by central government as on the date of balance sheet including contribution from
government, if any, for participation in world bank project should be shown.
For banks incorporated outside India

Capital (the amount brought in by banks by way of start up capital as prescribed by RBI shown under
this head)
Amount of deposit kept with RBI under section 11(2) of the banking regulation act, 1949.
For other banks
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Authorized capital (shares of Rs.each)
Issued capital (-do-)
Subscribed capital (-do-)
Called-up capital (-do-)
Less: calls unpaid
Add: forfeited shares
The auditor should verify the opening balance of capital with reference to the audited balance sheet of
the previous year. In case there has been increase in capital during the year, the auditor should examine
the relevant documents supporting the increase. For example, in case of an increase an authorized
capital of a banking company, the auditor should examine the special resolution of shareholders and the
memorandum of association. An increase in subscribed and paid-up capital of a banking company, on
the other hand, should be verified with reference to prospectus/ other offer document, reports received
from registers to the issue, bank statement, etc.
2) Reserves and surplus:

The following are required to be disclosed in the balance sheet under the head Reserves and Surplus.
a) Statutory reserves.
b) Capital reserves.
c) Share premium.
d) Revenue and other reserves.
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e) Balance in profit and loss account.
The auditor should verify the opening balances of various reserves with reference to the audited
balance sheet of the previous year. Addition to or deductions from reserves should also be verified in
the usual manner, e.g. with reference to board resolution. In the case of statutory reserves and share
premium, compliance with legal requirements should also be examined. Thus, the auditor should
specifically examine whether the requirements of governing legislation regarding transfer of the
prescribed percentage of profits to reserve fund have been complied with. In case the bank has been
granted exemption form such transfer, the auditor should examine the relevant documents granting
such exemption. Similarly, it should be examined whether the appropriations from share premium
account conform to the legal requirements.
3) Deposits:
Deposits are required to be classified in the balance sheet under the following heads.
A I. Demand Deposits
i from banks
ii from others
II. Saving Bank Deposits
III. Term Deposits

i From banks.
ii From Others.
B I. Deposits of Branches in India.

II Deposits of Branches outside India.
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The auditor may verify types of deposits in the following manner.
I Current account:
The auditor should verify the balances in individual accounts on a sampling basis. He should also
examine whether the balances as per subsidiary ledgers tally with the related control accounts in the
general ledger.
The auditor should consider the debit balances in current account are not netted out on the liabilities
side but appropriately included under the advances.
Inoperative accounts are a common area of frauds in banks. While examining current account, the
auditor should specifically cover in his sample some of the inoperative account revived during the year.
The auditor should ascertain whether inoperative are revived only with proper authority. For this
purpose, the auditor should identify cases where there has been a significant reduction in balances
compared to the previous year and examine the authorization for withdrawals.
II. Saving bank deposits:

The auditor should verify the balances is individual account on a sampling basis. He should also
examine whether the balances as per subsidiary ledgers tally wit the related control accounts in the
general ledger.
The auditor should also check the calculations of interest on a sampling basis. It is not usual for
branches to interest saving bank up to a date close to the end of the accounting period for e.g.25 th
March based on the actual balances with interest of the remaining period on an estimated basis at the
head office level.
III. Term deposits:
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Term deposits are deposits repayable after a specified period. They are considered time liabilities of the
bank.
The auditor should verify the deposits with reference to the relevant registers. The auditor should also
examine, on a sampling basis, the registers with the counter-foils of the receipts issued and with the
discharged receipts returned to the bank.
IV. Deposits designated in foreign currencies:

In the case of deposits designated in a foreign currency, for e.g. foreign currency non-resident deposits,
the auditor should examine whether they have been converted into Indian rupees at the rate notified in
his behalf by the head office.
V. Interest accrued but not due:

The auditor should examine that interest accrued but not due on deposits is not included under the
deposited but is shown under the head other liabilities ad provision
2. Borrowing:
Borrowings of a bank are required to be shown in balance sheet as follows:

I Borrowing in India.
a. Reserves Bank of India.

