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A PROJECT REPORT ON

A STUDY ON AUDIT REPORT OF YES BANK LIMITED

A PROJECT REPORT

SUBMITTED TO THE UNIVERSITY OF MUMBAI

IN PARTIAL FULFILLMENT

FOR THE AWARD OF THE DEGREE OF

MASTER OF COMMERCE-PART IIACCOUNTANCY

SEMESTER III

SUB: ADVANCED AUDITING

BY

SAHEESH SATHEESAN NAIR

ROLL NO.35

UNDER THE GUIDANCE OF

Prof. MS.GONSALVEZ SHIRIN THOMAS

MODEL COLLEGE

ADD: - plot no. P32,

PHASEII M.I.D.C. RESIDENTIAL AREA,

DOMBIVLI (E) 421203

YEAR 2013 - 14


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TABLE OF CONTENT

SR NO DESCRIPTION PAGE NO

1 CERTIFICATE 1

2 DECLARATION 3

3 ACKNOWLEGDEMENT 4

4 CHAPTER-1 INTRODUCTION 5

5 CHAPTER-2 COMPANY PROFILE 10

6 CHAPTER-3 AUDIT PROCEDURES & PRACTICES 20

7 CHAPTER-4 ANALYSIS OF FINANCIAL STATEMENT 38

8 CHAPTER-5 FINDING, SUGGESTION & CONCLUSION 45

9 BIBLIOGRAPHY 48


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DECLARATION BY THE STUDENT

I, SAHEESH SATHEESAN NAIR student of M.Com. Part-II Roll No.35 hereby declare that

the project for the PaperADVANCED AUDITING titled, A STUDY ON AUDIT REPORTOF YES BANK LTD submitted by me to University of Mumbai, SemesterIII examination

during the academic year 2013-2014, is based on actual work carried by me under the guidance

and supervision of MS.GONSALVEZ SHIRIN THOMAS.

I further state that this work is original and not submitted anywhere else for any examination.

Signature of student


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ACKNOWLEDGEMENT

At the beginning, I would like to thank GOD for his shower of blessing. The desire

of completing this project was given by my guide Prof. MS.GONSALVEZ SHIRIN

THOMAS. I am very much thankful to her for the guidance, support and for sparing

her precious time from a busy schedule.

I would fail in my duty if I dont thank my parents who are pillars of my life.

Finally I would express my gratitude to all those who directly and indirectly helped

me in completing this project.

(Signature of the student)


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CHAPTER I

INTRODUCTION


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INTRODUCTION

The audit of banking companies plays a very important role in India as it help to regulate the

banking companies in right manner. In audit of banks includes various types of audit which are

normally carried out in banking companies such as statutory audit, revenue/income expenditure

audit, concurrent audit, computer and system audit etc. the above audit is mainly conducted by the

banks own staff or external auditor. However, the rules and the regulation relating to the conduct

of various types of audit or inspections differ from a bank to bank expect the statutory audit for

which the RBI guidelines is applicable. In this, I have given more importance on the overall bank

audit system. In todays competitive world audit is very much necessary as well as compulsory ,

because investor investing decision is depend on that particular concept if auditor has expressing

his view about particular organization is true and fair then investor can get his ideas about how

much he should invest in particular companies.

PROJECT TITLE

The title of the project is A STUDY ON AUDIT REPORT OF YES BANK LTD. The study is

made with special reference to Yes Bank Limited.


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LITERATURE REVIEW

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:

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.


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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 d ay to using

computers to examine computerized accounts of today.

Definition 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.

Objective of the Study

To measure the overall performance of Audit Department in Yes Bank Limited

To study the functions and roles of Audit Department in Yes Bank Limited


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Scope of the study:

The Audit report study will help to know the performance of Yes Bank Limited & it also help the

management can emphasize on their weaker areas for improvement.

Limitation:

The present study has got all the limitation of case study method.

PRESENTATION OF THE STUDY

The present study is arranged as follows:

Chapter 1: Introduction gives an introduction to the title and to the report.

Chapter 2: Deals with Company Profile.

Chapter 3: Deals with Audit Procedure & Practice.

Chapter 4: Deals with the Analysis of Financial Statement

Chapter 5: Finding, Suggestion & Conclusion.


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CHAPTER II

COMPANY PROFILE


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COMPANY PROFILE

Country India

Industry Banking

NSE/BSE Listing NSE Code -532648

Regd.& corporate office Nehru centre,9th floor, Discovery of

India, Dr.A.B.Road, worli, Mumbai400018Tel:-+91(22)6669 9000

Northern Regional Corporate Office 48,Nyaya Marg, Chanakyapuri, New

Delhi 110021Tel:-+91(11)6656 9000

Website www.yesbank.in

Yes Bank, Indias new age private sector Bank is the outcome of the professional commitment of

its founder Mr. Rana Kapoor supported by his highly competent top management team to

establish a high quality, customer centric, service driven, private Indian Bank catering to the

Future Industries of India.

Yes Bank has adopted international best practices, the highest standards of service quality and

operational excellence, and offers comprehensive banking and financial solutions to all its valued

customers. A key strength and differentiating feature of Yes Bank is its knowledge driven

approach to banking and an unprecedented customer experience for its retail and wealth

management clients.

