Explain Operational Risk ?
The risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external eventsFor emergence of such a risk four causes have been…
Explain Credit Risk ?
Credit risk is defined as the possibility of losses associated with diminution in the credit quality of borrowers or counterparties. In a bank's portfolio, losses stem from outright default due…
Explain Foreign Exchange Risk?
Foreign exchange risk may be defined as the risk that a bank may suffer losses as a result of adverse exchange rate movements during a period in which it has…
Explain Interest Rate Risk?
Interest rate risk is the risk where changes in market interest rates might adversely affect a bank's financial condition. The immediate impact of changes in interest rates is on the…
Explain Liquidity Risk?
Liquidity risk is the potential inability to meet the bank's liabilities as they become due. It arises when the banks are unable to generate cash to cope with a decline…
Explain Market Risk ?
Market risk may be defined as the possibility of loss to a bank caused by changes in the market variables. The Bank for International Settlements (BIS) defines market risk as…
EXPLAIN THE RELATIONSHIP BETWEEN TREASURY AND ALM?
The banking operations are confined to lending, accepting deposits and miscellaneous services. It is the treasury which operates in financial markets directly, establishing a link between core banking functions and…
EXPLAIN DURATION GAP ANALYSIS MODEL ?
Duration is an important measure of the interest rate sensitivity of assets and liabilities as it takes into account the time of arrival of cash flows and the maturity of…
EXPLAIN GAP ANALYSIS MODEL ?
Gap analysis model measures the direction and extent of asset-liability mismatch through either funding or maturity gap. It is computed for assets and liabilities of differing maturities and is calculated…
LIST THE BASIC ASSET LIABILITY MANAGEMENT (ALM) MODELS?
Analytical models are very important for ALM analysis and scientific decision making. The basic models are as follows: (a) GAP Analysis Model (b) Duration GAP Analysis Model (c) Scenario Analysis…
DISCUSS THE ROLE AND FUNCTIONS OF ASSET LIABLITY MANAGEMENT COMMITTEE
The Asset - Liability Committee (ALCO) consisting of the bank's senior management including CEO should be responsible for ensuring adherence to the limits set by the Board as well as…
ENUMERATE THE THREE REST PILLARS OF ALM PROCESS AS PER RBI GUIDELINES ?
As per the RBI Guidelines on Asset Liability Management (ALM) System, the ALM process rests on following three pillars: (i) ALM Information Systems • Management Information Systems • Information availability,…
DEFINE ASSET LIABILITY MANAGEMENT (ALM)?
Asset Liability Management (ALM) defines management of all assets and liabilities (both off and on balance sheet items) of a bank. It requires assessment of various types of risks and…
NON PERFORMING INVESTMENT
In respect of securities included in any of the three categories where interest/ principal is in arrears, the banks should not reckon income on the securities and should also make…
WHAT IS THE TREATMENT OF BROKEN PERIOD INTEREST?
Banks should not capitalise the Broken Period Interest paid to seller as part of cost, but treat it as an item of expenditure under Profit and Loss Account in respect…
LIST THE POINTS TO BE NOTED WITH REGARD TO TRANSACTIONS THROUGH SGL ACCOUNT ?
The following are to be noted with regard to transactions through SGL Account: • It is necessary for both the selling bank and the buying bank to maintain current account…
EXPLAIN SUBSIDUARY GENERAL LEDGER ACCOUNT OR SGL ?
SGL or CSGL are a demat form of holding government securities with the RBI. SGL stands for 'Subsidiary General Ledger' account. It is a facility provided by RBI to large…
WHAT IS INVESTMENT FLUCTUATION RESERVE ?
A reserve is to be maintained to guard against any possible reversal of interest rate environment on unexpected developments. It is prudent to transfer maximum amount of gains realised on…
RBI GUIDELINES FOR VALUATION OF HELD FOR TRADING
Held for Trading category The individual scrips in the Held for Trading category will be revalued at monthly or at more frequent intervals and provided for as in the case…
RBI GUIDELINES FOR VALUATION OF AVAILABLE FOR SALE
Available for sale (i) The individual scrips in the Available for Sale category will be marked to market at quarterly or at more frequent intervals. (ii) While the net depreciation…
RBI GUIDELINES FOR VALUATION OF HELD TO MATURITY
Held to maturity i) Investments classified under Held to Maturity category need not be marked to market and will be carried at acquisition cost, unless it is more than the…
EXPLAIN THE HEAD AVAILABLE FOR SALE AND HELD FOR TRADING ?
The securities acquired by the banks with the intention to trade by taking advantage of the short-term price/interest rate movements will be classified under Held for Trading (HFT). The securities…
EXPLAIN THE HEAD HELD TO MATURITY?
The securities acquired by the banks with the intention to hold them up to maturity will be classified under Held to Maturity (HTM).The investments included under “Held to Maturity” should…
EXPLAIN THE CLASSIFICATION OF INVESTMENT PORTFOLIO OF THE BANKS?
The entire investment portfolio of the banks should be classified under three categories (a) Held to Maturity (b) Available for Sale and (c) Held for Trading. However, in the balance…
EXPLAIN THE FUNCTIONS OF BACK OFFICE?
The main functions of back-office can be summed up as under: • Co-ordination with front-office to ensure optimum usage of all treasury dealing systems; • Internal control and check over…
EXPLIAN THE SCOPE OF BACK OFFICE?
The back-office is responsible for delivery and settlement of all transactions concluded by the front-office officials. It is also responsible for reconciliation of securities portfolio with respective holding entity. Payment…
EXPLAIN THE FUNCTIONS OF MID-OFFICE ?
The main functions of mid-office can be summarized as under: (i) Management of risks: (a) Market risk which arises on account of: - Interest rate movement - Foreign exchange rate…
EXPLAIN MID OFFICE ?
The mid-office can be considered to be the conscience keeper of the treasury. It is responsible for the critical functions of independent market risk monitoring, measurement, analysis and reporting for…
EXPLAIN THE FUNCTIONS OF FRONT-OFFICE ?
Front-office functions can be summarized as under: • Significant interaction with various trading and delivery teams; • Liquidity Management; • ALM implementation; • Striking of Deals (trading) and earning profits…
EXPLAIN THE SCOPE OF FRONT-OFFICE ?
The scope of functions of front-office, as the name itself states, is to buy, sell and trade in money market instruments, securities, forex, equity, derivatives and precious metal. The decisions…
WHAT ARE THE FUNCTIONS HANDLED BY A BANK TREASURY?
The various functions handled by a bank treasury can be divided as under: (a) Front-office: Dealing – Risk taking (b) Mid-office: Risk Management and Management Information (c) Back-office: Confirmations, Settlements,…
WHAT DO YOU MEAN BY TREASURY IN BANKS?
The treasury function in banks was limited to Funds management, i.e., maintaining adequate cash balances to meet day-to-day requirements and deploying surplus funds from operations. The treasury in a bank…
Some Common Treasury Terms – Any of these may be asked in a Treasury Interview
Arbitrage The purchase or sale of an instrument and simultaneous taking of an equal and opposite position in a related market, in order to take advantage of small price differentials…
Suppose there are two companies- Company A and Company B. What points will you check to ensure consolidation of both companies?
For Consolidation of company A and Company B we should check the relationship among the companies such as:- a. If company A holds more than 50% shares in company B,…
What is CFS? Components of CFS? What is the treatment of depreciation in CFS?
● A cash flow statement (CFS) is a financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company. ● The CFS measures how well…
What are the Golden Rules of Accounting?
Golden Rules of Accounting: 1 Debit The Receiver, Credit The Giver 2 Debit What Comes In, Credit What Goes Out 3 Debit All Expenses And Losses, Credit All Incomes And…
Deferred tax asset and liabilities
Deferred tax asset When profits as per tax laws is more than profits as per books of accounts, A deferred tax asset is required to be created. Deferred Tax Asset…
Differences between Contingencies and Reserves
Contingencies A contingency reserve is retained earnings that have been set aside to guard against possible future losses. A contingency reserve is needed in situations where a business occasionally suffers…
Journal Entries and Differences between Bad Debts and Provision for doubtful debts
Bad Debts Bad Debts amount to that portion of the debts which are either irrecoverable or whose probability of recovery is very rare. Bad Debt Account (Debit), Debtor's Account (Credit)…
Journal Entries for Dividend
Dividends are payments a company makes to share profits with its stockholders. They're paid on a regular basis, and they are one of the ways investors earn a return from…
Journal Entries and Differences between Accrued Payable & Accrued Expenses
Accrued Expenses Accrued Expenses is a term used in accounting where the expense is recorded in the books before it is paid for. Expenses are periodic and are listed on…
Journal Entries and Differences between Provision & Contingent Liability
Provision Provision liability reduces an asset’s value because of a present obligation arising out of a past event The event which can result in a provisional liability may or may…
As an Auditor how will you report fraud?
