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 today’s 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:

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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.

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

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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

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

6

COMPANY PROFILE

Country IndiaIndustry BankingNSE/BSE Listing NSE Code -532648Regd.& corporate office Nehru centre,9th floor, Discovery of

India, Dr.A.B.Road, worli, Mumbai 400018 Tel:-+91(22) 6669 9000

Northern Regional Corporate Office 48,Nyaya Marg, Chanakyapuri, New Delhi 110021 Tel:-+91(11) 6656 9000

Website www.yesbank.in

Yes Bank, India’s 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

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business lines across the country. The Bank’s 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 Bank’s Knowledge Banking

approach and the objective of being the “Bank for an Emerging India”. Yes Bank

remains committed to serving this specialized segment. Yes Bank’s knowledge

Banker’s deliver innovative, structured and comprehensive solutions through a “Money

Doctor” approach focusing on diagnostic and prescriptive attention to detail. This is

facilitated through Yes Bank’s 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 (PSU’s) 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

8

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.

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, MNC’s, government companies and PSU’s. 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.

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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.

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.

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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

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

innovative structured solutions integral to a company’s 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 Bank’s public relation consultant.

Key Members of Yes Bank Management Team

NAME DESIGNATION

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Mr. Rana Kapoor Managing Director & CEOMr. Sunil Gulati Group President - C&IB, Transaction

BankingMr. Deepak Gaddhyan Group President GRM Team.Mr. Sumit Gupta Country Head – Emerging Corporate

BankingMr. Alok Gupta Country Head – life sciences &

technologyMr. Rajnish Datta Country Head –Small business

banking groupMr. Subir Bisht Chief Risk OfficerMr. Sanjay Aggarwal Country Head –Credit Risk, Business

BankingMr. Varun Tuli President Business Banking

Key Highlights & Milestones of Yes Bank.

Nov 2003 Incorporation of YES BANK LimitedMay 2004 RBI License to commence banking

businessDec 2006 Ranked No.3 in the Business World

Survey of India’s Best listed BanksMar 2007 Ranked No.2 among New Private Sector

Banks 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 IndiaMar 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

12

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

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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 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 31 st

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

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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

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

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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. 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:-

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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.

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.

Auditor’sReport

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

different.

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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;

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.

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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 the statutory 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;

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

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

control.

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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, government’s 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.

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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, value’s 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

23

income. In revenue audit of banks, the auditor inspects that all the records are showing

true and fair picture of revenues or not.

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,

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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.

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

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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 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.

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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.

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.

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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.

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

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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.

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.

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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.

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)

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1) Consist of confirmation of bank balances and other matters from the client’s

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

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

confirmation is to be issued on auditor’s 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.

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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 bank’s reply it is important for

auditors to check that the bank has answered all the questions information asked for

in full.

How to Check Bank Reconciliations

YES BANK auditor will prepare bank 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 haven’t appeared

on the bank statement yet.

2) Outstanding checks, which are checks the company has written that haven’t 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 haven’t yet been

recorded.

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

of cash on the balance sheet. If your client doesn’t show correct cash balances on its

books, the client may have misstated revenue or 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 showing  transactions that hit your audit client’s

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 client’s bank reconciliation.

Also, check all checks clearing on the cutoff statement to the outstanding checks on the

client’s bank reconciliation.

3) Discuss any differences between the cutoff statement and the bank

reconciliations with client management.

You may have to give the client an adjusting entry to correct mistakes. For example, if a

deposit in transit didn’t clear on the cutoff statement, it most likely wasn’t 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.

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

client hasn’t neglected to journalize any 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.

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.

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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

Consolidated Balance sheet as at March 31, 2013

(` in thousands)

SchedulesAs at

March 31, 2013CAPITAL AND LIABILITIESCapital 1 3,586,223

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Reserves and surplus 2 54,490,482Deposits 3 669,555,352Borrowings 4 209,221,472

Other liabilities and provisions 5 54,187,245TOTAL 991,040,774

ASSETSCash and balances with Reserve Bank of India 6 33,387,586Balances with banks, money at call and short notice 7 7,270,011Investments 8 429,759,921Advances 9 469,995,663Fixed assets 10 2,295,452

Other assets 11 48,332,141TOTAL 991,040,774

Contingent liabilities 12 2,478,043,530Bills 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 SabharwalPartner Managing Director & CEO Director DirectorMembership No: 105488

M R Srinivasan Rajat MongaDirector Chief Financial Officer

MumbaiApril 17, 2013

Consolidated Profit and Loss Account

for the year ended March 31, 2013

Schedules

I. INCOMEInterest earnedOther income

TOTAL

II. EXPENDITUREInterest expendedOperating expensesProvisions and contingencies

TOTALIII. PROFIT

Net profit for the year

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Profit brought forwardTOTAL

IV. APPROPRIATIONSTransfer to Capital ReserveTransfer to Statutory ReserveTransfer to Investment ReserveDividend paid for last year and tax thereonProposed DividendTax (including surcharge and education cess) on DividendBalance carried over to balance sheet

TOTALSignificant Accounting Policies and Notes to Accounts forming part of financial

18 statements

Earning per share (Refer Sch.18.7.6)Basic (`)Diluted (`)

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

(` in thousands)

Year Ended

March 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

16,583,936

29,590,743

348,646

3,251,702

97,1368,786

2,151,734

349,065

23,383,674

29,590,743

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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 SabharwalPartner Managing Director & CEO Director DirectorMembership No: 105488

M R Srinivasan Rajat MongaDirector Chief Financial Officer

MumbaiApril 17, 2013

36.53

35.55

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Consolidated Cash Flow Statement(` in thousands)

Year EndedMarch 31, 2013

Cash flow from operating activitiesNet profit before taxes 19,257,317Adjustment forDepreciation for the year 517,070Amortisation of premium on investments 295,560Provision for investments (29,910)Provision for standard advances 766,399Provision/write off of non performing advances 1,516,688Other provisions 29,310Loss from sale of fixed assets 5,101

22,357,535Adjustments for :Increase in Deposits 178,038,302Increase 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 activitiesPurchase of Fixed Assets (1,038,360)Proceeds from sale of Fixed Assets 22,310Changes 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 activitiesTier II Debt raised 17,638,000Increase in Borrowings 48,618,598Innovative Perpetual Debt raised 1,400,000Proceeds from issuance of Equity Shares 56,349Share Premium received thereon 756,774Dividend 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 35,855,406Cash and cash equivalents as at March 31 40,657,597

As per our report of even date attached.

For S. R. BATLIBOI & CO. LLP For and on behalf of the Board of Directors

Chartered Accountants YES BANK LimitedICAI Firm Registration No: 301003E

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

M R Srinivasan Rajat MongaDirector Chief Financial Officer

MumbaiApril 17, 2013

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. Management’s

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.Auditor’s 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

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

obtain reasonable assurance about whether the consolidated financial statements are

41

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 auditor’s 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 Bank’s 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;

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

year ended on that date; and

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(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

Finding

44

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.

Conclusion

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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 auditor’s 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 bank’s own policy guidelines from the

boundaries within which the bank’s 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 bank’s 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.

BIBLIOGRAPHY

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Websites:

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

2. www.icai.com

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

4. www.google.co.in

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