Audit of Banks – CA Inter Audit Questions bank

Audit of Banks – CA Inter Audit Questions bank is designed strictly as per the latest syllabus and exam pattern.

Audit of Banks – CA Inter Audit Question Bank

Question 1.
You are appointed as an auditor of Banking Co., and hold discussions with engagement team. List out matters which you would discuss at the planning stage of an audit to gain better understanding of the bank and its environment. (May 2019, 4 marks)
Answer:
The following matters will be discussed with engagement team at, the planning Stage of an audit to gain better understanding of the bank and its environment.

• Errors that may be more likely to occur;
• Errors which have been identified in prior years;
• A method by which fraud might be perpetrated by bank personnel or others within particular account balances and/or disclosures:
• Audit responses to Engagement Risk, Pervasive Risk and Specific Risks:
• Need to maintain professional skepticism throughout the audit engagement;
• Need to alert for information or other conditions that indicates that a material misstatement may have occurred (e.g… the bank’s application of accounting policies In the given facts and circumstances).

Question 2.
The discussion between members of the engagement team members and the audit engagement partner should be done on the susceptibility of the bank’s financial statements to material misstatements. Briefly discuss the points ordinarily included in discussion of the engagement team. (Nov 2019, 3 marks)
Answer:
The discussion between members of the engagement team members and the audit engagement partner should be done on the susceptibility of the Banks financial statements to material misstatements.

The following points be ordinarily Included In discussion of the engagement team.

1. Errors that may be more likely to occur;
2. Errors which have been identified in prior years;
3. Methods by which fraud might be perpetrated by bank personnel or others within particular account balances and or disclosures,
4. Audit responses to Engagement Risk, Pervasive Risks, and Specific Risks;
5. Need to maintain professional skepticism throughout the audit engagement.
6. Need to be alert for information or other conditions that Indicates that a material misstatement may have occurred (e.g. the bank’s application of accounting policies In the given facts and circumstances).

Question 3.
Examine with reasons whether the following statements are correct or incorrect:
Auditor of a Nationalised bank is to be appointed at the annual general meeting of the shareholders. (May 2019, 2 marks)
Answer:
This Statement is Incorrect
The auditor of a nationalized bank ¡sto be appointed by the Bank concerning acting through its Board of Directors. However, approval of the Reserve Bank is required before the appointment is made.

Question 4.
What do you understand by Long-form Audit Report? (Nov 2008, 2 marks)
Answer:
The long-form Audit Report (LFAR) has to be furnished by the auditor of a bank in addition to the audit report as per the statutory requirement. The matters which the banks require their auditor to deal with in the form of LFAR have been specified by Reserve Bank of India.

The LFAR is to be submitted before 30th June every year. To ensure timely submission of LFAR proper planning for completion of LFAR is required. While the format of LFAR does not require an executive summary to be given, members may consider providing the same to bring out the key observations from the whole document.

Question 5.
As a bank branch auditor, what aspects will be considered while reporting on credit appraisal, sanctioning/disbursement, and documentation in respect of advances In the LFAR? (Nov 2011, 5 marks)
Answer:
Verification of advances in the Long Form Audit Report (LFAR) The auditor has to comment on various specific issues as mentioned In the Long Form Audit Report of the bank. While evaluating the efficacy of internal controls over advances, the auditor should particularly examine those aspects on which he is required to comment in his LFAR. Hence, he should examine:
1. Whether the loan applications are complete and In prescribed form;
2. Procedural instructions regarding grant/renewal/ enhancement of facilities have been complied with;
3. Sanctions are within delegated authority and disbursements are in accordance with terms of the sanction;
4. Documentation is complete; and supervision is timely, effective and as per prescribed guidelines.

The auditor can gather the requisite evidence by examining relevant documents (such as loan application forms, supporting documentation, sanctions, security documents, etc.) and by obtaining information and explanations from the branch management in appropriate cases.

The auditors must familiarise themselves with those issues and guidance relating to the same and should cover the same during the regular course of audit of advances.

Question 6.
While auditing the Branch of a Bank you are required to, examine Inter Branch adjustments. Which points require your special attention? (May 2010, 6 marks)
Answer:
Special points to examine Inter Branch adjustments:
The following points require special attention In the examination of Inter Branch transactions.

