The Institute of Chartered Accountants of India

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1 CIRC Newsletter March 2019 The Institute of Chartered Accountants of India (Set up by an Act of Parliament) New Team of Central India Regional Council of The Institute of Chartered Accountants of India STANDING LEFT TO RIGHT C A. G o v i n d A g a r w a l - D e p u t y S e c r e t a r y, C A. S h a s h i k a n t C h a n d r a k e r - R C M, C A. A t u l A g r a w a l - R C M, CA. Devendra Kumar Somani- Chairman CICASA, CA. Sachin Kumar Jain- RCM, CA. Abhishek Sharma- Treasurer CIRC, CA. Churchill Jain- Vice Chairman CIRC, CA. Mukesh Bansal- Chairman CIRC, CA. Abhisak Pandey- Secretary CIRC, CA. Anuj Goyal- Council Member, CA. Manu Agrawal- Council Member, CA. Prakash Sharma- Council Member, CA. Pramod Kumar Boob- Council Member, CA. Satish Kumar Gupta- Council Member, CA. Atul Mehrotra- RCM, CA. Nilesh Gupta- RCM, CA. Dinesh Kumar Jain- RCM.

2 CIRC Newsletter March, CA. Prafulla P. Chhajed President, ICAI CA. Atul Kumar Gupta Vice-President, ICAI COUNCIL MEMBERS FROM CENTRAL REGION CA. Anuj Goyal, Ghaziabad CA. Kemisha Soni, Indore CA. Manu Agrawal, Kanpur CA. Prakash Sharma, Jaipur CA. Pramod Kumar Boob, Jaipur CA. Satish Kumar Gupta, Jaipur

3 CIRC Newsletter March, REGIONAL COUNCIL MEMBERS FROM CENTRAL REGION CA. Mukesh Bansal, Ghaziabad Chairman CA. Churchill Jain, Indore Vice Chairman CA. Abhisak Pandey, Kanpur Secretary CA. Abhishek Sharma, Jaipur CA. Devendra Kumar Somani, Udaipur CA. Atul Agrawal, Noida Treasurer Chairman CICASA Regional Council member CA. Atul Mehrotra, Kanpur CA. Dinesh Kumar Jain, Jaipur CA. Nilesh Gupta, Indore Regional Council member Regional Council member Regional Council member CA. Sachin Kumar Jain, Jaipur Regional Council member CA. Shashikant Chandraker, Durg Regional Council member

4 Glimpses - Election of New Regional Council CA. Mukesh Bansal- Chairman CIRC (left) with CA. Manu Agrawal- Council Member (right) CA. Mukesh Bansal- Chairman CIRC (left) with CA. Anuj Goyal- Council Member (right) CA. Mukesh Bansal- Chairman CIRC (left) with CA. Prakash Sharma- Council Member (right) CA. Mukesh Bansal- Chairman CIRC (left) with CA. Pramod Kumar Boob- Council Member (right) CA. Mukesh Bansal- Chairman CIRC (left) with CA. Satish Kumar Gupta- Council Member (right) L-R: CA. Abhishek Sharma- Treasurer CIRC, CA. Churchill Jain- Vice Chairman CIRC, CA. Mukesh Bansal- Chairman CIRC & CA. Abhisak Pandey- Secretary CIRC. CIRC Newsletter March,

5 CIRC Newsletter March, From the Desk of Chairman... R e s p e c t e d P r o f e s s i o n a l Colleagues, First of all we salute the brave sons of mother India, who served the country with unparalleled valor, all Indians stand in solidarity with the bereaved families. I am privileged to represent you all as the Chairman of Central India Regional Council of ICAI and working alongside each of you to achieve high goals and take CIRC to the newer Heights. With the grace of the almighty God and the blessings of Guru's, Parents and Elders added with your good wishes only it could be possible for me to elevate to the highest position in CIRC. I deeply appreciate the onerous responsibility of this pious chair and would try my best to rise to your expectations. Before I proceed I would like to welcome our newly elected President CA. Prafulla P. Chhajed ji and Vice President CA. Atul Kumar Gupta ji. Both are highly talented and would definitely guide our noble profession to attain new dimensions. It's not often an opportunity comes along for a professional person, such as myself, to lead CIRC. Now, after just a couple of days of assuming this responsibility, what I've seen and experienced so far has impressed me and excited about the future of our Noble Profession. Our reputation is our most treasured asset and the foundation on which we have built our Institute. Everyone at Institute knows that the only way to protect and improve our reputation is to exceed the members and students expectations, meet our commitments, innovate in our profession and deliver excellence (as our mantra says Excellence Delivered. ) By understanding, and embracing our members' problems, vision, project objectives and goals, we will be able to build stronger and lasting relationships that will yield long term results. I have a vision of a profession that is vibrant and fully equipped to meet the challenges thrown upon by the latest technological innovations taking place at a very rapid pace. I always believe that action speak louder than words and we at CIRC are committed to put our best to serve the profession to the best of our knowledge and abilities to exceed the expectations of members. A lot has to be done for this and I can assure you that this year you will witness some radical changes in the working of CIRC. I also request to all the members, branches, CPE Study Circles, CPE Chapters and CPE study Groups to take active participation in the activities of CIRC so that together we can take our Region to newer heights. Celebrating the colours of our beautiful relationship, I wish you and your family all the bright hues of life. Have a colorful Holi! Warm Regards Sd/- CA. Mukesh Bansal Chairman, CIRC of ICAI & Chief Editor CIRC Newsletter CA. Mukesh Bansal Chairman - CIRC camukeshbansal@gmail.com /

6 CIRC Newsletter March, From the Desk of Secrtary... CA. Abhisak Pandey Secretary, CIRC of ICAI R e s p e c t e d P r o f e s s i o n a l Colleagues, The beginning, it is said, is only the start of a journey to another beginning. As I begin my new role as Secretary of Central India Regional Council of ICAI from 28th February, 2019, I wish to make a new beginning with renewed vigor to scale new heights of excellence and rectitude in diverse ways. A journey of thousand miles begins with a single step. Let us take that rst step together and re-dedicate ourselves to our chosen goals. It is indeed an honour to serve as the Secretary of CIRC of ICAI. When I look back at the distinguished history of CIRC and the leaders who have served it with such distinction, I feel humbled. I am extremely grateful to the almighty and all my well wishers and the members and students of ICAI, my council colleagues for reposing their faith in me in leading the forward march of CIRC as Secretary. My new responsibility is both an opportunity and a challenge. I hope that I will continue to enjoy your support to attain our collective goals. I feel elated that our profession is moving in the right trajectory and direction. There would be challenges, but with every challenge buds an opportunity like every cloud has a silver lining. The need of the hour is to mitigate those challenges and grasp those opportunities. Foresight, ability to seize the opportunity, relentless drive to succeed and tremendous acumen in recognizing the needs of the industry and integrating knowledge with professional inputs are the secrets behind ICAI which have always kept us at the forefront of Education value creation and a sustainable model of growth and achievement for the past decades. Our Institute provides a rich and diversified culture to hone the young brains so as to get evolve in to the challenging scenario with performance, competitiveness, value creation and other professional skills. We believe in imparting Quality education and service based on ethics. It is a place that reflects an aura of global excellence. I look forward to welcoming you to join and contribute to our journey towards exploring new frontiers in the field of profession with wisdom. World is moving towards knowledge economy. Goldman Sachs' famous BRIC report of 2003 predicts that India will become one of the top 5 economies of the world by In its another Global Economics Paper, it has also identified Raise Basic Educational Achievement and Increase Quality and Quantity of Universities as two of the top three things that India needs to do in order to achieve this status. Opportunity before us is immense and the task is onerous. Your esteemed institute ICAI has committed itself to play its humble role in the country's march towards prosperity and global

7 CIRC Newsletter March, From the Desk of Secretary... leadership by imparting world-class higher education to its students in the disciplines of engineering and management. ICAI has been able to achieve this honor due to the dedicated efforts of its Members, Students, faculty, staff, management and all other stakeholders. My heartiest congratulations to one and all. Encouraged and inspired by its achievements, we have set upon ourselves an ambitious goal of becoming one of the best Institute International level. I am confident we shall achieve this distinction with your undiluted help, support and dedication and that of all other stakeholders. I take this opportunity to wish you all a great success in all your endeavors. Colors up your life with this Holi. Happy Holi to you all. Happy Holi. Warm Regards Sd/- CA. Abhisak Pandey Secretary CIRC abhisakp@gmail.com

8 CIRC Newsletter March, March 2019 IN THIS ISSUE... Pg Pg. 04 Pg. 05 Pg Pg Pg Pg Pg Pg Council members and Regional Council Members from Central Region Election of 23rd Regional Council From the desk of Chairman CIRC From the desk of Secretary CIRC Article: Suggestions for conducting Statutory Bank Branch Audit as on By: CA. Pawan K Goel RBI Circulars - April 2018 onwards. By: CA. Pawan K Goel Recommendations of 33rd GST Council. Meeting Regaring Real Estate. By: CA. Govind Agrawal Announcements Events Student Section Pg Pg Pg. 61 Pg From the Desk of Chairman CICASA Article: GSTR 9 Annual Return. By: CA. Praveen Sharma Student activities at Branches. For the attention of Students.

9 CIRC Newsletter March, Suggestions for conducting Statutory Bank Branch Audit as on T h e p r o v i s i o n s r e g a r d i n g t h e financial statements o f b a n k s a r e governed by the Banking Regulation Act, The Third s c h e d u l e t o t h e a f o r e s a i d A c t, prescribes the forms of balance sheet and profit and loss account in case of banks. The provisions regarding audit of Nationalised Banks are governed by the Banking Regulation Act, 1949 and the RBI Guidelines. Pre Audit requirements 1) Engagement Letter from Bank 2) NOC from previous Auditor 3) Establishing overall audit strategy to set the scope, nature, timing, extent of resources required and direction of audit. The audit plan needs to be properly documented with respect to timing, extent of checking, audit procedures to be followed at assertion level and should be flexible and updated or changed as and when necessary 4) The selection of the engagement team is a key activity in the development and execution of an effective and efficient audit plan 5) In performing audit of a bank, the auditor should have or obtain knowledge of the business sufficient to enable him to identify and understand the events, transactions and practices that, in the auditor's judgment, may have a significant effect on the financial CA. Pawan K Goel, Ghaziabad Past Chairman- CIRC / pawankgoel1@gmail.com statements or on the examination or comments in the audit report 6) Review of Closing Instructions given by bank Reports generally demanded by Banks from statutory Auditor 1) Main Audit Report 2) Long Form Audit Report 3) Tax Audit Report 4) Memorandum of Changes 5) Subvention certificates under various Govt Schemes 6) Various other Certificates Reports we should review during statutory audit We should review following Reports of other audits to have a fair idea of Branch working : 1) Concurrent Audit Reports 2) Internal Inspection / Annual Inspection Report 3) System Audit Report 4) Revenue Audit Report 5) RBI Inspection report, If any 6) Last Year Statutory Audit Reports 7) Information System Report 8) Forensic Audit Report if conducted in any account 9) Stock Audit Reports Important Provision regarding Advances (with reference to IRAC Norms) In line with the international practices and as per the recommendations made by the Committee on the Financial System (Chairman Shri M. Narasimham), the Reserve Bank of India has introduced, in a phased manner, prudential norms for income recognition, asset classification and provisioning for the advances