b. Other banks.
c. Other institution and agencies.
II Borrowing from RBI, other banks/financial institution etc. should be verified by the auditors
with reference to confirmation certificated and other supporting document such as agreements,
correspondence etc.
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The auditor should also examine whether a clear distinction has been made between
rediscount and refinance for disclosure of the amount under the above head since rediscount
does not figure under this head.
Other current liabilities:

The third schedule to the banking Regulation act, 1949, requires disclosure of the following items
under the head other liabilities and provision
Bills payable
Inter office adjustments.
Interest accrued
Other (including provisions)
The auditor may verify the various items under the head other liabilities and provision in the following
manner.
Bills payable
Bills payable represent instrument issued by the ranch against money received from customers, which
are to be paid to the customers or as per his order. These include Demand Draft, Telegraphic Transfer,
and Mail transfer and Mail Transfer, Traveller cheques, Pay order, Banker cheques, and similar
instrument issued by the bank but not presented for payment until the balance sheet date.
Interest accrued:
Interest accrued but not due on deposit is to be shown and borrowing is to shown under this head. The
auditor should examine this with reference to terms of various type of deposits and borrowings. It
should be specially examined that such interest has not been clubbed with the deposits and borrowing
shown under the deposits and borrowing.
Other
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According to the notes and instructions for compilation of balance sheet and profit and loss account,
issued by the Reserve Bank of India, the following items are to be included under this head.
Net provision for income tax and other taxes like interest tax, less advances payment and tax
deducted at source.
Surplus in aggregate in provision for bad and doubtful debts provision account.
Contingency funds, which are actually in the nature of reserved but are not disclosed as such.
Provision towards standard assets. These are to shown separately as contingent standard assets.
Proposed dividend/transfer to government.
ASSETS:
A Balanced with banks
1 In current account
2 In other deposits account.
B Money at call and short notice
1 With banks
2 With other institutions
1.Cash Reserved:
One of the determinants of cash balance to be maintained by banking companies and other schedule is
the requirement for maintenance of certain minimum cash reserve. While the requirement for
maintenance of cash reserve by banking companies is contained in the banking regulation act,1949
corresponding requirements for schedule bank is contain in the Reserve Bank of India.
2) Investment:
The auditor should verify the investment scripts physically at the close of business on the date of
balance sheet. In exceptional cases where physical verification of investment scripts on the balance
sheet date is not possible the auditor should carry out the physical verification on a should take in to
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consideration any adjustment for subsequent transaction of purchase, sale etc. he should take particular
care to see that only genuine investment are produced before him.
3.Advances:
In carrying out of audit of advances, the auditor of advances, the auditor is primarily concerned with
obtaining evidence about following
Amount included in balance sheet in respect of advances are outstanding at the date of balance sheet.
a Advances represent amount due to the bank.
b There are no unrecorded advances.
c The stated basis of valuation of advances is appropriate and properly applied, and that the
recoverability of advances is recognized in their valuation.
4) Fixed assets:
In carrying out an audit of fixed assets, the auditor is concerned primarily with obtaining evidence
about their existence and valuation.
The branch auditor should ascertain whether the accounts in respect of premises and/or other fixed
assets are maintained at the branch or centrally. Similarly, he should ascertain the location of
documents of title or other documents evidencing ownership of various items of fixed assets. The
auditor should verify the opening balance of premises with reference to schedule of fixed assets, ledger
or fixed asset register.
In respect of fixed assets sold during the year, a copy of the sale deed and receipt of the salve value
should examined by the auditor.
5) Other assets:
The auditor should see that whether there are any reversals entries indicating the possibility of irregular
payments or frauds in case of inter- office adjustments. The auditor should also pay attention towards
interest-accrued part from the banks point of view. The auditor should see that internal control over
stationery items. The auditor should verify the stationery and stamp.
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27
CHPTER NO:-03
3.1 AUDIT COMMITTEE
In pursuance of RBI circular September 26, 1995, a bank is required to constitute an Audit
Committee of its Board. The membership of the audit committee is restricted to the Executive Director,
nominees of Central Government and the RBI, Chartered Accountant director and one of the non-
official directors.
One of the functions of this committee is to provide direction and oversees the operations of
the total audit function in the bank. The committee also has to review the internal inspection function in
the bank, with special emphasis on the system, its quality and effectiveness in terms of follow up. The
committee has to review the system of appointment and remuneration of concurrent auditors.
The audit committee is, therefore, connected with the functioning of the system of concurrent
audit. The method of appointment of auditors, their remuneration and the quality of their work is to be
reviewed by the Audit Committee. It is in this context that periodical meeting by the members of the
audit committee with the concurrent auditors help the audit committee to oversee the operations of the
total audit function in the bank.
Considering the coverage of this audit assignment and the specialized nature of work there is also a
need for training to be imported to the staff of the auditors. This training has to be given in specialized
field such as foreign exchange, computerization, and areas of income leakage, fraud prone areas,
determination of credit rating and other similar specialized areas. The bank can organize such training
programmed at various places so that it can ensure the quality of audit.
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28
3.2 OBJECTIVES OF THE STUDY
The main objective3.2s of the study are as follows:
1. To critically evaluate the audit of bank and their compliance with critical elements of
external audit operations.
2. Identify short-comings or weakness in the Auditing practices of the Auditing Departments if