1. While verifying the dosing balance, special attention should be paid to the origin and validity of old outstanding unmatched entries, particularly debit entries. The auditor may also seek confirmation of transactions relating to outstanding In appropriate cases.

2. Whether there are any reversal entries indicating the possibility or irregular payments or frauds.

3. Whether the balances include any items in the nature of cash In transit included in this head which remain pending for more than a reasonable period. This s because such items are not expected to remain outstanding beyond a very small period during which they are m transit.

4. Whether transactions other than those relating to inter-branch transactions have been included m inter-branch accounts. Any unusual items put through inter-branch accounts as well as old or large entries outstanding in Inter-branch accounts should be carefully looked into. The auditor should also seek explanations from the Management in this regard in appropriate cases.

Question 7.
Write short note on the following:
Requirements of a Risk Management process/system In a bank. (Nov 2016, 4 marks)
Answer:
1. Oversight and Involvement In the control process by the those charged wIth governance: Those charged with governance (BOD/Chief Executive Officer) should approve written risk management policies. The policies should be consistent with the bank’s business objectives and strategies, capital strength, management expertise, regulatory requirements and the types and amounts of risk it regards as acceptable.

2. Identification, Measurement, and monitoring of risks: Risk that could significantly impact the achievement of bank’s goals should be identified, measured, and monitored against pre-approved limits and criteria.

3. Control activities: A bank should have appropriate controls to manage Its risks, including effective segregation of duties (particularly, between front and back offices), accurate measurement and reporting of positions, verification and approval of transactions reconciliation of positions and results, setting of limits, reporting and approval of exceptions, physical security and contingency planning.

4. Monitoring activities: Risk Management models, methodologies, and assumptions used to measure and manage risk should be regularly assessed and updated. This function may be conducted by the independent risk management unit.

5. Reble information systems: Banks require reliable information systems that provide adequate financial, operational, and compliance information on a timely and consistent basis. Those charged with governance and Management require risk management Information that is easily understood and that enables them to assess the changing nature of the bank’s risk profile.

Question 8.
Mr. Piyush, the Bank Manager develops controls to and in managing key business and financial risks. Discuss the various requirements for an effective risk management system In a bank. (May 2019, 4 marks)
Answer.
Management develops controls and uses performance Indicators to and in managing key business and finance risks. An effective risk management system in the bank as required by Mr. Piyush, the Bank Manager should contain the following:

1. Oversight and Involvement In the control process by those charged with governance Those charged with governance (BoD/ Chief Executive Officer) should approve written risk management policies. The policies should be consistent with the bank’s business objectives and strategies, capital strength, management expertise. regulatory requirements and the types and amounts of risk It regards as acceptable.

2. Identification, measurements, and monitoring of risks Risks that could significantly impact the achievement of bank’s goals should be identified, measured, and monitored against pre-approved limits and criteria.

3. Control Activities
A bank should have appropriate controls to manage its risks, including effective segregation of duties (particularly between front and back offices), accurate measurement and reporting of positions, verifications and approval of transactions, reconciliation of positions and results, setting the limits, reporting, and approval of exceptions, physical security and contingency planning.

4. Monitoring Activities
Risk management models, methodologies, and assumptions used to measure and manage risk should be regularly assessed and updated. This function may be conducted by the independent risk management unit.

5. Reliable information systems
Banks require reliable information systems that provide adequate financial, operational, and compliance information on a timely and consistent basis. Those charged with governance and management require risk management information that is easily understood and that enables them to assess the changing nature of the bank’s risk profile.

Question 9.
As an Auditor of XYZ Bank Limited, how would you assess the Risk of Fraud including Money Laundering in line with SA – 240? (Jan 2021, 3 marks)

Question 10.
Answer the following:
Mr. A approaches a bank for financial assistance for his upcoming project. The Bank Branch Manager, after verifying the proposal is agreeable to financing Mr. A but asks for the security to be offered to the bank. Discuss the nature of securities required to be offered to the bank. (May 2018, 5 marks)
Answer:
In this case. Mr. A approaches a bank financial assistance for his upcoming project. This Bank Branch Manager, after verifying the proposal. Is agreeable to financing Mr. A, but asks for the security to be offered to the bank. The following are the nature of securities required to be offered by Mr. A to the bank.
1. Primary Security:
Primary Security refers to the security offered by the borrower for bank finance or the one against which credit has been extended by the bank. This security is the principal security for an advance.

