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The President of India / The Members of the Bank of India
1. We have audited the standalone financial statements of Bank of India (‘the Bank’), which comprise the Balance Sheet as at March 31, 2019, the Statement of Profit and Loss and the Statement of Cash Flows for the year then ended, and notes to standalone financial statements including a summary of significant accounting policies and other explanatory information in which are included returns for the year ended on that date of 20 branches and Treasury Branch audited by us and 2783 domestic branches audited by statutory branch auditors and 24 foreign branches audited by local auditors. The branches audited by us and those audited by other auditors have been selected by the Bank in accordance with the guidelines issued to the Bank by the Reserve Bank of India. Also included in the Balance Sheet, the Statement of Profit and Loss and Statement of Cash Flows are the returns from 2288 branches which have not been subjected to audit. These unaudited branches account for 5.93% of advances, 19.11% of deposits, 4.73% of interest income and 17.59% of interest expenses.
2. In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements give the information required by the Banking Regulation Act, 1949 (“the Act”) in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Bank as at March 31, 2019, and its loss and its cash 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 by The Institute of Chartered Accountants of India. Our responsibilities under those Standards are further described in the Auditor’s Responsibilities for the Audit of the Standalone Financial Statements section of our report. We are independent of the Bank in accordance with the code of ethics issued by the Institute of Chartered Accountants of India together with ethical requirements that are relevant to our audit of the standalone financial statements under provision of the Act, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the code of ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for 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 in appropriation 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 most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming 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 invesments as per guidelines issued by Reserve Bank of India.
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.
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.
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 satements of the bank.
We have carried out the audit of the advances and invesments 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.
-We have communicated to the branch satutory 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 satutory auditors.
- Undemanding 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 tesed whether the classification of advances under performing and non performing and provisioning is carried out as per the guidelines of Reserve Bank of India.
-During audit of branches allotted to us we have carried out subsantivetes 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 suggesed by satutory branch auditors and satutory central auditors during consolidation of financial satements.
Bank has to classify the invesments under performing and non performing based on the guidelines/circulars and directives issued by Reserve Bank of India.
Identification of performing and non performing invesments is generally system driven.
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 confutes 54.54% and 23.61% respectively of total assets of 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.
Undemanding 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 invesments.
-On sample basis tesed whether the classification and valuation of invesments is carried out as per the guidelines of Reserve Bank of India.
-On sample basis also verified whether proper provision for depreciation in the value of invesments 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.
2.Evaluation of uncertain tax litigations and contingent liabilities Claims agains 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 satements. 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.
This is a key audit matter due to uncertainty of the outcome which involves significant judgment to determine the possible outcome of these disputes.
We went through the current satus of the tax litigations and contingent liabilities.
We obtained the details of lates orders and tax assessments.
We gathered recent information received on the tax and other litigations for assessing the liabilities.
Wherever required reliance is placed on the opinion of legal and tax consultants.
3.Assessment of Information Technology (IT):
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
-Undemanding and teeing of operative effectiveness of the system.
-Undemanding the coding system adopted by the bank for various categories of customers
-Undemanding and teeing of different validations available in the system
is an important part of the process. Such reporting is highly dependent on the effective working of Core Banking Software and other allied systems
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.
-Checked the user requirements for any changes in the regulations/ policy of the bank
-Teeing 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
During the year bank has changed its accounting policy in respect of appropriation of recovery in NPA accounts.
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 satements of the bank.
-We have communicated the change in accounting policy to the satutory branch auditors to verify the implementation of the change in the system.
-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.
-On tes check basis we have also verified the overall impact of change in accounting policy.
-We have suggested the management to lengthen the system wherever we have observed deficiencies in the implementation of the change in accounting policy.
5.Recognition of Deferred Tax Asset:
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 agains which such deferred tax assets can be realised.
Due to the huge amount of deferred tax assets recognised over a period based on the profit forecased 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.
-We have verified that recognition criteria for Deferred Tax Asset as per Accounting Standard 22 Accounting for Taxes on Income issued by The Insitute 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.
Information Other than the financial statements and Auditors Report thereon
6. The Bank’s Board of Directors are responsible for the other information. The other information comprises the information included in the Management report and Chairman’s Statement 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 do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
When we read the other information, if we conclude that there is material misstatement therein, we are required to communicate the matter to those charged with governance and determine the actions under the applicable laws and regulations
Responsibilities of Management and Those Charged with
Governance for the Standalone Financial Statements
7. The Bank’s Board of Directors are responsible with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Bank in accordance with the accounting principles generally accepted in India, including the Accounting Standards issued by The Institute of Chartered Accountants of India, and provisions of Section 29 of the Banking Regulation Act, 1949 and circulars and guidelines issued by the Reserve Bank of India (‘RBI’) from time to time. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Bank and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
In preparing the standalone financial statements, the Board of Directors are responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.
The Board of Directors are also responsible for overseeing the Bank’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
8. Our objectives are to obtain reasonable assurance about whether the standalone financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these standalone financial statements.
As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
- Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
- Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the 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’s report. However, future events or conditions may cause the bank to cease to continue as a going concern.
- Evaluate the overall presentation, structure and content of the standalone financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the standalone financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
9. We did not audit the financial statements / information of 2807 branches included in the standalone financial statements of the Bank whose financial statements / financial information reflect total advances of Rs.217896.27 Crore as at March 31, 2019 and total interest income of Rs.18488.73 Crore for the year ended on that date, as considered in the standalone financial statements. The financial statements / information of these branches has been audited by the branch auditors whose reports have been furnished to us, and in our opinion inso far as it relates to the amounts and disclosures included in respect of branches, 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 accordance with Section 29 of the Banking Regulation Act, 1949;
11. Subject to the limitations of the audit indicated in paragraphs 7 to 9 above and as required by the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980, and subject also to the limitations of disclosure required therein, we report that:
a) We have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit and have found them to be satisfactory;
b) The transactions of the Bank, which have come to our notice, have been within the powers of the Bank; and
c) The returns received from the offices and branches of the Bank have been found adequate 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 the Bank so far as it appears from our examination of those books and proper returns adequate for 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 dealt with by this report are in agreement with the books of account and with the returns received from the branches not visited by us;
c) the reports on the accounts of the branch offices audited by branch auditors of the Bank under section 29 of the Banking Regulation Act, 1949 have been sent to us and have been 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 of Cash Flows comply with the applicable accounting standards, to the extent they are not inconsistent 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 M. No. 078548 M. No. 012705
Place : Mumbai
Date : 16th May 2019