10 CIRC Newsletter March, Suggestions for conducting Statutory Bank Branch Audit as on portfolio of the banks so as to move towards greater consistency and transparency in the published accounts. Advances are broadly categorized in two categories: Performing Assets i.e. Standard Assets Non Performing Assets Non performing Assets An asset, including a leased asset, becomes non performing when it ceases to generate income for the bank. A non performing asset (NPA) is a loan or an advance where; i) interest and/ or instalment of principal remain overdue for a period of more than 90 days in respect of a term loan, ii) the account remains 'out of order', in respect of an Overdraft/Cash Credit (OD/CC), iii) the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted, iv) the amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitisation transaction. v) in respect of derivative transactions, the overdue receivables representing 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. vi) In case of interest payments, banks should, classify an account as NPA only if the interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter. vii) Any amount due to the bank under any credit facility is 'overdue' if it is not paid on the due date fixed by the bank. Out of Order' status An account should be treated as 'out of order a) if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power for 90 days. b) In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but there are no credits continuously for 90 days as on the date of Balance Sheet c) or credits are not enough to cover the interest debited during the same period, these accounts should be treated as 'out of order CASE STUDY -1 FACTS M/s ABC Ltd. is having Cash credit account of Rs lacs with XYZ Bank Ltd. Drawing power in the account id Rs lacs. Outstanding balance of cash credit account was in the range of 101 lacs to 105 lacs for the period 18/12/2018 to 31/03/2019 The account will treated as NPA since the outstanding balance remains continuously in excess of the sanctioned limit/drawing power for 90 days CASE STUDY -2 FACTS

11 CIRC Newsletter March, Suggestions for conducting Statutory Bank Branch Audit as on M/s ABC Ltd. is having Cash credit account of Rs lacs with XYZ Bank Ltd. Drawing power in the account is Rs Lacs.Outstanding balance of cash credit account was in the range of 91 lacs to 95 lacs for the period 18/12/2018 to 31/03/2019 The account will treated as NPA since the outstanding balance remains continuously in excess of the drawing power for 90 days CASE STUDY -3 FACTS M/s ABC Ltd. is having Cash credit account of Rs lacs with XYZ Bank Ltd. Outstanding balance of cash credit account was in the range of 90 lacs to 95 lacs for the period 01/01/2019 to 31/03/2019, however there was no credit in the account during this period The account will treated as NPA since there are no credits continuously for 90 days as on the date of Balance Sheet CASE STUDY -4 FACTS M/s ABC Ltd. is having Cash credit account of Rs lacs with XYZ Bank Ltd. Outstanding balance of cash credit account was in the range of 90 lacs to 95 lacs for the period 01/01/2019 to 31/03/2019 Interest in the account during this period was debited as follows : a) January b) February c) March Total interest Credit in the account during this period are as follows: a) On cash deposited b) On cheque deposited c) On cash deposited d) On cash deposited Total credits The account will treated as NPA since credits are not enough to cover the interest debited during the same period CASE STUDY -5 FACTS M/s ABC Ltd. has taken a term loan of Rs lacs for purchase of machinery from XYZ Bank Ltd. on Term Loan is payable in 20 Equal Quarterly instalments of Rs Lacs commencing from Quarter ended Interest will be serviced on monthly basis. As on Outstanding balance of term loan account was Rs lacs. Borrower has paid interest upto January 2019 however Instalment of Dec.18 was not paid. The account will treated as NPA since instalment of principal remain overdue for a period of more than 90 days ( instalment due on not paid till ) CASE STUDY -6 FACTS M/s ABC Ltd. has taken a term loan of Rs lacs for purchase of machinery from

12 CIRC Newsletter March, Suggestions for conducting Statutory Bank Branch Audit as on XYZ Bank Ltd. on Term Loan is payable in 20 Equal Quarterly instalments of Rs Lacs commencing from Quarter ended Interest will be serviced on monthly basis. As on Outstanding balance of term loan account was Rs lacs. Borrower has paid interest upto November 2018 and instalment upto The account will treated as NPA since interest of November 2018 is overdue for a period of more than 90 days Specific Exemption to SME sector v i d e c i r c u l a r N O R B I / / DBR.No.BP.BC.100/ / February 07, 2018 and vide circular dated June, 06, 2018, RBI has granted Relief for MSME Borrowers registered under Goods and Services Tax (GST). Having regard to the input credit linkages and ancillary affiliations, it has now been decided to temporarily allow banks and NBFCs to classify their exposure, as per the 180 days past due criterion, to all MSMEs, including those not registered under GST, as a 'standard' asset, subject to the following conditions: 1) The aggregate exposure, including non-fund based facilities, of banks and NBFCs to the borrower does not exceed 250 million as on May 31, ) The borrower's account was standard as on August 31, ) The payments due from the borrower as on September 1, 2017 and falling due thereafter up to December 31, 2018 were/are paid not later than 180 days from their original due date. 4) In respect of dues payable by GST-registered MSMEs from January 1, 2019 onwards, the 180 days past due criterion shall be aligned to the extant IRAC norms as follows: Period during which any payment falls due September 1, 2017 December 31, 2018 Time permitted 180 days January 1, 2019 February 28, 2019 March 1, 2019 to April 30, days 120 days May 1, 2019 onwards 90 days

13 CIRC Newsletter March, Suggestions for conducting Statutory Bank Branch Audit as on However, for MSMEs that are not registered under GST as on December 31, 2018, the asset classification in respect of dues payable from January 1, 2019 onwards shall immediately revert to the extant IRAC norms. 5 ) A provision of 5% shall be made by the banks/nbfcs against the exposures not classified as NPA in terms of this circular. The provision in respect of the account may be reversed as and when no amount is overdue beyond the 90/120 day norm, as the case may be. 6) The additional time is being provided for the purpose of asset classification only and not for income recognition, i.e., if the interest from the borrower is overdue for more than 90/120 days, the same shall not be recognised on acrual basis Note : The said circular is applicable only when the bank has not restructured the account of the borrower. In case the account of the borrower has been restructured, provision of circular of January, 1 shall be applicable, which has been discussed later in the paper. Agricultural Advance: With effect from September 30, 2004 the following revised norms are applicable to all direct agricultural advances A loan granted for short duration crops will be treated as NPA, if the instalment of principal or interest thereon remains overdue for two crop seasons. A loan granted for long duration crops will be treated as NPA, if the instalment of principal or interest thereon remains overdue for one crop season For the purpose of these 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 CASE STUDY Mr. A has taken a KCC Limit of Rs lacs for short duration crop on 15/04/2016. This limit fell due for payment as on 14/04/2017 however A could not paid the due amount till The account will not be treated as NPA on since it has not remained overdue for 2 crop seasons I.e for two years. It will be treated as NPA as on 14/04/2019. Hence as on all short/long duration crop accounts sanctioned after will not be treated as NPA 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. In respect of agricultural loans, other than Direct Agriculture Loan and term loans given to non-agriculturists, identification of NPAs would be done on the same basis as non-agricultural advances, which, at present, is the 90 days delinquency norm.

14 CIRC Newsletter March, Suggestions for conducting Statutory Bank Branch Audit as on Where 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-schedulement of the repayment period; and the sanctioning of fresh short-term loan, subject to various guidelines c o n t a i n e d i n R B I c i r c u l a r s FIDDNO.FSD.BC.52/ / DATED In such cases of conversion or reschedulement, the term loan a well as fresh short-term loan may be treated as current dues and need not be classified as NPA. The asset classification of these l o a n s w o u l d thereafter be governed by the revised terms & conditions and would be treated as NPA if interest and/or instalment of principal remains unpaid, for two harvest seasons but for a period not exceeding two half years While fixing the repayment schedule in case of rural housing advances granted to agriculturists under Indira Awas Yojana and Golden Jubilee Rural Housing Finance Scheme, banks should ensure that the interest/instalment payable on such advances are linked to crop cycles. ASSET CLASSIFICATION Categories of NPAs Non performing assets are classified in following three categories based on the period for which the asset has remained non performing and the recovery of the dues: i. Substandard Assets ii. Doubtful Assets iii. Loss Assets Substandard Assets With effect from March 31, 2005, a substandard asset would be one, which has remained NPA for a period less than or equal to 12 months. Such an asset will have well defined credit weaknesses that jeopardise the liquidation of the debt and are characterised by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected. Doubtful Assets With effect from March 31, 2005, an asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as sub- standard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values highly questionable and improbable. Loss Assets A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly. Other Points Accounts with temporary deficiencies The classification of an asset as NPA should be based on the record of recovery. Bank should not classify an advance account as NPA merely due to the existence of some deficiencies which Are temporary in nature such as non-availability

15 CIRC Newsletter March, Suggestions for conducting Statutory Bank Branch Audit as on of adequate drawing power based on the latest available stock statement, balance outstanding exceeding the limit temporarily, non-submission of stock statements and non-renewal of the limits on the due date, etc. In the matter of classification of accounts with such deficiencies banks may follow the following guidelines: i) Banks should ensure that drawings in the working capital accounts are covered by the adequacy of current assets. However, considering the difficulties of large borrowers, stock statements relied upon by the banks for determining drawing power should not be older than three months. The outstanding in the account based on drawing power calculated from stock statements older than three months, would be deemed as irregular. A working capital borrowal account will become NPA if such irregular drawings are permitted in the account for a continuous period of 90 days even though the unit may be working or the borrower's financial position is satisfactory. As per the guidelines of the Reserve Bank of India, in every account whose exposure is above Rs crores, conduct of stock audit by the external firm of Chartered Accountants is mandatory. In case it is found that the stock audit in the account has not been conducted during the year, drawing power in the instant case should be taken to be Nil. (This is based on the presentation held in the meeting by RBI with the SCA's of different banks). CASE STUDY M/s ABC Ltd. has following facilities from XYZ Bank Ltd. A) CC Limit : Lacs B) TL : Lacs C) NFB Limits : 100 lacs As per the terms of sanctions company is required to submit stock and book debt statement on monthly basis before 10th of next month to arrive drawing power. As on it is observed that company has not submitted stock and book debt statement after 31stth August The account will be treated as NPA since the Drawing power in the account is older than 6 months ii) Regular and ad hoc credit limits need to be reviewed/ regularised not later than three months from the due date/date of ad hoc sanction. In case of constraints such as nonavailability of financial statements and other data. An account where the regular/ ad hoc credit limits have not been reviewed/ renewed within 180 days from the due date/ date of ad hoc sanction will be treated as NPA CASE STUDY M/s ABC Ltd. has following facilities from XYZ Bank Ltd. A) CC Limit : Lacs B) TL : Lacs These facilities were sanctioned on 15/08/2017. Cash credit account falls due for renewal on 14/08/2018, However company could not submitted renewal documents and account is due for renewal as on The account will treated as NPA since the renewal of account is pending for more than 180 days. This is irrespective of the fact that

16 CIRC Newsletter March, Suggestions for conducting Statutory Bank Branch Audit as on the bank has done a short review of the account based on the previous available data. Upgradation of loan accounts classified as NPAs If arrears of interest and principal are paid by the borrower in the case of loan accounts classified as NPAs, the account should no longer be treated as non- performing and may be classified as 'standard' accounts. Accounts regularised near about the balance sheet date The asset classification of borrowal accounts where a solitary or a few credits are recorded before the balance sheet date should be handled with care and without scope for subjectivity. Such credits should be from genuine sources and not from sanction of fresh / enhanced limits CASE STUDY M/s ABC Ltd. has following facilities from XYZ Bank Ltd. A) CC Limit : Lacs B) TL : Lacs As on CC account was running beyond limit since 18/11/2018 and instalment of term loan account was not paid since November Borrower was in stress so he could not deposited overdue amount despite regular follow up by bank. as on ,to regularize the accounts branch sanctioned a clean od of 10 lacs to borrower and adjusted the overdue amount in CC and TL. Account will be treated as NPA since CC account is out of order and TL is overdue beyond 90 days and overdue amount has been adjusted by branch with bank's funds. Treatment of NPAs Borrower-wise and not Facility-wise In respect of a borrower having more than one facility with a bank, all the facilities granted by the bank will have to be treated as NPA and not the particular facility or part thereof which has become irregular. However the bills discounted under LC and Derivative contracts as mentioned in para iii and Iv of Master Circular dated may not be classified as a NPA. CASE STUDY M/s ABC Ltd. has following facilities from XYZ Bank Ltd. A) CC Limit : Lacs B) TL : Lacs C) Vehicle loan lacs D) NFB Limits : 100 lacs As on instalments of vehicle loans were outstanding since November 2018, CC and TL account were regular. Since Vehicle loan is overdue for more than 90 days it will be treated as NPA and since NPA norms are applied borrower wise, CC and TL accounts will also be treated as NPA even if these accounts are regular. Devolvement of LC / Invocation of BG: If the debits arising out of devolvement of letters of credit or invoked guarantees are parked in a