2. Collateral Security:
Collateral Security is an additional security. Security can be in any form i.e. tangible or intangible asset, movable or immovable asset.

Examples of most common types of securities accepted by banks are the following:

• Personal Security of Guarantor.
• Goods/Stocks/Debtors/Trade Receivables.
• Gold Ornaments and Bullion.
• Immovable Property.
• Plantations (For Agriculture Advances)
• Third-Party Guarantees
• Bankers General Lien
• Life Insurance Policies
• Stock exchange Securities and Other Instruments.

Question 11.
An asset, including a leased asset, becomes non-performing when it ceases to generate income for the Bank Define the criteria for classification of non-performing assets, (May 2011, 8 marks)
Answer:
Nan-Performing Assets
An asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank.

Following are classified as NPA:
1. Term loan whose interest and/or installment of principal remain overdue for a period ol more than 90 days.
2. ODICC in respect of which the account remains out of order.
3. Bills purchased and discounted Which remain overdue for a period of more than 90 days.
4. The installments of principal or Interest thereon remain overdue for two crop seasons for short-duration crops.
5. The installment of principal or Interest thereon remains overdue for one crop season tar long duration crops.
6. The amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitization transaction undertaken in terms of guidelines on securitization dated 1 February 2006.
7. In respect of derivative transactions, the overdue receivables represent positive mark to Market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment.

Question 12.
In course of audit of Good Samaritan Bank as at 31st March 13 you observed the following:
In a particular account there was no recovery In the past 18 months. The bank has not applied the NPA norms as well as income recognition norms to this particular account. When queried the bank management replied that this account was guaranteed by the Central Government and hence these norms were not applicable. The bank has not Invoked the guarantee. Please respond. Would your answer be different if the advance Is guaranteed by a State Government? (May 2013, 5 marks)
Answer:
If a government-guaranteed advance becomes NPA, then for the purpose of income recognition, interest on such advances should not be taken to income unless interest is realized. Credit facility backed by Central Government Guarantee, though overdue, can be treated as NPA only when the Central Government repudiates its guarantee.

In the present case the bank has not revoked the guarantee, therefore the question of repudiation does not arise. Hence the baik Is correct to the extent of not applying the NPA norms for provisioning purpose. But this exemption is not available in respect of income recognition norms. Hence the income to the extent not recovered should be reversed. This exception is not applicable for State Government Guarantee advances, where advances is to be considered NPA if Its remains overdue for more than 90 days.

Question 13.
Shy & Co, had been allotted the branch audit of a nationalized bank for the year ended 31st’ March 2014. In the audit planning, the partner of Shy & Co. observed that the allotted branches are predominantly based in rural areas and major portion of the advances were for agricultural purpose. He needs your assistance in incorporating the criteria prescribed for determination of NPA norms in respect of agricultural advance, in audit plan. (May 2014, 5 marks)
Answer:
NPA Norms In respect of Agricultural Advance:
A loan granted for short-duration crops will be treated as Non-Performing Asset, if the installment of principal or interest thereon remains overdue for two crop seasons and a loan granted for long-duration crops will be treated as NPA, if the installment of principal or interest thereon remains overdue for one crop season.

As per the guidelines, “long duration” crops would be crops with crop season longer than one year, and crops, which are not “long duration” crops would be treated as “short duration” crops. The crop season for each crop, which means the period up to harvesting of the crops raised, would be as determined by the State Level Bankers’ Committee in each State.

Depending upon the duration of crops raised by an agriculturist, the above NPA norms would also be made applicable to agricultural term loans availed of by him. The above norms should be made applicable to all direct agricultural advances as listed in the Master Circular on Lending to Priority Sectors.

In respect of all other agricultural loans, identification of NPAs would be done on the same basis as non-agricultural advances, which, at present, is the 90 days delinquency norm.

If natural calamities impair the repaying capacity of agricultural borrowers, banks may decide on their own as a relief measure conversion of the short-term production loan into a term loan or re-schedule meant of the repayment period; and the sanctioning of fresh short-term loan, subject to guidelines issued by RBI.

Question 14.
During the bank audit AB & Co. a new Chartered Accountant firm, observed the sale/purchase of NPAs. Please help them by narrating the aspects, relating to sale/purchase of NPAs, to be considered. (May 2015, 4 marks)
Answer:
An asset Is a non-performing asset in the book of a bank only if it has remained a non-performing asset for at least two years in the books of the selling bank.