Yes Bank is steadily building corporate and institutional banking, financial markets, investment

banking, corporate finance, business (Small &Medium Enterprises) and transaction banking,

international banking, retail banking and wealth management business lines across the country.

The Banks constant endeavour is to provide a delightful banking experience expressed with

simplicity, empathy, and totality.

Yes Bank understands the financial needs of the Government of India, in its progress and

development role of a Growing India through Yes Banks Knowledge Banking approach and

the objective of being the Bank for an Emerging India. Yes Bank remains committed to serving
http://www.yesbank.in/http://www.yesbank.in/http://www.yesbank.in/


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this specialized segment. Yes Banks knowledge Bankers deliver innovative, structured and

comprehensive solutions through a Money Doctor approach focusing on diagnostic and

prescriptive attention to detail. This is facilitated through Yes Banks Technology leadership

delivering proven, easy-to-use solutions for Government Undertakings and agencies. Yes Bank

has provided financial and advisory services to Ministries of the Union Government, State

Governments, Central and State Public Sector Undertakings (PSUs) and Agencies.

In a short span of over three and a half years the Government Relationship Management (GRM)

team has developed robust relationships with over 100 entities. The GRM team is committed to

the core values of client orientation, innovation and superior service experience that exemplify all

Businesses at Yes Bank. GRM team is providing the Knowledge Advisory, Liquidity

Management and Investment Products, Transaction Banking, trade finances, cash management

services, Treasury services, Forex Remittances, debt capital markets, investment managements,

corporate salary accounts, Advisory structured transactions, term loans, and cash credit limits to

various government operations like IFFCO, SAIL, Airport Authority of India, IOCL, NDPL,

HPCL, Bridge & Roof co.(India) ltd and many more.

Business Strategy

Knowledge Banking: - One of the strengths and differentiating features of Yes Bank is its

knowledge banking approach that is the essence of all offerings to its customers. Knowledge has

been institutionalized as a key ingredient in all internal and external processes and utilized to

create customized solutions for the clients specific requirements.

Technology and Operations: - As a new generation Bank, Yes Bank has the advantage of

accessing the latest available technology. The Bank has taken a calibrated decision to invest in the

best IT system and practices in order to make its technology platform a strategic business tool for

building a competitive advantage.


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Responsible Banking: -Yes Bank has a vision to champion Responsible Banking in India,

where the concepts of Corporate Social Responsibility (CSR) and sustainability are integrated in

its Business focus.

Business Lines: -Yes Bank has four distinct business segments to effectively service the

differentiated needs of its targeted customers.

Corporate and Institutional Banking (C&IB): -To cater to the needs of large corporate &

institutional clients, MNCs, government companies and PSUs. Bank targets C&IB customers

through its multifunctional branches in the key metropolitican cities.

Emerging Corporate Banking (ECB): -It is dedicated to partner with growth-focused, fast-paced

enterprises, which are emerging as a leader in their respective business areas.

Business Banking: -To cater to the needs of the small and medium enterprises (SME), Yes Bank

has set up a dedicated business unit to focus on delivering superior banking solutions specially

designed to meet the varying and dynamic needs of its SME clients.

Retail Banking and Wealth Management: -The Bank intends to develop Retail Banking into a

key value driver. Yes Bank offers its customers choice & convenience, reflected in its branch

layout & design, product feature /design, options of distribution channels and superior technology

enabled service quality. Yes Bank predominantly offers value added retail liability and third party

wealth management products as well as retail asset offerings through its sales and service network

linked to its branches.


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Private Banking: - Yes Bank is focusing on personalized relationship banking for its top end

High Net worth customers, supported by structured financial solutions tailor-made to suit the

needs of such customers.

Product lines: - Yes Bank offers a wide range of fee-based products to corporate and business

banking customers to ensure a high degree of cross-sell to clients.

Financial Markets: -Yes Bank financial markets was ranked second in the Best for currency

strategy and best for technical analysis categories at the Asia Money 2005 foreign exchange

poll for India.

Transaction Banking: -Yes Bank Transaction banking group has adopted a consultative

approach and focus on knowledge and relationship banking to enable customers to address

strategic financial and operating needs in the domain of:

Working capital and liquidity management

Asset management

Treasury integration

Exposure and risk management


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Yes Bank proposes to apply industry knowledge and superior technology for offering innovative

structured solutions integral to a companys financial supply chain.

Yes International Banking: - It offers a complete suite of international banking products and

services, driven by state-of-the art technology, which includes Debt, Trade finance, corporate

finance, Investment banking and business advisory services, treasury and global Indian banking.

The Bank also plans to leverage its international presence, for its capital raising activities. These

services will initially be through partnerships with international banks and financial institutions

followed by the establishments of branches and representative offices, as per regulatory

approvals.

Brand Creation: - The Bank believes that its differentiation begins with its service and trust

mark YES. YES represents the bank true spirit of being service-oriented. The YES brand

creation effort is supported by Triton Communications, the principal advertising agency and

Ad factors PR, the Banks public relation consultant.

Key Members of Yes Bank Management Team

NAME DESIGNATION

Mr. Rana Kapoor Managing Director & CEO

Mr. Sunil Gulati Group President - C&IB, Transaction

Banking

Mr. Deepak Gaddhyan Group President GRM Team.