any.
3. Make recommendations to improve on weaknesses and short-comings of the bank auditing

departments.
4. To stimulate further research into other areas of bank to improve their strength.
5. To understand the audit procedure of bank.
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29
3.3 Literature Review
Overview
In any current business organisation, progress that the company is making is recorded as basis
for, among a host of other essential things, decision-making and as a benchmark for measuring the
firms performance for the period under scrutiny. A financial situation analysis or evaluation is one such
yardstick that documents current and future financial situation in an attempt to determine a financial
strategy to help achieve organisational goals. With regards to this, this paper will review some issues
related to auditing as guidance of determining the financial situation of a business. Actually, auditing in
any businesses is the inspection and verification of the accuracy of financial records and statements.
Private businesses and all levels of government conduct internal audits of accounting records and
procedures. Internal audits are conducted by a companys own personnel to uncover bookkeeping
errors and also to check the honesty of employees.
In large companies, internal auditing is an ongoing procedure. A company that trades stock on a
registered stock exchange or is preparing to issue new shares of stock must submit to an external audit.
These companies are known as publicly traded companies. Moreover, an external audit is used to give
the public a true statement of a companys financial position. It is made at least once a year by public
accountants who are not regular employees of the company.
The auditors make sure that the company has followed proper accounting procedures in its financial
records and statements. They compare the current financial statements with those of the previous year
to determine whether the statements are calculated consistently. If they are not, they present a distorted
picture of the companys financial position. The auditors also inspect real estate, buildings, and other
assets to see if their value is overstated. Debts and other liabilities are checked to see if they have been
understated.
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30
Auditing
Auditing practice has a much longer history than many of the other developments that can be
considered and the large firms of accountants, in which many financial auditors work have become
influential advisory institutions throughout the world. Thus, auditing has provided the model which
has influenced the design of auditing practice in many other fields. Although environmental, medical,
or value for money audits are conceived as distinct from financial auditing, the latter continues to exert
its normative influence as a centre of gravity for debate and discussion. And it is in the context of
auditing that the dependency of acts of verification on judgment and negotiation is most apparent.
With this consideration, the paper of Ball & Shivakumar (2008) reviewed and estimated the importance
of profits in providing new information to the stock market. And through auditing procedure, they
found out that their subject company have contributed more to return volatility in recent years may
show that earnings has increased importance as a source of new information. Apparently, Jenson KL &
Payne JL 2005 argued that audit quality and quality fees in response agency costs is also important in
auditing and even in any business. Using advanced auditing methods related to employing auditors
with high skills in industry experience. Advanced methods have little impact on audit fees, but in some
cases increase of quality not necessarily related with higher audit fees. It is not apparent that not
focusing on fees conducts to great increase in audit quality. Auditing methods is a tool that control audit
quality in response to agency costs.
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31
3.4 RESEARCH METHODOLOGY
This chapter discussed how data was gathered, analysed, and interpreted to explain the
relationships between the various variables in relation to the objectives of the research
paper. The researcher used a case study to explain the relationship between the variables:
the case of the bank audit. The researcher employed both primary and secondary data,
qualitative and quantitative research methods were also used to examine the bank audit. A
number of data collection methods were combined to verify the reliability and accuracy of
the data as study used a combination of data collection tools; a Survey, Questionnaire,
Relevant Corporate Documents and Observation.
Sources of Data :
The sources of data for the study were mainly primary and secondary. The primary sources
employed questionnaire, and observation to record data. The Secondary sources include,
company archives, auditing reports, bank website and bank auditing framework or
regulation of bank.
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32
3.5 What is a Bank ?

