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Report on Audit of the Standalone Financial Statements
1. We have audited the accompanying Standalone Financial Statements of Central Bank of India (‘the Bank’) which comprise the Balance Sheet as at March 31, 2019, the Profit and Loss Account and the Cash Flow Statement for the year then ended, and notes to the Standalone Financial Statements, including a summary of significant accounting policies and other explanatory information in which are included the Returns for the year ended on that date of 20 branches audited by us and 2549 branches audited by other statutory 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 and Profit and Loss Account are the returns from 2090 branches which have not been subjected to audit. These Unaudited branches account for 9.75 percent of advances, 27.61 per cent of deposit, 5.90 per cent of interest income and 25.17 per cent 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 in the manner so required for bank and are in conformity with the accounting principles generally accepted in India and give:
a. true and fair view in case of the Balance sheet, of the state of affairs of the Bank as at March 31, 2019;
b. true balance of loss, in case of Profit and Loss account for year ended on that date; and
c. true and fair view of cash flows in case of the Cash Flow Statement for the year ended as on that date.
Basis for Opinion
3. We conducted our audit in accordance with the Standards on Auditing (SAs) issued by Institute of Chartered Accountants of India (ICAI). Our responsibilities under those Standards are further described in the Auditors’ 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 ICAI together with the ethical requirements that are relevant to our audit of the Standalone Financial Statements under the provisions of the Banking Regulation Act, 1949 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.
Key Audit Matters
4. Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Standalone Financial Statements for the year ended March 31, 2019. These matters were addressed in the context of our audit of the Standalone Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our report.
Key Audit Matters
1. Loans & Advances
Identification and provisioning of Non performing advances made in accordance with the prudential norms prescribed by Reserve Bank of India on Income recognition, Asset Classification and provisioning pertaining to Advances. (refer Schedule 9 read with Note 5 of Schedule 17 to the financial statements)
Advances comprise a substantial portion of the Bank’s total assets. The management exercises significant judgment in the asset classification and provisioning. and valuation of the security involves high degree of estimation and judgment, the carrying value of the advances could be materially misstated either individually or collectively, and in view of the materiality of advances to the total assets, the classification of the advances and provisioning thereon has been considered by us as a key audit matter. Identification of such non-performing advances is carried out in the Bank, based on system identification, by the Core Banking Solution (CBS) software in operation based on the various controls and logic embedded therein.
The management also exercises significant judgment in adherence to the IRAC norms and adequate provisioning in required cases.
Our audit approach included testing the design, operating effectiveness of internal controls and substantive audit procedures in respect of income recognition, asset classification and provisioning pertaining to advances. In particular:
- we have evaluated and understood the Bank’s internal control system in adhering to the relevant RBI guidelines regarding income recognition, asset classification and provisioning pertaining to advances;
- we have analyzed and understood key IT systems/ applications used operational effectiveness of relevant controls, including involvement of manual process and manual controls in relation to income recognition, asset classification and provisioning pertaining to advances ;
In order to ensure the effectiveness of the operation of the key controls and compliance to the directions of the RBI in this regards, we have verified whether both CBS system and the management have,
(a) timely recognised the depletion in the value of available security;
(b) made adequate provisioning based on such time to time monitoring and identification of asset classification.
We placed reliance upon the Independent Auditors’ Report of the Statutory Branch Auditors’ as well as all MOCs both at branches as well as at H.O.level.
Reliance also placed on the Audit Reports of the Statutory Branch Auditors with respect to income recognition, asset classification and provisioning.
The results of our audit process were observed to be adequate and satisfactory, considering the materiality.
Investment portfolio of the bank comprises of Investments in Government Securities, Bonds, Debentures, Shares, Security Receipts and other Approved Securities which are classified under three categories, Held to Maturity, Available for Sale and Held for Trade. Investment also comprise, a substantial portion of the Bank’s total assets.
Valuation of Investments, identification of Non-performing Investments (NPI) and the corresponding non-recognition of income and provision thereon, is carried out in accordance with the relevant circulars / guidelines / directions of RBI. (refer Schedule 8 read with Note 3 of Schedule 17 to the financial statements)
Our audit approach towards Investments with reference to the RBI circulars / directives included the review and testing of the design, operating effectiveness of internal controls and substantive audit procedures in relation to valuation, classification, identification of Non Performing Investments, provisioning / depreciation related to Investments. In particular,
- We assessed and understood the system and internal control as laid down by the Bank to comply with relevant RBI guidelines regarding valuation, classification, identification of Non Performing Investments, Provisioning and depreciation on Investments.
The valuation of each type of aforesaid security is to be carried out as per the methodology prescribed in the circulars and directives issued by the RBI which involves collection of data/ information from various sources such as FBIL rates, rates quoted on BSE/ NSE, financial statements of unlisted companies, NAV in case of security receipts etc.
As per the RBI directions, there are certain investments that are valued at market price however certain investments are based on the valuation methodologies that include statistical models with inherent assumptions, assessment of price for valuation based on financial statements etc. The price discovered for the valuation of these Investments is only a fair assessment of the Investments.
