KARACHI, Jan 11: The State Bank has issued a master circular on audit of annual accounts of banks by external auditors that envisages a set of guidelines for compliance.

The circular says that while conducting the statutory audit of banks in terms of section 35 of the Banking Companies Ordinance 1962 the auditors shall verify the following:

1. Deposits maintained with and received from other banks.

2. Inter branch deposits, provision for taxation and other similar items.

3. Balances of staff provident fund, gratuity funds etc.

4. Amount of profit accrued on deposits (but not paid) and included in deposits and other accounts instead of showing it under other liabilities.

5. Nature and amount of all balances held outside Pakistan.

6. Investment in shares of companies in which the directors of the bank and their dependents have substantial interest.

7. All sales, purchases and swaps of shares and securities of Rs5 million and above during the financial year.

8. Loans and advances (excluding staff loans) granted to directors or officers of the bank or any of them, either severally or jointly with any other person.

9. Loans and advances granted to companies or firms in which the directors of the bank are interested as directors, partners or managing agents.

10. Adequacy of provisions against classified assets as per requirements of Prudential Regulation no VIII.

11. Expenses incurred on the opening of branches, advertisements and publicity—whether charged off to profit and loss account, capitalized or accounted otherwise.

12. Reconciliation of inter-branch and other accounts (including head office account, inter-bank accounts, accounts of and with foreign correspondents) and settlement of suspense account.

13. Any window dressing in the annual accounts, particularly in respect of deposits, income, expenses, provisions etc.

14. Contributions and donations for charitable, social, educational and public welfare purposes made by the bank— whether in accordance with the Prudential Regulations no XX or not.

15. Level of efficiency of the internal audit department of the bank — whether the auditors are satisfied with it.

Apart from the observations noted during verification of the above items, the auditors would also report any matter of substantial nature with which they may become aware of during the process of statutory audit, which in the auditors’ opinion may have the potential to prejudice materially the interest of the depositors of the bank. If nothing of this nature has come to the attention of the auditors, a confirmation to that effect should be given in the report.