1. Sir, kindly explain a)part Transactions in Matters prescribed for law
2. LFAR(Long Form Audit Report) is to be furnished by auditor to whom? Basically LFAR is the quetionnaire of ICS of the bank which is to be checked by the auditor only if provided in the terms of appointment?
3. What is Asset Quality Review(AQR)?
1. Didn’t understand your first query, please elaborate also in which context.
2. Correct it contains many questions about functioning of the bank , systems , risk etc so auditor issue additional reports to board of banks . It is not made public it is not available to shareholders like regular audit report
3. It is RBI going to banks and studying their NPA themselves to know the truth and real position about NPAs, as RBI fear understatement.
Below is some relevant text
Reserve Bank of India (RBI) inspectors check bank books every year as part of its annual financial inspection (AFI) process. However, a special inspection was conducted in 2015-16 in the August-November period. This was named as Asset Quality Review (AQR). In a routine AFI, a small sample of loans is inspected to check if asset classification was in line with the loan repayment and if banks have made provisions adequately.
However, in the AQR, the sample size was much bigger and in fact, most of the large borrower accounts were inspected to check if classification was in line with prudential norms. Some reports suggest that a list of close to 200 accounts was identified, which the banks were asked to treat as non-performing. Banks were given two quarters, October-December and January-March of 2016 to complete the asset classification.
1.For auditor’s report, point 3- Matter prescribed by law has point a)whether or not the transactions of the co. which have come to his notice have been within the powers of the company. This statement is not clear.
2. If auditor finds any loophole within the ICS, functioning of the bank and reports it in LFAR, then is bank liable to mandatorily comply with it? Does LFAR serve as a document of security & reliability? Will it be presented to RBI on demand?
In audit report seperate section is inserted if law has prescribed to auditor to write anything in audit report.
Now here auditor has to prescribe whether any transaction is beyond powers prescribed by law for example banks have to transfer amount to reserves. So if they don’t do it , it will be reported here.
Weakness will be reported in LUGAR it is upto bank whether to comply with it, if they don’t we will report again, RBI may call for such reports from banks, it’s there power