A non-performing financial asset should be held by the purchasing bank in its books at least for a period of 15 months before it is sold to other banks. Banks should, while selling NPAs, Work out the net present value of the estimated cash flows associated with the realisable value of the available securities net of the cost of realization. The sale price should generally not be lower than the net present value arrived at in the manner described above.

Aspects to be considered relating to purchase/sale of Non-Performing Assets are:
1. A non-performing asset in the books of a bank is eligible for sale to other banks only if it has remained a nonperforming asset for at least two years in the books of the selling bank.
2. Any purchase/sale of non-performing financial assets should be conducted in accordance with the policy approved by the Board.

3. NPAs can be sold to other banks only on cash basis.

4. The entire sale consideration should be received upfront and the asset can be taken out of the books of the selling bank only on receipt of the entire sale consideration.

5. A non-performing financial asset should be held by the purchasing bank in its books at least for a period of 15 months before it is sold to other banks. Banks should not sell such assets back to the bank, which had sold the NPFA.

6. Banks should, while selling N PAS, work out the net present value of the estimated cash flows associated with the realisable value of the available securities net of the cost of realisation. The sale price should generally not be lower than the net present value so arrived.

Question 15.
Write short note on the following:
Exceptions to the General Rule of treating advances as Non-performing Assets. (May 2016, 4 marks)
Answer:
Following are exceptions to the General Rule of treating advances as Non-performing Assets:

1. Temporary Deficiencies: Non-availability of current-drawing power due to non-receipt of latest stock statement.
2. Natural Calamities; Where in wake of natural calamities, short-term agricultural loans are converted into term loans or there is rescheduling of repayment period or fresh short-term loans are sanctioned.
3. Facility Backed by Central Government Guarantees: Credit facilities backed by guarantee of the Central Government though overdue should be treated as NPA only when govt. repudiates its guarantee when invoked.
4. Advances to “on lending” arrangements are also exempted under this category.

Question 16.
Examine with reason (in short) whether the following statement is correct or incorrect:
Banks recognize income on Non-Performing Assets on accrual basis. (Nov 2018, 2 marks)
Answer:
Incorrect:
Income from non-performing assets (NPA) is not recognised on accrual basis but is booked as income only when it is actually received.

Question 17.
“There is no difference in provisioning of NPA as regards to categories of NPA, whether the debt is secured or unsecured.TM Critically evaluates the statement on the basis of provisioning norms of NPA of nationalized bank. (Nov 2019, 4 marks)
Answer:
As per NPA provisioning norms, there is a difference in provisioning of NPA as regards to categories of NPA. Whether the debt is secured or unsecured. Doubtful asset would be one, where which has remained in the substandard category for a period of 12 months.

Sub-categories	Secured +	Unsecured
Doubtful up to 1 year	25% +	100%
Doubtful 1 to 3 years	40% +	100%
Doubtful more than 3 years	100% +	100%

Question 18.
Examine with reasons whether the following statements are correct or incorrect. Classification as NPA should be based on the availability of security and asset classification would be facility wise and not borrower wise. (Nov 2020, 2 marks)

Question 19.
You are appointed as Statutory Auditor of DEF Bank Limited for the year 2019-20. As an Auditor how will you verify Provisions created by DEF Bank Limited? (Nov 2020, 4 marks)

Question 20.
Explain “Advances under Consortium” in the context of Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances. (Jan 2021,4 marks)

Question 21.
Answer the following:
“Ramjilal & Co. had been allotted the branch audit of a nationalized bank for the year ended 31st March, 2018. In the audit planning, the partner of Ramjilal & Co., observed that the allotted branches are predominantly based in rural areas and major portion of the advances were for agricultural purpose.” Now he needs your assistance on the following points so as to incorporate them in the audit plan:
(i) for determination of NPA norms for agricultural advances
(ii) for accounts where there is erosion in the value of security/ frauds committed by the borrowers. (Nov 2018,5 marks)
Answer:
(i) NPA Norms for agricultural advances in audit plan:
A loan granted for short duration crops will be treated as Non Performing Asset, if the instalment of principal or interest thereon remains overdue for two crop seasons and a loan grantee for long duration crops will be treated as NPA, if the instalment of principal or interest thereon remains overdue for one crop season.

