CA H. Anil Kumar
There is a lot of misinformation in the media about the role of the statutory auditors of a Bank whether at the HO or the branches. It is not just a “test check” as stated by a CA to Economic Times. It is not as per an article in Business Standard of 20th February 2018 on “Auditors’ role in Bank under a cloud” that “they do not necessarily visit branches but rely on internal audit reports to collate the branch based data”. If the auditors of PNB were doing only test check or relying on internal auditors’ reports they would not be able to give the following assurance contained in the “ Auditors’ Responsibility” Section of their audit report extracted below:
3. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
4.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Bank’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
5. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. “
Therefore the auditors are required to carry out their audit as per the auditing standards of ICAI and state the same in their audit report. There could be many factors which have impacted their ability to do a proper job. However their audit report has not disclosed any such “Scope Limitation”. This implies that the auditors of PNB, both at Centre and the Brady House branch where the fraud took place, would be required to have adequate documentation in support of their assertion that they have complied with the standards of ICAI and that the fraud escaped detection due to a failure in implementing the internal control systems of the Bank and deep laid collusion which would have not been revealed through the auditing practices recommended by ICAI.
Our honourable PM was way off the mark when he said on July 1st that a CA is paid for his signature. Unfortunately many branch auditors of banks are found to be approaching the assignment as if that were the case and relying on “test check” or internal audit reports. A possible reason for this approach is that a proper audit requires at least a month at the larger branches but that much time is not made available in the time schedule and the audit fees fixed by RBI make spending so much time unviable. Even if a branch auditor is ready to spend the time at his cost as a public service, the bank reports him to RBI and there is a threat that his branch will be treated as an “unaudited branch”.
The CA is paid for his report and the report has to be issued only after an audit is carried out as per the standards of ICAI which are on par with the international standards on auditing. The fraud is a wakeup call for ICAI to ensure that auditors of banks do not suffer the pressures they are presently under and the fees are commensurate with the nature of the engagement. Auditors of banks, both Central and branch have to approach their work as per the ICAI standards to be taken seriously by RBI and the banks.