A bank branch goes through four kinds of audits and inspection
- Internal audit (done by bank staff) on regular basis
- Concurrent audit (done by a third party), on monthly or quarterly basis
- Statutory audit (done by the statutory auditor) on quarterly basis
- Inspection by RBI (annual basis).
In relation to buyers credit transaction, below are the few audit point which are covered by above audits.
Buyers Credit Audit Points
Following documents are required to be verified by the statutory auditors during review of Buyers’ Credit Transaction and its accounting treatment in the Indian Bank’s books.
- (Loan) Agreement, if any, entered between the Indian importer (borrower), overseas bank (lender), the Indian bank (facilitator);
- Underlying documents for import of capital goods or raw materials;
- Maximum tenure of buyer’s credit as per guidelines of RBI;
- SWIFT messages originated by overseas bank specifying the terms of Buyer’s Credit;
- The calculation of contingent liability towards LoC/ LoU is inclusive of interest accrued on the Buyer’s Credit as on financial statement date;
- Documentation / Agreement between overseas bank and Indian bank, and, any further confirmatory documents exchanged between overseas bank and Indian bank;
- Review of documents specifying right of recovery against borrower, in case if the borrower defaults in repayment of Buyer’s Credit;
- Balance confirmations obtained from the overseas bank;
- Charge created in records of Registrar of Companies (RoC) related to the security offered for Buyer’s Credit vis-à-vis disclosure of Buyer’s Credit in the financials of borrowers as secured / unsecured loan;
- Acknowledgement of debt, if any, obtained from the borrower;
- The calculation of drawing power for working capital finance availed by the borrower is net of the Buyer’s Credit;
- Form 15CA / Form 15CB compliance made by the borrower.
Nostro Account Audit Points
The auditor may consider the following aspects in respect of NOSTRO reconciliation:
- Whether a system of periodical reconciliation is in place.
- Whether the reconciliation process followed ensures matching of each item and not for overall matching of total amount
- Whether logs are generated for any change made in entry and whether maker checker rule is implemented for authorising changes made in entry, if any, for reconciliation
- Whether confirmations from the foreign banks are obtained on a periodic basis. This may be either through physical confirmations, swift messages, emails, etc.
- Whether information to the controlling office is sent on a timely basis.
- Whether long outstandings are taken up and reconciled.
- Random check of the method of reconciliation.
- Debits outstanding both in the mirror account and in the Nostro accounts are to be verified and recommend for provision wherever necessary.
- Set off the credit against debits only at the permission of the head office for long outstanding entries
Nostro Account of Overseas Branches
Obtain a list of all NOSTRO Accounts maintained/ operated by the Branch from the branch Management.
- The auditor should obtain a list of all NOSTRO Accounts for the purpose of verification from the Branch Management.
- (a) Are the NOSTRO Accounts regularly operated?
- The auditor should verify whether the NOSTRO Accounts are being regularly operated. If not give the list of NOSTRO Accounts with balances outstanding, which are not operated regularly, the date of last transaction, etc. The auditor should specifically comment on overdrafts in NOSTRO accounts, if any.
- (b) Are periodic balance confirmations obtained from all concerned overseas branches/ correspondents?
- The auditor should verify whether the balance confirmation from all concerned overseas branches/ correspondents have been obtained on a periodic basis. He should report the names of the bank and the period wise outstanding balances, which remain unconfirmed.
- (c) Are these accounts duly reconciled periodically? Your observations on the reconciliation may be reported.
- While examining the transaction in foreign exchange, the auditor should also pay attention to reconciliation of NOSTRO Accounts with the respective mirror account. The amount in the NOSTRO account is stock of foreign currency in the form of bank accounts with the overseas branches and correspondents. Unreconciled NOSTRO Accounts, on an examination, may reveal unauthorised payments from the foreign currency account, unauthorised withdrawals, and unauthorised debit to mirror account. The auditor should also evaluate the internal control with regard to inward/outward messages. The inward/outward messages should be properly authenticated and discrepancies noticed should be properly dealt with in the books of accounts. In case balance confirmation certificate have been received but the same have not been reconciled, the auditor should report, in respect of each bank, the balances as per books maintained by the branch and the balance as per the relevant balances confirmation certificate, stating in either case whether the balance is debit or credit.
- (d) Whether the branch is following Head Office guidelines for reporting requirements under Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standards (CRS).
- Does the Branch follow the prescribed procedures in relation to maintenance of Vostro Accounts?
The auditor should verify whether prescribed procedure in relation to inter-bank confirmation in the Vostro account is followed or not. In case balance confirmation certificate have been received but the same have not been reconciled, or where confirmation has not been received the same should be reported, in respect of each Vostro Account. The RBI has also issued the Master Directions FED Master Direction No.2 /2015-16 dated January 01, 2016 (updated on April 28, 2016) on “Opening and Maintenance of Rupee/Foreign Currency Vostro Accounts of Non-resident Exchange Houses”
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