Finance is the life blood of trade, commerce and industry. Now-a-days, banking sector acts as the
backbone of modern business. Development of any country mainly depends upon the banking system.
The term bank is derived from the French word Banco which means a Bench or Money exchange
table. In olden days, European money lenders or money changers used to display (show) coins of
different countries in big heaps (quantity) on benches or tables for the purpose of lending or
exchanging.
A bank is a financial institution which deals with deposits and advances and other related services. It
receives money from those who want to save in the form of deposits and it lends money to those who
need it.
Definition of a Bank
Oxford Dictionary defines a bank as "an establishment for custody of money, which it pays out on
customer's order."
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33
3.6 Characteristics / Features of a Bank

1. Dealing in Money
Bank is a financial institution which deals with other people's money i.e. money given by depositors.
2. Individual / Firm / Company

A bank may be a person, firm or a company. A banking company means a company which is in the
business of banking.
3. Acceptance of Deposit
A bank accepts money from the people in the form of deposits which are usually repayable on demand
or after the expiry of a fixed period. It gives safety to the deposits of its customers. It also acts as a
custodian of funds of its customers.
4. Giving Advances
A bank lends out money in the form of loans to those who require it for different purposes.
6. Payment and Withdrawal

A bank provides easy payment and withdrawal facility to its customers in the form of cheques and
drafts, It also brings bank money in circulation. This money is in the form of cheques, drafts, etc.
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34
3.7 Banks in India
India has a well developed banking system. Most of the banks in India were founded by Indian
entrepreneurs and visionaries in the pre-independence era to provide financial assistance to traders,
agriculturists and budding Indian industrialists. The origin of banking in India can be traced back to the
last decades of the 18th century. The General Bank of India and the Bank of Hindustan, which started
in 1786 were the first banks in India. Both the banks are now defunct. The oldest bank in existence in
India at the moment is the State Bank of India. The State Bank of India came into existence in 1806. At
that time it was known as the Bank of Calcutta. SBI is presently the largest commercial bank in the
country.
The role of central banking in India is looked by the Reserve Bank of India, which in 1935 formally
took over these responsibilities from the then Imperial Bank of India. Reserve Bank was nationalized in
1947 and was given broader powers. In 1969, 14 largest commercial banks were nationalized followed
by six next largest in 1980. But with adoption of economic liberalization in 1991, private banking was
again allowed.
The commercial banking structure in India consists of: Scheduled Commercial Banks and Unscheduled
Banks. Scheduled commercial Banks constitute those banks, which have been included in the Second
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35
Schedule of Reserve Bank of India (RBI) Act, 1934. RBI includes only those banks in this schedule,
which satisfy the criteria laid down vide section 42 (6) (a) of the Act.
Indian banks can be broadly classified into public sector banks (those banks in which the Government
of India holds a stake), private banks (government doe not have a stake in these banks; they may be
publicly listed and traded on stock exchanges) and foreign banks.
Bank Fixed Deposits
Bank Fixed Deposits are also known as Term Deposits. In a Fixed Deposit Account, a certain sum of
money is deposited in the bank for a specified time period with a fixed rate of interest. The rate of
interest for Bank Fixed Deposits depends on the maturity period. It is higher in case of longer maturity
period. There is great flexibility in maturity period and it ranges from 15days to 5 years.
Current Account
Current Account is primarily meant for businessmen, firms, companies, public enterprises etc. that have
numerous daily banking transactions. Current Accounts are cheque operated accounts meant neither for
the purpose of earning interest nor for the purpose of savings but only for convenience of business
hence they are non-interest bearing accounts
Demat Account
Demat refers to a dematerialised account. Demat account is just like a bank account where actual
money is replaced by shares. Just as a bank account is required if we want to save money or make
cheque payments, we need to open a demat account in order to buy or sell shares.
Recurring Bank Deposits

