Provisions for Certain Employee Costs
Provisions for certain employee costs such as bonus/ex-gratia in lieu of bonus, and gratuity, pension and other retirement benefits are usually made at the head office level.
The auditor should examine whether the liability for bonus is provided for in accordance with the Payment of Bonus Act, 1965 and/or agreement with the employees or award of competent authority.
The auditor should examine whether provisions in respect of employee benefits are made in accordance with the requirements of Accounting Standard (AS) 15, “Employee Benefits”. The auditor should particularly examine whether provision for leave encashment has been made by the bank. As per AS 15, employee benefits include all forms of consideration given by an enterprise in exchange for services rendered by employees. It includes short-term employee benefits such as wages, salaries and social security contributions and non-monetary benefits, post-employment benefits, other long-term employee benefits and termination benefits. The auditor should examine the adequacy of the provisions made with reference to such documentary evidence such as reports of actuaries or certificates from the LIC, as appropriate under the facts and circumstances of the case.
In the case of employee benefits, the Master Circular on “Disclosure in Financial Statements – Notes to Accounts” (DBR.BP.BC No. 23 /21.04.018/2015-16) dated July 1, 2015 issued by the RBI with reference to Accounting Standard 15, specifies that Banks may follow the disclosure requirements prescribed under AS 15 (revised), ‘Employees Benefits’ issued by ICAI.