17 CIRC Newsletter March, Suggestions for conducting Statutory Bank Branch Audit as on separate account, the balance outstanding in that account also should be treated as a part of the borrower's principal operating account for the purpose of application of prudential norms on income recognition, asset classification and provisioning. CASE STUDY FACTS M/s ABC Ltd. has following facilities from XYZ Bank Ltd. A) CC Limit : Lacs B) LC Limit : Lacs C) Current Account One of the LC of Rs lacs issued by bank on behalf of ABC Ltd was devolved and bank debited the amount to ABC Limited Current Account on since cash credit account was fully utilised. Thus Current account showed a debit balance of Rs lacs as on , this amount was not adjusted till The account will treated as NPA since the amount of Rs lacs is overdue for more than 90 days as on Advances under consortium arrangements: Asset classification of accounts under consortium should be based on the record of recovery of the individual member banks and other aspects having a bearing on the recoverability of the advances. Even if the remittances by the borrower under consortium lending arrangements are pooled with one bank and/or where the bank receiving remittances is not parting with the share of other member banks, the account will be treated as not serviced in the books of the other member banks and therefore, be treated as NPA. The auditor may also check the record of information sharing carried out by the banks amongst each other on the quarterly basis. This helps in checking the record of recovery with the different banks and the asset classification status with the different member banks. Non-Performing Accounts with exposure above Rs. 50 crores had to mandatory get the forensic account of the borrower. It is thus imperative, we must study the contents of the report and take suitable actions. The responsibilities of the auditor in the said case is as under : a) In case the bank is the lead bank, in case of any fraud that has been highlighted by the forensic auditor, the same must immediately be brought to the notice of RBI through FMR return. In case the bank is member of the consortium and the lead bank has classified the account as fraud account, the account is to be classified as fraud in the books of the member bank. (This is based on the presentation held in the meeting by RBI with the SCA's of different banks). Accounts where there is erosion in the value of security: A NPA need not go through the various stages of classification in cases of serious credit impairment and such assets should be straightaway classified as doubtful or loss asset as appropriate. Erosion in the value of security can be reckoned as significant when the realisable value of the

18 CIRC Newsletter March, Suggestions for conducting Statutory Bank Branch Audit as on security is less than 50 per cent of the value assessed by the bank or accepted by RBI at the time of last inspection, as the case may be. Such NPAs may be straightaway c l a s s i f i e d under doubtful category. If the realisable value of the security, as assessed by the bank/ approved valuers/ RBI is less than 10 per cent of the outstanding in the borrowal accounts, the existence of security should be ignored and the asset should be straightaway classified as loss asset. It may be either written off or fully provided for by the bank CASE STUDY FACTS 1. M/s ABC Ltd. has following facilities from XYZ Bank Ltd. A) CC Limit : Lacs B) TL : Lacs Security Available A) Stock : Rs. 150 Lakhs B) Building :Rs. 75 lakhs The account has been classified as NPA as on 31st December, As at 31st March, 2019, there has been fire in the premise of the borrower and the entire stock has been gutted in the fire. The account will be treated as NPA and provision of Rs. 350 Lakhs will be held in the books of accounts of the book irrespective of the downgrading hierarchy. 2. M/s ABC Ltd. has following facilities from ABC Bank Ltd. C) CC Limit : Lacs D) TL : Lacs The account is secured with the charge on the current assets present as well as future of the company. The account of the borrower has been classified as NPA as at 30th June, During the year under audit, the bank has ordered the forensic audit of the borrower, where diversion of Rs. 200 lakhs has been detected. Bank has reported the matter to RBI and CBI for further course of action. The account will be treated as NPA and provision of Rs. 500 Lakhs will be held in the books of accounts of the book irrespective of the downgrading hierarchy. The bank will however have the option of spreading the loss to 04 quarters. Advances against Term Deposits, NSCs, KVP/IVP, LIC etc: Advances against term deposits, NSCs eligible for surrender, IVPs,KVPs and Life Policies are exempt from Assets Classification & Provisioning Norms provided adequate margin is available. However advances against gold ornaments, government securities and all other securities are not covered by this exemption. Loans with moratorium for payment of interest: In the case of bank finance given for industrial projects or for agricultural plantations etc. where moratorium is available for payment of interest, payment of interest becomes 'due' only after the moratorium or gestation period is over. In the case of housing loan or similar advances granted to staff members where interest is payable after recovery of principal, interest

19 CIRC Newsletter March, Suggestions for conducting Statutory Bank Branch Audit as on need not be considered as overdue from the first quarter onwards and only when there is default in repayment on due dates. Government guaranteed advances : The credit facilities backed by guarantee of the Central Government though overdue may be treated as NPA only when the Government repudiates its guarantee when invoked. This exemption from classification of Government guaranteed advances as NPA is not f o r the purpose of recognition of income. The requirement of invocation of guarantee has been delinked for deciding the asset classification and provisioning requirements in respect of State Government guaranteed exposures Advances sanctioned against State Government guarantees should be classified as NPA in the normal course Take-out Finance: Under this arrangement, the institution/the bank financing infrastructure projects will have an arrangement with any financial institution for transferring to the later the outstanding in respect of such financing in their books on a predetermined basis. In view of the time-lag involved in taking-over, the possibility of a default in the meantime cannot be ruled out. The norms of asset classification, income recognition & provisioning will have to be followed by the concerned bank/financial institution in whose books the account stands as balance sheet item as on the relevant date. Further if at the time of takeover the a/c is NPA in other bank books than the same will be classified as NPA after takeover in the later books. Post-shipment Supplier's Credit : In respect of post-shipment credit extended by the banks covering export of goods to countries for which the ECGC's cover is available, EXIM Bank has introduced a guarantee-cumrefinance programme whereby, in the event of default, EXIM Bank will pay the guaranteed amount to the bank within a period of 30 days from the day the bank invokes the guarantee after the exporter has filed claim with ECGC. Accordingly, to the extent payment has been received from the EXIM Bank, the advance may not be treated as a non-performing asset for asset classification and provisioning purposes Export Project Finance: In respect of export project finance, there could be instances where the actual importer has paid the dues to the bank abroad but that bank in turn is unable to remit the amount due to political developments such as war, strife, UN embargo, etc. In such circumstances, if the lending bank able to establish through documentary evidence that the importer has cleared the dues in full by depositing the amount in the bank abroad before it turned into NPA in the books of the bank, but the importer's c o u n t r y i s n o t allowing the funds to be remitted due to political or other reasons, the asset classification may be made after a period of one year from the date the amount was deposited by the importer in the bank abroad. Credit Card Accounts In credit card accounts, the amount spent is billed to the card users through a monthly

20 CIRC Newsletter March, Suggestions for conducting Statutory Bank Branch Audit as on statement with a definite due date for repayment. Banks give an option to the card users to pay either the full amount or a fraction of it, i.e., minimum amount due, on the due date and roll-over the balance amount to the subsequent months' billing cycle. A credit card account will be treated as non-performing asset if the minimum amount due, as mentioned in the statement, is not paid fully within 90 days from the next statement date. The gap between two statements should not be more than a month. Banks should follow this uniform method of determining over-due status for credit card accounts while reporting to credit information companies and for the purpose of levying of penal charges, viz. late payment charges, etc., if any. Restructuring and rescheduling of Loans General Principles for Restructuring a) Banks may restructure the accounts classified under 'standard', 'substandard' and 'doubtful' categories b) Banks cannot reschedule / restructure / renegotiate borrowal accounts with retrospective effect c) The process of re- classification of an asset should not stop merely because restructuring proposal is under consideration d) No account will be taken up for restructuring by the banks unless the financial viability is established and there is a reasonable certainty of repayment from the borrower, as per the terms of restructuring package e) Borrowers indulging in frauds and malfeasance are ineligible for restructuring Asset classification norms Restructuring of advances could take place in the following stages: a) before commencement of commercial production / operation b) after commencement of commercial production / operation but before the asset has been classified as 'substandard d) after commencement of commercial production / operation and the asset has been classified as 'sub-standard' or doubtful The accounts classified as 'standard assets' should be immediately re- classified as 'substandard assets' upon restructuring. The non-performing assets, upon restructuring, would continue to have the same asset classification as prior to restructuring and slip into further lower asset classification categories as per extant asset classification norms with reference to the pre-restructuring repayment schedule. Standard accounts classified as NPA and NPA accounts retained in the same category on restructuring by the bank should be upgraded only when all the outstanding loan/facilities in the account perform satisfactorily during the 'specified period' i.e. principal and interest on all facilities in the account are serviced as per

21 CIRC Newsletter March, Suggestions for conducting Statutory Bank Branch Audit as on terms of payment during that period. In case, however, satisfactory performance after the specified period is not evidenced, the asset classification of the restructured account would be governed as per the applicable prudential norms with reference to the prerestructuring payment schedule. Any additional finance may be treated as 'standard asset' during the specified period under the approved restructuring package. However, in the case of accounts where the prerestructuring facilities were classified as 'substandard' and 'doubtful', interest income on the additional finance should be recognised only on cash basis. If the restructured asset does not qualify for upgradation at the end of the above specified period, the additional finance shall be placed in the same asset classification category as the restructured debt. If a restructured asset, which is a standard asset on restructuring in, is subjected to restructuring on a subsequent occasion, it should be classified as substandard. If the restructured asset is a sub-standard or a doubtful asset and is subjected to restructuring, on a subsequent occasion, its asset classification will be reckoned from the date when it became NPA on the first occasion. However, such advances restructured on second or more occasion may be allowed to be upgraded to standard category after the specified period in terms of the current restructuring package, subject to satisfactory performance Relaxation to MSME Borrowers RBI has decided to permit a one-time restructuring of existing loans to MSMEs '' that are in default but standard as on January 1, 2019, without an asset classification downgrade. To be eligible for the scheme, the aggregate exposure, including non-fund based facilities of banks and NBFCs, to a borrower should not exceed 250 million as on January 1, The restructuring has to be implemented by March 31, A provision of 5% in addition to the provisions already held, shall be made in respect of accounts restructured under this scheme. Each bank/nbfc should formulate a policy for this scheme with Board approval which shall, inter alia, include framework for viability assessment of the stressed accounts and regular monitoring of the restructured accounts. RBI Circular on resolution of stressed assets in view of enactment of IBC C i r c u l a r N o. R B I / / BR.No.BP.BC.101/ / February 12, Resolution of Stressed Assets Revised Framework The Reserve Bank of India has issued various instructions aimed at resolution of stressed assets in the economy, including introduction of certain specific schemes at different points of time. In view of the enactment of the Insolvency and Bankruptcy Code, 2016 (IBC), it has been decided to s substitute the existing guidelines with a harmonised and simplified generic framework for resolution of stressed assets. The revised prudential norms applicable to any restructuring, whether under the IBC framework or outside the IBC are as per Master Circular on Prudential norms on Income. The provisioning

22 CIRC Newsletter March, Suggestions for conducting Statutory Bank Branch Audit as on in respect of exposure to borrower entities against whom insolvency applications are filed under the IBC shall be as per their asset classification in terms of Recognition, Asset Classification and Provisioning, as amended from time to time. Banks shall make appropriate disclosures in their financial statements, under 'Notes on Accounts', relating to resolution plans implemented. Please note that in top 20 cases that were referred to IBC on the directions of RBI, provision of 50% on the outstanding balance was applicable. Project Loans for Infrastructure Sector For the purpose of these guidelines, 'Project Loan' would mean any term loan which has been extended for the purpose of setting up of an economic venture. Further, Infrastructure Sector is a sector as defined in extant Harmonised Master List of Infrastructure of RBI. Deferment of DCCO I) Deferment of DCCO and consequential shift in repayment schedule for equal or shorter duration (including the start date and end date of revised repayment schedule) will not be treated as restructuring provided that: a) The revised DCCO falls within the period of two years and one year from the original DCCO stipulated at the time of financial closure for infrastructure projects and noninfrastructure projects (including commercial real estate projects) respectively; and b) All other terms and conditions of the loan remain unchanged As such project loans will be treated as standard assets in all respects, they will attract standard asset provision of 0.40 per cent ii) Banks may restructure project loans, by way of revision of DCCO beyond the time limits quoted at paragraph (i) (a) above and retain the 'standard' asset classification, if the fresh DCCO is fixed within the following limits, and the account continues to be serviced as per the restructured terms: a) Infrastructure Projects involving court cases Up to another two years (beyond the two year period quoted at paragraph 1(a) above, i.e., total extension of four years), in case the reason for extension of DCCO is arbitration proceedings or a court case. b) Infrastructure Projects delayed for other reasons beyond the control of promoters Up to another one year (beyond the two year period quoted at paragraph 1(a) above, i.e., total extension of three years), in case the reason for extension of DCCO is beyond the control of promoters (other than court cases). c) Project Loans for Non-Infrastructure Sector (Other than Commercial Real Estate Exposures) Up to another one year (beyond the one year period quoted at paragraph 1(a) above, i.e., total extension of two years).iii)the asset classification benefits provided at paragraph (ii) are not applicable to

23 CIRC Newsletter March, Suggestions for conducting Statutory Bank Branch Audit as on commercial real estate sector. iv). It is re-iterated that a loan for a project may be classified as NPA during any time before commencement of commercial operations as per record of recovery (90 days overdue). Banks should maintain following provisions on such accounts as long as these are classified as standard assets in addition to provision for diminution in fair value due to extension of DCCO: Particulars If the revised DCCO is within two years/one year from the original DCCO prescribed at the time of financial closure for infrastructure and noninfrastructure projects respectively If the DCCO is extended: i)beyond two years and upto four years or three years from the original DCCO, as the case may be, for infrastructure projects depending upon the reasons for such delay ii) Beyond one years and upto two years from the original DCCO, for non-infrastructure projects Provisioning Requirement 0.40 per cent Project loans restructured with effect from June 1, 2013: 5.00 per cent From the date of such restructuring till the revised DCCO or 2 years from the date of restructuring, whichever is later Stock of project loans classified as restructured as on June 1, 2013: * 3.50 per cent - with effect from March 31, 2014 (spread over the four quarters of ) * 4.25 per cent - with effect from March 31, 2015 (spread over the four quarters of ) * 5.00 per cent - - with effect from March 31, 2016 (spread over the four quarters of ) The above provisions will be applicable from the date of restructuring till the revised DCCO or 2 years from the date of restructuring, whichever is later. Provisioning Requirement for ADVANCES Standard assets: i) Bank should make general provision for standard assets at the following rates: -

24 CIRC Newsletter March, Suggestions for conducting Statutory Bank Branch Audit as on TYPE % Commercial Real Estate Sector 1 Direct Advances to Agricultural and SME Sec.25 Housing loans extended at teaser rates 2 restructured advances For all other loans and advances not covered above Advances to Commercial Real Estate Residential Housing Sector (CRE - RH) The above-mentioned higher provision on restructured standard advances (2.75 per cent as prescribed vide circular dated November 26, 2012) would increase to 5 per cent in respect of new restructured standard accounts (flow) with effect from June 1, 2013 and increase in a phased manner for the stock of restructured standard accounts as on May 31, 2013 as under : Ÿ3.50 per cent - with effect from March 31, 2014 (spread over the four quarters of ) Ÿ4.25 per cent - with effect from March 31, 2015 (spread over the four quarters of ) Ÿ5.00 per cent - - with effect from March 31, 2016 (spread over the four quarters of ) The provisions on standard assets should not be reckoned for arriving at net NPAs. The provisions towards Standard Assets need not be netted from gross advances but shown separately as 'Contingent Provisions against Standard Assets' under 'Other Liabilities and Provisions - Others' in Schedule 5 of the balance sheet Provisioning requirements for derivative exposures Credit exposures computed as per the current marked to market value of the contract, arising on account of the interest rate & foreign exchange derivative transactions, and gold, shall also attract provisioning requirement as applicable to the loan assets in the 'standard' category, of the concerned counterparties. All conditions applicable for treatment of the provisions for standard assets would also apply to the aforesaid provisions for derivative and gold exposures Sub-standard assets : A general provision of 15 percent on total outstanding should be made without making any allowance for DICGC/ECGC guarantee

25 CIRC Newsletter March, Suggestions for conducting Statutory Bank Branch Audit as on cover and securities available The 'unsecured exposures', which are identified as 'substandard', would attract additional provision of 10 percent, i.e. a total of 25 per cent on the outstanding balance. However, in view of certain safeguards such as escrow accounts available in respect of infrastructure lending, infrastructure loan accounts which are classified as substandard will attract a provisioning of 20 per cent instead of the aforesaid prescription of 25 per cent. To avail of this benefit of lower provisioning, the banks should have in place an appropriate mechanism to escrow the cash flows and also have a clear and legal first claim on these cash flows. 'Unsecured Exposures' is where the realizable value of the security as assessed by the bank/ approved valuers/ RBI's Inspecting officer's is not more than 10%, ab initio, of outstanding exposure. Doubtful assets: 100 percent of the unsecured portion. In regard to the secured portion, provision may be made on the following basis. In case the advance covered by CGTSI guarantee becomes nonperforming, no provision need be made towards the guaranteed portion. The amount outstanding in excess of the guaranteed portion should be provided for as per the extent guidelines on provisioning for nonperforming advances Period Provision Upto one year 25% One year to 3 year 40% More than 3 years 100% Loss assets Loss assets should be written off. If loss assets are permitted to remain in the books for any reason, 100 percent of the outstanding should be provided for. Valuation of Security for provisioning purposes With a view to bringing down divergence arising out of difference in assessment of the value of security, in cases of NPAs with balance of Rs. 5 crore and above stock audit at annual intervals by external agencies appointed as per the guidelines approved by the Board would be mandatory in order to enhance the reliability on stock valuation. Collaterals such as immovable properties charged in favour of the bank should be got valued, once in three years by valuers appointed as per the guidelines approved by the Board of Directors Provisioning Norms for Leased Assets i) Substandard assets a) 15 percent of the sum of the net investment in the lease and the unrealized portion of finance income net of finance charge component. The terms 'net investment in the lease', 'finance income' and 'finance charge' are as defined in 'AS 19 Leases' issued by the ICAI. b) Unsecured lease exposures which are identified as 'substandard' would attract additional provision of 10 per cent, i.e., a total of 25 per cent. ii) Doubtful assets

26 CIRC Newsletter March, Suggestions for conducting Statutory Bank Branch Audit as on percent of the extent to which, the finance is not secured by the realizable value of the leased asset. Realizable value is to be estimated on a realistic basis. In addition to the above provision, provision at the following rates should be made on the sum of the net investment in the lease and the unrealized portion of finance income net of finance charge component of the secured portion, depending upon the period for which asset has been doubtful: Period Provision Upto one year 25% One year to 3 year 40% More than 3 years 100% iii) Loss assets The entire asset should be written off. If for any reason, an asset is allowed to remain in books, 100 percent of the sum of the net investment in the lease and the unrealized portion of finance income net of finance charge component should be provided for Advances covered by ECGC guarantee In the case of advances classified as doubtful and guaranteed by ECGC, provision should be made only for the balance in excess of the amount guaranteed by the Corporation. Further, while arriving at the provision required to be made for doubtful assets, realisable value of the securities should first be deducted from the outstanding balance in respect of the amount guaranteed by the Corporation and then provision made as illustrated hereunder: Example Outstanding Balance ECGC Cover Period for which the advance has remained doubtful Value of security held Rs. 4 lakhs 50 percent More than 2 years remained doubtful (say as on March 31, 2014) Rs lakhs Provision required to be made Outstanding balance Less: Value of security held Unrealised balance Less: ECGC Cover Rs lakhs Rs lakhs Rs lakhs Rs lakhs (50% of unrealisable balance) Net unsecured balance Provision for unsecured portion of Advance Rs lakhs Rs lakhs (@ 100 percent of unsecured portion)

27 CIRC Newsletter March, Suggestions for conducting Statutory Bank Branch Audit as on Provision for secured portion of advance Rs.0.60 lakhs 40 per cent of the (as on March 31, 2012) secured portion) Total provision to be made Rs.1.85 lakhs (as on March 31, 2014) Advance covered by guarantees of Credit Guarantee Fund Trust For Micro And Small Enterprises (CGTMSE) or Credit Risk Guarantee Fund Trust for Low Income Housing (CRGFTLIH) In case the advance covered by CGTMSE or CRGFTLIH guarantee becomes nonperforming, no provision need be made towards the guaranteed portion. The amount outstanding in excess of the guaranteed portion should be provided for as per the extant guidelines on provisioning for non-performing assets. An illustrative example is given below: Example Outstanding Balance Rs. 10 lakhs CGTMSE/CRGFTLIH Cover 75% of the amount outstanding or 75% of the unsecured amount or Rs lakh, whichever is the least Period for which the advance has remained doubtful More than 2 years remained doubtful (say as on March 31, 2014) Value of security held Rs lakhs Provision required to be made Balance outstanding Less: Value of security Unsecured amount Less: CGTMSE/CRGFTLIH cover (75%) Net unsecured and uncovered portion: Provision for Secured 40% of Rs.1.50 lakh Provision for Unsecured & uncovered 100% of Rs.2.12 lakh Total provision required Rs lakh Rs lakh Rs lakh Rs lakh Rs lakh Rs.0.60 lakh Rs.2.12 lakh Rs.2.72 lakh

28 CIRC Newsletter March, Suggestions for conducting Statutory Bank Branch Audit as on INCOME RECOGNITION The policy of income recognition has to be objective and based on the record of recovery. Internationally income from non-performing assets (NPA) is not recognised on accrual basis but is booked as income only when it is actually received. Therefore, the banks should not charge and take to income account interest on any NPA. However, interest on advances against term deposits, NSCs, IVPs,KVPs and Life policies may be taken to income account on the due date, provided adequate margin is available in the accounts Fees and commissions earned by the banks as a result of re-negotiations or rescheduling of outstanding debts should be recognised on an accrual basis over the period of time covered by the re-negotiated or rescheduled extension of credit. If Government guaranteed advances become NPA, the interest on such advances should be taken to income account on actual recovery. With effect from a State Government guaranteed advance, where interest and/or instalment of principal / or any other amount due to the bank remains overdue for a period more than 90 days shall become a non performing advance. The interest due on such advance should not be taken to income account, unless it has been realized. Reversal of income: If any advance, including bills purchased and discounted, becomes NPA as at the close of any year, interest accrued and credited to income account in the past period, 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, if uncollected. Appropriation of recovery in NPAs: Interest realised on NPAs may be taken to income account provided the credits in the accounts towards interest are not out of fresh/ additional credit facilities sanctioned to the borrower concerned. In the absence of a clear agreement between the bank and the borrower for the purpose of appropriation of recoveries in NPAs (i.e. towards principal or interest due), banks should adopt an accounting principle and exercise the right of appropriation of recoveries in a uniform and consistent manner. Red Flag Accounts RBI circular dated 7th May 2015 has introduced the concept of a Red Flag Account (RFA), i.e., an account where suspicion of fraudulent activity is reflected by the presence of one or more early warning signals (EWS). Early Warning signals as advised by RBI which should alert the bank officials about some wrongdoings in the loan accounts which may turn out to be fraudulent include:

29 CIRC Newsletter March, Suggestions for conducting Statutory Bank Branch Audit as on ) Default in payment to the banks/ sundry debtors and other statutory bodies, etc., bouncing of the high value cheques. 2) Raid by Income tax /sales tax/ central excise duty officials. 3) Frequent change in the scope of the project to be undertaken by the borrower. 4) Under insured or over insured inventory. 5) Invoices devoid of TAN and other details. 6) Dispute on title of the collateral securities. 7) Costing of the project which is in wide variance with standard cost of installation of the project. 8) Funds coming from other banks to liquidate the outstanding loan amount. 9) Foreign bills remaining outstanding for a long time and tendency for bills to remain overdue. 10) O n e r o u s c l a u s e i n i s s u e o f BG/LC/standby letters of credit. 11) In Merchanting trade, import leg not revealed to the bank. 12) Request received from the borrower to postpone the inspection of the godown for flimsy reasons. 13) Delay observed in payment of outstanding dues. 14) Financing the unit far away from the branch. 15) Claims not acknowledged as debt high. 16) Frequent invocation of BGs and devolvement of Lcs. 17) Funding of the interest by sanctioning additional facilities. 18) Same collateral charged to a number of lenders. 19) Concealment of certain vital documents like master agreement, insurance coverage. 20) Floating front / associate companies by investing borrowed money. 21) Reduction in the stake of promoter / director. 22) Resignation of the key personnel and frequent changes in the management. 23) Substantial increase in unbilled revenue year after year. 24) Large number of transactions with interconnected companies and large outstanding from such companies. 25) Significant movements in inventory, disproportionately higher than the growth in turnover. 26) Significant movements in receivables, disproportionately higher than the growth in turnover and/or increase in ageing of the receivables. 27) Disproportionate increase in other current assets.

30 CIRC Newsletter March, Suggestions for conducting Statutory Bank Branch Audit as on ) Significant increase in working capital borrowing as percentage of turnover. 29) Critical issues highlighted in the stock audit report. 30) Increase in Fixed Assets, without corresponding increase in turnover (when project is implemented). 31) Increase in borrowings, despite huge cash and cash equivalents in the borrower's balance sheet. 32) Liabilities appearing in ROC search report, not reported by the borrower in its annual report. 33) Substantial related party transactions. 34) Material discrepancies in the annual report. 35) Significant inconsistencies within the annual report (between various sections). 36) Poor disclosure of materially adverse information and no qualification by the statutory auditors. 37) Frequent change in accounting period and/or accounting policies. 38) Frequent request for general purpose loans. 39) Movement of an account from one bank to another. 40) Frequent ad hoc sanctions. 41) Not routing of sales proceeds through bank. 42) LC's issued for local trade / related party transactions. 43) High value RTGS payment to unrelated parties. 44) Heavy cash withdrawal in loan accounts. 45) Non submission of original bills. Besides the above Red flags, we should also review Besides the above Red flags, we should also review a) Cheque/bills discounting facility used for liquidation of funds without any physical collateral or just for deferment of liability. b) Repayment of third party loans despite bank's loan account irregular or out of order. c) Maintenance of bank accounts with other bank without consent of lender bank. d) Inordinate delay in conducting stock inspections by bank officials and/or stock auditors at the instance of the borrower not to show its weakness and misutilisation of funds. e) Unauthorised changes to CBS parameters, unauthorised/fraudulent direct entries, NPA date tampering etc. Miscellaneous Points a) Updation of MCLR in the accounts where interest rates are fixed on that basis. Please also check that all accounts are

31 CIRC Newsletter March, Suggestions for conducting Statutory Bank Branch Audit as on under the this system and not the previous base rate system. b) At the time of sanction of loan, please see whether the bank has checked the Central Fraud registry maintained by Reserve Bank of India. The search should be for the company and the KMP's associated with the company. In case the same is not, the matter should be reported in the LFAR of the branch. c) Please check whether the bank is checking the CRILIC data base for the monitoring of the existing sanctioned accounts. In case the same is not, the matter should be reported in the LFAR of the branch. d) As per RBI guidelines, account classification is to be system driven and no manual intervention should be allowed in the system. In case of any manual intervention, kindly check the audit trail maintained in the regard. e) In case of term loans, where debt-equity ratio has been agreed at the time of sanction of loan, equity infusion and the end use of funds must be checked by the statutory auditor. Any deficiencies should be reported in the LFAR of the branch. (This is based on the presentation held in the meeting by RBI with the SCA's of different banks). f) Unsecured Loan which carries payment of rate of interest shall not form part of the quasi capital of the borrower. Debt- Equity ratio must be worked out accordingly. Any deficiencies should be reported in the LFAR of the branch. (This is based on the presentation held in the meeting by RBI with the SCA's of different banks). g) Additional finance in case of NPA accounts can be maximum for a period of 06 months. Any deficiencies should be reported in the LFAR of the branch. (This is based on the presentation held in the meeting by RBI with the SCA's of different banks).

32 CIRC Newsletter March, RBI Circulars April,2018 onwards April 2, 2018 Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks Spreading of MTM losses and creation of Investment Fluctuation Reserve (IFR) Id=11236&Mode=0 With a view to addressing the systemic impact of sharp increase in the yields on Government Securities, it has been decided to grant banks the option to spread provisioning for mark to market (MTM) losses on investments held in AFS and HFT for the quarters ended December 31, 2017 and March 31, The provisioning for each of these quarters may be spread equally over up to four quarters, commencing with the quarter in which the loss is incurred. May 31, 2018 Withdrawal of Exemptions Granted to G o v e r n m e n t O w n e d N B F C s aspx?id=11283&mode=0 It has been decided to make the NBFC regulations applicable to Government NBFCs as per the timeline indicated in the Annex to this circular. Government NBFCs that are already complying with the prudential regulation as per the road map submitted by them shall continue to follow the same. Jun 06, 2018 Encouraging formalisation of MSME sectorhttps:// User.aspx?Id=11289&Mode=0 Having regard to the input credit linkages and ancillary affiliations, it has now been decided to temporarily allow banks and NBFCs to classify their exposure, as per the 180 days past due criterion, to all MSMEs, including those not registered under GST, as a 'standard' asset, subject to the following conditions: I) The aggregate exposure, including nonfund based facilities, of banks and NBFCs to the borrower does not exceed 250 million as on May 31, II) The borrower's account was standard as on August 31, III) The payments due from the borrower as on September 1, 2017 and falling due thereafter up to December 31, 2018 were/are paid not later than 180 days from their original due date. IV) In respect of dues payable by GSTregistered MSMEs from January 1, 2019 onwards, the 180 days past due criterion shall be aligned to the extant IRAC norms in a phased manner, as given in the Annex. However, for MSMEs that are not registered under GST as on December 31, 2018, the asset classification in respect of dues payable from January 1, 2019 onwards shall immediately revert to the extant IRAC norms. V) The other terms and conditions of the circular dated February 07, 2018 remain unchanged. Jun 07, 2018 External Commercial Borrowings (ECBs) Monthly reporting through ECB 2 Return

33 CIRC Newsletter March, RBI Circulars April,2018 onwards Id=11296&Mode=0 It has been decided to capture the details of the hedges for ECBs through a simplified format of ECB 2 Return. Part E of the Return, accordingly, is modified so as to include only standard information on hedged/unhedged ECB exposure. Details of hedging in Part E.1 of the Return and foreign exchange earnings and expenditure in Part E.2 of the Return should be furnished in additive format. Further, for reporting in respect of natural hedge, provisions contained in paragraph 2 (iii) of A.P. (DIR Series) Circular No. 15 dated November 07, 2016 should be followed. Revised monthly reporting format of ECB 2 Return would be applicable from month-end June It is reiterated that any lapse at the time of reporting through this return and / or failure to adhere to the time line of its submission and / or any lapse at the time of reporting through Form 83 is a contravention of the provision of Foreign Exchange Management Act, 1999 (42 of 1999). June 15, 2018 Basel III Framework on Liquidity Standards - Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standards Id=11305&Mode=0 It has been decided to permit banks, with effect from the date of this circular, to reckon Government securities held by them up to another 2 per cent of their NDTL, under FALLCR within the mandatory SLR requirement, as Level 1 HQLA for the purpose of computing their LCR. Hence, the carve-out from SLR, under FALLCR will now be 11 per cent, taking the total carve out from SLR available to banks to 13 per cent of their NDTL. For the purpose of LCR, banks shall continue to value such government securities reckoned as HQLA at an amount not greater than their current market value (irrespective of the category under which the security is held, i.e., HTM, AFS or HFT). June 15, 2018 Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks Spreading of MTM losses and creation of Investment Fluctuation Reserve (IFR) Id=11304&Mode=0 In view of the continuing rise in the yields on Government Securities, as also the inadequacy of time to build investment fluctuation reserve (IFR) for many banks, it has been decided to grant banks the option to spread provisioning for their mark to market (MTM) losses on all investments held in AFS and HFT for the quarter ending June 30, 2018 as well. The provisioning required may be spread equally over up to four quarters, commencing with the quarter ending June 30, Banks that utilise the above option shall make suitable disclosures in their notes to accounts/ quarterly results providing details of - (a) the provisions made for depreciation of the investment portfolio for the quarter ending June 2018 and (b) the balance required to be made in the

34 CIRC Newsletter March, RBI Circulars April,2018 onwards remaining quarters. Jun 19, 2018 Priority Sector Lending Targets and C l a s s i f i c a t i o n aspx?id=11308&mode=0 With a view to bringing convergence of the Priority Sector Lending guidelines for housing loans with the Affordable Housing Scheme, and to give a filip to low-cost housing for the Economically Weaker Sections and Low Income Groups, the housing loan limits for eligibility under priority sector lending will be revised to 35 lakh in metropolitan centres (with population of ten lakh and above), and 25 lakh in other centres, provided the overall cost of the dwelling unit in the metropolitan centre and at other centres does not exceed 45 lakh and 30 lakh, respectively. Jul 04, Master Circular - Kisan Credit Card (KCC) Schemehttps:// onuser.aspx?id=11325&mode=0 The Kisan Credit Card (KCC) scheme was introduced in 1998 for issue of Kisan Credit Cards to farmers on the basis of their holdings for uniform adoption by the banks so that farmers may use them to readily purchase agriculture inputs such as seeds, fertilizers, pesticides etc. and draw cash for their production needs. The scheme was further extended for the investment credit requirement of farmers viz. allied and non-farm activities in the year The scheme was further revisited in 2012 by a working Group under the Chairmanship of Shri T. M. Bhasin, CMD, Indian Bank with a view to simplify the scheme and facilitate issue of Electronic Kisan Credit Cards. The scheme provides broad guidelines to banks for operationalizing the KCC scheme. Implementing banks will have the discretion to adopt the same to suit institution/location specific requirements. August 02, 2018 Maintenance of CRR/SLR on Foreign Currency Assets/Liabilities Reference rate for INR/USD and exchange rate of other major currencies. User.aspx?Id=11355&Mode=0 Financial Benchmarks India Private Limited (FBIL) has taken over the process of computing and disseminating reference rate for INR/USD and exchange rate for the other major currencies with effect from July 10, We advise that banks shall use the conversion rate announced by FBIL for the purpose of converting foreign assets/liabilities for reporting in Form 'A' return and Form VIII return. The change is to brought into effect from the reporting fortnight ending July 20, September 27, 2018 Basel III Framework on Liquidity Standards - Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standards Id=11380&Mode=0 It has been decided to permit banks with effect

35 CIRC Newsletter March, RBI Circulars April,2018 onwards from October 1, 2018, to reckon Government securities held by them up to another 2 per cent of their NDTL, under FALLCR within the mandatory SLR requirement, as Level 1 HQLA for the purpose of computing their LCR. Hence, the carve-out from SLR, under FALLCR will now be 13 per cent, taking the total carve out from SLR available to banks to 15 per cent of their NDTL. For the purpose of LCR, banks shall continue to value such government securities reckoned as HQLA at an amount not greater than their current market value (irrespective of the category under which the security is held, i.e., HTM, AFS or HFT). November 29, 2018 Interest Equalisation Scheme on Pre and Post Shipment Rupee Export Credit Id=11421&Mode=0 It has been decided by the Government of India to increase w.e.f. November 02, 2018 Interest Equalisation rate from 3% to 5% in respect of exports by the Micro, Small & Medium Enterprises (MSME) sector manufacturers under the Interest Equalisation Scheme on Pre and Post Shipment Rupee Export Credit. January 1, 2019 Micro, Small and Medium Enterprises (MSME) sector Restructuring of Advances Id=11445&Mode=0 With a view to facilitate meaningful restructuring of MSME accounts {MSME as defined in the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006} that have become stressed, it has been decided to permit a one-time restructuring of existing loans to MSMEs classified as 'standard' without a downgrade in the asset classification, subject to some conditions. February 22, 2019 Micro, Small and Medium Enterprises (MSME) sector- Restructuring of Advances Id=11480&Mode=0 P l e a s e r e f e r t o c i r c u l a r DBR.No.BP.BC.18/ / dated January 1, 2019 on the above subject. One of the conditions for restructuring of existing loan of MSMEs without a downgrade in the asset classification is as under: the borrowing entity is GST-registered on the date of implementation of the restructuring. However, this condition will not apply to MSMEs that are exempt from GSTregistration (c.f. para 1 (iii) of the above referred circular). It is clarified that the eligibility for restructuring without GST-registration, as per the circular under reference, should be determined on the basis of exemption limit obtaining as on the date of the aforesaid circular, i.e., January 1, February 22, 2019 Risk Weights for exposures to NBFCs Id=11479&Mode=0 it has been decided that exposures to all NBFCs, excluding Core Investment Companies