Under a Recurring Deposit account (RD account), a specific amount is invested in bank on monthly
basis for a fixed rate of return. The deposit has a fixed tenure, at the end of which the principal sum as
well as the interest earned during that period is returned to the investor.
Reserve Bank of India

Page
36
The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the
Reserve Bank of India Act, 1934. Though initially RBI was privately owned, it was nationalized in
1949. Its central office is in Mumbai where the Governor of RBI sits.
Savings Bank Account

Savings Bank Accounts are meant to promote the habit of saving among the citizens while allowing
them to use their funds when required. The main advantage of Savings Bank Account is its high
liquidity and safety.
CHPTER NO :-4
4.1Profile Union Bank of India
Type Public (BSE: 532477)

Industry Financial services
Headquarters Mumbai, India
D. Sarkar
Key people
(Chairman & MD)
Page
37
21,144 crore (US$3.83
Revenue
billion) (2012)
1,787 crore (US$323.45
Net income
million) (2012)
Employees 27,746 (2011)
Website www.unionbankofindia.co.in
Union Bank of India (UBI) (BSE: 532477) is one of India's largest public sector banks (the government
owns 55.43% of its share capital remains public, private organizations and foreign companies), is listed
on the Forbes 2000. It has assets of USD 13.45 billion and all the bank's branches have been networked
with its 3025 ATMs. Its online Telebanking facility are available to all its Core Banking Customers -
individual as well as corporate. It has representative offices in Abu Dhabi, United Arab Emirates, and
Shanghai, Peoples Republic of China, and a branch in Hong Kong.
4.2 History
Union Bank of India (UBI) was registered on 11 November 1919 as a limited company in
Mumbai and was inaugurated by Mahatma Gandhi. At the time of India's Independence in 1947, UBI still
only had four branches - three in Mumbai and one in Saurashtra, all concentrated in key trade centres.
After Independence UBI accelerated its growth and by the time the government nationalized it in 1969,
it had grown to 240 branches in 28 states.
Shortly after nationalization, UBI merged in Belgaum Bank, a private sector bank established
in 1930 that had itself merged in a bank in 1964, the Shri Jadeya Shankarling Bank. Then in 1985 UBI
merged in Miraj State Bank, which had been established in 1929. In 1999 the Reserve Bank of India
requested that UBI acquire Sikkim Bank in a rescue after extensive irregularities had been discovered
at the non-scheduled bank. Sikkim Bank had eight branches located in the North-east, which was
attractive to UBI.
UBI began its international expansion in 2007 with the opening of representative offices in Abu
Dhabi, United Arab Emirates, and Shanghai, Peoples Republic of China. The next year, UBI
Page
38
established a branch in Hong Kong, its first branch outside India. In 2009, UBI opened a representative
office in Sydney, Australia.
Management - Union Bank
Name Designation
D Sarkar Chairman & Managing Director
Suresh Kumar Jain Executive Director
B M Sharma Director
N Shankar Director
S Ravi Director
M V Nair Director
Name Designation
S S Mundra Executive Director
Chandan Sinha Director
Baidya Nath Bhattacharjee Director
M S Sriram Director
Atul Agarwal Director
A Bhattacharya Director
4.3 Illustrative structure of Banking Software

Banking
Software
CBS (Records Financial Assets Other

day to day Statements classification Returns &
software) generating &Provisioning Certificates
software software
Like Balance All other non All advances

