MOC - Memorandum of Changes

MEMORANDUM OF CHANGES, more often referred to as MOC is an important document enclosed with the Bank Audit Report whenever the Auditor observes significant issues effecting the Financial Statements of the Bank.

Usually, in case of other entities, first the accounts are audited and then the financial statements are drawn up adhering to all the regulatory principles as formulated by the laws of the land. Whereas in case of Banks, audit report is sent after the internal authorities have drawn up the final accounts which are already sent for compilation at Zonal levels. Hence, the term Memorandum of Changes, which incorporates in itself all the material changes effecting such final accounts.

MOC can be of following natures

1. Relating to suggested changes in Balance Sheet
2. Relating to suggested changes in Profit and Loss Account
3. Relating to suggested changes in advances portfolio of the bank
4. Relating to outstanding balances of the advances
5. Yearly return of provisions
6. Details of accounts for various changes
7. Reconciliation balances in interest not collected account
8. Summary of advance return
9. MOC for fixed assets

Even in case there are no such issues observed by the Auditor, NIL MOC is required to be enclosed with the report. All the facts and figures given in the MOC are also given a reference in the Main Audit Report.

The following points have to be noted about MOC:

1. There should be clear justification for every change suggested by auditor i.e. the nature of change as well as the quantification of suggested change and it impact otherwise.
2. The format of MOC in most banks will have both sides like a trial balance. It should be ensured that total of changes suggested in balance sheet and profit and loss account is tallied on both accounts.
3. The total of reclassification of the advances suggested in secured , unsecured ,guaranteed advance and sector wise advance should be correctly brought out in the MOC and total of both sides should tally.
4. In case of change suggested as per prudential norms on income recognition, the impact, if any on the provisioning of the assets is also to be looked into.
5. It is to be ensured that a NIL MOC is invariably forwarded, even if there are no change to report.
6. Branch manager are required to report on each item reported in MOC.

The format of MOC is provided along with other supporting material sent by Banks to the respective auditors. Usually, MOC is considered in reference to Bank Statutory Audit though MOC can also be given while conducting Concurrent Audits. 

Read more »

SNOWBALL

"A method of efficient debt repayment in which the debtholder initially devotes only enough funds to cover the minimum payments on each debt, after which any remaining available funds from the debt repayment budget are spent on an additional payment to the debt bearing the highest interest rate. Once the debt with the highest interest rate is completely paid for, subsequent extra debt payments go toward the next highest interest-bearing debt. This process continues until all the debts are paid off."

Consider the following example

Let's say an individual decides to spend Rs.500 every month on retiring his three sources of debt: Rs. 1,000 worth of credit card debt (annual rate of 20% interest), Rs. 1,250 of car loan repayments (annual rate of 6% interest) and a Rs. 5,000 line of credit (annual rate of 8%). Each has a minimum payment of Rs. 50.

If the person decides to use the snowball method of debt repayment, he will spend a total of Rs. 150 on paying each debt's minimum payment (Rs.50 x 3). The remaining Rs. 350 will be spent on a payment toward the highest interest-bearing debt - in this case, the credit card debt. Once the credit card debt has been completely paid for, the extra payment will go toward retiring the second-highest interest bearing debt (the line of credit), and the loan with the lowest rate of interest (the car loan).

Read more »

FIAT MONEY

Money on wheels..!!! the first thought came to my mind after hearing the term..:-).

Fiat Money = Money

Confused ? have a look on the literal definition

" Money which has no Intrinsic value and cannot be redeemed for specie or any commodity but is made a legal tender through government decree."

So, at present, all currency notes and coins are Fiat Money, isn't it.

P.S. Specie: Money with intrinsic value e.g. Gold and Silver coins.

Read more »

SIX SIGMA - An Overview

The main objective of a BUSINESS is profit maximization. Profits can be generated only if the business is able to sell its product in the market at a surplus. To have a sustained business growth it is very necessary that the market size of the business is large enough to yield the maximum revenues. In view of the above objectives, various management tools such as TQM, Value Engineering, MBO (Management by Objectives) etc have been formulated taking in conjunction the other supporting objectives of Corporate Responsibility, Shareholders’ wealth maximization, employee satisfaction etc.

“Customers are the revenue generators”.

Why only customers? Of course, they are. Since a business is set up to sell something and it is only by selling a product to the customer that revenue can be generated.

Hence, Customer Satisfaction is of utmost importance in any business concern.