Mr. Sumit Gupta Country Head Emerging Corporate

Banking

Mr. Alok Gupta Country Head life sciences &

technologyMr. Rajnish Datta Country Head Small business

banking group

Mr. Subir Bisht Chief Risk Officer

Mr. Sanjay Aggarwal Country Head Credit Risk, Business

Banking

Mr. Varun Tuli President Business Banking


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Key Highlights & Milestones of Yes Bank.

Nov 2003 Incorporation of YES BANK Limited

May 2004 RBI License to commence banking

business

Dec 2006 Ranked No.3 in the Business World

Survey of Indias Best listed Banks

Mar 2007 Ranked No.2 among New Private SectorBanks in the Financial Express survey

Dec 2007 Won Best CSR practice award 2007

Dec 2007 Won IT people award 2007

Jan 2008 60 operational branches across India

Mar 2008 Ranked No.3 among New Private Sector

Banks in the Financial Express-E&Y

survey & overall #1 on credit quality &

#2 on Growth

Apr 2008 67 operational branches across India


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CHAPTER III

AUDIT PROCEDURES AND PRACTICES


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Audit procedures and practices

The audit of the banks should be well-acquainted with the relevant provision of the special

enactment that govern different types of banks, particularly those which affect the various items

of the financial implications of the business carried on by banks and the types of the transaction

that arise in the day-to-day operations.

In this chapter, salient features of audit of the banks are considered in the context of the provision

of the various enactment governing them.

Legislations relevant to Audit of banks:-

The provisions of many Acts relevant to audit of different types of banks. An auditor of the banks

should acquaint with the specific provision of the Acts applicable to the type of banks under

audit.

Nationalized banks are governed by the provisions of of the relevant Banking companies Act.

Certain provision of the Banking Regulation Act 1949 also applicable to nationalized banks

The non-nationalized banking companies are governed by the provision of the Banking

Regulation Act 1949.

Co-operative banks are governed by the Co-operative Societies Act 1912 or the Co-operative

Societies Act of the state in which they are situated, as well as by Part-v of the Banking

Regulation act 1949.Certain provision of the Banking Regulation act have been modified while

certain others have been omitted in their allocation to co-operative banks.

Regional rural banks are governed by the Regional rural banks Act 1976. The provisions of the

State bank of India Act 1955, and the State bank of India(subsidiary banks)Act 1959, apply State

bank of India and its subsidiaries respectively. Certain specified provisions of the Banking


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Regulation act 1949, are applicable to regional rural banks as well as to the State bank of India

and its subsidiaries.

Provision relating to Accounts:-

Section 29 of the Banking Regulation Act deals with the obligation of the banks regarding

maintenance of accounts and preparation of financial statements.

Its main preparation as follows;

1. Banks have to prepare a balance sheet and profit and loss accounts as on 31st march every

year in the form to set out in the Third schedule to the Act. A foreign banking company

has to similarly prepare a balance sheet and a profit and loss a/c every year in respect of

the business transacted through its branch in India.

2. The financial statements of the banks are to signed by the manager or the principal officer

and by atleast three directors. The financial statements of foreign banking companies are

to be signed by the manager or the agent of principal office in India.

3. In cases of the banking companies the provisions of the companies Acts 1956, relating to

the financial statements are also applicable to the extent they are not inconsistent with

requirements of the Banking Regulation Ac, 1949.

4. As per the third schedule to the Banking Regulation Act, the balance sheet of the bank as

to classify the items of the Capital and Liabilities and those of the assets below:-

Capital & Liabilities: Assets

Capi tal Cash and balances with Rereserve bank of India

Reserves and surplus. Balances with the banks money at call &,short notice

Deposits investments


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Borrowings Advances

Other liabilities and Fixed assets

provisions Other assets

Besides the above, contingent liabilities and bills for collection are also to be disclosed.

The forms of the profits and losses a/c shows the main item of the income ,expenditure and

appropriations. The disclosure requirements of the Third Sheduled are discussed later in this

chapter along with the audit to verify the various items of the financial statements.Apart from the

requirements of the Third Schedule to the banking regulation act 1949,the financial statement of

the bank have to contain additional disclosures required by RBI from time to time. Besides, listed

banks have to also satisfy the disclosure of listing agreement with stock exchange (s).RBI has

issued detailed notes and instruction for completion of balance sheet and profit and loss account

of banks. These notes and instructions provide interpretation of the requirement of the Third

schedule to the Banking Regulation Act and are thus useful to the auditor.

Provisions Relating to audit:

Appointment of the auditors;

The auditor of a banking company, a nationalized bank or a regional rural bank has to be a person

who is duly qualified under law to be an auditor of companies. Thus, the auditor of the companies

under sec 226 of the companies Act 1956, and who does not attract any disqualification laid down

therein.

The auditor of a nationalized bank is appointed by the board of directors of the bank concerned,

whereas the auditor of a banking company is appointed by the shareholder at the annual general

meeting. Previous approval of RBI for appointment of the auditor is required in the both cases.


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The auditors of the state bank of India are appointed by RBI in consultation of the Central

government. The auditors of the subsidiaries of the state bank of India are appointed by the state

bank of India. It may be mentioned in the State bank of India Act 1955, specially provides for

the appointment of the two or more auditors. The auditors of the regional rural banks concerned

with the approval of the Central Government.

The appointment of auditor of a co-operative bank is governed by the relevant Co-operative bank

is governed by the relevant Co-operative Societies Act.

Procedure for the Appointment in the case of nationalized banks:-

The statutory central auditors are appointed by the bank concerned on the basis of the names

recommended by the RBI from out of panel of auditors. For this purpose, the RBI formulates

detailed norms on the basis of which a panel is created by the Comptroller and Auditor General of

India. Generally, each nationalized bank appoints 4-6 statutory central auditors. As per the norms

prescribed by the RBI, to be eligible for empanelment, a firm should, as on January 1 of the

relevant year, meet the minimum eligibility norms relating to;

I. Number fulltime partners,

II. Numbers of FCA partners,

III. Number of years the firm has been existence,

IV. Period of minimum continuous association of partners with the firm,

V. Number of fulltime charted accountants,

VI. Number of professional staff,

VII. Experience of statutory audit of public sector banks having deposits of at least the

prescribed sum,

VIII. Experience of statutory audit of public sector undertakings.Atleast one partner should

have qualifications in computer audit.


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Powers of the Auditor

The auditor of a bank has same powers as those of company auditor ,except that the power the

auditor of a co-operative are governed by the relevant Co-operative Societies Act.

AuditorsReport

The contents of the auditor report in case of different types of banks are somewhat different.

Banking Companies:-

In addition to the matters which he is required to state in his report under the companies Act, the

auditor of banking company incorporated in India has also to state the following in his report to

the shareholder:

a) Whether or not the information and explanations required by him have been found to be

satisfactory ;

b) Whether or not the transactions of the company which have come to his notice have been

within the powers of the company;

c) Whether or not the returns received from branch offices of the company have been found

adequate for the purposes 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;

e) Any other matter which he considers should be brought to the notice of the shareholders

of the company.

Nationalized banks:-

The auditor of the nationalized bank, State bank of India or its subsidiary is required to report to

the central government and has to state the full in his report:

a) Whether, in his opinion, the balance sheet is a full & fair balance sheet containing all

the affairs of the bank, and in the 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 banks, which have come to notice, have been

within the powers of the banks;


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c) Whether or not the returns received from the offices and branches of the bank have

been found adequate for the purpose of the audit;

d) Whether the profit or loss a/c shows a true balances of the 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.

The report of the auditor of the nationalized bank is to be verified, signed, and transmitted to the

central government. The auditor has also to forward a copy of the audit report to the bank

concerned and to the RBI.

Regional Rural Banks:-

In the case of a regional rural banks, the auditor has to report directly to the bank. the content of

the report are similar to those of an audit report in the case of a nationalized banks.

Apart from the audit report on the financial statements, the auditor of a nationalized bank, State

bank of India , any of its subsidiary, or a banking company has also to prepare a long form audit

report(LFAR).The auditor of the banks is also called upon to give reports and certificates on

certain other specified matter.

Special audit:-

In addition to the normal annual audit, a special of the banking company can be ordered by RBI

under sec 30(1b) of the Banking Regulation Act. This power can be exercise by the RBI if it of

the opinion that the it is necessary to do so in public interest of the banks or in the of the bank or

its depositors. The special audit is to cover the banks accounts, for the transaction or class of

transaction or for such period or period as may be specified by RBI. For conducting special audit,

RBI may either appoint a person who is qualified to act as a company auditor or the direct thestatutory auditor of the bank to conduct a special audit. The section 223 of the Companies Act

relates to the provisions of the special audit.

Approach to banks audits:-

The guidance note on the audit of banks issued by the ICAI, recognize that the general approach

to audit of banks involves essentially the same stages as in any other audits. However at each

stage, the auditor has to take into the account the following special characteristics of banks;


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Custody of large volumes of monetary items, thereby requiring formal operating

procedure, well-defined limits on the individual discretions and rigorous internal control.

Large volume and variety of the transactions and continuing development of new products

and services, many of which may involve complex accounting.

Wide geographical dispersal of the operations with consequent difficulties in maintaining

uniform operating practices and accounting systems, particularly in the case of the

overseas operations.

Significant commitments without transfer funds not requiring formal recognitions in the

books of accounts.

Special nature of risk with operations.

A strict legal and regulatory framework that inter alia, influence the accounting and

auditing.

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 profitand 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.


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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.

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.

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.

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.


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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.

TYPE OF AUDIT IN BANK

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.

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.

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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STAGES OF AUDITING IN YES BANK

1) Preliminary work:

a) The auditor acquire knowledge of the regulatory environment in which the bank operates.

Thus, the auditor should familiarize himself with the relevant provisions of applicable

laws and ascertain the scope of his duties and responsibilities in accordance with such

laws. He should be well acquainted with the provisions of the Banking Regulation act,

1956 in the case of audit of a banking company as far as they relate of preparation and

presentation of financial statements and their audit.

b) The auditor also acquire knowledge of the economic environment in which the bank

operates. Similarly, the auditor needs to acquire good working knowledge of the services

offered by the bank. In acquiring such knowledge, the auditor needs to be aware of the

many variation in the basic deposit, loan and treasury services that are offered and

continue to be developed by banks in response to market conditions. To do so, the auditor

needs to understand the nature of services rendered through instruments such as letters of

credit, acceptances, forward contracts and other similar instruments.

c) The auditor obtain and understanding of the nature of books and records maintained and

the terminology used by the bank to describe various types of transaction and operations.

In case of joint auditors, it would be preferable that the auditor also obtains a general

understanding of the books and records, etc, relating to the work of the other auditors, In

addition to the above, the auditor should undertake the following:

I. Obtaining internal audit reports, inspection reports, inspection reports and concurrent

audit reports pertaining to the bank/branch.


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II. Obtaining the latest report of revenue or income and expenditure audits, where

available.

III. In the case of branch auditors, obtaining the report given by the outgoing branch

manager to the incoming branch in the case of change in incumbent at the branch

during the year under audit, to the extent the same is relevant for the audit.

d) RBI has introduced and offsite surveillance system for commercial banks on various

aspects of operations including solvency, liquidity, asset quality, earnings, performance,

insider trading etc., and has indicated that such reports shall be submitted at periodic

intervals from the year commencing 1-04-1995. It will be appropriate to be familiar with

the reports submitted and to review them to the event that they are relevant for the purpose

of audit.

e) In a computerized environment the audit procedure may have to appropriately tuned to the

circumstances, particularly as the books are not authenticated as in manually maintained

accounts and the auditor may not have his in-house computer facility to taste the software

programmes. The emphasis would have to be laid on internal control procedure related to

inputs, security in the matter of access to EDP system, use of codes, passwords, data

inputs being prepared by person independent of key operators and other build-in

procedure for data validation and system controls as to ensure completeness and

correctness of the transaction keyed in. system documentation of the software may be

obtained and examined.

f) One set of tests that the auditor at both the branch level and head office level may apply

for audit of banks in analytical procedure.

2) Evaluation of internal control system:

It may be noted that transaction in banks are voluminous and repetitive, and fall into limited

categories/heads of account. It may, therefore, be more appropriate that the evaluation of the


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internal control is made for each class/category of transaction. If the exercise of internal control

evaluation is properly carried out, it assist the auditor to determine the effectiveness or otherwise

of the control systems and accordingly enable him to strengthen his audit procedures, and lay

appropriate emphasis on the risk prone areas. Internal control would include accounting control

administrative controls.

a) Accounting controls:

Accounting controls cover areas directly concerned with recording of financial transactions and

maintenance of such registers/records as to ensure their reliability.

Internal accounting controls are also envisaging such procedures as would determine

responsibility and fix accountability with regard to safeguarding of the assets of the bank. It

would not be out of place of mention that there is a distinction between accounting system and

internal accounting controls. Accounting system envisages the processing of the transaction and

events, their recognition, and appropriate recording. Internal controls are techniques, method and

procedures so designed and usually built into systems, as would enable prevention as well as

detection of errors, omissions or irregularities in the process of execution and recording of

transaction/events.

The internal accounting controls as would ensure prevention of errors, omissions and

irregularities would include following:

I. No transaction can be registered/recorded unless it is sanctioned/approved by the

designated authority.

II. Built- in dual control/supervisory procedures ensure that there is an independent

automatic check on input/vouchers.


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III. No single person has authority to initiate transaction and record through all stages to

the general ledger. Each day transactions are accurately and promptly recorded, and

the control and subsidiary records are kept balanced through personnel independent of

each other.

The auditor look into other areas which may lead to detection of errors, omissions and

irregularities, inter alias in the following:

I. Missing/loss of security paper, stationery forms.

II. Accumulation of transactions/balances in nominal heads of accounts like suspense,

sundries, inter-branch accounts, or other nominal head of accounts particularly if there

accounts particularly if these accounts are extensively used to balance books, despite

availability of information.

III. Accumulation of old/large unexplained/unsubstantiated entries in accounts with

Reserve Bank of India and other banks and institutions.

IV. Transaction represented by mere book adjustments not evidenced/substantiated or

upon non-honoring of contracts/commitments.

V. Origination debits I head office accounts/inter-branch accounts.

VI. Analytical review procedure.

VII. Serious irregularities pointer out in internal audit/inspection/special audit

VIII. Complaints/matters pending in the vigilance/grievances cell, as regards discrepancies

in accounts of constituents, etc.

IX. Results of periodic analytical review, if observed as adverse.


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a) Administrative control:

These are broadly concerned with the decision making process and laying down of

authority/delegation of powers by the management. It may be noted that in the normal course, the

head office use the zonal/regional offices do not conduct any banking business. They are

generally responsible for administrative and policy decisions which are executed at the branch

level.

3) Preparation of audit programme for substantive testing and its execution

Having familiarized him the requirements of audit, the auditor should prepare an audit

programme for substantive testing which should adequately cover the scope of his work. In

framing the audit programme, due weightage should be given by the auditor to areas where, in his

view, there are weaknesses in the internal controls. The audit programme for the statutory

auditors would be different from that of the branch auditor. At the branch level, basic banking

operation are to be covered by the audit. On the other hand, the statutory auditors at the head

office (provisions for gratuity, inter- office accounts, etc.). The scope of the work of the statutory

auditors would also involve dealing with various accounting aspects and disclosure requirements

arising out of the branch returns.

4) Preparation and submission of audit report

The branch auditor forwards his report to the statutory auditors who have to deal with the same in

such manner, as they considered necessary. It is desirable that the branch auditors reports are

adequately in unambiguous terms. As far as possible, the financial impact of all qualification or

adverse comments on the branch accounts should be clearly brought out in the branch audit

report. It would assist the statutory auditors if a standard pattern of reporting, say, head wise,

commencing with assets, then liabilities and thereafter items related to income and expenditure, is

followed.