Sheet and advances related Basel and
Profit & Loss related Capital Adequacy
returns Returns
Page
39
4.4 STURCTURE OF STAR ASSURANCE AUDIT DEPARTMENT
BOARD AUDIT COMMITEE
HEAD OF AUDIT
DEPARTMENT
FINANCIAL SYSTEMS
AUDIT AUDIT
Page
40
4.5Auditors Report of Union Bank of India
Auditors Report (Union Bank of India) Year ended March 2016
1. We have audited the accompanying financial statements of Union Bank of India as at 31 st

march . 2016, which comprise the Balance Sheet as at March 31, 2016 and Profit and loss
Account abd tge cash flow statement for the year then ended, and a summary of significant
accounting policies and other explanatory information. Incorporated in these financial statements
are the return of 19 branches, 1 Treasury Branch and 18 regional officiers audited by us and 1364
branches including 2 foreign branches , 46 service branches audited by branch auditors. The
branches audited by us and those audited by other auditors have been selected by the bank in
Page
41
accordance with the guidelines issued to the bank by the reserve bank of India . Also incorporated
in the balance sheet and profit and Loss are the return from 2128 branches, 81 offices/centres
which have not been subjected to audit. These unaudited branches account for 8.84 per cent of
advances 29.62 per cent of deposits, 6.01 per cent of interest income and 29.15 per cent of
interest expenses.
2. Management is responsible for the preparation of these financial statements in accordance with
Banking Regulation Act 1949. This responsibility includes the design, implementation and
maintenance of internal control relevant to the preparation of the financial statements that are free
from material misstatement, whether due to fraud or error.
Auditors' Responsibility
3. Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with the Standards on Auditing issued by the Institute of
Chartered Accountants of India. 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 from material misstatement.
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 Company's preparation and fair presentation of the financial statements in order to
design audit procedures that are appropriate in the circumstances. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of the
accounting estimates made by management, 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
Page
42
basis for our audit opinion.
Opinion
6. In our opinion, as shown by books of bank, and to the best of our information and according to
the explanations given to us:
(i) the Balance Sheet, read with the notes thereon is a full and fair Balance Sheet containing all
the necessary particulars, is properly drawn up so as to exhibit a true and fair view of state of
affairs of the Bank as at 31st March 2016 in conformity with accounting principles generally
accepted in India;
(ii) the Profit and Loss Account, read with the notes thereon shows a true balance of profit, in
conformity with accounting principles generally accepted in India, for the year covered by the
account; and
(iii) the Cash Flow Statement gives a true and fair view of the cash flows for the year ended on
that date.
Emphasis of Matter
7. Without qualifying our opinion, we draw attention to Note No.5.13 of Schedule 18, describes
a. regarding deferment of pension liability of the Bank to the extent of Rs.676.09 crore(previous
year - Rs.1014.13 crore) pursuant to the circular issued by the Reserve Bank of India to the public
sector banks on the provisions of AS 15, Employee Benefits (circular no.
DBOD.BP.bC/80/21.04.018/2010-11 dated February 9, 2011) on re-opening of Pension Option to
Employees of Public Sector Banks.
b. regarding deferment of additional gratuity liability which arose on enhancement of Gratuity

limit from Rs.3.50 lacs to Rs.10 lacs amounting to Rs.65 crore has been charged to the Profit &
Page
43
Loss account with the balance of Rs.130 crore being carried forward to be charged over the next 2
years.
Report on Other Legal and Regulatory Requirements
8. The Balance Sheet and the Profit and Loss Account have been drawn up in Forms A and B
respectively of the Third Schedule to the Banking Regulation Act, 1949.
9. Subject to the limitations of the audit indicated in paragraph 1 to 5 above and as required by the
Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980, and subject also
to the limitations of disclosure required therein, 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 purposes 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.
(c) The returns received from the offices and branches of the Bank have been found adequate for
the purposes of our audit.
10. In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement comply
with the applicable accounting standards.
FOR G.S. MATHUR & CO FOR PRICEPATT & CO FOR SINGRODIA GOYAL & CO
CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS CHARTERED
ACCOUNTANTS
Page
44
FIRM REGN NO. 008744N FIRM REGN NO.002783S FIRM REGN. NO. 112081W (RAJIV
KUMAR WADHAWAN) (S. BAKASUBRAMANIAN) (K.V.S. SHYAM SUNDER0
PARTNER (M.NO.091007) PARTNER ( M.NO.25413) PARTNER ( M.NO.015747)
FOR JINDAL & CO FOR SHAH GUPTA & CO FOR V.ROHATGI & CO
CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS

FIRM REGN NO.000844N FIRM REGN NO.109574W FIRM REGN.NO.000980C
(AKHIL JINDAL) (VIPUL K. CHOKSI) (VANDANA RASTOGI)
PARTNER (M.NO.090515) PARTNER ( M.NO.037606) PARTNER ( M.NO.086956)
Place: MUMBAI
Date : 9th May, 2016
Source : Dion Global Solutions Limited
Page
45
CHAPTER NO:-5
5.1: CONCLUSION
The project the position of Indian banking system as well as the principal laid down by the Basel
Committee on banking supervision.
This assessment was done in seven major areas, which are core principals, concurrent audit,
internal audit, deposit, loan accounting and transparency and foreign exchange transaction. The project
concluded that, given the complexity and development of Indian banking sector, the overall level of
compliances with the standards and codes is of high order.
This project gives the correct ideas about how the major areas can be found by way of effective
auditing system i.e. errors, frauds, manipulations etc. form this auditor get the clear ideas how to
recommend on the banks position. Project also contain that how to conduct of audit of the banks, what
are the various 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 or any other company there no misconduct of transactions is
taken places for that purpose the auditing is very important aspect in todays scenario form company
and point of view.
Page
46
5.2: BIBLIOGRAPHY
Websites
www.moneycontrol.com
www.icai.org
Reference Books : 1. MCOM PART II - AUDITING.
Page
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A Study of Auditing And Audit of Union Bank of India

Chapte Sub Particular Page no

1.4 Important concept of Auditing 8

4 4.1 Bank profile (Union Bank of India) 38

1.1: INTRODUCTION OF AUDIT

An audit is a systematic and independent examination of books, accounts,statutory records, documents

International auditing guidelines defines the auditing as auditing is an independent

1.3 ORIGIN AND EVOLUATION OF AUDITING

1.4 IMPORNTANT CONCEPTS IN AUDTING

Investigation: Examination of accounts for special purpose.

Statutory audit: An audit undertaken under any specific statute or Act.

1.5 FEATURES OF AUDITING

1.6 BASIC PRINCIPLES OF AUDIT

Some of the Exemptions are their as follows,

Agricultural Advances Affected by Natural Calamities:

Loans and Advances backed or supported by government:

2. The objective of an audit of financial information prepared within a framework of recognized

2.2 ADVANTAGES OF AUDITING

1) Assurance of true and fair accounts:

2) True and Fair balance sheet:

3) True and fair profit and loss account:

4) Tally with books:

5) As per standard accounting and auditing practices:

6) Detection and prevention of errors and frauds:

2.3 LIMITATIONS OF AUDITING

2.4 AUDIT TYPES

2.5 TYPE OF AUDIT IN BANK

2.6 BOOKS OF ACCOUNTS OF BANKS

PRINCIPAL BOOKS OF ACCOUNT

SUBSIDIARY BOOKS OF ACCOUNTS

2.7 VERIFICATION OF ASSETS AND LIABILITES

For nationalized banks

For banks incorporated outside India

For other banks

Issued capital (-do-)

Subscribed capital (-do-)

Called-up capital (-do-)

Less: calls unpaid

Add: forfeited shares

2) Reserves and surplus:

d) Revenue and other reserves.

e) Balance in profit and loss account.

II. Saving Bank Deposits

III. Term Deposits

B I. Deposits of Branches in India.

The auditor may verify types of deposits in the following manner.

II. Saving bank deposits:

IV. Deposits designated in foreign currencies:

V. Interest accrued but not due:

Borrowings of a bank are required to be shown in balance sheet as follows:

a. Reserves Bank of India.

Other current liabilities:

obtaining evidence about following

a Advances represent amount due to the bank.

b There are no unrecorded advances.

recoverability of advances is recognized in their valuation.

3.1 AUDIT COMMITTEE

3.2 OBJECTIVES OF THE STUDY

The main objective3.2s of the study are as follows: