Form 3CD and Other Certificates At SIRC of ICAI By SURESH KR Bsc FCA

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1 Form 3CD and Other Certificates At SIRC of ICAI By SURESH KR Bsc FCA

2 Challenges In Bank Branch Auditing General Paucity of time Vs Sagacity of brain Shrewdness of detection Vs subterfuge and skulduggery Concealment, Cover up, camouflaging, Contriving, chicanery Vs Common sense

3 Challenge in Tax Audit Not taken as seriously as other aspects of Bank Audit Dearth of knowledge on the Part of Bank Officials Lack of understanding of Provisions of Income Tax Act and Service Tax more so the punitive Provisions Auditor s Role is more Educative while doing Tax Audit because of his grip on the subject as well as Experience

4 Challenge in Tax Audit Volume of Transactions especially Interest on Deposits even at small and Medium Branches Type of software they use at the Bank for collating, collecting, consolidating TDS data and the checks inbuilt therein Balancing all the above including educating the Branches and yet giving a good report useful to the Bank as well as facilitating easy consolidation by Central

5 TAX AUDIT IN BANK AUDITS a) Generally Mandated by all Banks at the Branch Level as well as Regional Office / Zonal Office levels and Head Office as well. b) The Tax Audits at Branch Level is done as part of Branch Audit exercise by the Branch Auditors while those at RO/ ZO are done by Statutory Central Audits during consolidation. The Tax Audit at HO level is usually done later in July/ August by not only consolidating Tax Audit Reports at ZO levels, but by also covering various aspects of Tax Audit at HO

6 TAX AUDIT IN BANK AUDITS c) Generally accorded lesser priority by the Auditors as compared to the more onerous requirements and responsibilities of compliance with IRAC norms and LFAR d) However lack of awareness at the Branch level or even at ZO level makes our task all the more important e) Tax Audit at Branch level is equally important from certain compliances and is very useful at HO level for

7 TAX AUDIT IN BANK AUDITS f) In my view the main crux issue in Tax Audit of Banks ( as with other Tax Audits) is the clause regarding TDS g) Other clauses requiring special attention are depreciation, Capital expenditure claimed as Revenue, clause regarding 40 A(3), club expenditure and the like.

8 Check List for Tax Audit a) Types of payments covered by TDS To analyse the Profit and Loss Account b) To vet the lease agreements for TDS on Rent and to ensure that TDS is made on Rent Plus amenities Pls refer to the definition of Rent U/s 194 I c) To ensure that on computer and other lease rentals 2 % is made d) To check obtention of 15 G and 15 H To ascertain if PAN is obtained in all cases of 15 G and 15 H Otherwise TDS is to be made at 20 %

9 Check List for Tax Audit e) To test check whether 15 G and 15 H are submitted to the Tax department on a timely basis f) To test check the quantum of interest to some of the Depositors covered by form 15 G to ensure that there is no false declaration g) To ensure that tax deduction is made at % for NRO Deposits including NRO Savings bank accounts

10 Check List for Tax Audit i) To ensure that TDS details are properly matched in accordance with Item 34 a of 3CD and should be cross tallied with Item 21 which covers disallowed amounts on account of non deduction and non remittance of TDS j) To check details of expenses covered by disallowance u/s sec 37(1) viz : Club Exps, Capital Exps, penalties, fines, donations etc Item 21 of 3CD k) To check cash payment scroll for ensuring that no payments in excess of 2000 is made in respect of any expenditure

11 Check list for Tax Audit l) For Asst year thresholds as well as rate of deduction for some of the TDS sections have undergone change To carry a ready reckoner regarding this m) To refer to the master circular, if any on Taxation issued by the HO

12 Tax Audit Documentation a) MRL b) Basis for arriving at the conclusion that the TDS provisions are applied correctly c) Obtaining copies of TDS Returns ack / Timely filing / Notices from CPC d) List of other Expenses checked for TDS compliance e) Note reg Form 15 G/ 15 H

13 OTHER CERTIFICATES COMPLIANCE CERTIFICATE FOR MAINTENANCE OF SLR/CRR Cash & Bank balances Balances can be extracted from CBS and certified ATM cash verification

14 OTHER CERTIFICATES COMPLIANCE CERTIFICATE FOR OF AMOUNT RECOVERED UNDER SMALL LOAN GUARANTEE SCHEME- DICGC Most of the banks opted out long back and recoveries are practically NIL. To get the certificate from management and validate.

15 OTHER CERTIFICATES CONFIRMATION ABOUT ALL NPAs INCLUDING < Rs.1 lakh WERE VERIFIED AND PROPER PROVISIONS MADE Some banks insist on this certificate. Suitable disclaimer/ to draw attention to the test check carried out. (considering 5% of total advance or Rs.2 crore only required to be checked 100%)

16 OTHER CERTIFICATES PMRY CERTIFICATE CONFIRMING MOC ENTRIES OF PREVIOUS YEAR As per guidelines if applicable Part of Audit CAPITAL ADEQUACY As per format of Bank Basel norms

17 OTHER CERTIFICATES INTEREST SUBVENTION a) Agri Loans prompt payment b) Agri Loans where amount sanctioned is below a threshold c) For certain Educational Loans d) For certain Export Advances For all these Certificates Bank run a package in the system generally The output from the package needs to be checked on a test basis. If the no of items are less the scope of checking needs to be increased

18 OTHER CERTIFICATES In any Certificate it is important to make suitable disclaimers if 100 % checking is not possible owing to sheer volume or if we have depended on the software or if we have adopted test check basis. This aspect needs to be borned in mind as these are Certificates

19 OTHER CERTIFICATES GHOSH & JILANI COMMITTEE Ghosh -to prevent frauds- questionnaire yes or no answers Jilani on internal control, Inspection/audit Concurrent Audit report with management replies Inspection Audit report and replies RBI audit if conducted and replies Validate replies wherever complied. Our Observations