## Audit of Provisions and Contingencies in Banks
Banks are required to comply with RBI circulars on provisioning for various asset categories. The auditor's approach goes beyond mere arithmetic — it involves understanding the regulatory framework and the basis of classification.
### Categories Typically Provisioned
| Category | Nature |
|---|---|
| Standard Assets | Performing loans — provisioned at prescribed percentages |
| Sub-standard Assets | NPA for less than 12 months |
| Doubtful Assets | NPA for more than 12 months |
| Loss Assets | Identified as uncollectable |
| Provision for Expenses | Accrued but unpaid expenses |
| Provision for Income Tax | Estimated tax liability |
### Audit Procedures
1. Regulatory Compliance: Ensure all RBI circular requirements for provisioning have been fulfilled.
2. NPA Classification: Understand the bank's process for classifying loans into Standard / Sub-standard / Doubtful / Loss / NPA. Verify loan classifications on a sample basis.
3. Outstanding Balances: Obtain detailed break-up of standard and non-performing loans; agree with general ledger.
4. Tax Provision: Obtain the tax provision computation; verify P&L items are correctly considered for tax purposes.
5. Other Provisions: Examine provisions for expenses — verify circumstances warranting provisioning and adequacy through management discussion.