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In preparing the audit report, the auditor should keep in mind the concept of materiality. Thus,

items which do not materially affect the view presented by the financial statements may be

ignored. However, in the judgement of the auditor, an item though not material, is contrary to

accounting principles or any pronouncements of the Institute of Chartered Accountants of India or

in such as would require a review of the relevant procedure, it would be appropriate for him to

draw the attention of the management to this aspect in his long form audit report. In all cases,

matters covering the statutory responsibilities of the auditor should be dealt with in the main

report. The LFAR should be used to further elaborate matters contained in the main report and as

substitute thereof. Similarly while framing his main report, the auditor should consider, wherever

practicable, the significance of various comments in his LFAR, where any of the comments made

by the auditor threrin is adverse, he should consider whether qualification in his main report is

necessary by using his discretion on the facts and circumstances of each case. In may be

emphasized that the main report should be self-contained document.

Audit objectives

1. Completeness: to ensure that there is no unrecorded cash. This means reconciling cash

balances to records, ensuring that proper sales cut off has been performed.

2. Accuracy of measurement: to ensure that amounts are correctly recorded in the proper

accounting period. This means that cut off is correct.

3. Existence: to ensure that the cash exist at a given date. The related evidence includes cash

count.

4. Rights and obligations: to ensure that the company has a right to the cash.

5. Occurrence: to ensure that the cash belongs to the company at the year end date. This

means checking to ensure no cash receipts are post dated.


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6. Presentation and disclosures: to ensure that the cash balance and related income statement

entries are correctly disclosed in the FS in accordance with legislation and accounting

standards.

Test on bank reconciliation at year end

1) Compare cash book entries with bank statements.

2) Balance as per bank statement at year end to tally to bank confirmations letter and to

balance used in bank reconciliation.

3) Verify unpresented cheques.

4) Verify outstanding lodegments.

5) Establish arithmetical accuracy.

6) Account for direct debits and direct credits

7) Check post balance sheet transactions

Banks reports for audit purposes (bank confirmation)

1) Consist of confirmation of bank balances and other matters from the clients bankers at the

period end.

2) Standard letters are used to confirm information with the bank where the client has dealings.

Reasons for auditors to seek bank confirmation

1) Bank confirmation provides evidence in respect of existence, ownership, and accuracy.

2) It is a third party, written in relation to the balance sheet of assets and liabilities.

Procedures


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1) Request for confirmation issued to relevant banks: a request for a bank confirmation is to be

issued on auditors letterhead and sent to all banks where the client has dealings. The request

should be clear and concise.

2) The request to be vague or precise: auditors should consider whether it is appropriate to list

down balances and other information and request confirmation, or to request details of

balances and other information.

3) Control over the content and dispatch of requests for confirmation: is the responsibility of the

auditor. However, the client will need to authorize disclosure of the relevant information.

Replies should be sent direct to the auditor who should enclose a pre paid envelope to

facilitate a speedy response.

4) What precise information to be sought: the following categories of information may be

sought:

a) Balances due to or from the bank, the letter may give the account number, description

and currency, and should request information on nil balances and accounts closed

during the period.

b) Collateral given or received, maturity and interest terms, unused facilities, lines of

credit and any rights of offset or other rights or encumbrances.

c) Terms and repayments conditions of loan and overdrafts.

d) Contingent liabilities such as bills, acceptance, guarantees, and endorsements.

e) Asset repurchase and resale agreements and options.

f) Forward currency and other outstanding contracts.

g) Assets held in safe custody any encumbrances over them.

5) Check that replies are complete: in reviewing the banks reply it is important for auditors to

check that the bank has answered all the questions information asked for in full.


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How to Check Bank Reconciliations

YES BANK auditor will preparebank reconciliations, which compare and adjust its cash balance

per its bank statements with its book cash balances. When you audit the bank reconciliations, you

must make sure your client adjusts for three things:

1) Deposits in transit, which are deposits the company makes that havent appeared on the

bank statement yet.

2) Outstanding checks, which are checks the company has written that havent yet cleared

the bank account.

3) Account charges, which include any bank charges and customer or vendor electronic

transfers shown on the bank statements that havent yet been recorded.

Auditors check the bank reconciliations to make sure it has recorded the correct amount of cash

on the balance sheet. If your client doesnt show correct cash balances on its books, the client

may have misstatedrevenueor expenses. This audit procedure should be fairly easy to do:

1) Get a bank confirmation to verify ending bank account balances.

This confirmation also asks the bank to disclose any loan(s) the client has with the bank, which

will come in handy when you confirm liabilities.

2) Get a cutoff bank statement showingtransactionsthat hit your audit clients bank

statement for the 7- to 10-day period after the end of the financial period.

Trace all deposits clearing on the cutoff statement to the clients bank reconciliation. Also, check

all checks clearing on the cutoff statement to the outstanding checks on the clients bank

reconciliation.
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3) Discuss any differences between the cutoff statement and the bank reconciliations with

client management.

You may have to give the client anadjustingentryto correct mistakes. For example, if a deposit

in transit didnt clear on the cutoff statement, it most likely wasnt received by the client by year-

end. The adjustment probably will result in a reduction to revenue.

4) Make sure all adjusted bank balances agree with what your client reflects on the balance

sheet.