As per guidelines, “long duration crops would be crops with crop season longer than one year and crops, which are not “long duration” crops would be treated as Short durationw crops. The crop season for each crop, which means the period up to harvesting of the crops raised, would be as determined by the state level Bankers’ Committee In each state. Depending upon the duration of crops raised by an agriculturist, the above NPA norms would also be made applicable to agricultural term loans availed of by him.

The above norms should be made applicable to all direct agricultural advances as listed in the Master Circular on Lending to Priority Sectors. In respect of all other agricultural loans, identification of NPAs would be done on the same basis as non-agricultural advances, which, at present, is the 90 days delinquency norm.

If natural calamities impair the repaying capacity of agricultural borrowers, banks may decide on their own as a relief measure to conversion of the short-term production loan into a term loan or reschedule meant of the repayment period; and the sanctioning of a fresh short-term loan, subject to guidelines issued by RBI.

(ii) Erosion In the value of Securities Fraids Committed by Borrowers In audit plan:
In respect of accounts where there are potential threats for recovery on account of erosion in the value of security or non – availability of security and existence of other factors such as frauds committed by borrowers, such accounts need to go through the stages of asset classification. In such cases, the asset should be straight away classified as doubtful or loss asset, as appropriate, Further,
(i) Erosion is the value of securities by more than 50% of the value assessed by the bank or accepted by RBI inspection team at the time of last inspection, as the case may be, would be considered as significant”, requiring the asset to b classified as doubtful straightaway and provided for adequately.

(ii) The reusable value of security as assessed by banks/approved valuers / RBI is less than 10% of the outstanding in the borrower accounts, the existence of the security should be ignored and the asset should be classified as a loss asset. In such cases, the asset should either be written off or fully provided for.

Question 22.
In course of audit of Good Samaritan Bank as at 31st March 13, you observed the following:
The bank’s advance portfolio comprised of significant loans against Life Insurance Policies. Write suitable audit program to verify these advances. (May 2013, 3 marks)
Answer:
The audit programme to verily advances against Life Insurance Policies is as under:

1. The auditor should inspect the policies and see whether they are assigned to the bank and whether such assignment has been registered with the insurer.
2. The auditor should also examine whether Premium has beer. paid on the policies and whether they are in force.
3. Certificate regarding surrender value obtained from the insurer should be examined.
4. The auditor should particularly see that if such surrender value is subject to payment of certain premium, the amount of such premium has been deducted from the surrender value.

Question 23.
Write short note on:
Reversal of Income under Bank Audit. (Nov 2010, 4 marks)
Answer:
Reversal of Income under Bank Audit
If any advance, including bills purchased and discounted, becomes Non-Performing Assets as at the close of any year, the entire interest accrued and credited to the income account in the past periods, should be reversed or provided for if the same is not realised. This will apply to Government guaranteed accounts also.

In respect of NPAs, fees, commission, and similar income that have accrued should cease to accrue in the current period and should be reversed or provided for with respect to past periods, if uncollected.

Further, in case of banks which have wrongly recognised income in the past should reverse the interest if it was recognised as income during the current year or make a provision for an equivalent amount if it was recognised as income in the previous year(s).

Question 24.
While doing the audit of a nationalized bank, your Audit Assistant informed you that there are a lot of irregularities in Telegraphic Transfers and Demand Drafts. What guidance would be given to the Audit Assistant? (Nov 2013, 4 marks)
Answer:
In respect of Telegraphic Transfers and Demand Drafts, the audit assistant would be given the following guidance –

1. The signatures on a demand draft should be checked by an officer with the Signature Book.
2. The bank should have a reliable private code known only to responsible officers of its branches, coding and decoding of telegrams should be done only by such officers.
3. All the T. Ts and D. Os sold by a branch should be immediately confirmed by. the advices to the branches concerned.
4. If the paying branch does not receive proper confirmation of any T.T. or D.D. from the issuing branch or does not receive credit in its account with that branch, it should take immediate steps to ascertain the reasons.

Question 25.
Answer the following:
How will you evaluate the Internal Control system in the area of Credit Card operations of a Bank? (Nov 2009, 5 marks)
Answer:
Evaluation of Internal Control System In the area of Credit Card Operations in a bank:
1. There should be effective screening of applications with reasonably good credit assessments.

