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A Hand Book On Statutory Bank Branch Audit - Rajkumar S. Adukia

Bank audit process

 

 Bank audit process consists of the following steps

 

Bank Audit Process

 

        Pre-commencement Work

 

 

Understanding the business of bank branch

 

       Overall audit plan – Audit Programme

  

          

Audit Procedures:

Substantive Testing & Analytical Procedure

 

 Report

 

  1. Pre-commencement Work

The following points have to be considered before commencing the audit

  1. Receipt of appointment letter

  2. Compliance u/s. 226(3) of Companies Act, 1956 with regard to qualifications and disqualifications of auditors

None of the following persons shall be qualified for appointment as auditor of a company-

  1. A body corporate;

  2. An officer or employee of the company;

  3. A person who is a partner, or who is in the employment, of an officer or employee of the company;

  4. A person who is indebted to the company for an amount exceeding one thousand rupees, or who has given any guarantee or provided any  security in connection with the indebtedness of any third person to the company for an amount exceeding one thousand rupees;

  5. A person holding any security of that company after a period of one year from the date of the companies (Amendment) Act, 2000
     

    1. Internal Auditor can not be statutory auditor for the same financial year
       
    2. The nature of audit work has to be ascertained as to whether it is Concurrent Audit, Stock Audit, Revenue Audit, Credit  Risk Auditor or any other Assignments of any branch of that bank
       
    3. Decision for Acceptance or Rejection of Assignment has to be communicated to the concerned authority
       
    4. It should be ensured that minimum fees are set as per RBI circular
    1. The Objective and Scope of Work has to be considered with specific considerations to time available for conducting audit AAS-2 deals with Objective and Scope of the audit of financial statements
       
    2. Before accepting the audit assignment, the availability /outsourcing of staff for conducting bank audit has to be considered. In doing so the auditor should follow the guidance given in AAS 10 which deals with using the work of another auditor.

                         

    1. The Previous Auditor  must be communicated (Clause 8 of First Schedule of Chartered Accountants Act, 1949)
       
    2. Engagement Letter under AAS 26 has to be issued
       
    3. There must be a Communication with joint auditor as per AAS 12
       
    4. A list of accounting standard applicable to the branch must be prepared
       
    5. Copy of  all  circulars of RBI applicable to branch  have to be obtained and kept ready for reference
       
    6. Attending  branch audit seminars could enhance the auditor’s knowledge on bank audits
       
    7. Banking terminology and schemes should be well understood
       
    8. A reading of Guidance Note on audit of banks by ICAI would provide valuable guidance.

 

  1. Understanding the business of bank branch

   The next step is in understanding the business of the branch with specific reference to 

    1. Type of constitution
    2. Applicable Laws
       
  1. Banking Regulation Act, 1949

  2. Reserve Bank of India, 1934

  3. Multi State Co-operative Act, 2002

  4. Relevant State Co-operative Act

  5. Companies Act, 1956

  6. Circulars/Guidelines issued by RBI

  7. Circulars/Guidelines issued by Head Office of bank

  8. Service Tax Provisions

  9. TDS  Provisions under Income tax Act

  10. Prevention of Money Laundering Act, 2002

  11. Banking cash transaction tax
     

    1. Type/Nature of transactions
       
    2. Quantum of Transactions under various heads as detailed below:
       

Sr.

No.

Particulars

Nos.

Total Value

A

P & L Income

 

 

A1

Interest earned

 

 

A2

Other income

 

 

B

P & L expenditure

 

 

B1

Interest expended

 

 

B2

Operating expenses

 

 

C

Balance Sheet – Assets

 

 

C1

Cash and balance with RBI

 

 

C2

Money at call and short notice

 

 

C3

Investments

 

 

C4

Advances

 

 

C5

Fixed assets

 

 

C6

Other assets

 

 

D.

Balance sheet – liabilities

 

 

D1

Deposits

 

 

D2

Borrowings

 

 

D3

Other liabilities and provisions

 

 

E.

Other items

 

 

E1

Contingent liabilities

 

 

E2

Bill for collection

 

 

 

    1. Computerization System – software used by the branch
       
    2. Security aspect of software, output of software, interlinking between various reports
       
    3. Internal Control – Risk Assessment
       
    4. Risk Management – Back up system    

 

 In understanding the branch, the following AAS would be relevant

 

AAS 6

Risk Assessments and Internal control

AAS 20

Knowledge of the business

AAS 21

Consideration of Laws and Regulations in an   audit of financial statement

AAS 23

Related parties

AAS 24

Audit considerations relating to entities using service organizations

AAS 29

Auditing in CIS environment

 

  1. Overall Audit Plan - Audit Programme

  1. While drafting the audit programme, the type of reports  to be submitted  have to be

    considered. There are four types of reports.

  1. Unqualified Report

  2. Qualified Report

  3. Disclaimer of Opinion

  4. Adverse Report

  1.  Various types of reports include:

  1. Jilani Committee Report

  2. Ghosh Committee Report

  3. Special Reports as applicable (Prime Minister Rojgar Yojana Scheme Report etc.)

  4. Long Form Audit Report

  5. Tax Audit Report

  6. Main Report (Sec. 30(3) of Banking Regulation Act, 1949)

  1. Auditor should plan his work based on the client’s business to enable him to conduct an effective audit in an efficient and timely manner as per AAS 8
     

    Specimen Audit Plan         

     

    Name of Auditee:

    Financial Year:

    Type of Audit: Statutory /Current/
     

    Person in charge       Memb. No. Signature: Experience
    Team Members Name   Qualifications  Experience

    1.

         

           2.              

         
  1. The auditor should design and select an audit sample, perform audit procedures thereon, and evaluate sample results so as to provide sufficient appropriate audit evidence as per AAS 15
    Audit sampling
     

Sr.

No.

Particulars

Nos.

Total Value

Sample Size

Criteria for selection of data in sample

Date/ Months/ Period

Action to be taken

Person In  charge

A.

P& L Income

 

 

 

 

 

 

 

A1

Interest earned

 

 

 

 

 

 

 

A2

Other income

 

 

 

 

 

 

 

B.

P& L Expenditure