Today we discuss on Long Form Audit Report (LFAR) , every auditor has to give his report in that format. we are describe here the meaning of LFAR , Format of LFAR for 2015-16, what are the contents of LFAR and how to draft the LFAR report.
Meaning of Long Form Audit Report (LFAR)
This report is issued by Bank auditor in addition to statutory audit report. The statutory audit report issued by the bank auditor doesn’t represent all the functioning of a bank that’s why RBI has issued a notification by which bank auditor has to issue an additional report known as LFAR report in addition to statutory audit report. RBI, the apex body governing the banks has issued a format of LFAR. Bank auditors are required to issue a separate report of LFAR to the management of banks.
Format of Long Form Audit Report (LFAR) for Assessment year 2015-16
The format of LFAR is not constant it’s changing according to changes made in banking industry. The latest format of LFAR is effective from 31st March, 2003. The statutory auditors of banks are required to comply with that format only. There are two types of formats issued by Reserve bank of India.
- LFAR format for Central Statutory Auditors of Bank (Head office)
- LFAR format for Branch Auditors of Bank (Branch office)
The format of LFAR report is in questionnaire format. If there is any important point which is not covered by the questions mentioned in format then in such situation auditor has to also specify that point in LFAR report. The format of LFAR for bank branch auditor is available on this URL.
Content of Long Form Audit Report (LFAR)
The format is in a questionnaire manner. Mainly the question in this format is divided into five parts:
(D) Profit & Loss Account
Now we can understand all the points in brief:
Capital: Capital of a bank comprises of Share capital from Government, member societies & individual and share holding of Government in the total capital. The auditor has to verify all the points in relation to Capital, Changes made in Opening & closing capital.
Liabilities: Liabilities include Deposits from various persons, Loan taken from RBI, Contingent liabilities & other liabilities. Auditor has to check whether loans are repaid on time or not, Interest calculated on loan is proper or not etc.
Assets: Assets of a bank includes advances given to various persons, Cash balance, investments, Balance with RBI & other banks, money at call or short notice & other assets. Auditor has to verify that whether receipt of principle & interest are regular or not, Whether cash balance is up to the limit or not etc.
Profit & loss Account: This account includes interest income, Facility related income, interest expense, various charges etc. Auditor has to check whether interest income & expenses are properly calculated at appropriate rate or not, whether all the incomes & expenses are provided for or not etc.
General: In general the miscellaneous points are included like inter branch accounts, proper books of accounts, appropriate controls, adequate internal control etc. Auditor has to verify whether proper books of accounts are kept or not, whether appropriate controls are placed or not et
Points to be kept in mind while drafting Long Form Audit Report (LFAR)
- The format of LFAR report is questionnaire format but the auditor is not necessarily Require to limit their answers to YES or NO, he/she can express their opinion as well.
- The LFAR report is neither a substitute or nor a part of statutory audit report.
- The Central statutory auditor should carefully read the LFAR report issued by various branches of Bank before issuing the LFAR report for Head office of a bank.
- The qualifications expressed in LFAR report should be supported by appropriate evidences.
- The central statutory auditor can also get any information from the branch management
Important Things to be check while drafting LFAR
Assets of Banks
Cash retention limit for the branch – every branch has an retention limit upto which he can kept cash, If he have more than that branch has to report that to controlling authority.
Physical verification of cash
Stock of stationary and postal stamp – there value is less but missing of such stationary is huge concern for the branch. Also check whether register is kept by the branch or not.
Suspense accounts – Bank will mention the details of suspense accounts in his closing circular, Always check the details of suspense accounts and mention ion LFAR with Date,Nature and amounts.
Any irregularity in disbursement of loans and advances should be reported.
Always check list of cases where review /renewal is pending,
Check and report the list of Quick mortality case – Any accounts which has been done NPA in less than 1 year should be reported in Quick Mortality.
Liability of Banks
1 Check the number and balance in Dormant/Inoperative and Inactive accounts. Also check bank charges should not be levied on activation of inoperative accounts.
2 Deposit balance as on 31st March, 2016 and on later date after 3-4 days, If major change occurred check the reason of change.
3 Check any Contingent Liability
Profit and Loss Accounts of Banks
1 Check interest calculation on few transaction, whether system is conducted interest properly or not.
2 Check interest on NPA accounts. interest should not be paid on NPA accounts.
check the back up and recovery system of banks.
Check the disaster recovery plan of the banks.
Check daily report print out is taken or soft copy is maintained.
You can also View our blog Audit of bank advances and npa