Premises
The auditor should verify the opening balance of premises with reference to schedule of fixed assets, ledger or fixed assets register.Acquisition of new premises should be verified with reference to authorisation, title deeds, record of payment, etc. Self-constructed fixed assets should be verified with reference to authorisation from appropriate authority and documents such as, contractors’ bills, work order records, record of payments and completion certificate. The auditor should also examine whether the balances as per the fixed assets register reconcile with those as per the ledger and the final statements.
In the case of leasehold premises, capitalisation and amortisation of lease premium, if any, should be examined. Any improvements to leasehold premises should be amortised over their balance residual life.
In case the title deeds are held at the head office or some other location, the branch auditor should obtain a written representation to this effect from the branch management and should bring this fact to the notice of the Statutory Central Auditor through a suitable mention in his report. This fact should also be brought in the Long Form Audit Report (LFAR).
Where premises are under construction, it should be seen that they are shown under a separate heading, e.g., ‘premises under construction’. Advances to contractors may be shown as a separate item under the head ‘fixed assets’ or under the head ‘other assets’. It should be verified that where the branch has obtained the licence to commence business and is ready for use then the same is not shown as “premises under construction”. In such cases even if all the bills/ documents from the contractors/suppliers are not received, at the year end, an estimate of the expenditure thereon should be made and capitalised on a provisional basis. 5.19 Where the premises (or any other fixed assets) are re-valued, the auditor should examine the appropriateness of the basis of revaluation. The auditor should also examine whether the treatment of resultant revaluation surplus or deficit is in accordance with Accounting Standard (AS) 10, “Accounting for Fixed Assets”. The auditor should also check the impairment, if any, by applying the principles laid down in Accounting Standard (AS) 28, “Impairment of Assets”.
The auditor should specifically keep in mind the provisions of section 9 of the Banking Regulation Act, 1949, which prohibit a banking company from holding any immovable property, howsoever acquired (i.e., whether acquired by way of satisfaction of claims or otherwise), for a period exceeding seven years from the date of acquisition, except such as is required for its own use. The auditor should specifically examine that no immovable properties other than those required for the own use of the bank have been included in fixed assets (own use would cover use by employees of the bank, e.g., residential premises provided to employees). The branch auditor should also obtain a written representation to the above effect from the branch management.