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Unit 10: Audit of Financial Statements

capabilities, tax planning, manpower skills, capital position. The investments classified Notes
under Held for Trading category would be those from which the bank expects to make a
gain by the movement in the interest rates/market rates. These securities are to be sold
within 90 days.
2. Shifting among Categories: Banks may shift investments to/from Held to Maturity category
with the approval of the Board of Directors once a year. Such shifting will normally be
allowed at the beginning of the accounting year. No further shifting to/from this category
will be allowed during the remaining part of that accounting year. Banks may shift
investments from Available for Sale category to Held for Trading category with the
approval of their Board of Directors/ALCO/Investment Committee. In case of exigencies,
such shifting may be done with the approval of the Chief Executive of the bank/Head of
the ALCO, but should be ratified by the Board of Directors/ALCO. Shifting of investments
from Held for Trading category to Available for Sale category is generally not allowed.
However, it will be permitted only under exceptional circumstances like not being able to
sell the security within 90 days due to tight liquidity conditions, or extreme volatility, or
market becoming unidirectional.
Such transfer is permitted only with the approval of the Board of Directors/ALCO/
Investment Committee. Transfer of scripts from one category to another, under all
circumstances, should be done at the acquisition cost/book value/market value on the
date of transfer, whichever is the least, and the depreciation, if any, on such transfer should
be fully provided for. Banks may apply the values as on the date of transfer and in case,
there are practical difficulties in applying the values as on the date of transfer, banks have
the option of applying the values as on the previous working day, for arriving at the
depreciation requirement on shifting of securities.
3. Profit and Loss: All Profit on sale of investments should be taken to profit and loss
account except in case of HTM which should be first taken to the Profit & Loss Account and
thereafter be appropriated to the ‘Capital Reserve Account’. Loss on sale to be always
recognized in the Profit & Loss Account.

10.10 Audit, Review and Reporting of Investment Transactions

The banks should follow the following instructions in regard to audit, review and reporting of
investment transactions:
1. Banks should undertake a half-yearly review (as of 30th September and 31st March) of
their investment portfolio, which should, apart from other operational aspects of
investment portfolio, clearly indicate amendments made to the Investment Policy and
certify adherence to laid down internal investment policy and procedures and Reserve
Bank guidelines, and put up the same before their respective Boards within a month, i.e.
by end-April and end-October.
2. A copy of the review report put up to the Bank’s Board, should be forwarded to the
Reserve Bank (concerned Regional Office of DBS) by 15th November and 15th May
respectively.
3. Treasury transactions should be separately subjected to concurrent audit by internal auditors
and the results of their audit should be placed before the CMD of the bank once every
month. Banks need not forward copies of the above mentioned concurrent audit reports to
Reserve Bank of India. However, the major irregularities observed in these reports and
the position of compliance thereto may be incorporated in the half yearly review of the
investment portfolio.

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