KARACHI (January 12 2003) : The State Bank on Saturday issued a master circular with consolidated instructions, to facilitate banks as well as their auditors, regarding the compliance of guidelines for statutory audit of banks.
The State Bank invited attention of all banks saying that 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 previous circular, to the State Bank and endorse a copy thereof to the bank concerned.
These guidelines have been amended and updated from time to time through subsequent circulars and letters.
In order to facilitate the banks, as well as their auditors, to ensure compliance of these guidelines, the State Bank has issued consolidated instructions on the subject through this Master Circular.
Accordingly, while conducting the statutory audit of banks in terms of Section 35 of the Banking Companies Ordinance, 1962 the auditors shall, inter alia, 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 dependants 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, capitalised or accounted for otherwise.
(xii) Reconciliation of inter-branch and other accounts (including head-office account, interbank 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.
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.
It nothing of this nature has come to the attention of the auditors, a confirmation to that effect should be given in the report.
The Auditors will submit a Special Report based on the parameters given in the above paras 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.
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 this dept 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.