36 CIRC Newsletter March, RBI Circulars April,2018 onwards (CICs), will be risk weighted as per the ratings assigned by the rating agencies registered with SEBI and accredited by the Reserve Bank of India, in a manner similar to that of corporates as prescribed under para of the Master Circular DBR.No.BP.BC.1/ / dated July 1, 2015 on Basel III Capital R e g u l a t i o n s r e a d w i t h C i r c u l a r DBR.No.BP.BC.6/ / dated August 25, 2016 on Review of Prudential Norms Risk Weights for Exposures to Corporates, AFCs and NBFC-IFCs and Mailbox Clarification dated December 29, Exposures to CICs, rated as well as unrated, will continue to be risk-weighted at 100%. March 7, 2019 Interest Subvention Scheme for Short Term Crop Loans during the years and Id=11494&Mode=0 Government of India has approved the implementation of the Interest Subvention Scheme with modifications for the years and for short term crop loans up to 3 lakh with the mentioned stipulations

37 CIRC Newsletter March, Real estate sector is one of the largest contributors to the national GDP and provides employment opportunity to large numbers of people. Housing for all by 2022 envisions that every citizen would have a house and the urban areas would be free of slums. There are reports of slowdown in the sector and low off-take of under-construction houses which needs to be addressed. To boost the residential segment of the real estate sector, following recommendations were made by the GST Council in its 33 meeting held today:- 2. GST rate:- i. GST shall be levied at effective GST rate of 5% without ITC on residential properties outside affordable segment; ii. Recommendations of the 33rd GST Council Meeting Regarding Real Estate GST shall be levied at effective GST of 1% without ITC on affordable housing properties. 3. Effective date:-the new rate shall become applicable from 1 of April, Definition of affordable housing shall be:- A residential house/flat of carpet area of upto 90 square meter in nonmetropolitan cities/towns and 60 square meter in metropolitan cities having value upto Rs. 45 lakhs (both for metropolitan a n d n o n - m e t r o p o l i t a n c i t i e s ). Metropolitan Cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon and Faridabad), Hyderabad, Kolkata and Mumbai (whole of MMR). 5. GST exemption on TDR/ JDA, long term lease (premium), FSI:- Intermediate tax on development right, such as TDR, JDA, lease (premium), FSI shall be exempted only for such residential property on which GST is payable. 6. Details of the scheme shall be worked out by an officers committee and shall be approved by the GST Council in a meeting to be called specifically for this purpose. 7. Advantages of the recommendations made:- The new tax rate in principle was approved by the Council taking into c o n s i d e r a t i o n t h e f o l l o w i n g advantages:- i. The buyer of house gets a fair price and affordable housing gets very attractive with 1%. ii. iii. CA. Govind Agrawal gbagrawal@hotmail.com Interest of the buyer/consumer gets protected; ITC benefits not being passed to them shall become a non-issue. Cash flow problem for the sector is addressed by exemption of GST on development rights, long term lease

38 CIRC Newsletter March, Recommendations of the 33rd GST Council Meeting Regarding Real Estate iv. (premium), FSI etc. Unutilized ITC, which used to become cost at the end of the project gets removed and should lead to better pricing. v. Tax structure and tax compliance becomes simpler for builders. 8. Comments on reduction of GST Rates on Real Estate:- i. In lieu of lowering GST rates from April 01, builders have been denied input tax Credit (ITC). The denial of ITC destroys the basic structure of GST that allows those who add value to claim credit for all the taxes paid on inputs across the value chain to make transaction transparent ii. iii. iv. and efficient as well as create audit trails to curb evasion. Costs will come down only when builders are allowed to claim ITC. Denial of the tax credit breaks the GST Chain-just as exemptions do-and may jack up the cost of construction. Considering that a large number of materials that include cement go into building real estate, developers could well increase the base price to recover he loss of input tax credit. There is a compelling case for the GST Council to lower the GST rate of 28% for cement, a vital intermediate material, to give a fillip to real estate.

39 IMPORTANT ANNOUNCEMENT S CIRC Newsletter March,

40 CIRC Newsletter March, CA Benevolent Award Objective The objective for which the fund is established is to provide financial assistance for maintenance, education or any other similar purpose to necessitous persons being:- (a) persons who are or have been members of the Institute, whether subscribers to the fund or not; or (b) wives and children of persons who are or have been members of the Institute, whether subscribers to the fund or not. (c) widows and children of deceased persons who have been members of the Institute whether subscribers to the fund or not. (d) relatives or others who were dependent for support on a person who has been a member of the Institute, whether subscriber to the fund or not; and who has died without leaving a widow or child. Procedure for becoming a member of the CABF : There are two categories of members :- (a) Life Member: A single payment of Rs. 5000/- shall make a person eligible to be admitted as a life member of the fund. Thereafter he shall not be liable to pay any amount on account of subscription and shall be styled as a 'Life Member'. (b) Ordinary members: All other members shall be described as 'Ordinary Members' and shall have to pay an annual subscription of Rs. 1000/-. Apart from this any member can subscribe for 'Voluntary Contribution'. Procedure for making payment Membership subscription to the Chartered Accountants Benevolent Fund can be paid along with annual membership fee. Alternatively it can be paid separately by local cheque/dd to the respective Decentralised offices or Regional offices or Head office. Monthly Assistance Maximum monthly assistance available to a member or persons eligible to receive the assistance is from Rs.4500/- to Rs.7500/- per month according to the circumstances of the use renewable after one year. This is for m a i n t e n a n c e o f f a m i l y o f members/widow/relatives of deceased members. Financial assistance will be given only to the members/widows/relatives whose monthly family income is not more than Rs /- pm. Ex-gratia financial assistance of Rs /- is provided to the legal heir of deceased member in case of accidental death/ unnatural death at the age below 55 years against claim. Procedure for availing assistance Application for financial assistance should be made in prescribed format along with all relevant supporting documents mentioned therein. The application must be recommended by any Central Council Member or Chairman/Vice Chairman/Secretary of any R e g i o n a l C o u n c i l o r B r a n c h / E x - President/Chairman/Vice-Chairman and Member Secretary/Member of Managing

41 CIRC Newsletter March, ANNOUNCEMENT Sub: Any company incorporated on or before the shall file the particulars of the company and its Registered Office, in E-Form ACTIVE (Active Company Tagging Identities and Verification) on or before to enable common public to be aware of KYC (Know Your Company) status of the companies and their directors. The Ministry of Corporate Affairs has issued Companies (Incorporation) Amendment Rules, 2019 and Companies (Registration offices and Fees) Amendment Rules, 2019 which shall come into force from with a view to enable common public to be aware of KYC (Know Your Company) status of the companies and their directors. In the Rules it has been mentioned that every company incorporated on or before the 31st December, 2017 shall file the particulars of the company and its Registered Office, in EForm ACTIVE (Active Company Tagging Identities and Verification) on or before Fee for Filing 1. Upto NIL 2. After Rs The following points to be noted: Any company which has not filed its due financial statements under section 137 or due annual returns under section 92 or both with the Registrar shall be restricted from filing e-form-active, unless such company is under management dispute and the Registrar has recorded the same on the registrar. Companies which have been struck off or are under process of striking off or under liquidation or amalgamated or dissolved, as recorded in the register, shall not be required to file e Form ACTIVE In case a company does not intimate the said particulars, the Company shall be marked as "ACTlVEnon-compliant" on or after 26th April, 2019 and shall be liable for action under section 12 (9) of the Act. No request for recording the following event based information or changes shall be accepted by the Registrar from such companies marked as "ACTIVE non compliant", unless "e-form ACTIVE" is filed i. SH-07 (Change in Authorized Capital); ii. PAS-03 (Change in Paid-up Capital); iii. DIR- 12 (Changes in Director except cessation); iv. INC-22 (Change in Registered Office); v. INC-28 (Amalgamation, de-merger) The members who are associated with the companies are requested to bring it to the notice of the companies to file the details within stipulated time. Form will be available at the link from

42 CIRC Newsletter March, ANNOUNCEMENT EMPANELMENT OF MEMBERS TO ACT AS OBSERVERS AT THE EXAMINATION CENTRES FOR THE CHARTERED ACCOUNTANTS EXAMINATIONS MAY / JUNE 2019 It is proposed to empanel members to act as Observers for the forthcoming MAY / JUNE 2019 Chartered Accountants Examinations scheduled as under: Foundation, Intermediate (IPC), Intermediate and Final Examinations (Under Old and New Scheme) Common Proficiency Test (CPT) from 2nd to 17th May, 2019 On 16th June 2019 (Sunday) Eligibility criteria for Empanelment: Members who fulfill the following criteria are eligible for empanelment, to act as Observers. I) He/she should not be more than 65 years of age as on the date of empanelment; i.e. 20th February ii) His/her name should have been borne on the Register of Members as on 1st November, 2016 and continues to be so; iii) Neither he/she nor his/her relatives* or dependant* is / will be appearing in the ensuing Chartered Accountants Examinations for students / Post Qualification Course Examinations in May, 2019 in any examination centres in India or Abroad. However, applying or appearance in ISA AT of June, 2019 will not be considered a disability for observership for MAY / JUNE, 2019 Examinations. [* the term "relative" or dependant for the purpose shall include, in relation to an individual, the wife, husband, son, daughter-in-law, daughter, son-in-law, grandson, grand daughter, brother, brother's wife, brother's son, brother's daughter, sister, sister's husband, sister's son, sister's daughter, wife's brother, wife's sister and husband's brother and husband's sister] iv) He/she is not coaching students for any of the examinations / test conducted by the Council of the Institute in any institutions / organization including Regional Councils / Branches of the Institute and also private coaching. v) He/she has not been convicted by any court of Law and no disciplinary proceedings are pending against him/her, either by the ICAI / Disciplinary Directorate or by any other organization, both in India or abroad. vi) He/she is not associated with the Institute as an elected/co-opted member of the Council / Regional Council / Managing Committee of any Branch of the ICAI. vii) He/she shall abide by the Guidelines for Observer and / or any other instructions. Honorarium Honorarium of ` 1500/- per day / per session and ` 350/- as conveyance reimbursement for A class cities and ` 250/- for other cities per day (to cover cost of local travel) besides reimbursement of postal, stationery, telephone expenses, if any, will be paid.the list of A class cities is as under: Ahmedabad, Bangalore, Chennai, Delhi/ New Delhi, Hyderabad/ Secunderabad, Jaipur, Kanpur, Kolkata, Lucknow, Mumbai, Nagpur, and Pune.