2. There should be strict control over storage and issue of cards.

3. There should be a system whereby a merchant confirms the status of unutilized limit of a credit card holder from the bank before accepting the settlement in case the amount to be settled exceeds a specified percentage of the total limit of the cardholder.

4. There should be system of prompt reporting by the merchants of all settlements accepted by them through credit cards.

5. Reimbursement to merchants should be made only after verification of the validity of merchant’s acceptance of cards.

6. All the reimbursements (gross of commission) should be immediately charged to the customer’s account.

7. There should be a system to ensure that statements are sent regularly and promptly to the customer.

8. There should be a system of monitoring and follow-up of customers’ payments.

9. Items overdue beyond a reasonable period should be identified and attended to carefully. Credit should be stopped by informing the merchants through periodic bulletins, as early as possible, to avoid increased losses.

10. There should be a system of periodic reviews of credit card holders’ accounts. On this basis, the limits of customers may be revised, if necessary. The review should also include the determination of doubtful amounts and the provisioning in respect thereof.

Question 26.
How do you examine claims against the Bank not acknowledged as debts? (May 2010, 4 marks)
Answer:
Examination of claims against the Bank not acknowledged as debts The auditor should examine the relevant evidence, for example, correspondence with lawyers, claimants, workers/officers, and workmen’s/officer’s unions. The auditor should also review the minutes of the meeting of the Board of directors/committees of the Board, contracts, agreements and arrangements, list of pending legal cases, and correspondence relating to taxes, duties, etc, to identify claims against the bank.

The auditor should ascertain from the management the status of claims outstanding as at the end of previous year. A review of subsequent events would also provide evidence about completeness and valuation of claims.

Multiple Choice Question

Question 1.
An important function of Reserve Bank of India except
(a) Issuance of currency
(b) Acting as banker to commercial and other types of banks.
(c) Regulation of currency
(d) Contributing the Cash Reserve Ratio
Answer:
(d) Contributing the Cash Reserve Ratio

Question 2.
Which type of audit report, is generally issued:
(a) Tax Audit Report as per Income Tax Act 1961,
(b) Statutory Audit Report as per SA 700/ 705/706,
(c) Long Form Audit Report, as per the requirement of RBI,
(d) All of the above.
Answer:
(d) All of the above.

Question 3.
Banks are generally divided into …………………… broad categories on the level of computensation.
(a) 2
(b) 3
(c) 4
(d) 5
Answer:
(b) 3

Question 4.
………………… should be based on the nature and thrust of operations, nature of adverse features, level of compliances, and audit risk.
(a) Audit
(b) Audit Plan
(c) Audit Report
(d) Audit Control
Answer:
(b) Audit Plan

Question 5.
Bank has its own
(a) Audit System
(b) Internal Control System
(c) Internal procedures
(d) Any of the above
Answer:
(b) Internal Control System

Question 6.
The ……………… should hold discussions to gain better understanding of the bank and Its environment, including internal control, and also to assess the potential for material misstatements of the financial statement.
(a) Audit Team
(b) Internal Audit Team
(c) Investigation Team
(d) Engagement Team
Answer:
(d) Engagement Team

Question 7.
Policy of income recognition should be objective and based on record of recovery rather than on any …………………. .
(a) consideration
(b) special objective
(c) monetary consideration
(d) subjective consideration.
Answer:
(d) subjective consideration.

Question 8.
Income from non-performing assets …………………….. booked as income only when it is actually received.
(a) Valuate
(b) Evaluate
(c) Recognised
(d) Not – recognized.
Answer:
(d) Not – recognized.

Question 9.
Section 29(1) and (2) of the Banking Regulation Act 1949, applicable to
(a) All Nationalised Bank
(b) State Bank of India
(c) Regional Rural Bank
(d) All of the above
Answer:
(d) All of the above

Question 10.
Every banking company needs to comply with the disclosure requirements under tF.e various Accounting Standards, as specified under ……………………….. of the Companies Act 2013.
(a) Section 130
(b) Section 133
(c) Section 170
(d) Section 197
Answer:
(b) Section 133

Question 11.
…………………… requires that the balance sheet and profit and loss account of a banking company should be audited duly qualified person.
(a) Section 30
(b) Section 30 (1)
(c) Section 30 (2)
(d) Section 30 (5)
Answer:
(b) Section 30 (1)

