Guidance Notes

Official Information

Guidance Notes

Latest official content and updates published under Guidance Notes.

Guidance Note on Audit of Cash and Bank Balances

The Guidance Note deals with the audit procedures that might be adopted while auditing cash and bank balances. The following is a gist of the relevant areas covered by the Guidance Note:

Internal Control Evaluation: segregation of incompatible functions, authorisation, recording of transactions, safe custody of cash, chequebooks etc., reconciliation statements, etc.
Verification of Cash Balances: timing of carrying out verifications, procedure for verification, situations of unduly large cash balances, IOUs, procedures in case of discrepancies, frequency of verification.
Verification of Bank Balances: procedures for verification, examination of bank reconciliation statements and unusually old outstandings therein, post dated cheques, obtaining confirmations from banks, inoperative bank accounts, fixed deposits, remittance in transit, treatment of stale cheques, valuation of foreign exchange transactions.
Examination of Valuation and Disclosure: compliance with recognised accounting policies, practices, statutory requirements

The Guidance Note also gives an illustrative letter of confirmation for bank balances.

Issued in November, 1995
Published in the Handbook of Auditing Pronouncements, Vol. II (Edn. 2005).
Also available as a separate publication of the Institute (price: Rs. 15/-).
ISBN: 81-85868-8.

Guidance Note on Audit of Banks (Revised 2008)

Audit of banks is an important area of professional opportunity for the members. This opportunity, however, comes with a heavy responsibility too both in terms of the expectations of the government, the regulator as well as the public at large, in addition to the professional responsibility to keep update with the professional pronouncements issued by the Institute as well as the circulars issued by the Reserve Bank of India from time to time.

The Institute, from time to time, has been bringing out a number of non-authoritative publications on audit of banks as and also publishing articles on the topic in its monthly journal. The benchmark publication of the Institute in this area has been the Guidance Note on Audit of Banks, an authoritative pronouncement of the Institute.

The 2008 edition of the Guidance note has been divided into four distinct parts. Part I contains chapters dealing with the information about the banking industry, its legal framework, accounting and auditing framework. This Part also contains chapters on significant financial statement items- their presentation in the financial statements, relevant RBI guidelines, etc. The second part of the Guidance Note has been devoted to the basic audit considerations in branch office vis a vis head office, audit procedures for each of the financial statement item discussed in part I. Part III and IV contain guidance on head of/ branch office LFAR and special aspects such as Ghosh Jilani Committee requirements, SLR certification, etc., respectively.

The 2008 edition of the Guidance Note has been updated from the 2006 edition to include the current requirements of not only the latest RBI master circulars, but also other important circulars such as outsourcing of financial services by banks, stress testing, etc as well as other aspects such as service tax, etc. The Guidance Note comes with a CD containing important RBI circulars issued upto 15th Feb. 2008.

Issued in February, 2008.
Available only as a separate publication of the Institute (price: Rs. 400/- (inclusive of CD).
ISBN: 978-81-8441-018-1.

Guidance Note on Audit of Companies Carrying on General Insurance Business (Revised)

As the name suggests, this is an industry specific Guidance Note issued by the Auditing and Assurance Standards Board. The Guidance Note provides detailed guidance on various important aspects of the audit of companies in the business of general insurance. It deals extensively with the basic knowledge about the Industry, which the auditors need to possess to effectively conduct audit of a general insurance company. The Guidance Note begins with by giving a brief background of the insurance industry, evolution of the Industry, its regulation, organisation structure of the insurance companies, and the scope of the Guidance Note. The following is the gist of the topics dealt with by rest of the Guidance Note:

Principles of Insurance: contract of insurance, principles of general insurance, classes of general insurance business, etc.
Legal Framework: Insurance Regulatory and Development Authority Act, 1999 and Regulations framed thereunder, registration of insurance companies, licensing of insurance agents, requirements as to minimum paid up capital, deposits, important statutes as applicable to audit of general insurance companies, applicability of accounting standards, corporate governance, register of policies and returns, reports and returns to be furnished etc.
Accounting System and Framework: features of accounting system in insurance companies, accounting records – periodic reports, workflow in general insurance companies, accounting framework, requirements of Schedule B to IRDA Regulations, 2000, requirements of the Insurance Act, 1938 vis a vis the Companies Act, 1956 etc.
Auditing Framework: audit of accounts, qualifications, remuneration and powers of auditor, auditor’s report, audit of branches vis a vis head office, auditing in IT environment, stages of audit, developing audit plan, coordination with branch management and branch auditor.
Internal Controls: elements of internal control, specific control procedures in general insurance business, use of service organisations, compliance with regulations, independent checks, internal audit, investigation and inspection; and audit procedures.
Audit at Branch/ Divisional Office Level: books of account, items of revenue account – premium, claims commission, operating expenses, managerial remuneration, legal/professional charges, interest/ bank charges, depreciation, interest; and items relating to balance sheet – cash and bank balances, outstanding premium and agents’ balances.
Audit at Head Office Level: areas of audit, scrutiny of head office accounts, consolidation of head office and branch/divisional/ regional offices accounts, verification of revenue account and profit and loss account items, verification of balance sheet items etc.
Reinsurance: types of reinsurance – bordereaux, cession, commission, line, reciprocity etc., accounting aspects, legal requirements, segment-wise audit of reinsurance, verification of inwards and outwards reinsurance, co-insurance.
Investments: legal requirements, IRDA guidelines, prudential norms, other considerations, balance sheet disclosures, valuation of investments, investment committee, audit procedures – internal control evaluation, physical verification, reporting considerations.
Special Purpose Certification: solvency margin, IRDA regulations, norms for valuation of assets and liabilities, statements of solvency margin, expenses of management, considerations for auditors

The appendices to the Guidance Note contain diagrammatic representation of workflow in a general insurance business, format of financial statements, specimen auditor’s report, requirements of section 619(3)(a) of the Companies Act, 1956, statement of assets and liabilities, and statement of solvency margins.

Issued in January, 2002
Available only as a separate publication of the Institute (price: Rs. 150/-).
ISBN: 81-87072-73-3.

Guidance Note on Audit of Companies Carrying on Life Insurance Business

This Guidance Note is yet another in the series of industry specific Guidance Notes issued by the Auditing and Assurance Standards Board of the Institute and provides detailed guidance to the members in discharge of their work as an auditor of a life insurance company. The following points give a brief insight into the relevant aspects of audit of an insurance company covered by the Guidance Note:

Introduction: evolution and regulation of the insurance business, organisation structure in a life insurance company, scope of the Guidance Note.
Principles of Life Insurance: life insurance contract, risk, principles of life insurance, classes of life insurance policies – endowment, whole life, convertible whole life, money back, children’s deferred assurance, pension plan etc.
Legal Framework: insurer, registration of insurer, certification of soundness of terms of policy, appointment of actuary, regulation on advertisement, requirement of share capital and deposits, important provisions of Insurance Act, 1934, Insurance Rules, 1939, Companies Act, 1956, Income Tax Act, 1961, applicable accounting standards, corporate governance, statutory books and returns, valuation of assets, liabilities for solvency margin, valuation of assets and liabilities etc.
Accounting Framework and System: accounting system, accounting records, workflow in life insurance companies, accounting framework, comparison of accounting treatments/ formats in pre and post IRDA period, accounting policies and information, signatures and reports to be attached with accounts and statements, conformity with accounting standards.
Auditing Framework: audit of accounts, qualifications of auditor, appointment of auditor, remuneration of auditor, power of auditor, auditor’s report, audit of branch vis a vis head office, engagement letter, developing audit plan and audit programme, coordination with branch management and branch auditor.
Internal Controls: salient features in case of life insurance companies, specific internal control procedures in life insurance companies, use of service organisations, compliance with regulations, independent checks, internal audit, investigation and inspection powers of IRDA.
Audit of Branch/ Divisional Office: items under policyholders’ account, limitation on expenses of management, funds for future appropriation.
Audit at Head Office: areas of audit, scrutiny of head office accounts, consolidation of branch/divisional/ regional offices’ accounts, verification of important items of revenue account, profit and loss account and balance sheet.
Audit of Reinsurance: definitions, types, accounting aspects, legal requirements regarding reinsurance, segment-wise audit of reinsurance.
Investments: legal requirements, IRDA guidelines, prudential norms, other considerations, balance sheet disclosures, valuation of investments, investment committee, audit procedures, reporting considerations.