Now, the question arises is, what is Customer Satisfaction?

A customer is satisfied only if a product can provide him with a sufficient reason to sacrifice his hard earned money in its exchange. So customer satisfaction can be measured in terms of price, quality, quantity i.e. uninterrupted supply of the product.

SIX SIGMA, is also such a Management Tool which emphasizes on CUSTOMER SATISFACTION and QUALITY PERFORMANCE and works on the identification and removal of all such hurdles coming on the way.

In other words,

Six Sigma is a systematical process of “quality improvement through the disciplined data-analyzing approach, and by improving the organizational process by eliminating the defects or the obstacles which prevents the organizations to reach the perfection”.

The term "six sigma process" comes from the notion that if one has six standard deviations between the process mean and the nearest specification limit, practically no items will fail to meet specifications. This is based on the calculation method employed in process capability studies.

HISTORY

At present, SIX SIGMA is the federally registered trademark of Motorola Inc. owing to one of its engineers Bill Smith who first formulated its methodologies in 1986. However, along with, the credit of giving SIX SIGMA a stage as a Management Strategy also goes to Shewhart, Deming, Juran, Ishikawa, Taguchi and others. Now a days, SIX SIGMA is widely accepted as a way of doing business since it is much more than the general quality management principles i.e. TQM, Value Engineering etc.

As Geoff Tennant describes in his book Six Sigma: SPC and TQM in Manufacturing and Services: "Six Sigma is many things, and it would perhaps be easier to list all the things that Six Sigma quality is not. Six Sigma can be seen as: a vision; a philosophy; a symbol; a metric; a goal; a methodology."

METHODOLOGIES

In order to work on SIX SIGMA principles and achieve its fundamental objectives the following methodologies are required to be adopted:

1. DMAIC

2. DMADV

DMAIC is used for the process improvement of existing businesses whereas DMADV has been formulated to cope up with the requirements of new product or processes. Both of the methodologies have five phases, on which lines the implementation proceeds. There are various other quality management tools used in SIX SIGMA while moving through DMAIC and DMADV viz. ANOVA (Analysis of Variance), Correlation, Measure of Dispersion and Central Tendency, Run Charts, Pareto Charts, Monte Carlo Simulation and many other related statistical and operational techniques and methods.

APPLICATION:

SIX SIGMA is usually found beneficial to large businesses owing to their complexities and large size of operations. According to industry consultants like Thomas Pyzdek and John Kullmann, companies with less than 500 employees are less suited to Six Sigma implementation, or need to adapt the standard approach to make it work for them. This is due both to the infrastructure of Black Belts that Six Sigma requires, and to the fact that large organizations present more opportunities for the kinds of improvements Six Sigma is suited to bringing about.

CONCLUSION:

SIX SIGMA is a very productive and beneficial approach for the growth and development of today’s business due to increasing number of new opportunities and technicalities involved. Also, in case of competitive environment, it can make a business survive even in the stiffest of the cases by cutting down its huge costs. However, while adopting this approach, Industry experts should be involved and consulted upon so as to ripe maximum benefits.

Read more »

Internal Bank Auditor or Statutory Bank Auditor

Before taking up a Statutory Bank Branch Audit, the question which usually CA firms have to face is

"Can we take up the assignment when we are already working in the capacity of Internal Auditor of the same Branch ?"

The above question has been resolved by ICAI as under:

As per the directions of RBI, firms associated with internal assignment in the bank have to relinquish the internal assignment before accepting the statutory audit assignment during the year.

In this regard, we would like to invite your attention to the Code of Ethics Section 290 " Independence - Assurance Engagements":

" A statutory auditor of an entity can not be it's internal auditor as it will not be possible for him to give an independent and objective opinion (Para 173)".

Specifically, attention is also drawn to Para 3-4-9 of the Guidance Note on Independence of Auditors-

“A member must take care to see that he does not get into situations where there could be a conflict of interest and duty. ………….Attention of the members is drawn to the audit assignments where appointment is done by the Comptroller & Auditor General of India (C&AG), Reserve Bank of India (RBI) and such other authorities. In addition to ensuring independence during the assignment, it is also essential to avoid any situation in near future which may be interpreted as a threat to independence, as for example, he or any other partner of his firm should not accept any other assignment such as internal audit, system audit and management consultancy service within one year from the completion of audit assignment”.

Therefore if you accept the statutory audit of the bank in which you ware an Internal Auditor in the same financial year, you would be violating the Code of Ethics.