Question 12.
Auditors of the SBI are to be appointed by ………………….. .
(a) Shareholder
(b) Board of Director
(c) C and AG
(d) Central Government
Answer:
(c) C and AG

Question 13.
The auditor of a banking company is to be appointed …………………. with the previous approval of the RBI.
(a) by the Shareholder at AGM
(b) by the Board of Director
(c) CandAG
(d) Central Government
Answer:
(b) by the Board of Director

Question 14.
Auditor of a nationalized bank is to be appointed by Board of Directors, with the previous approval of …………………… .
(a) RBI
(b) C and AG
(c) Central Government
(d) None of the above.
Answer:
(a) RBI

Question 15.
Remuneration of an auditor of nationalized bank and State Bank of India is to be fixed by …………………….. .
(a) Board of Directors at AGM
(b) Reserve Bank of India
(c) Central Government
(d) RBI in Consultation with the Central Government.
Answer:
(d) RBI in Consultation with the Central Government.

Question 16.
Auditor of any type of bank has the same power as those of a company auditor in the matter to access to the books accounts, documents, and vouchers.
(a) True
(b) False
(c) Partially True
(d) None of the above
Answer:
(a) True

Question 17.
In case of a nationalised bank, the auditor is required to make a report to the
(a) Shareholders
(b) Board of director
(c) C and AG
(d) Central Government
Answer:
(d) Central Government

Question 18.
In case of State Bank of India, the auditor is required to make, a report to the
(a) Shareholders
(b) Board of Directors
(c) CandAG
(d) Central Government
Answer:
(d) Central Government

Question 19.
Reporting requirements relating to the Companies (Auditor’s Report) Order, 2016 is also applicable in Banking company audits.
(a) True
(b) False
(c) Partially True
(d) None of the above
Answer:
(b) False

Question 20.
Long Form Audit Report is to be submitted ……………………. every year.
(a) After 31st March
(b) Between 31st March and 30th June
(c) After 30th June
(d) Before 30th June
Answer:
(d) Before 30th June

Question 21.
Auditor should consider the provisions of SA -250 i.e.
(a) “The Auditor’s Responsibihtion Relating to Fraud in an Audit of Financial Statements”.
(b) “Consideration of Laws and Regulations in an Audit of Financial Statements”.
(c) “Consideration of Accounting Standards ¡n Audit of Financial Statements”.
(d) “Consideration of Standards of Auditing ¡n Audit of Financial Statements”.
Answer:
(b) “Consideration of Laws and Regulations in an Audit of Financial Statements”.

Question 22.
“The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements” define as per.
(a) SA- 200 ‘
(b) SA – 220
(c) SA – 240
(d) SA – 250
Answer:
(c) SA – 240

Question 23.
SA – 250 “Consideration of Laws and Regulations in an audit of Financial Statements” explains that the duty of confidentiality is overridden by …………………. .
(a) Statute
(b) Law or by Courts,
(c) Either (a) or (b)
(d) Both (a) and (b)
Answer:
(d) Both (a) and (b)

Question 24.
The RBI has advised that the banks, before appointing their statutory central/circle/branch auditors, should obtain a ……………………. .
(a) Planning Statements
(b) Declaration of indebtedness
(c) Initial Engagements
(d) Initial Engagements
Answer:
(b) Declaration of indebtedness

Question 25.
SA – 300 “Planning an Audit of Financial Statements requires that the auditor shall undertake the activities (s) prior to starting an initial audit.
(a) Establish an understanding of terms of engagement as per SA – 210 “Agreeing on the Terms of Audit Engagements”.
(b) Performing procedures required by SA – 220, “Quality Control for Audit Work” regarding the acceptance of the client relationship and the specific audit engagement
(c) Identifying and Assessing the risk of material misstatements.
(d) Both (a) and (b)
Answer:
(d) Both (a) and (b)

Question 26.
“InitiaI Audit Engagements – Opening Balances” is defies under.
(a) SA – 300
(b) SA- 510
(c) SA- 315
(d) SA- 570
Answer:
(b) SA- 510

Question 27.
A Chartered Accountant in practice cannot accept position as auditor previously held by another Chartered Accountant without first communicating with him in writing, ¡s define under
(a) Section 141(1) of the Companies Act 2013
(b) Clause (11) of CAAR -2014
(c) Clause 3 of Companies Audit Report Rule
(d) Clause (8) of Part 1 of First Schedule to the Chartered Accountants Act, 1994.
Answer:
(d) Clause (8) of Part 1 of First Schedule to the Chartered Accountants Act, 1994.

