BANK AUDIT

Introduction

In India various types of audit are normally carried out in banking

companies such audit are statutory audit, revenue/income
expenditure audit, concurrent audit, computer and system audit
etc.

The rules and the regulation relating to the conduct of various types
of audit or inspection differ from a bank to bank except the
statutory audit for which the RBI guidelines is applicable for that.

In public sector banks multiple firms including central auditors and

branch auditors generally conduct the audit. In case of private
sector banks and foreign banks, a single firm due to centralized
database conducts the audit. Consequently, the responsibilities of
auditors in such banks are much wide.

TYPES OF AUDITS

Statutory Audit:
This is an annual audit done normally at the end of the
financial year while some of the larger branches are
similarly audited half yearly.
Verifies the classification of items of the Balance Sheet to
assure their correct placement Basel II accord, which has
influenced the prudential norms, has included the
statutory auditor as an active member to assure the
proper execution of the prevailing prudential norms.

Concurrent Audit:
In the beginning of the 1990s, the Great Banking Scam or the
Harshad Mehta Scam rocked the nation. This brought into
limelight special category of audit called concurrent audit or
continuous audit.
Now, RBI who insisted that at least 50% of the business of the
Bank should be covered under concurrent controlled the
spotlight of the concurrent audit. While some Banks covered
very large branches under the umbrella of concurrent audit.
Concurrent audit in one sentence will mean checking
yesterdays transactions today.
The broad areas covered by the Concurrent Auditor are
a. Revenue Aspects:
b. Expenditure:
c. Documentation and other aspects of advances department:
d. Administrative and other aspects:

RBI Audit:
The Central Bank of the country also sends its own
auditors to the Banks for their own inspection. Their
actions cannot be covered in this project because it is
more of a supervisory implementation of a Government
Policy existing from time to time.
The primary aim of this audit are as follows.
a. Overall assessment of the assets and liabilities of the
Bank,
b. whether its financial position is satisfactory
c. whether it is in position to pay its depositors in full as
and when their claims accrue, and in the event of loss
d. whether it has sufficient cushion of owned funds to
safeguard the interests of depositors.

Principal Enactments
Governing BankAudit:

Banking Regulation Act, 1949

State Bank of India Act, 1955
Companies Act, 1956
State Bank of India (Subsidiary Banks) Act, 1959
Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970
Regional Rural Banks Act, 1976
Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980
Information Technology Act, 2000
Prevention of Money Laundering Act, 2002
Securitization and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002
Credit Information Companies Regulation Act, 2005
Payment and Settlement Systems Act, 2007

STAGES IN AUDITING
1.

Preliminary work

2. Evaluation of internal control system:

a. Accounting controls:
b. Administrative control:
3. Preparation of audit programme for substantive testing and
its execution
4.

Preparation and submission of audit report

Provisions Relatingto
Audit
1.

Appointment ofthe auditors

2.

Powers of the Auditor

3.

Auditors Report

Approach to Banks Audits

The guidance note on the audit of banks issuedby the ICAI, recognize that the general approach to audit of banks
involves essentially the same stagesas in any other audits. However at each stage, the auditor has totake into
the account the following special characteristics of banks:

Custody of large volumes of monetary items, thereby requiring formal operating procedure, well-defined limits
onthe individual discretions and rigorous internal control.
Large volume and variety of the transactions and continuing development ofnew products and services, many
ofwhich may involve complex accounting.

Wide geographical dispersal ofthe operations with consequent difficulties in maintaining uniform operating
practices andaccounting systems, particularly in the case of theoverseas operations.

Significant commitments without transfer funds not requiring formal recognitions in the books of accounts.

Special nature of risk with operations.

A strict legal and regulatory framework that inter alia, influence the accounting and auditing.

LIST OF DOCUMENTS OF
Bank closing set: It contains Balance Sheet, Profit &
BANK
Loss A/c and other
annexure.AUDIT

Audit Report
> Statutory Audit Report
> Compliance Certificate
> Form 3CA
> Form 3CD
Long Form Audit Report (LFAR)
Memorandum of Changes
Report on Ghosh and Jilani committee
recommendations
Other Certificates

AUDIT PLANNING
Proper allocation of work among Audit Team should be done for smooth

performance of Audit.
A checklist of work to be done should be made with time frame, which should be
specifically adhered to.
Review latest available inspection report and concurrent audit report of branch.
Review closing circular issued by HO
Study business Mix of branch to decide the sample size and mix.
Study of significant policies of the branch and computer system.
Study the previous years Statutory Audit Report and LFAR
Ask for Stress List from Branch
Give special importance to clients whose names are in Stress List, or which are
highlighted in Concurrent Audit Report.
Keep a note of points you come across during audit, which are relevant for LFAR.

TYPES OF REPORT

STATUTORY AUDIT REPORT

It contains the following Paragraphs:

Report on Financial Statements

Managements Responsibility for the Financial Statements
Auditors Responsibility
Opinion
Report on other Legal and Regulatory Requirements

It is enclosed with a Certificate of Compliance of guidelines of Reserve

Bank of India on Income recognition and Asset qualification.

It is addressed to the Statutory Central Auditors

TAX AUDIT REPORT

Tax Audit Report is done under section 44AB of
the IT Act
Form 3CA
Form 3CD
Annexure Part A
All the annexure of Form 3CD are to be enclosed,
even if they are NIL

LONG FORM AUDIT REPORT

A questionnaire formulated by RBI.
To be filled by auditor after discussing the points
with Branch Head.
It is advisable to cover LFAR and audit program
simultaneously. This would enable auditor to
consider effect of matters on LFAR and audit
report.
Format of LFAR form may be found online easily.

Checklist for Statutory Audit

of Banks

Microsoft Office
Word Document

CONCLUSION
From auditing point of view, there is
properfollow up of work done in
everyorganization whether it is banking
company or any other company thereshould
not be any misconductoftransactions. Bank
Audit serves as a health check-up.