Read more »

Empanelment of CA Firm for Bank Statutory Audit

Getting your firm empaneled with ICAI for Bank Statutory Audit requires a Multipurpose Empanelment form to be filed. The e-form is to be filed as and when advised by ICAI at www.meficai.org.

Firms who are approved by ICAI and RBI, are allotted Bank Branch Statutory Audit based on the guidelines issued by RBI. The final approval list of Bank Branch Auditors is categorized as per the following criteria:

Categorization norms effective from the year 2005-06 for the empanelment of audit
firms to be appointed as statutory branch auditors for public sector banks

Cate-gory	No. of CAs exclusively associated with the firm (Full time)	No. of partners exclusively associated with the firm (full time) (Out of 2)	Profe-ssional staff	Bank audit experience	Standing of the audit firm
(1)	(2)	(3)	(4)	(5)	(6)
I.	5	3	8	The firm or at least one of the partners should have a minimum of 8 years experience of branch audit of a nationalised bank and / or of a private sector bank with deposits of not less than Rs.500 crore.	8 years
II.	3	2	6	The firm or atleast one of the partners should have preferably conducted branch audit of a nationalised bank or of a private sector bank with deposits not less than Rs.500 crore for atleast 5 years	6 years (for the firm or atleast one partner)
III.	2	1	4	The firm or atleast one of the CAs should have preferably conducted branch audit of a nationalised bank or of a private sector bank with deposits not less than Rs.500 crore for atleast 3 years	5 years (for the firm or atleast one partner)
IV.	2 2 Even proprietorship concern without bank audit experience may be considered as hitherto. (The proprietary concerns of Chartered Accountants with 1 paid CA, 2 professional staff and not having any statutory branch audit experience of a nationalised bank or of a private sector bank with deposits not less than Rs.500 crore will be treated at par with the partnership firm after deducting their 3 years seniority from the date of their establishment).		2	Not necessary	3 years

---

Source: www.rbi.org.in

Based on the above categorization, firms are allotted Branches which differ in their nature and size i.e the advances made by a respective Branch as on 31st March. However, one firm is allotted only one Bank though the number of Branches could be more than one owing to the experience and size of the CA firm.

Read more »

Bank Statutory Audit - An Overview

Auditing in Banking sector is one of the most booming sectors owing to increasing number of complexities involved in their operational structure and the directions issued by the regulator RBI. Bank Audit is itself a large branch of auditing involving audits of varying scope and objectives. Audits of Banks are generally assigned as per the nature and size of Bank Branch to Chartered Accountant Firms, where the size of Branch itself depends upon the Size of Advances made by the respective Branch.

Statutory Audit is also one of such audits which is of significant value to the Bank as well as Auditors comprising of the reporting of entire year operations and future viability of the respective Bank.

Statutory Audit: The name itself describes the nature of audit i.e. as mandated by a Statute. The audit in accordance with the provision of statute governing it

-u/s. 30 of The Banking Regulation Act, 1949.

-u/s. 10 of The Banking Companies Act, 1970/1980.

-u/s. 41 of The State Bank of India(Subsidiaries Bank) Act, 1959

-u/s. 19 of The Regional Rural Bank Act, 1976.

-u/s. 224 of The Companies Act, 1956.

Provides for the audit of the accounts of the bank.

Generally Statutory Audits are assigned at the year start i.e. 1^st April to be carried out for the previous year ended on 31^st March. The assignments are made to the firms which are duly empanelled with the Board as per the regulation of ICAI. Audits of different branches are assigned as per the size and exposure of the firm keeping in view of the nature and size of the Branch to be assigned.

The scope of Statutory Audit includes the opinion of the auditor on several concerns ranging from the areas of risk and return to the general operation attributes viz. time-norms etc.

The various reports prepared in Statutory Audits are

1. Independent Auditor’s Report.

2. LFAR i.e. Long Form Audit Report

3. Tax Audit Report as required u/s 44AB of the Income Tax Act.

4. MOC i.e. Memorandum of Changes

5.There are various other Special Purpose Reports i.e. Report on Ghos and Jilani Committee, Report on Capital Adequacy, Report on Advances etc which are also annexed as per Bank’s guidelines.

It is to be noted that statement of companies (Auditors Report) order 2003 is not applicable to banking company as defined in clause c of section 5 of Banking Regulation Act,1949.

Read more »