Question 28.
An understanding of the bank and its environment, including its internal control, enables the auditor:
(a) To develop an audit plan so as to determine the operating effectiveness of the controls, and to address the specific risks.
(b) To identify and assess risk.
(c) Either (a) or (b)
(d) Both (a) and (b)
Answer:
(d) Both (a) and (b)

Question 29.
An effective risk management system in a bank generally requires the:
(a) Oversight and involvement in the control process by those charged with governance.
(b) Identification, measurement, and monitoring of risks
(c) Control and monitoring activities.
(d) All of the above.
Answer:
(d) All of the above.

Question 30.
The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements defines under
(a) SA – 240
(b) SA – 250
(c) SA – 500
(d) SA – 510
Answer:
(a) SA – 240

Question 31.
RBI has required that all commercial banks shall put in place a board-approved………………………. to suit their individual requirements which would integrate into their risk management systems.
(a) Stress testing framework
(b) Stress management framework
(c) Stress reduction framework
(d) None of the above
Answer:
(a) Stress testing framework

Question 32.
Advances comprises of funded amounts except
(a) Cash Credit, Overdraft, Demand Loan
(b) Legal Tender Money
(c) Adverse balances in Deposit Accounts
(d) Bills Discounted and Purchased.
Answer:
(b) Legal Tender Money

Question 33.
………………… refers to the security offered by the borrower for bank finance or the one against which credit has been extended by the bank. This security is the principal security for an advance.
(a) Primary Security
(b) Secondary Security
(c) Collateral Security
(d) None of the above
Answer:
(a) Primary Security

Question 34.
…………… is an additional security. Security can be ¡n any form i.e. tangible or intangible assets, movable or immovable assets
(a) Primary security
(b) Secondary Security
(c) Collateral Security
(d) None of the above
Answer:
(c) Collateral Security

Question 35.
On the basis of nature of the item concerned, creation of security may take the form of a ……………………… .
(a) mortgage and pledge
(b) hypothecation
(c) assignment or lien
(d) Any of the above
Answer:
(d) Any of the above

Question 36.
A non-performing asset (N PA) is a loan or an advance where:
(a) the account remains “out of order” in respect of an Overdraft/Cash Credit.
(b) the bill remains overdue for period of more than 90 days in the case of bills purchased and discounted.
(c) interest and/or installment of principal remains overdue for a period of more than 90 days in respect of a term loan.
(d) Any of the above case
Answer:
(d) Any of the above case

Question 37.
Any amount due to the bank under any credit facility is ……………….. If it is not paid on the due date fixed by the bank.
(a) Set-off
(b) Overdraft
(c) Overdue
(d) Out of order
Answer:
(c) Overdue

Question 38.
Advance against Term Deposits, NSCs eligible for surrender, KVP/IVP, and life policies need not be treated as NPA,
(a) provided such securities are pledged
(b) provided adequate margin is available in the accounts.
(c) provided there is inadequate securities against it.
(d) None of the above
Answer:
(b) provided adequate margin is available in the accounts.

Question 39.
Which is/are an/the NPA norms (s) would apply to agricultural advances:
(a) A loan granted for long-duration crops will be treated as NPA, if the installment of principal or interest thereon remains overdue for one crop season.
(b) A loan granted for short-duration crops will be treated as NPA, if the installment of principal or Interest thereon remains overdue for two crop seasons.
(c) Either (a) or (b)
(d) Both (a) and (b)
Answer:
(d) Both (a) and (b)

Question 40.
In carrying out audit of advances, in case of bank, the auditor is primarily concerned with obtaining evidence about the ………………………. .
(a) Appropriate provisions towards advances have been made as per the RBI norms and Accounting Standards.
(b) There is no unrecorded advances
(c) Advances represent amount due to the bank
(d) All of the above
Answer:
(d) All of the above

Question 41.
The auditor should examine all large advances while other advances may be examined on a sampling basis, under the method of:
(a) Substantive Procedures
(b) Compliance Procedures
(c) Sampling Procedures
(d) Analytical Procedures
Answer:
(a) Substantive Procedures