Hence the valuation of Investments requires special attention and further in view of the significance of the amount of Investments in the financial statements, the same has been considered as Key Audit Matter in our audit.
- For selected sample of investments, tested accuracy and compliance with the RBI Master circulars and directions by re-performing valuation for each category of security in accordance with the RBI guidelines.
- We assessed and evaluated the process of identification of NPIs, and corresponding reversal of income and creation of provision.
- We carried out substantive audit procedures to recompute independently the provision to be created and depreciation to be provided.
The results of our audit process were observed to be adequate and satisfactory considering the materiality of the transactions.
3. Information technology (IT) systems used in financial reporting process
The Bank’s operational and financial reporting processes are dependent on IT systems run through Core Banking Solutions (CBS) and other integrated software with automated processes and controls large volume of transactions.
The process and controls are to ensure appropriate user access and management processes in use.
Bank has an in house Department of Information & technology (DIT) run under the supervision of the top management and with the support of expert consulting agencies, for maintaining IT services.
Accordingly, our audit was focused on key IT systems and controls due to the pervasive impact on the financial statements and the same has been considered as Key Audit Matter in our audit.
We conducted an assessment and identified key IT applications, database and operating systems that are relevant to our audit and have identified CBS and Treasury System primarily as relevant for financial reporting. For the key IT systems pertaining to CBS and treasury operations used to prepare accounting and financial information, our areas of audit focus included Access Security (including controls over privileged access), application change controls, database management and network operations. In particular:
- we obtained an understanding of the Bank’s IT control environment and key changes during the audit period that may be relevant to the audit.
- we tested the design, implementation and operating effectiveness of the Bank’s General IT controls over the key IT systems that are critical to financial reporting. This included evaluation of Bank’s controls to evaluate segregation of duties and access rights being provisioned / modified based on duly approved requests, access for exit cases being revoked in a timely manner.
- we also tested key automated and manual business cycle controls and logic for system generated reports relevant to the audit; including testing of compensating controls or performed alternate procedures to assess whether there were any unaddressed IT risks that would materially impact the financial statements. Information other than the Financial Statements and Auditors’ Report thereon.
The results of our audit process were observed to be adequate and satisfactory.
Information other than the financial statements and Auditors’ report thereon
5. The Bank’s Board of Directors is responsible for the other information. The other information comprises the Directors’ Report including annexure, the Corporate Governance Report and Management Discussion and Analysis, but does not include the Standalone Financial Statements and our Auditors’ Report thereon. The other information is expected to be made available to us after the date of this Auditors’ Report.
Our opinion on the Standalone Financial Statements does not cover the other information and the Basel III disclosure, we will not express any form of assurance conclusion thereon.
In connection with our audit of the Standalone Financial Statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the Standalone 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
6. The Bank’s Board of Directors is 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 ICAI, and provisions of section 29 of the banking Regulation Act, 1949 and circulars and guidelines issued by 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 Standalone 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, Management is 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.
Auditors’ Responsibility for the Audit of the Standalone Financial Statements
7. 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 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 option. The risk of not detecting a material misstatement resulting from fraud is higher than that for one resulting from error, as fraud may involve collusion, forgery, intentional omission, misrepresentation, 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 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 disclosure in the Standalone 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 Standalone Financial Statements represent the underlying transactions and events in a manner that achieves fair presentation.
Materiality is the magnitude of misstatements in the Standalone Financial Statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the financial statements may be influenced. We consider quantitative materiality and qualitative factors in (i) planning the scope of our audit work and in evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatements in the financial statements.
We communicate with those charge 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 charge with governance with the 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 safeguard.
From the matters communicated with those charge with governance, we determine those matters that were of most significance in 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 matters should not be communicated in our report because of the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefit of such communication.
8. We did not audit the financial statements/ information of 2549 branches included in the Standalone Financial Statements of the Bank whose financial statements/financial information reflect total advances of Rs. 96,589.14 crore as at March 31, 2019 and the total interest income of Rs. 17,577.07 crore for the year ended on that date, as considered in the Standalone Financial Statements/information of these branches have been audited by the branch auditors whose reports have been furnished to us, and our opinion in so 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
9. The Balance sheet and the Profit and Loss Account have been drawn up in accordance with section 29 of the Banking Regulation Act, 1949;
10. Subject to the limitations of the audit indicated in paragraph 6 to 8 above and as required by Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970/1980, and subject also to the limitations of disclosures 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 purpose of our audit.
11. 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 the branches not visited by us.
b. The Balance Sheet, the Profit and Loss Account, and Cash Flow Statement 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 Cash Flow Statement comply with the applicable accounting standards; to the extent they are not inconsistent with the accounting policies prescribed by Reserve Bank of India.
For S. K. MEHTA & CO. For BORKAR & MUZUMDAR
CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS
F.R. No.000478N F.R. No. 101569W
(CA JYOTI BAGGA) (CA DARSHIT DOSHI)
For MUKUND M CHITALE & CO For AAJV AND ASSOCIATES
CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS
F.R. No.106655W F.R. No.007739N
(CA A.V. KAMAT) (CA DEEPAK GARG)
Place : Mumbai
Date : 15th May 2019