All
Banks,
All
Auditors appointed by the Banks
Dear
Sirs,
MASTER
CIRCULAR – AUDIT OF ANNUAL ACCOUNTS
Your attention is invited to BID Circular No.5 dated 19th
December 1972 as amended from time to time, in terms of which
the external auditors of the banks, while conducting the statutory
audit of a bank are required to submit a Special Report, based
on the specific guidelines given in the aforesaid circular,
to the State Bank and endorse a copy thereof to the bank concerned.
2.
As you are aware, these guidelines have been amended/updated
from time to time through subsequent circulars/circular letters.
In order to facilitate banks, as well as their auditors, to
ensure compliance of these guidelines, the State Bank is pleased
to issue consolidated instructions on the subject through
this Master Circular.
3.
Accordingly, while conducting the statutory audit of
banks in terms of Section 35 of the Banking Companies Ordinance,
1962 the auditors shall, interalia, verify the followings:
(i)
Deposits maintained with and received from other banks.
(ii)
Inter branch deposits, provision for taxation and other
similar items included under “Deposits and Other Accounts”.
(iii)
Balances of staff provident fund, gratuity funds etc.
included in the “Deposits and Other Accounts”.
(iv)
Amount of profit accrued on deposits (but not paid)
and included in “Deposits and Other Accounts”, instead of
showing it under “Other Liabilities”.
(v)
Nature and amount of all balances held outside Pakistan.
(vi)
Investment in shares of companies in which the directors
of the bank and their dependents have substantial interest.
(vii)
All sales, purchases and swaps of shares and securities
of Rs.5,000,000/- and above during the financial year.
(viii)
Loans and advances (excluding staff loans) granted
to directors or officers of the bank or any of them, either
severally or jointly with any other persons.
(ix)
Loans and advances granted to companies or firms in
which the directors of the bank are interested as directors,
partners or managing agents.
(x)
Adequacy of provisions against classified assets as
per requirements of Prudential Regulation No.VIII.
(xi)
Expenses incurred on the opening of branches, advertisements
and publicity – whether charged off to profit and loss account,
capitalized or accounted for otherwise.
xii)
Reconciliation of inter-branch and other accounts (including
head-office account, inter-bank accounts, accounts of and
with foreign correspondents) and settlement of suspense account.
xiii)
Any Window Dressing in the annual accounts, particularly
in respect of deposits, income, expenses, provisions, etc.
xiv)
Contributions and donations for charitable, social,
educational and public welfare purposes made by the bank –
whether in accordance with PR-XX or not.
xv)
Level of efficiency of the Internal Audit Department
of the bank – whether the Auditors are satisfied with it.
4.
Apart from the observations noted during verification
of the above items, the Auditors would also report any matter
of substantial nature with which they may become aware of
during the process of statutory audit, which in the auditors’
opinion may have the potential to prejudice materially the
interest of depositors of the bank. If nothing of this nature
has come to the attention of the auditors, a confirmation
to that effect should be given in the report.
5.
The Auditors will submit a Special Report based on
the parameters given in para 3 & 4 above to the Director,
Banking Supervision Department, State Bank of Pakistan, Karachi,
under a sealed cover, endorsing a copy to the bank concerned,
within 15 days of the signing of the auditors’ report to the
bank. It may be noted that this Special Report will be meant
for the exclusive use and consumption of the State Bank of
Pakistan.
6.
The banks are requested to deliver a copy of this circular
to their Auditors for necessary compliance and request them
to acknowledge its receipt directly to this Department. Further,
the banks should furnish to us the names and addresses of
their Auditors for the year 2002
and onwards and confirm that a copy of the circular
has been duly delivered to them.
Please acknowledge receipt.
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