Report on Audit of the Standalone Finacial Statements
The President of India / The Members of the Bank of India
1. We have audited the standalone financial statements of Bank of India (theBank') which comprise the Balance Sheet as at March 31 2019 the Statement of Profit andLoss and the Statement of Cash Flows for the year then ended and notes to standalonefinancial statements including a summary of significant accounting policies and otherexplanatory information in which are included returns for the year ended on that date of20 branches and Treasury Branch audited by us and 2783 domestic branches audited bystatutory branch auditors and 24 foreign branches audited by local auditors. The branchesaudited by us and those audited by other auditors have been selected by the Bank inaccordance with the guidelines issued to the Bank by the Reserve Bank of India. Alsoincluded in the Balance Sheet the Statement of Profit and Loss and Statement of CashFlows are the returns from 2288 branches which have not been subjected to audit. Theseunaudited branches account for 5.93% of advances 19.11% of deposits 4.73% of interestincome and 17.59% of interest expenses.
2. In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid standalone financial statements give the information requiredby the Banking Regulation Act 1949 ("the Act") in the manner so required andgive a true and fair view in conformity with the accounting principles generally acceptedin India of the state of affairs of the Bank as at March 31 2019 and its loss and itscash flows for the year ended on that date.
Basis for Opinion
3. We conducted our audit in accordance with the Standards on Auditing (SAs) issued byThe Institute of Chartered Accountants of India. Our responsibilities under thoseStandards are further described in the Auditor's Responsibilities for the Audit of theStandalone Financial Statements section of our report. We are independent of the Bank inaccordance with the code of ethics issued by the Institute of Chartered Accountants ofIndia together with ethical requirements that are relevant to our audit of the standalonefinancial statements under provision of the Act and we have fulfilled our other ethicalresponsibilities in accordance with these requirements and the code of ethics. We believethat the audit evidence we have obtained is sufficient and appropriate to provide a basisfor our opinion on the standalone financial statements.
Emphasis of Matter:
4. Without qualifying our opinion we draw attention to:
a. Note. 6.(1)(ii) of Schedule No.18 regarding change in accounting policies inappropriation of recovery in NPA accounts.
b. Note.9.(f) and 9(g) of Schedule No.18 regarding provision made in NPA accounts
Key Audit Matters
5. Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the financial statements of the current period. These matterswere addressed in the context of our audit of the financial statements as a whole and informing our opinion thereon and we do not provide a separate opinion on these matters.
|Key Audit Matter ||Audit Procedure followed to address the Key Audit Matter |
|1.Compliance of Income Recognition Asset Classification and Provisioning Norms on advances and investments as per guidelines issued by Reserve Bank of India. ||We have carried out the audit of the advances and investments based on the IRAC Norms/ Circulars and directives issued by Reserve Bank of India and the policy of the bank. |
| ||We have carried out following procedures for verification of compliance with the RBI guidelines. |
|Advances: ||Advances: |
|Bank has to classify the accounts under performing advances and non performing advances based on the guidelines/circulars and directives issued by Reserve Bank of India. The guidelines issued by Reserve Bank of India is for all credit facilities given by the bank and is to be mandatorily followed for the purpose of Income Recognition Asset Classification and Provisioning. ||-We have communicated to the branch statutory auditors to verify the compliance of IRAC Norms and procedures and the policies adopted by the bank and we have relied on the audit reports given by the branch statutory auditors. |
|Identification of performing and non performing advances are system driven. The software used by the bank identifies the accounts for classification and provisioning as per the guidelines issued by Reserve Bank of India. ||- Understanding the IT system and controls put in place and logic and validations built in the system by the bank for identification classification and provisioning in case of advances. |
| ||-On sample basis tested whether the classification of advances under performing and non performing and provisioning is carried out as per the guidelines of Reserve Bank of India. |
|The Income recognition asset classification and provisioning if not done properly as per the IRAC norms issued by Reserve Bank of India may materially impact the financial statements of the bank. ||-During audit of branches allotted to us we have carried out substantive test on major advances including Specially Mentioned Accounts (SMA) and also verified the security aspect by checking the valuation reports. |
| ||-Reliance is also placed on the internal audit reports concurrent audit reports credit audit system audit and special audits conducted by the bank. |
| ||-Verification and implementations of MOC's suggested by statutory branch auditors and statutory central auditors during consolidation of financial statements. |
|Investments: ||Investments: |
|Bank has to classify the investments under performing and non performing based on the guidelines/circulars and directives issued by Reserve Bank of India. ||Understanding the IT system and controls put in place and logic and validations built in the system by the bank for identification classification and provisioning in case of investments. |
|Identification of performing and non performing investments is generally system driven. ||-On sample basis tested whether the classification and valuation of investments is carried out as per the guidelines of Reserve Bank of India. |
|The valuation is done as per the guidelines issued by Reserve Bank of India and the valuations are done based on the price quoted on BSE/NSE FIMDA / FBIL rates etc. The Income recognition asset classification and provisioning if not done properly as per the IRAC norms issued by Reserve Bank of India may materially impact the financial statements of the bank. || |
|Advances and Investments constitutes 54.54% and 23.61% respectively of total assets of the bank. ||-On sample basis also verified whether proper provision for depreciation in the value of investments and ensured that provision for depreciation is done as per RBI guidelines. |
