As the financial year is coming to a close, bank branch audit is expected to commence shortly. There may be delays due to the spread of Corona Virus as the SEBI has extended the due date of filing of reports by a month. However, it is important for the auditors to prepare for the audits as in the emerging scenario the role of bank branch auditors has become very significant considering the fact that the Indian banking sector is under tremendous stress. Here in this write up are given the important steps one should take before the commencement of the audit. Before the start of the audit one can refer to the following documents :-
1. SA 300 : Planning an audit of financial statements
2. SA 600 : Using the work of another auditor
3. Institute of Chartered Accountants of India has also released its “Guidance Note on Audit of Banks”
It may be noted that the time available for completion of branch audit is extremely limited. Following steps may be taken before commencement of the audit:-
1. Once the letter of appointment is received by the branch auditors, they should move to obtain NOC from the previous auditor which should be kept on record. The auditor should send a formal communication to the branch accepting the appointment and other declarations and undertakings so required.
2. Auditor should download the Annual Report of the bank and study the following in it:- i) Managing Director’s address to shareholders which highlights the vision of the management.(ii) Key Audit Matters (iii) Accounting Policies
3. Next the auditor should study the Master Directions of RBI (Prior to 2016 RBI used to issue Master circulars).
4. Auditor should go through the Closing Circular of the Bank which covers the policies of concerned bank framed withing the parameters set by RBI circulars and SEBI guidelines.
5. Next the auditor should undertake the branch visit for understanding business and IT systems. Auditor should discuss the position of NPAs with the branch incumbent. He should also discuss the sample size based on business mix and also the percentage of checking mentioned in the appointment letter, if any. He should also obtain the list of various exception reports generated by CBS software and list of returns made by branch to HO, ZO, RBI etc.
6. Auditor should obtain all audit reports i.e. Internal, Revenue, Concurrent, Stock audit, RBI inspection, previous years Statutory Auditor’s report, System Audit Report, Discretionary Powers Circular etc. These reports should be thoroughly studied and discussed with the branch incumbent. Auditor should check new advances sanctioned during the year, restructured accounts, new NPAs declared/NPAs upgraded during the year, previous year Memorandum of Changes (MOCs), list of large borrowers to understand reported irregularities, if any.
7. Next auditor should intimate the branch manager regarding requirements for audit and documents to be kept ready for audit including LFAR, Tax Audit Report and certification.
Auditor should take the above steps to begin the audit in an effective manner. As they say “well begun is half done”.
The author is a practicing Chartered Accountant and can be contacted at [email protected]. Any comments or queries are welcome.
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The information provided in this article is for general informational purposes only. All efforts have been made to provide accurate information in this document, however it should not be perceived as a professional or legal advice. Reader should consult a professional before making any decision based upon this document. Under no circumstance author or the publisher shall have any liability to you for any loss or damage of any kind incurred as a result of the use of this information.
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