Bank audit means the examination of accounts of the organization to ensure correctness, legality business underwent by the organization in the respective year. Bank audit can be conducted by the internal or external agencies known as the auditors. And such audits are later approved/certify by the Company Accountant.
In India, various types of audits are carried out in the banking company’s statutory audit, expenditure or revenue audit, concurrent audit, computer, and system audit carried by external or internal agencies. Every bank has its own rules and regulation to carry on such audits except for the statutory audit which is carried by the only according to the RBI guidelines.
Types of Audits
The bank audit can be broadly classified into three categories.
Concurrent audit includes the audit of the ongoing transaction or current transaction actually happens. It is conducted on a monthly basis and it’s a continuous audit. Banks have a huge number of day to day transaction for which a record has to maintain that is why bank gets into the concurrent audit. It helps banks from irregularities, the burden of work, overlapping of the transaction and very helpful when the year comes to an end.
It is mandatory for every bank to get its accounts audited. Every bank conducts the statutory audits according to the rights and obligations specified by the Act. It’s conducted at the end of the financial year (1st April to 31st March). The statutory auditors are appointed by the RBI with association with the ICAI. Statutory audit compliance is with the PSL requirements, CRR, SLR, etc. and other norms as per the RBI circulars.
The Statutory auditor is requiring to compulsorily submit to the management of the bank and RBI a specific report called Long Form Audit Report.
Internal Audit/Information System Audit
Many banks instead of concurrent auditing go for internal auditing. In internal auditing, an organization or bank constitutes an audit team within its own organization to cater to its auditing requirement. These internal auditors’ teams visit the branches one by one and carry out the auditing.
An information audit is a new type which is developing from the past few years basically after the bank’s activities are computerized. With the rapid growth of technology in the banking sector like ATMs, internet banking, mobile banking, etc. so it becomes necessary to have periodical review of how these systems are working.
Stages involve in auditing
There are six steps involve in a successful audit.
Requesting Financial Documents
The auditor requires some documents, which are mentioned in the audit preliminary checklist, which is to be provided by the organization for proper auditing. The documents may include a previous audit report, original bank statement, ledger accounts, profit and loss account, balance sheet, sale, and purchase, etc. He can also ask other necessary documents like a copy of bylaws, standing documents, etc.
Prepare an audit plan
An audit plan is drafted by the auditor after viewing the documents and any other problems in auditing and then the suiting should be executed. It includes studying the stress list of the clients, previous year statutory audit report, latest concurrent audit report, inspection report of the software, closing circular issued by the HO other information as per the requirement.
Schedule an open meeting
Senior management and key administrative staff are then invited to an open meeting and in the meeting scope of the audit is presented by the auditor. Along with, the time frame audit is determined, vacations and any other information for free communication for the meeting is called upon.
Auditor while making the audit plan gathers information from open meetings with the management and administrative department along with interviewing with the key employees. Auditors investigate business procedures, practices and investigate the fixed assets or anything he finds necessary for his audit plan. Fieldwork depends upon the size and scope of the audits.
Drafting a report
The auditor prepares the audit report after detailed findings. The report includes payments authorized but not paid, mathematical errors, etc. The auditor has to write up the commentary describing his findings or problems detected with the solutions.
Setting up the close meeting
In the close meeting, there is a review and response. It includes discussion management response whether they agree or disagree with the problems pointed out by the auditor, action plan to address such problem, overall report or any other queries.
“The views of the authors are personal“
Frequently Asked Question
What is Non- Performing assets?
In simple terms when any assets cease to generate income than such assets are called the NPA. It is further determined as the doubtful assets if the period of two years exceeds and lost assets when the statutory auditor declares it as bad or non-recoverable.
What is KYC Audit?
KYC audit is ‘know your customer. The documents of the customer are taken at the time of opening of bank account so some banks appoint auditors to verify and report its customers.
What is the difference between internal audit and external audit?
External audit’s main focus is on the accuracy of the financial statement and annual report whereas internal audit looks into each and every matter which is important for organization success. The internal audit covers a wide scope.