| ||- Reliance is also placed on the internal audit reports concurrent audit reports and system audit conducted by the bank. |
|As advances and investments form part of a major portion of the business of the bank and the regulatory compliances involved we have considered this aspect as Key Audit Matter. || |
|2.Evaluation of uncertain tax litigations and contingent liabilities Claims against the bank not acknowledged as debt including tax litigations as on March 31 2019 is disclosed in Schedule 12 and Note No.9(a)(i) of Notes to Accounts to financial statements. ||We went through the current status of the tax litigations and contingent liabilities. |
| ||We obtained the details of latest orders and tax assessments. |
|Under Indirect Taxes there are ongoing disputes regarding availability of input credits/ applicability of Reverse Charge Mechanism on certain payments under Service Tax Act/Goods and Service Tax Act. ||We gathered recent information received on the tax and other litigations for assessing the liabilities. |
|This is a key audit matter due to uncertainty of the outcome which involves significant judgment to determine the possible outcome of these disputes. ||Wherever required reliance is placed on the opinion of legal and tax consultants. |
|3.Assessment of Information Technology (IT): ||-Understanding and testing of operative effectiveness of the system. |
|IT controls with respect to recording of transactions generating various reports in compliance with RBI guidelines including IRAC preparing financial statements and reporting of compliances to regulators etc is an important part of the process. Such reporting is highly dependent on the effective working of Core Banking Software and other allied systems ||-Understanding the coding system adopted by the bank for various categories of customers |
| ||-Understanding and testing of different validations available in the system |
| ||-Checked the user requirements for any changes in the regulations/ policy of the bank |
|We have considered this as key audit matter as any control lapses validation failures incorrect input data and wrong extraction of data may result in wrong reporting of data to the management and regulators. ||-Testing of logic used for extracting the data. |
| ||-On sample basis reviewed the reports generated. |
| ||-Reliance is placed on system audit report of the bank. |
|4.Impact of Change in Accounting Policy ||-We have communicated the change in accounting policy to the statutory branch auditors to verify the implementation of the change in the system. |
|During the year bank has changed its accounting policy in respect of appropriation of recovery in NPA accounts. || |
| ||-On sample basis we have verified the large advances of the branches audited by us and checked whether the change in accounting policy has been implemented. |
|Refer Note No.6.1(ii)of Notes to Accounts to financial statements. || |
|We have considered this as Key Audit Matter as nonimplementation of the change in accounting policy in the system may have significant impact on the financial statements of the bank. || |
| ||-On test check basis we have also verified the overall impact of change in accounting policy. |
| ||-We have suggested the management to strengthen the system wherever we have observed deficiencies in the implementation of the change in accounting policy. |
|5.Recognition of Deferred Tax Asset: ||-We have verified that recognition criteria for Deferred Tax Asset as per Accounting Standard 22 Accounting for Taxes on |
|As on March 31 2019 the Bank has recognised a net deferred tax asset of Rs 11885.61 crore. || |
|Deferred tax assets should be recognised and carried forward only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. ||Income issued by The Institute of Chartered Accountants of India have been complied with. |
| ||-Assessed the assumptions and other parameters used by the bank management for recognition of the deferred tax asset. |
|Due to the huge amount of deferred tax assets recognised over a period based on the profit forecasted over future period of time increases the uncertainty and risk of recognition of such asset. Hence we have considered this as a Key Audit Matter. || |
Information Other than the financial statements and Auditors Report thereon
6. The Bank's Board of Directors are responsible for the other information. The otherinformation comprises the information included in the Management report and Chairman'sStatement but does not include the financial statements and our auditor's report thereon.
Our opinion on the financial statements does not cover the other information and we donot express any form of assurance conclusion thereon.
In connection with our audit of the financial statements our responsibility is to readthe other information and in doing so consider whether the other information ismaterially inconsistent with the financial statements or our knowledge obtained in theaudit or otherwise appears to be materially misstated.
When we read the other information if we conclude that there is material misstatementtherein we are required to communicate the matter to those charged with governance anddetermine the actions under the applicable laws and regulations
Responsibilities of Management and Those Charged with Governance for the StandaloneFinancial Statements
7. The Bank's Board of Directors are responsible with respect to the preparation ofthese standalone financial statements that give a true and fair view of the financialposition financial performance and cash flows of the Bank in accordance with theaccounting principles generally accepted in India including the Accounting Standardsissued by The Institute of Chartered Accountants of India and provisions of Section 29 ofthe Banking Regulation Act 1949 and circulars and guidelines issued by the Reserve Bankof India (RBI') from time to time. This responsibility also includes maintenance ofadequate accounting records in accordance with the provisions of the Act for safeguardingof the assets of the Bank and for preventing and detecting frauds and otherirregularities; selection and application of appropriate accounting policies; makingjudgments and estimates that are reasonable and prudent; and design implementation andmaintenance of adequate internal financial controls that were operating effectively forensuring the accuracy and completeness of the accounting records relevant to thepreparation and presentation of the financial statements that give a true and fair viewand are free from material misstatement whether due to fraud or error.
