Nebraska Administrative Code
Topic - BANKING AND FINANCE, DEPARTMENT OF
Title 45 - BANKING RULES
Chapter 13 - STANDARDS FOR ACCEPTABILITY AND SCOPE OF EXAMINATIONS FOR DIRECTORS' EXAMINATIONS
Section 45-13-004 - SCOPE OF EXAMINATION
Universal Citation: 45 NE Admin Rules and Regs ch 13 ยง 004
Current through March 20, 2024
004.01 General
004.01A The examination procedures listed
below are minimum procedures to be performed under Section
8-124. They should not be construed
as restrictive. Circumstances relating to individual engagements or situations
encountered may make it necessary or desirable to expand certain procedures,
apply alternate procedures, or extend examination procedures to other
areas.
004.01B At each annual
audit, the auditor may prescribe a risk-focused review of accounts identified
in this rule; however, all examination procedures described herein shall be
performed at least once within a 24-month period.
004.01C The scope of the examination should
begin as of the date of the prior examination to avoid gaps.
004.01D The examination should be coordinated
with the Department to avoid conflicts with the Department's examination
timing.
004.02 Minimum Examination Procedures
004.02A Control:
004.02A1 Commence examination on a surprise
basis. Assume control over all irregular items and records to be examined until
procedures have been completed.
004.02B Cash, Cash Items, Foreign Currency,
Clearings, and Exchange:
004.02B1 Conduct a
count of a portion of teller and vault cash on an unannounced basis; timing and
scope should avoid recognizable patterns. Reconcile cash counts to general
ledger. Examine cash items on a test basis, verifying legitimacy and
collectability. Investigate any unusual or stale items and request confirmation
of totals of clearings and exchanges. Determine disposition of larger return
items.
004.02C Due From
Banks:
004.02C1 Examine bank reconciliations
with correspondent banks by obtaining statements for several days beginning
with the audit date, and on a test basis, compare checks and drafts with the
records of instruments issued. Investigate any unusual or stale items. Confirm
the balance directly with the related banks.
004.02D Investments:
004.02D1 Reconcile subsidiary ledger with
carrying values and accrued interest recorded in the general ledger accounts.
Confirm securities with safekeeping agents. Examine securities on hand and
verify safeguarding procedures. Review investment portfolio to determine if all
securities were purchased and/or being held in conformity with applicable
statutes and regulations.
004.02E Loans: -
004.02E1 Reconcile subsidiary loan ledger and
accrued interest with applicable general ledger accounts. See Section 006 of
this Rule for confirmation requirements.
004.02F Allowance for Losses:
004.02F1 Ensure management's process for
calculating adequacy of the reserve(s). The process is to be based on
comprehensive, adequately documented, and consistently applied analysis of the
underlying assets. Reconcile subsidiary records for charged-off loans to
control records and apply transaction testing to a sample of reconciling items.
Test large charged-off items to ensure appropriate prior Board of Directors'
approval.
004.02G Federal
Funds Sold: -
004.02G1 Confirm all Federal
funds sold with the borrowing bank, ascertain that the aggregate of the detail
agrees with the general ledger and examine evidence of subsequent
settlement.
004.02H
Buildings - Furniture and Fixtures: -
004.02H1
From the date of the prior examination, review transactions in the accounts,
trace approval of major expenditures to the minutes of the Board of Directors'
meetings, and test the computation of depreciation.
004.02B2 Review lease accounting for
appropriate recognition.
004.02I Demand Deposits: -
004.02I1 Total individual ledgers or obtain a
trial balance and prove totals on a test basis for the account balance and
accrued interest, and reconcile totals with general ledger accounts.
004.02I2 Review overdrafts, trace disposition
of selected unposted items.
004.02I3 Review the latest reconciliation for
official checks and bank money orders. See Section 006 of this Rule for
confirmation requirements.
004.02J Time Deposits: -
004.02J1 Reconcile subsidiary ledger totals
and accrued interest totals with general ledger accounts. Trace disposition of
selected unposted items. See Section 006 of this Rule for confirmation
requirements.
004.02K
Income and Expense:
004.02K1 Test selected
"debits" to both income and expense accounts for possible overstatement.
Examine proper documentation for selected items.
004.02K2 Ascertain on a test basis by
independent means that all "credits" to the income and expense accounts have
been recorded and have not been understated.
004.02K3 Review the related accounts of
accrued income, accrued expenses, unearned discounts, and deferred income by
testing "debits" and "credits" as above, and ascertain that balances in these
accounts are fairly stated.
004.02L U.S. Savings Bond, Travelers Checks,
and Other Consigned Items:
004.02L1 Examine
bank's most recent reconcilement of items on hand with memo controls and
related confirmation from issuing agents, or, if such records are not
available, count items on hand.
004.02L2 Reconcile with total on consignment,
and obtain confirmation from issuers.
004.02M Safekeeping and Custodial
Departments:
004.02M1 Review accounting
procedures for recording items held in safekeeping or custody for
customers.
004.02M2 Physically or
virtually inspect selected items on hand or controlled.
004.02M3 Confirm selected items held in
custody by other banks
004.02M4
Confirm selected safekeeping and control accounts by direct communication with
customers.
004.02M5 Inquire of bank
if it holds, controls, or brokers digital assets. If yes, the bank may be
subject to additional risk-focused examination procedures.
004.02N Trust Department:
004.02N1 Total account activity ledgers for
the various trust accounts and reconcile the totals with the trust general
ledger control accounts where practicable.
004.02N2 Total asset detail cards and
reconcile to the amounts shown on the trial of selected trusts as noted on the
detailed asset ledgers.
004.02N3
Verify trust assets on a test basis by reference to the bank records or by
direct communication with the bank.
004.02O Other Activities:
004.02O1 The auditor, using professional
judgment, should review for other financial reporting risks such as digital
assets, mortgage lending, insurance activities, loan servicing, or other
activities. When prudent, the auditor should expand the scope of the agreed
upon procedures to test areas deemed to have a higher degree of
risk.
004.02P Internal
Controls:
004.02P1 The system of internal
controls and operating procedures must be reviewed, and the audit report must
include specific comments and recommendations from this review that are
directed to the Board of Directors or audit committee.
004.02Q Capital Accounts:
004.02Q1 Capital Notes and Debentures.
004.02Q1a Reconcile subsidiary records to the
general ledger.
004.02Q1b Review
for compliance with terms of the agreement(s).
004.02Q1c On a sample basis, test to ensure
accuracy of interest paid and accrued, as applicable.
004.02Q2 Surplus.
004.02Q2a Review all entries during the audit
period for proper authorization from the Board of Directors.
004.02Q3 Undivided Profits.
004.02Q3a Review all entries during the audit
period to ensure accuracy.
004.02Q3b Review for proper authorization
from the Board of Directors for transfers or dividends.
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