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STATE BANK OF PAKISTAN BANKING SUPERVISION DEPARTMENT KARACHI
BSD
Circular No.01
January 11, 2003
All
Banks,
All
Auditors appointed by the Banks
Dear
Sirs,
MASTER CIRCULAR – AUDIT OF ANNUAL ACCOUNTS
Your attention is invited to BID Circular No.5 dated 19th
December 1972 as amended from time to time, in terms of which the
external auditors of the banks, while conducting the statutory audit
of a bank are required to submit a Special Report, based on the
specific guidelines given in the aforesaid circular, to the State Bank
and endorse a copy thereof to the bank concerned.
2. As you are aware, these guidelines have been amended/updated
from time to time through subsequent circulars/circular letters. In
order to facilitate banks, as well as their auditors, to ensure
compliance of these guidelines, the State Bank is pleased to issue
consolidated instructions on the subject through this Master Circular.
3. Accordingly, while conducting the statutory audit of banks in
terms of Section 35 of the Banking Companies Ordinance, 1962 the
auditors shall, interalia, verify the followings:
(i) Deposits maintained with and received from other banks.
(ii) Inter branch deposits, provision for taxation and other
similar items included under “Deposits and Other Accounts”.
(iii) Balances of staff provident fund, gratuity funds etc.
included in the “Deposits and Other Accounts”.
(iv) Amount of profit accrued on deposits (but not paid) and
included in “Deposits and Other Accounts”, instead of showing it under
“Other Liabilities”.
(v) Nature and amount of all balances held outside Pakistan.
(vi) Investment in shares of companies in which the directors of
the bank and their dependents have substantial interest.
(vii) All sales, purchases and swaps of shares and securities of
Rs.5,000,000/- and above during the financial year.
(viii) Loans and advances (excluding staff loans) granted to
directors or officers of the bank or any of them, either severally or
jointly with any other persons.
(ix) Loans and advances granted to companies or firms in which the
directors of the bank are interested as directors, partners or
managing agents.
(x) Adequacy of provisions against classified assets as per
requirements of Prudential Regulation No.VIII.
(xi) Expenses incurred on the opening of branches, advertisements
and publicity – whether charged off to profit and loss account,
capitalized or accounted for otherwise.
xii) Reconciliation of inter-branch and other accounts (including
head-office account, inter-bank accounts, accounts of and with foreign
correspondents) and settlement of suspense account.
xiii) Any Window Dressing in the annual accounts, particularly in
respect of deposits, income, expenses, provisions, etc.
xiv) Contributions and donations for charitable, social, educational
and public welfare purposes made by the bank – whether in accordance
with PR-XX or not.
xv) Level of efficiency of the Internal Audit Department of the
bank – whether the Auditors are satisfied with it.
4. Apart from the observations noted during verification of the
above items, the Auditors would also report any matter of substantial
nature with which they may become aware of during the process of
statutory audit, which in the auditors’ opinion may have the potential
to prejudice materially the interest of depositors of the bank. If
nothing of this nature has come to the attention of the auditors, a
confirmation to that effect should be given in the report.
5. The Auditors will submit a Special Report based on the
parameters given in para 3 & 4 above to the Director, Banking
Supervision Department, State Bank of Pakistan, Karachi, under a
sealed cover, endorsing a copy to the bank concerned, within 15 days
of the signing of the auditors’ report to the bank. It may be noted
that this Special Report will be meant for the exclusive use and
consumption of the State Bank of Pakistan.
6. The banks are requested to deliver a copy of this circular to
their Auditors for necessary compliance and request them to
acknowledge its receipt directly to this Department. Further, the
banks should furnish to us the names and addresses of their Auditors
for the year 2002 and onwards and confirm that a copy of
the circular has been duly delivered to them.
Please acknowledge receipt.
Yours
faithfully,
(Jameel Ahmad)
Director