The adjusted bank balance is the actual amount of cash in the account. Make sure the client hasnt

neglected tojournalizeany corrections to bring the book value of cash to actual.

Auditor responsibilities for front section of annual reports

one of the reasons given by investors for wanting more commentary from auditors is a feeling that

the information provided by directors in the front section of annual reports is presented in a

favourable light or tends to be standardised boilerplate.

The responsibilities of auditors for reporting on the front section of the financial statements are

currently limited. Auditors read this information and must report if the information provided is

inconsistent with the financial statements or contains material the auditors know to be untrue.

Annual reports have expanded over the years and banks and other reporting entities provide

significantly more information in the front section of annual reports. The scope of the audit

report, by contrast, has remained relatively static, being largely focused on the financial

statements. it may be time to reassess this.
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There was no particular demand from the stakeholders we interviewed for auditors to provide a

true and fair opinion over the front section of annual reports. However, there was some surprise

from investors that auditors responsibilities were so limited, and particularly that audit reports do

not provide comfort on the completeness of information presented in the front section of annual

reports in our view, auditors should report not only on whether there are any inconsistencies

between the information in the front section of annual reports and the financial statements, but

also whether there are any material omissions in the information provided in the front section of

annual reports, based upon the auditors knowledge of the bank they are reporting on.

Alternatively, the auditor could report on whether the balance of the information is appropriate.

This would require the development of a new auditing or assurance standard to define the terms to

be used so that users are clear about the level of assurance they receive. Without this there is a

danger of a widened expectation gap over the role of the auditor but we see no reason why an

appropriate standard could not be developed.


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CHAPTER IV

ANALYSIS OF FINANCIAL STATEMENT


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Consolidated Balance sheet as at March 31, 2013

(` in thousands)

SchedulesAs at

March 31, 2013CAPITAL AND LIABILITIES

Capital 1 3,586,223

Reserves and surplus 2 54,490,482

Deposits 3 669,555,352

Borrowings 4 209,221,472

Other liabilities and provisions 5 54,187,245

TOTAL 991,040,774

ASSETSCash and balances with Reserve Bank of India 6 33,387,586

Balances with banks, money at call and short notice 7 7,270,011

Investments 8 429,759,921

Advances 9 469,995,663

Fixed assets 10 2,295,452

Other assets 11 48,332,141

TOTAL 991,040,774

Contingent liabilities 12 2,478,043,530

Bills for collection 6,773,965Significant Accounting Policies and Notes to Accounts forming part of financial

18statements

As per our report of even date attached.

For S. R. BATLIBOI & CO. LLP For and on behalf of the Board of DirectorsChartered Accountants YES BANK LimitedICAI Firm Registration No: 301003E

Surekha Gracias Rana Kapoor Radha Singh Mukesh Sabharwal

Partner Managing Director & CEO Director DirectorMembership No: 105488

M R Srinivasan Rajat MongaDirector Chief Financial Officer

MumbaiApril 17, 2013


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Consolidated Profit and Loss Account

for the year ended March 31, 2013

Schedules

I. INCOMEInterest earned 13

Other income 14

TOTAL

II. EXPENDITURE

Interest expended 15

Operating expenses 16Provisions and contingencies 17

TOTAL

III. PROFIT

Net profit for the year

Profit brought forward

TOTAL

IV. APPROPRIATIONS

Transfer to Capital Reserve

Transfer to Statutory Reserve

Transfer to Investment Reserve

Dividend paid for last year and tax thereon

Proposed Dividend

Tax (including surcharge and education cess) on Dividend

Balance carried over to balance sheetTOTAL

Significant Accounting Policies and Notes to Accounts forming part of financial 18statementsEarning per share (Refer Sch.18.7.6)

Basic (`)

Diluted (`)

(Face Value of Equity Share is ` 10/-)

(` in thousands)

Year EndedMarch 31, 2013

82,939,99112,574,326

95,514,317

60,752,092

13,345,367

8,410,051

82,507,510

13,006,807

16,583,93629,590,743

348,646

3,251,702

97,136

8,7862,151,734

349,065

23,383,67429,590,743

36.53

35.55



Surekha Gracias Rana Kapoor Radha Singh Mukesh SabharwalPartner Managing Director & CEO Director DirectorMembership No: 105488




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Consolidated Cash Flow Statement

(` in thousands)Year Ended

March 31, 2013Cash flow from operating activities

Net profit before taxes 19,257,317

Adjustment for

Depreciation for the year 517,070

Amortisation of premium on investments 295,560

Provision for investments (29,910)

Provision for standard advances 766,399

Provision/write off of non performing advances 1,516,688

Other provisions 29,310

Loss from sale of fixed assets 5,10122,357,535

Adjustments for :

Increase in Deposits 178,038,302

Increase in Other Liabilities (3,998,530)

Increase in Investments (86,083,331)

Increase in Advances (91,625,933)

Increase in Other Assets (6,765,222)(10,434,714)

Payment of direct taxes (6,516,441)

Net cash generated from operating activities (A) 5,406,380

Cash flow from investing activities

Purchase of Fixed Assets (1,038,360)

Proceeds from sale of Fixed Assets 22,310

Changes in Capital Work- in Progress (30,535)

Changes in Held to Maturity Investment (66,368,749)

Net cash used in investing activities (B) (67,415,334)

