The Members of
Central Bank of India
Report on Audit of the Standalone Financial Statements
1. We have audited the accompanying Standalone Financial Statements of Central Bankof India ('the Bank') which comprise the Balance Sheet as at March 31 2019 theProfit and Loss Account and the Cash Flow Statement for the year then ended and notes tothe Standalone Financial Statements including a summary of significant accountingpolicies and other explanatory information in which are included the Returns for the yearended on that date of 20 branches audited by us and 2549 branches audited by otherstatutory auditors. The branches audited by us and those audited by other auditors havebeen selected by the bank in accordance with the guidelines issued to the bank by theReserve Bank of India. Also included in the Balance sheet and Profit and Loss Account arethe returns from 2090 branches which have not been subjected to audit. These Unauditedbranches account for 9.75 percent of advances 27.61 per cent of deposit 5.90 per cent ofinterest income and 25.17 per cent 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 in the manner so required for bank and are inconformity 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 Bankas at March 31 2019;
b. true balance of loss in case of Profit and Loss account for year ended on thatdate; and
c. true and fair view of cash flows in case of the Cash Flow Statement for the yearended as on that date.
Basis for Opinion
3. We conducted our audit in accordance with the Standards on Auditing (SAs) issued byInstitute of Chartered Accountants of India (ICAI). Our responsibilities under thoseStandards are further described in the Auditors' 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 ICAI together with the ethicalrequirements that are relevant to our audit of the Standalone Financial Statements underthe provisions of the Banking Regulation Act 1949 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.
Key Audit Matters
4. Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the Standalone Financial Statements for the year ended March31 2019. These matters were addressed in the context of our audit of the StandaloneFinancial Statements as a whole and in forming our opinion thereon and we do not providea separate opinion on these matters. We have determined the matters described below to bethe key audit matters to be communicated in our report.
|Key Audit Matters ||Auditors' Response |
|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) ||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 |
|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. ||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 |
|The management also exercises significant judgment in adherence to the IRAC norms and adequate provisioning in required cases. ||(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. |
|2. Investments ||Our audit approach towards Investments with reference |
|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) ||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. ||- 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 price discovered for the valuation of these Investments is only a fair assessment of the Investments. ||The results of our audit process were observed to be adequate and satisfactory considering the materiality of the transactions. |
|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. || |
|3. Information technology (IT) systems used in financial reporting process ||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: |
|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. || 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. |
|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 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 otherinformation comprises the Directors' Report including annexure the Corporate GovernanceReport and Management Discussion and Analysis but does not include the StandaloneFinancial Statements and our Auditors' Report thereon. The other information is expectedto be made available to us after the date of this Auditors' Report.
Our opinion on the Standalone Financial Statements does not cover the other informationand the Basel III disclosure we will not express any form of assurance conclusionthereon.
In connection with our audit of the Standalone Financial Statements our responsibilityis to read the other information identified above when it becomes available and in doingso consider whether the other information is materially inconsistent with the StandaloneFinancial Statements or our knowledge obtained in the audit or otherwise appears to bematerially 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
6. The Bank's Board of Directors is 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 ICAI and provisions of section 29 of the banking Regulation Act 1949 andcirculars and guidelines issued by Reserve Bank of India (RBI) from time to time. Thisresponsibility also includes maintenance of adequate accounting records in accordance withthe provisions of the Act for safeguarding of the assets of the Bank and for preventingand detecting frauds and other irregularities; selection and application of appropriateaccounting policies; making judgments and estimates that are reasonable and prudent; anddesign implementation and maintenance of adequate internal financial controls that wereoperating effectively for ensuring the accuracy and completeness of the accountingrecords relevant to the preparation and presentation of the Standalone FinancialStatements that give a true and fair view and are free from material misstatement whetherdue to fraud or error.
In preparing the Standalone Financial Statements Management is responsible forassessing the Bank's ability to continue as a going concern disclosing as applicablematters related to going concern and using the going concern basis of accounting unlessmanagement either intends to liquidate the Bank or to cease operations or has norealistic 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 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 financial statementswhether due to fraud or error design and perform audit procedures responsive to thoserisks and obtain audit evidence that is sufficient and appropriate to provide a basis forour option. The risk of not detecting a material misstatement resulting from fraud ishigher than that for one resulting from error as fraud may involve collusion forgeryintentional omission misrepresentation 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 use of the going concern basis ofaccounting 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 disclosure in theStandalone Financial Statements or if such disclosures are inadequate to modify ouropinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditor's report. However future events or conditions may cause the bank to cease tocontinue as a going concern.
Evaluate the overall presentation structure and content of the StandaloneFinancial Statements including the disclosures and whether the Standalone FinancialStatements represent the underlying transactions and events in a manner that achieves fairpresentation.
Materiality is the magnitude of misstatements in the Standalone Financial Statementsthat individually or in aggregate makes it probable that the economic decisions of areasonably knowledgeable user of the financial statements may be influenced. We considerquantitative materiality and qualitative factors in (i) planning the scope of our auditwork and in evaluating the results of our work; and (ii) to evaluate the effect of anyidentified misstatements in the financial statements.
We communicate with those charge 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 charge with governance with the 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 safeguard.
From the matters communicated with those charge with governance we determine thosematters that were of most significance in audit of the Standalone Financial Statements ofthe current period and are therefore the key audit matters. We describe these matters inour auditor's report unless law or regulation precludes public disclosure about the matteror when in extremely rare circumstances we determine that matters should not becommunicated in our report because of the adverse consequences of doing so wouldreasonably be expected to outweigh the public interest benefit of such communication.
8. We did not audit the financial statements/ information of 2549 branches included inthe Standalone Financial Statements of the Bank whose financial statements/financialinformation reflect total advances of Rs. 96589.14 crore as at March 31 2019 and thetotal interest income of Rs. 17577.07 crore for the year ended on that date asconsidered in the Standalone Financial Statements/information of these branches have beenaudited by the branch auditors whose reports have been furnished to us and our opinion inso far as it relates to the amounts and disclosures included in respect of branches isbased 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 accordancewith section 29 of the Banking Regulation Act 1949;
10. Subject to the limitations of the audit indicated in paragraph 6 to 8 above and asrequired by Banking Companies (Acquisition and Transfer of Undertaking) Act 1970/1980and 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 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 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 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 the branches not visited by us.
b. The Balance Sheet the Profit and Loss Account and Cash Flow Statement dealt withby this Report are in agreement with the books of account and with the returns receivedfrom 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 Cash FlowStatement comply with the applicable accounting standards; to the extent they are notinconsistent 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) |
|Partner ||Partner |
|M.No.087002 ||M.No.133755 |
|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) |
|Partner ||Partner |
|M.No.039585 ||M.No.093348 |
|Place : Mumbai || |
|Date : 15th May 2019 || |