Reporting of fraud by an Auditor: ❖ Reporting to CG: As per Section 143 of Companies Act, 2013 if auditor has reason to believe that offence of fraud involves an…
Types of Audit Report? Difference between General Purpose Audit Report and Special Purpose Audit Report?
Types of Audit Reports: 1. Unqualified Audit Report: The auditor issues an unqualified audit report to financial statements when auditors found no material misstatements after their testing. Therefore, this report…
What is EOM para? Does mention of this lead to qualification?
As per SA 706 EOM is a paragraph included in auditors report that relates to the matters appropriately presented or disclosed in the financial statement and in auditors’ judgement is…
What do you mean by Nature, Timing and Extent of Audit?
Nature covers what audit procedures will be performed for the company. Changing the nature of an auditor’s substantive testing requires the auditors to take an effective approach to testing. Timing…
What is sampling? How do you choose samples? Sampling Methods? ‘Audit sampling’ refers to
‘Audit sampling’ refers to the application of audit procedures to less than 100% of items within a population relevant under the audit, such that all sampling units (i.e. all the…
What are the new requirements in CARO 2020
To enhance the scope of the audit, the MCA in consultation with the National Financial Reporting Authority (NFRA) released the CARO 2020. It lists out the subject matters on which…
What are preventive and Detective Controls? Give an example.
Preventive controls include security mechanisms, tools, or practices that can mitigate undesired actions. An example of preventive control is firewalls, anti virus software etc. Detective controls are designed to find…
What are the deficiencies of control (Specifically asking about Design Deficiency and Operating Effectiveness)?
A deficiency in internal control over financial reporting exists when the design or operation of a control does not allow management or employees, in the normal course of performing their…
What are the objectives of the entity behind the imposition of controls? Benefits of Understanding of Internal Control? Limitations of Internal Control?
Internal Controls are the policies and procedures that a company implements to ensure efficiency of business operations, reliability of financial reporting, compliance with laws & regulations, safeguarding of assets and…
What are controls? How are they different from Procedures?
Procedures are the systems that are set in place to meet the established standards of the organization. 1. Processes are the actions performed by accounting personnel that are not controls.…
What is Internal Audit?
Internal Audit means “An independent management function, which involves a continuous and critical appraisal of the functioning of an entity with a view to suggest improvements thereto and add value…
Difference between Vouching and Verification?
Vouching and verification are two different auditing procedures that are used to assess the accuracy and validity of financial transactions and records. Vouching refers to the process of examining and…
Explain in brief what is Audit opinion and types of Audit Opinion?
An auditor's opinion is a certification that accompanies financial statements. It is based on an audit of the procedures and records used to produce the statements and delivers an opinion…
What are substantive Audit Procedures?
Substantive procedure may be defined as an audit procedure designed to detect material misstatements at the assertion level. Substantive procedures comprise: (i) Tests of details (of classes of transactions, account…
What is the first step you take when you start Audit of a new client?
First step in the audit process is planning. Planning an audit involves: (a) Establishing the overall audit strategy (b) Developing an audit plan. “The auditor should plan his work to…
What is the Risk of Material Misstatements? What would you do when you identify any material misstatement?
Risk of material misstatement: It may be defined as the risk that the financial statements are materially misstated prior to audit. This consists of two components described as follows at…
Difference between Internal Audit and External Audit?
An internal audit is an independent assessment of an organization's operations and financial reporting processes, conducted by employees of the organization or by an independent third party. The primary goal…
What is IFCR (Internal Financial Control Over Reporting)?
Section 143(3)(i) of the Act requires the auditors’ report to state whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls. The…
What is included in Risk Assessment Procedures?
The risk assessment procedures shall include the following: (a) Inquiries of management and of others within the entity who, in the auditor’s judgment may have information that is likely to…
What is RAP (Risk Assessment Procedure)?
Risk assessment procedures: Risk assessment procedures refer to the audit procedures performed to obtain an understanding of the entity and its environment, including the entity’s internal control, to identify and…