In preparing the standalone financial statements the Board of Directors areresponsible for assessing the Bank's ability to continue as a going concern disclosingas applicable matters related to going concern and using the going concern basis ofaccounting unless management either intends to liquidate the Bank or to cease operationsor has no realistic alternative but to do so.
The Board of Directors are also responsible for overseeing the Bank's financialreporting process.
Auditors Responsibilities for the Audit of the Financial Statements
8. Our objectives are to obtain reasonable assurance about whether the standalonefinancial statements as a whole are free from material misstatement whether due to fraudor error and to issue an auditor's report that includes our opinion. Reasonable assuranceis a high level of assurance but is not a guarantee that an audit conducted in accordancewith SAs will always detect a material misstatement when it exists. Misstatements canarise from fraud or error and are considered material if individually or in theaggregate they could reasonably be expected to influence the economic decisions of userstaken on the basis of these standalone financial statements.
As part of an audit in accordance with SAs we exercise professional judgment andmaintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financialstatements whether due to fraud or error design and perform audit procedures responsiveto those risks and obtain audit evidence that is sufficient and appropriate to provide abasis for our opinion. The risk of not detecting a material misstatement resulting fromfraud is higher than for one resulting from error as fraud may involve collusionforgery intentional omissions misrepresentations or the override of internal control.
Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basisof accounting and based on the audit evidence obtained whether a material uncertaintyexists related to events or conditions that may cast significant doubt on the bank'sability to continue as a going concern. If we conclude that a material uncertainty existswe are required to draw attention in our auditor's report to the related disclosures inthe financial statements or if such disclosures are inadequate to modify our opinion.Our conclusions are based on the audit evidence obtained up to the date of our auditor'sreport. However future events or conditions may cause the bank to cease to continue as agoing concern.
Evaluate the overall presentation structure and content of the standalonefinancial statements including the disclosures and whether the financial statementsrepresent the underlying transactions and events in a manner that achieves fairpresentation.
We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.
From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the standalone financial statementsof the current period and are therefore the key audit matters. We describe these mattersin our auditor's report unless law or regulation precludes public disclosure about thematter or when in extremely rare circumstances we determine that a matter should not becommunicated in our report because the adverse consequences of doing so would reasonablybe expected to outweigh the public interest benefits of such communication.
9. We did not audit the financial statements / information of 2807 branches included inthe standalone financial statements of the Bank whose financial statements / financialinformation reflect total advances of Rs.217896.27 Crore as at March 31 2019 and totalinterest income of Rs.18488.73 Crore for the year ended on that date as considered in thestandalone financial statements. The financial statements / information of these brancheshas been audited by the branch auditors whose reports have been furnished to us and inour opinion inso far as it relates to the amounts and disclosures included in respect ofbranches is based solely on the report of such branch auditors.
Our opinion is not modified in respect of this matter.
Report on Other Legal and Regulatory Requirements
10. The Balance Sheet and the Profit and Loss Account have been drawn up in accordancewith Section 29 of the Banking Regulation Act 1949;
11. Subject to the limitations of the audit indicated in paragraphs 7 to 9 above and asrequired by the Banking Companies (Acquisition and Transfer of Undertakings) Act1970/1980 and subject also to the limitations of disclosure required therein we reportthat:
a) We have obtained all the information and explanations which to the best of ourknowledge and belief were necessary for the purposes of our audit and have found them tobe satisfactory;
b) The transactions of the Bank which have come to our notice have been within thepowers of the Bank; and
c) The returns received from the offices and branches of the Bank have been foundadequate for the purposes of our audit.
12. We further report that:
a) in our opinion proper books of account as required by law have been kept by theBank so far as it appears from our examination of those books and proper returns adequatefor the purposes of our audit have been received from branches not visited by us;
b) the Balance Sheet the Profit and Loss Account and the Statement of Cash Flows dealtwith by this report are in agreement with the books of account and with the returnsreceived from the branches not visited by us;
c) the reports on the accounts of the branch offices audited by branch auditors of theBank under section 29 of the Banking Regulation Act 1949 have been sent to us and havebeen properly dealt with by us in preparing this report; and
d) In our opinion the Balance Sheet the Profit and Loss Account and the Statement ofCash Flows comply with the applicable accounting standards to the extent they are notinconsistent with the accounting policies prescribed by Reserve Bank of India.
| || || |
|For NBS & Co. ||For Banshi Jain & Associates. ||For Chaturvedi & Co. |
|Chartered Accountants ||Chartered Accountants ||Chartered Accountants |
|(FRN 110100W) ||(FRN 100990W) ||(FRN302137E) |
|Pradeep Shetty ||Parag Jain ||S.C.Chaturvedi |
|Partner ||Partner ||Partner |
|M. No. 046940 ||078548 M. No. 078548 ||012705 M. No. 012705 |
|Place : Mumbai || || |
|Date : 16th May 2019 || || |