43 CIRC Newsletter March, Duties of Observer: Kindly note that a member will be allotted duties in the city of his professional address only as per Institute s records. If a member neither informs the Examination Department nor discharges the duties assigned, he/she would be liable for such action under the provisions of the Chartered Accountants Act 1949 and the Rules and Regulations framed thereunder, as deemed fit. Kindly note that giving false/misleading declaration regarding conflict of interest / involvement in coaching will lead to action under disciplinary provisions in accordance with the Chartered Accountants Act, 1949 and the Rules and Regulations framed thereunder. How to Empanel: A member who fulfills the above mentioned eligibility criteria, desirous of empanelling himself for the assignment, may do so, online at Applications by any other mode will not be entertained. The activity schedule of the portal is as under: Opening of the window for empanelment Closing of the window for empanelment Hosting of the details of allotment of assignments 20th February th March th April 2019 Examination Department ANNOUNCEMENT FOR THE ATTENTION OF THE MEMBERS Using Information Available at Information Utility (IU) Platform for External Confirmations 1 Standards on Auditing (SAs) recognize the importance of External Confirmations as audit evidence. Relevant extracts of some SAs regarding external confirmations are reproduced below. «More assurance is ordinarily obtained from consistent audit evidence obtained from different sources or of a different nature than from items of audit evidence considered individually. For example, corroborating information obtained from a source independent of the entity may increase the assurance the auditor obtains from audit evidence that is generated internally, such as evidence existing within the accounting records, minutes of meetings, or a management representation. (Para A8 of SA 500, Audit Evidence) «An external confirmation represents audit evidence obtained by the auditor as a direct written response to the auditor from a third party (the confirming party), in paper form, or by electronic or other medium. External confirmation procedures frequently are relevant when addressing assertions associated with certain account balances and their elements. However, external confirmations need not be restricted to account balances only. For example, the auditor may request confirmation of the terms of agreements or transactions an entity has with third parties; the confirmation request may be designed to ask if any modifications have been made to the agreement and, if so, what the relevant details are. External confirmation procedures also are used to obtain audit evidence about the absence of certain conditions, for example, the absence of a side agreement that may influence revenue recognition. (Para A18 of SA 500, Audit Evidence)

44 CIRC Newsletter March, «The auditor shall consider whether external confirmation procedures are to be performed as substantive audit procedures (Para 19 of SA 330, The Auditor s Responses to Assessed Risks ) «Audit evidence in the form of external confirmations received directly by the auditor from appropriate confirming parties may assist the auditor in obtaining audit evidence with the high level of reliability that the auditor requires to respond to significant risks of material misstatement, whether due to fraud or error. (Para A53 of SA 330) «The auditor may design external confirmation requests to obtain additional corroborative information as a response to address the assessed risks of material misstatement, due to fraud at the assertion level (Para A37 of SA 240, The Auditor s Responsibilities Relating to Fraud in an Audit of Financial Statements, 2 SA 505, External Confirmations provides detailed requirements and guidance for auditors regarding the use of external confirmation procedures to obtain audit evidence. Para 7(b) of SA 505 requires the auditor to select the appropriate confirming party. Further, para A2 of SA 505 provides as follows: «Responses to confirmation requests provide more relevant and reliable audit evidence when confirmation requests are sent to a confirming party the auditor believes is knowledgeable about the information to be confirmed. For example, a financial institution official who is knowledgeable about the transactions or arrangements for which confirmation is requested may be the most appropriate person at the financial institution from whom to request confirmation. 3 On the matter of External Confirmations, the ICAI has recently received communication from the National Financial Reporting Authority (NFRA) regarding functions of National e-governance Services Limited (NeSL) which might be useful for the auditors in obtaining audit evidence through external confirmations. The highlights of the same are as under: NeSL incorporated as a Union Government Company has set up the Information Utility (IU) and is regulated by the Insolvency and Bankruptcy Board of India. The IU is designed as an institutional intervention that stores evidence of financial contracts to assist in stressed assets resolution. The IU is open to financial and operational creditors since January Till date, approx. two-third of the loans to companies given by banks have been filed in the IU as creditors have an incentive to buy protection and enhance enforceability of contracts under the IBC. The IU is designed to receive financial information from any party to the debt. The debtors are expected to verify and authenticate the liability as sent by their respective creditors to IU. However, in the absence of any such statutory requirement, the debtors are not filing this information or reconciling the same with IU. The auditors can have full access to the information stored in IU in respect of client company as reported by their creditors. 4. The Auditing and Assurance Standards Board of ICAI at its 193rd meeting held on 25th January 2019 (meeting adjourned and continued on 5th February 2019) considered the aforesaid communication received from NFRA. After detailed discussion on the matter, the Board was of the view that the information available at IU platform would be highly useful in the audit process and will strengthen the audit opinion. Accordingly, the following guidance is being issued for the benefit of the members: Whenever, external confirmations are required as per the requirements of SA External Confirmations, auditors should seek external confirmations directly from the third parties (the confirming parties). Further, auditors are advised to use the information available at the Information Utility platform of National e-governance Services Limited, as detailed in paragraph 3 above, as an additional source of external confirmations to strengthen the audit evidence.

45 CIRC Newsletter March, P H O T O G A L L E R Y

46 CIRC Newsletter March, L-R: CA. Harvansh Sahai- Chairman Aligrah Branch, CA. Mukesh Bansal- Chairman CIRC, CA. Rajeev Kumar- Coordinator CPE & Seminar Committee, CA. Manoj Fadnis- Past President ICAI, CA. Anuj Goyal- Council Member & CA. Abhisak Pandey- Secretary CIRC during a seminar organised by Aligarh Branch of CIRC on Code of Conduct, Unregulated Deposits, Bank Audit Peer Review & UDIN on 9th March Falicitation of CA. Mukesh Bansal- Chairman CIRC during a seminar organised by Aligarh Branch of CIRC on Code of Conduct, Unregulated Deposits, Bank Audit Peer Review & UDIN on 9th March 2019.

47 CIRC Newsletter March, Falicitation of CA. Abhisak Pandey- Secretary CIRC during a seminar organised by Aligarh Branch of CIRC on Code of Conduct, Unregulated Deposits, Bank Audit Peer Review & UDIN on 9th March CA. Mukesh Bansal- Chairman CIRC addressing the audience during a seminar organised by Aligarh Branch of CIRC on Code of Conduct, Unregulated Deposits, Bank Audit Peer Review & UDIN on 9th March 2019.

48 CIRC Newsletter March, CA. Nilesh Shivji Vikamsey- Past President ICAI addressing the audience during a Half Day Seminar on Taxation organised by CIRC at Kanpur on 4th March CA. Manu Agrawal Council Member addressing the audience during a Half Day Seminar on Taxation organised by CIRC at Kanpur on 4th March 2019.

49 CIRC Newsletter March, CA. Abhisak Pandey- Secretary CIRC addressing the audience during a Half Day Seminar on Taxation organised by CIRC at Kanpur on 4th March CA. Atul Mehrotra RCM, addressing the audience during a Half Day Seminar on Taxation organised by CIRC at Kanpur on 4th March 2019.

50 Central India Chartered Accountants Students Association of ICAI (CICASA) STUDENT S SECTION

51 CIRC Newsletter March, From the Desk of Chairman CICASA... CA.Devendra Kumar Somani Chiairman CICASA of CIRC Dear CA Students, Greetings to all of you. I express my emotions for each one of you by this first communication as Chairman CICASA for the year I am pleased to say that my main focus will be on YOU dynamic and enthusiastic students. An education isn't how much you have committed to memory, or even how much you know. It's being able to differentiate between what you do know and what you don't. - Anatole France. Our Chartered Accountancy course requires us to understand the subject, in depth knowledge and application of the same in our daily life during articleship and is tested in our exams at various level. If our commitment is towards only to pass the exams and not towards understanding the subject, then we would be getting into a troubled zone in the future. I would like to inform the CICASA Students in CIRC about all activities taken up by CICASA and various branches through this media, and the TEAM CICASA is working very hard to make all the programs a grand success and in this direction, this newsletter would help the information to be spread to all the Students in Central India. I am sure this endeavour of ours would enrich many Students. What does CICASA aim to achieve? The student association may perform all or any of the following activities: 1.Develop social contacts and a spirit of fellow feeling among the students. 2.Promote social, Cultural and Intellectual development of the students. 3.Assist in the education of students in the recent developments in the Trade, Commerce and Industry especially those affecting the maintenance of their accounts, office routine and audit procedures. 4.Organize Lectures, Meetings, Debates, Seminars, Study Circles and other means of cultural association for the education of students. 5.Establish and maintain Libraries and / or Reading Rooms for the use of students. 6.Providing facilities to students like Book-Bank etc 7.Make representations to the Central and Regional Council on matters concerning the common interest of the students. 8.Maintain a Register of Members of the Association. 9.Organize trips and tours to important factories and industrial organizations and also to places of historical and educational importance. 10.Provide facilities to students, including the construction of hostels and to raise funds for this purpose by donation from Members and others through such means as might be approved by the Council. 11.Such other functions as the Regional Council

52 CIRC Newsletter March, From the Desk of Chairman CICASA... concerned may prescribe for the attainment of the aforementioned objectives. I would like conclude with a message- Do not store Dreams in your eyes. They may roll down with tears. Store them in your heart. Each heart beat will inspire you to fulfill them. Wishing each one of you all the best and a very colourful Holi! Warm Regards CA.Devendra Kumar Somani Chairman CICASA chairmancicasa@rediffmail.com Students are advised to give their valuable suggestions and refer pending matters at Kanpur office, if not resolved within 15 days to chairmancicasa@rediffmail.com

53 CIRC Newsletter March, GSTR-9 ANNUAL RETURN CA. Praveen Sharma Overview Ø GSTR 9 is the annual return to be filed by the registered taxpayers. It consists of details regarding the supplies made and received during the year. Ø Ø In brief, it consolidates the information furnished in the returns during the last financial year. Legal Backing Section 44(1) requires that every registered person, other than an Input Service Distributor, a person paying tax under section 51 or section 52, a casual taxable person and a non-resident taxable person, shall furnish an annual return for every financial year electronically in such form and manner as may be prescribed on or before the thirty -first day of December following the end of such financial year. This form is notified by the government vide Notification 39/2018 on 4th September In terms of Rule 80(1) of the CGST Rules, 2017 Every registered person, other than an Input Service Distributor, a person paying tax under section 51 or section 52, a casual taxable person and a non-resident taxable person, shall furnish an annual return as specified under sub section. Who shouldn't file GSTR 9 annual return? Following persons are notrequired to file GSTR 9 Ø Casual Taxable Person Ø Input service distributors Ø Non-resident taxable persons Ø Persons paying TDS under section 51 of GST Act. Due Date of GSTR-9 Ø Ø Ø Ø GSTR-9 shall be filed on or before 31st December of the F.Y. For F.Y , the due date for filing of GSTR-9 is 31st December, Note: No Turnover threshold limit for annual return. FORM GSTR-9 and FORM GSTR-9A have been notified vide notification No. 39/2018- Central Tax, dated while FORM GSTR-9C has been notified vide notification no. 49/2018-Central Tax, dated as part of the CGST Rules. Due Date of GSTR-9 can it be extended by law? Ø Ø Sec Removal of difficulties - If any difficulty arises in giving effect to any provisions of this Act, the Government may, on the recommendations of the Council, by a general or a special order published in the Official Gazette, make such provisions not inconsistent with the provisions of this Act or the rules or regulations made thereunder, as may be necessary or expedient for the purpose of removing the said difficulty: Provided that no such order shall be made after the expiry of a period of three years from the date of commencement of this Act.

54 CIRC Newsletter March, GSTR-9 ANNUAL RETURN Ø Every order made under this section shall be laid, as soon as may be, after it is made, before each House of Parliament. Three Orders has been passed to remove such difficulties, ØOrder 1/ 2018 dt This Order may be called the Central Goods and Services Tax (Removal of Difficulties) Order, Ø For the purposes of this section, it is hereby declared that the annual return for the period from the 1st July, 2017 to the 31st March, 2018 shall be furnished on or before the 31st March, 2019 Ø Order 2/ 2018 dt This Order may be called the Central Goods and Services Tax (Second Removal of Difficulties) Order, 2018.Seeks to extend the due date for availing ITC on the invoices or debit notes relating to such invoices issued during the FY may be called the Central Goods and Services Tax (Third Removal of Difficulties) Order, In section 44 of the Central Goods and Services Tax Act, 2017, in the Explanation, for the figures, letters and word 31st March, 2019, the figures, letters and word 30thJune, 2019 shall be substituted. Ø Hence, the due date of filing GST Annual return has been extended till 30th June, If due to technical glitches or any other unavoidable circumstances if this due date doesn't meet then the next removal of difficulties order shall be passed. Which annual returns shall be filed and by whom? Ø For E-Commerce Operator Form GSTR-9B NA for FY Ø For Composition Tax Payer Form GSTR-9A Ø For Other Taxable Persons Form GSTR-9 Ø Reconciliation Statement Form GSTR- Ø Order 3/ 2018 dt This Order 9C Annual Return in One Go. Annual Return Reg. Persons Rule 80(1) Composition Persons Rule 80(1) TCS Rule 80(2) Audit: AT>2 Cr. Rule 80(3 GSTR-9 GSTR-9A GSTR-9B GSTR-9C Penalty Non filing of Annual Return Ÿ Sec 47(2) provides Ÿ Liable to pay a late fee of Rs. 100/- per day subject to a maximum of a quarter %. Ÿ 0.25% of the turnover in the state/ut. Ÿ Thus, it is Rs. 100/- per day under CGST & Rs. 100/- per day under SGST/UTGST, total penalty is Rs. 200/- per day of default. Ÿ Penalty also applicable for NIL Return. Ÿ There is no late fees on IGST.

