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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

 

 

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
    

   3. Internal Auditor can not be statutory auditor for the same financial year
       
   4. 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
       
   5. Decision for Acceptance or Rejection of Assignment has to be communicated to the concerned authority
       
   6. It should be ensured that minimum fees are set as per RBI circular

7. 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
    
8. 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.

                         

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

 

2. 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
     

    3. Type/Nature of transactions
        
    4. Quantum of Transactions under various heads as detailed below:
        

 

5. Computerization System – software used by the branch
    
6. Security aspect of software, output of software, interlinking between various reports
    
7. Internal Control – Risk Assessment
    
8. Risk Management – Back up system    

 

 In understanding the branch, the following AAS would be relevant

 

 

3. 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

2.  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)

3. 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.

4. 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