PFS Bank was engaged in the business of providing Portfolio Management Services to its customers, fo

PFS Bank was engaged in the business of providing Portfolio Management Services to its
customers, for which it took prior approval from RBI. Your firm has been appointed as the
statutory auditors of the Bank’s financial statements for the year 2020-21. Your senior has
instructed you to verify the transactions of Portfolio Management Services (PMS). While verifying
the transactions you noticed that the bank has not prepared separate record for PMS transactions
from the Bank’s own investments. As a statutory auditor what will be your decision for
verification of PMS transactions?

a) It is not necessary to maintain separate records for PMS clients from Bank’s own investments,
so the auditor can verify the PMS transactions as part of investment verification for Bank’s
financial statements and submit the audit report accordingly.

b) As per RBI guidelines PMS investments need to be audited separately by the external auditors
and the auditors are required to give a certificate separately for the same. So, in the above
case the auditor should not verify the PMS transactions till the Bank segregates the
transactions from its own investments.

c) The auditor can give a qualified opinion in his audit report on the financial statements of the
Bank and report the matter in special purpose certificate.

d) Auditor should verify that PMS funds are not utilized for lending, inter-bank deposits or
deposits to corporate bodies and bills re-discounting only. So, whether the PMS transactions
are recorded separately or not will not matter for the auditor.