Cash flow from financing activities

Tier II Debt raised 17,638,000

Increase in Borrowings 48,618,598Innovative Perpetual Debt raised 1,400,000

Proceeds from issuance of Equity Shares 56,349

Share Premium received thereon 756,774

Dividend paid during the year (1,428,296)

Tax on dividend (230,280)

Net cash generated from financing activities (C) 66,811,145

Net increase in cash and cash equivalents (A+B+C) 4,802,191Cash and cash equivalents as at April 1 35,855,406

Cash and cash equivalents as at March 31 40,657,597


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Surekha Gracias Rana Kapoor Radha SinghPartner Managing Director & CEO DirectorMembership No: 105488



Auditors report of YES BANK limited

We have audited the accompanying consolidated financial statements of Yes Bank

Limited (the Bank) and its subsidiary, which comprise the consolidated Balance

Sheet as at March 31, 2013, and the consolidated Profit and Loss Account and the

consolidated Cash Flow Statement for the year then ended, and a summary of

significant accounting policies and other explanatory information. Managements

Responsibility for the Consolidated Financial Statements Management is responsible

for the preparation of these consolidated financial statements that give a true and fair

view of the consolidated financial position, consolidated financial performance and

consolidated cash flows of the Bank in accordance with accounting principles

generally accepted in India. This responsibility includes the design, implementation

and maintenance of internal control relevant to the preparation and presentation of

the consolidated financial statements that give a true and fair view and are free from

material misstatement, whether due to fraud or error.Auditors Responsibility Our

responsibility is to express an opinion on these consolidated 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


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require that we comply with ethical requirements and plan and perform the audit to

obtain reasonable assurance about whether the consolidated financial statements are

free from material misstatement. An audit involves performing procedures to obtain

audit evidence about the amounts and disclosures in the consolidated financial

statements. The procedures selected depend on the auditors judgement, including the

assessment of the risks of material misstatement of the consolidated financial

statements, whether due to fraud or error. In making those risk assessments, the

auditor considers internal control relevant to the Banks preparation and presentation

of the consolidated financial statements that give a true and fair view 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 consolidated financial statements. We

believe that the audit evidence we have obtained is sufficient and appropriate to

provide a basis for our audit opinion.

Opinion

In our opinion and to the best of our information and according to the explanations

given to us, the consolidated financial statements give a true and fair view in

conformity with the accounting principles generally accepted in India:

(a) in the case of the consolidated Balance Sheet, of the state of affairs of the

Bank as at March 31, 2013;


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(b)in the case of the consolidated Profit and Loss Account, of the profit for the

year ended on that date; and

(c) in the case of the consolidated Cash Flow Statement, of the cash flows for the

year ended on that date.


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CHAPTER V

FINDINGS, SUGGESTION & CONCLUSION


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Finding

The stakeholders of Yes Bank can broadly be split into three groups: investors, bank

representatives and policymakers (including the financial services Authority, Treasury

committee). investors expressed the strongest opinions and focused on public

reporting areas. Bank representatives recognised that there are lessons that can be

learned and suggested improvements but indicated that the current auditing system

was not top of their list of issues to be addressed, and was not thought to be

significantly broken. policy makers were more guarded in making specific

recommendations but provided useful input and reflections, while stressing that these

should not necessarily be taken as official policy decisions and expressing caution

about what we should report on their views. none of these characterisations are

perhaps surprising.

1. Audit process highly valued but audit reports seen as compliance statements.

2. The presentation of risk information requires a fundamental review

3. Communication between regulator and auditors needs to be improved

4. Skilled persons reporting tool is underused

Suggestion

The audit of the banks should be well-acquainted with the relevant provision of the

special enactment that govern different types of banks, particularly those which affect

the various items of the financial implications of the business carried on by banks and

the types of the transaction that arise in the day-to-day operations.


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Conclusion

In recent years, Yes bank have placed an increased emphasis on proper review,

monitoring and supervision of advances. As the basic operations are carried out a

branch level, audit of an advances, deposits and interest related thereto constitutes a

significant proportion of the branch auditors work. The auditor should be well

acquainted with the laws governing banking institution particularly those, which

affect the various items of the financial statements. The auditor should familiar

himself with the computer system of the bank and should evaluate the efficacy of

various internal controls over the computer system.

The auditor should report whether the bank has laid down a loan policy specifying the

prudential exposure norms and industry-wise exposures.

It would be fitting to conclude that Auditing is an art as well as a Science in as much

as one need to apply the principles to the actual realities in an innovative manner.

While the regulatory prescriptions and banks own policy guidelines from the

boundaries within which the banks investment operations are required and expected

to be carried out, it is the auditing process that culls out and highlights the bubbles

and weakness in the procedures adopted by the banks operating personnel and

forewarn the management about the likely risks which have the potential to

undermine the Corporate Objectives of the bank. One can say that audit process is like

the pebble of sand that enters the pearl oyster without whose irritation the oyster will

not be able to produce the pearl.


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BIBLIOGRAPHY

Websites:

1. http://www.yesbank.in/

2. www.icai.com

3. http://www.icai.org/

4. www.google.co.in
http://www.yesbank.in/http://www.yesbank.in/http://www.icai.com/http://www.icai.com/http://www.icai.org/http://www.icai.org/http://www.icai.org/http://www.icai.com/http://www.yesbank.in/

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