The appendices to the Guidance Note contain the Revenue Account and the specimen auditor’s report.

Issued in January, 2002
Available only as a separate publication of the Institute (price: Rs. 150/-).
ISBN: 81-87072-73-3.

Guidance Note on Audit of Capital and Reserves

The Auditing and Assurance Standards Board of India has issued Guidance Note on Audit of Capital and Reserves in order to keep the members abreast in resolving the technical intricacies involved in auditing of capital and reserves. The Guidance Note discusses the auditing aspect of capital and reserves separately. It deals in detail, with different principle related aspects dealing with the audit of capital and reserves including implications of key legal requirements. This Guidance Note not only gives special consideration to companies but partnerships and sole proprietary concerns as well. The Guidance Note also incorporates circulars issued by the Government and other regulatory authorities wherever applicable.

The Guidance Note on Audit of Capital and Reserves discusses significant aspects of their audit such as evaluation of internal controls and verification, the audit evidence, the auditing procedure to be followed in case of issue of shares for consideration other than cash and in case of issue of Sweat Equity shares etc. The Guidance Note also deals with various types of reserves and their accounting treatment while discussing auditing aspects. It also lays down the documentation requirements for the audit of capital and reserves.

Issued in January, 2006
Available only as a separate publication of the Institute (price: Rs. 50/-).
ISBN: 81-88437-87-5

Guidance Note on Audit of Payment of Dividend

The Auditing and Assurance Standards Board of India have issued the Guidance Note on Audit of Payment of dividend in order to keep the members abreast in resolving the technical intricacies involved in auditing payment of dividend. The Guidance Note deals, in detail, about internal control evaluation and various verification procedures required to be done by the auditor. The Guidance Note takes in to account both, corporate as well as non-corporate entities. The Appendix to the Guidance Note contains extracts of various relevant Acts and Rules relating to payment of dividend, the objective being to make the publication a complete, self-contained document for use by the members and others.

Issued in August, 2005
Available only as a separate publication of the Institute (price: Rs. 40/-).
ISBN: 81-88437-70-0

Guidance Note on Computer Assisted Audit Techniques (CAATs.)

Recognising the developments in the field of technology and its impact on the accounting profession in India, Auditing and Assurance Standards Board had issued Auditing and Assurance Standard (AAS) 29, Audit in Computer Information Systems Environment. This Guidance Note on Computer Assisted Audit Techniques comes as a sequel to that AAS. The Guidance Note deals extensively, with the concept of CAATs and related pertinent issues such what CAATs are, where they may be used, considerations in use of CAATs, how to use CAATs, testing of CAATs, controlling application of CAATs, documentation required when using CAATs, use of CAATs in small entities, etc. The Guidance Note also contains a comprehensive appendix containing examples of CAATs, their description and comparable advantages and disadvantages of each of these CAATs.

Issued in September, 2003
Published in the Handbook of Auditing Pronouncements, Vol. II, (Edn. 2005)
Also available as a separate publication of the Institute (price: Rs. 30/-)
ISBN: 81-88437-31-X

Guidance Note on Audit of Miscellaneous Expenditure (2003)

The Accounting Standards Board of the Institute of Chartered Accountants of India had in the recent past issued the Accounting Standard (AS) 26, Intangible Assets. The Accounting Standard lays down the accounting treatment, viz., recognition, measurement and disclosure requirements for certain intangible assets that are not dealt with specifically in any other Accounting Standard. Though the Institute had in October 1995 issued the Guidance Note on Audit of Miscellaneous Expenditure Shown in Balance Sheet, the same has been revised pursuant to the issuance of the Accounting Standard 26 and the changed accounting principles in respect of intangible assets contained therein.

The 2003 Guidance Note contains detailed guidance for auditors in respect of audit of various items covered under “Miscellaneous Expenditure”, for example, preliminary expenses, commission or brokerage on underwriting or subscription of shares etc., when AS 26 comes into force or is voluntarily applied by the entity in accounting for intangible assets. The issues touched upon by the Guidance Note include internal control evaluation, verification and disclosure of such expenditure pursuant to issuance of AS 26.

Published in September, 2003.
Published in the Handbook of Auditing Pronouncements, Vol. II (Edn. 2005).
Also available as a separate publication of the Institute (price: Rs. 25/-).
ISBN: 81-88437-23-9