55 CIRC Newsletter March, GSTR-9 ANNUAL RETURN 9C Annual Return in One Go. S.No. Parts of the GSTR-9 Information required 1. Part-I Ø Basic details of the taxpayer Ø This will be auto populated from the GST portal. 2. PART-II Ø Details of all outward supplies & advances received during the FY to be filed. Ø In brief, consolidation of all the supplies declared in the returns during last FY. 3. PART-III Detail of ITC availed, reversed, and ineligible during the Financial year 4. PART-IV Detail of actual tax paid during the Financial Year. 5. PART-V Detail of transactions for the Previous FY but declared in the returns of April to Sept* of Current FY or date of filing of Annual Return for the previous FY whichever is earlier. 6. Part-VI Ø Detail of other information. Ø Particulars of Demands and Refunds Ø Information on supplies received from composition taxpayers, deemed supply under section 143 and goods sent on approval basis, Ø HSN Wise Summary of Outward Supplies& Inward Supplies Ø Late fee payable and paid Verification by Tax Payer I hereby solemnly..true & correct..nothing has been concealed..benefit has been/will be passed on to the recipient of supply. Place Date Signature Name of Auth. Signatory Designation/Status *This word Sep-2018 should be amended with the word Mar-2019 as per Order No. 02/2018 as above.

56 CIRC Newsletter March, GSTR-9 ANNUAL RETURN Mechanism of payment Ÿ Ÿ Ÿ Ÿ There are no provisions under the law which prescribe the mechanism of payment of the additional tax liability that may arise out of reconciliation. However, upon the analysis of the form it can be seen that it requires mandatory payment of the differential tax liability in cash. It does not permit utilization of the balance in electronic credit ledger for such payments. Where the tax paid is incorrectly shown on the lower side in Form GSTR 3B, then Table 9 of Form GSTR 9 will show a higher tax payable (which will be as per consolidated figures of outward supplies in Form GSTR 1 and inward reverse charge supplies in Form GSTR 3B) than total tax paid in cash and ITC (actual tax Examples-1 Ÿ paid in Form GSTR 3B). In this situation, the differential tax payable can be paid through Form DRC- 03. Point to Discuss Table 4 & 10 Ÿ Invoices related to FY reported in any month in the GSTR-1 during FY along with Amendments related to FY but within FY itself will be reported at Part 4 of GSTR- 9. Ÿ Amendments to invoices related in any month in the GSTR 1 during FY made by reporting such amendment in the GSTR-1 during the months period Apr-18 to Sep-18 will only be reported in Part V Sl. No. 10 of GSTR-9. Docs. Type Date Invoice of Reported in GSTR-1 of tax period Amendments in GSTR-1 of tax period Reported GSTR-9 in Invoice 10/11/2017 Nov-2017 No amendment Part II S.N. 4 Invoice 10/11/2017 Dec-2017 No amendment Part II S.N. 4 Invoice 10/11/2017 Sep-2018 No amendment Part V S.N. 10 Invoice 10/11/2017 Nov-2017 Dec-17 Part II S.N. 4 Invoice 10/11/2017 Nov-2017 Sep-18?

57 CIRC Newsletter March, GSTR-9 ANNUAL RETURN Docs. Type Date Invoice of Reported in GSTR-1 of tax period Month in which Return is filed Reported GSTR-9 in Invoice 10/11/2017 Nov-2017 Nov-17 Part II S.N. 4 Invoice 10/11/2017 Nov-17 Apr-18 Part II S.N. 4 Points to Ponder 1. HSN of inward supplies is required in the GSTR 9 which was not needed while filing monthly GSTR 3B. It has to be automatically pick from the purchase register. However, reporting of HSN summary is restricted only to those HSN which accounts for atleast 10% of the total summary of inward supplies. Further, It is not mandatory to those taxpayers whose aggregate turnover upto Rs. 1.5 crores. 2. Segregated details of ITC availed are required as Inputs/Input services/ Capital Goods. This bifurcation in the ITC availed will lead to reworking on the accounting entries by the assessee, as the same details were not required in the periodic returns. That means each and every purchases to be check and charge in the books of account. Reporting of the amended transactions relevant to the FY filed in the returns of April to September of current FY or up to the filing of annual return of FY i.e. 31 Dec 2018, whichever is earlier- One has to prepare or make a reconciliation of data input in next year. Online Filing Process Of Annual Return GSTR-9 Ÿ Ÿ Ÿ Ÿ Ÿ Error file to be downloaded from the portal and opened in the Excel tool. After making corrections, file will again be uploaded on the portal. Corrections can be made online also except table 17 & 18 if the number of records exceeds 500 in each table. After filing, return can be downloaded as PDF and/or Excel. Revision facility is not there, therefore, return should be filed after reconciling the information provided in the return and in the books. Summarize particulars of GSTR-9 on GST portal Ÿ "NIL" GSTR-9 Return can be filed, if you have not made any outward supply (commonly known as sale); Not received any inward supplies (commonly known as purchase) of goods/services; No liability of any kind; and not claimed any Credit during the Financial Year; And not received any order creating demand; and not claimed any refund during the Financial Year.

58 CIRC Newsletter March, GSTR-9 ANNUAL RETURN Ÿ GSTR-9 can be filed online. It can also be prepared on Offline Tool and then uploaded on the Portal and filed. Ÿ Annual return in form GSTR-9 is required to be filed by every taxpayer registered as normal taxpayer during the relevant financial year. Ÿ All applicable statements in Forms GSTR-1 and returns in Form GSTR 3B of the financial year shall have been filed before filing GSTR-9. Ÿ Annual return in Form GSTR-9 once filed cannot be revised. Ÿ Computation of ITC based on GSTR-2A has been auto-populated by the System based on GSTR-1 filed by your corresponding suppliers upto 29/01/2019. Next autoupdation of GSTR-2A will be carried on 01/03/2019. If you have some missing credits in GSTR-2A, you may like to wait till next updation Download the draft system computed GSTR-9, summary of Form GSTR-1 and GSTR-3B for the financial year by clicking on relevant buttons. This is only for reference for filling the return, and will facilitate in providing details in actual tables. Click on tables (Box) selected and fill in the required details; Summary of added details would be available on the relevant box; Click on 'Preview' button to view summary in PDF or Excel format; and bottom of this page. Click on 'Compute Liabilities'; for computation of Late fee, if any; 'Proceed to File' button would be enabled once late fee is calculated by system; Click on Proceed to File to pay liabilities and file the return ; Additional details can be added even after clicking on 'Compute Liabilities' or 'Proceed to file' button. However, in that case, you would be required to follow steps 1 to 3 again to file the return ; Click on 'Download Filed GSTR-9 (pdf)' button to view summary of filed details in PDF format; and You can also download all filed details as an excel file by clicking on 'Download GSTR-9 details (Excel)'. New feature on GST portal - Comparison of Liability declared and ITC Claimed This is for view and download in Excel Comparison of liability 3B with GSTR-1 and GSTR 2A 1) Liability other than export / RCM, 2) Liability due to RCM, 3) Liability due to Export and SEZ supplies, 4) ITC credit claimed and due - ITC claimed in GSTR- 3B vs ITC available as per GSTR-2A After adding and confirming the details, follow filing process as indicated at the - All above detail available for FY & FY 18-19

59 CIRC Newsletter March, GSTR-9 ANNUAL RETURN

60 CIRC Newsletter March, GSTR-9 ANNUAL RETURN There are also some new helpful features added in Comparison of Liability declared and ITC Claimed tool, which is as below: 1.The statement is called is Credit and Liability Statement. 2.Comparison of GSTR-3B Tax Liability vs GSTR-1 Tax Liability. 3.Comparison of ITC Claimed in GSTR-3B vs accrued as per GSTR-2A. 4. Comparison of liability due to receipt of reverse charge supplies. (i.e.liability declared in GSTR-3B during the month [as per table 3.1(d)] vs Amount auto-populated in GSTR-2A[as per Part-A]. 5. Comparison of Liability due to Export due to Export and SEZ Supplies (i.e. Liability declared in GSTR-3B during the month [as per table 3.1(b)] vs Liability declared in GSTR-1 (Zero-rated supplies) [as per table 6A, 6B, 9A, 9B, 9C] Disclaimer : The contents of this article are solely for information and knowledge and does not constitute any professional advice or recommendation. Author does not accept any liability for any loss or damage of any kind arising out of this information set out in the article and any action taken based thereon. About the Author: He is a recognized Faculty of The Institute of Chartered Accountants of India for Indirect Taxes. He addressed Certificate and Advance Courses of ICAI and Other Institutes on GST, besides addressing Study Circles and other forums of trade and professionals. He has provided GST training to Officers of 32 States and Union Territories and to CBIC Officers. He was the Master Trainer at GSTN organized residential program, about three weeks, for training of CBEC and VAT Officers of various states at Chennai Campus of Infosys.

61 CIRC Newsletter March, STUDENTS ACTIVITIES OF THE CICASA AT BRANCHES: A full day seminar for CA students was organized by Udaipur Branch of CICASA of ICAI on Saturday, 16th March, 2019 at ICAI Bhawan, Udaipur. Seminar chaired by CA. Devendra Kumar Somani, CICASA Chairman & Regional Council Member, CIRC of ICAI and he also addressed the students regarding upcoming & proposed activities of the CICASA. In the First session Speaker CA. Rajeev Ahuja, Delhi addressed about the recently introduced Banning of Unregulated Deposit Schemes Ordinance, 2019 and Benami Law. with Second session was addressed by CA. P. P. Singh, Delhi, recent GST Amendments, Annual Return GSTR- 9. More than 100 students were present in the seminar. CA. Shailly Singhvi & CA. Payal Ranawat were the MOC of the seminar. Welcome address and Vote of thanks by CA. Chirag Dharmawat, Chairman Udaipur Branch of CICASA of ICAI. L-R: CA. Devendra Kumar Somani, CICASA Chairman & Regional Council Member, CIRC of ICAI & CA. Chirag Dharmawat, Chairman, Udaipur Branch of CICASA of ICAI. Lighting the Lamp during a full day seminar for.ca students organized by Udaipur Branch of CICASA of ICAI L-R: Sitting on the dias CA. Chirag Dharmawat, Chairman, Udaipur Branch of CICASA of ICAI, CA. Rajeev Ahuja- Speaker & CA. Devendra Kumar Somani, CICASA Chairman & Regional Council Member, CIRC of ICAI during a full day seminar for CA students organized by Udaipur Branch of CICASA of ICAI.

62 CIRC Newsletter March, For the Attention of Students ICAI e-pathshala - Live Virtual Classes (Under the revised Scheme of Education and Training applicable from July 01, 2017) Golden opportunity to enrol for Smart Live Virtual Classes Salient features Expert faculty with rich experience Interactive raise questions during live classes Exam focused approach Separate question answer sessions Review your performance through integrated tests Delivered on your computers and mobiles Attend live lectures or view recorded lectures Economical Fees. Schedule Intermediate Final Starting from March 06, Classes will run for about six months. Students intending to appear in November 2019 or subsequent examinations are encouraged to register. Starting from April 03, Classes will run for about one year Students intending to appear in May 2020 or subsequent examinations are encouraged to register. Fees At the time of Registration for Intermediate / Final After Registration Single Group Both Groups Single Group Both Groups Intermediate 2,250 4,000 3,750 6,250 Final 2,500 4,750 4,500 7,500 Visit for further information and registration.