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:
“Auditors’ Responsibility
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.
Author Bio
Dear all, all the allegations like time limits for audit completion, relying on internal audits etc etc are trash. You will find frauds (cheating) in each & every corner of the world. When it is difficult to compensate, will come out, otherwise not. As someone said in these columns, send the fraudusters behind bars for more than 25 years by defeating all the ill efferts of the frauds to steal the hard earned money of tax payers & confiscate all their wealth and on the final day such idiots should stand on road without a single penny.
Immediately stop the drama of Statutory Audit.
It is a wastage of Crores of Rupees(Audit Fees),time & energy.
Audit purpose is not at all fulfilled under statutory Audit.But can’t blame tht only 4 days given for Audit. Auditor is also interested in completing the assignment as there is no watch dog to check their performance.This is a signature Audit & not
Statutory Audit in which Auditor is interested only in two figures i.e.Advances and Audit Fees becos they r interconnected.
This
One of the worst situations was that if the audit report gets delayed then the fee of concurrent auditors will be got reduced. Under these time constraint how internal auditors can cover all the areas while audit.
Even the employees of the bank won’t provide the details within time, we need to follow up for the same.
It is true that many Statutory Auditors engage the services of ex bank staff, or junior CAs to conduct the Statutory Audit. Such staff do not even know to use the Finacle, Banking software in common use. Then, time is a constraint. I wonder what the Bank management or RBI gains by pressurizing for an early report with defective data and audit conducted in a hurry. As a concurrent/Statutory/Forensic/IS Auditor, it is my own experience and I feel embarrassed to sign a report when audit is incomplete.
Yes agreed, there are many things but some of them must be considered as below:
1) there are some guys whose practice defame our profession, but all not are same.
2) Time given for full year audit is too small it should be a full year job & must be allotted in the beginning of a financial year.
3) There is need for fee revision drastically keeping in view the time presently given & time actually required.
4. There should be financial penalty on the bank staff as well for not supporting & deliberately extending the audit period, which CAs generally not report.
It is true in many cases, that Statutory auditors rely on engaging on “assignment” basis, some ex employees of Banks or associate with some junior CA to do the Audit. Many of such assistants do not even know how to use FInacle, the Banking software commonly in use, but take data from internal audit or inspection reports and request branch staff to provide reports. The paucity of time compels them to complete within two or three days. RBI and Bank Boards must dwell on it and ensure that Statutory Auditors are given sufficient and quality time to conduct the audit before reporting. The result, quality suffers. But then who cares……..
Excellently said. Many a time due to time pressure put on branch Auditors/CSA we are forced to rely on internal controls said to be in place by the auditee. If it fails , scams like this are possible. Also , RBI auditors are supposed to do a indepth audit at branches sitting for 2 or 3 weeks at time, drawing handsome salary and perks. Where as the same job has to carried out by CA for 10 K or 25 K.. Branch audit/CSA should be allowed atleast a month /3 months time to carry out the assignement and compensation should be revised upwards for the time/resource deployed.
For a 800 cr. advances bank we were given 4 days. The password for the auditors came at the end of third day. Thus it is amply clear that banks donot want the auditors to look into any of the details. For heavens sake donot make auditors the scape goat.
Banks have loose internal control system, done away with internal audit dept.(they know better about the banking procedure better). All perhaps with the connivance of bank officials and political masters. Now let the entire set of people go to jail for the next 25 years along with their spouce and children. When money was earned unethically all enojyed. Let all face the punishment. No option bu to face punishment by all for the next 25 years. There should be compulsory acquition of all their properties, cancel their passport, attach all ther bank balances. When they come out after 25 years they should earn their next time food
First, it is necessary to appoint auditor for both, i.e. branch statutory audit and for concurrent audit either by RBI or CAG but definitely not by bank’s higher authority which is going since 2011 that conceptualised first in our country by our wise lawyer finance minister Mr. P Chidambaram.
A maker can not be checker.
If bank’s higher authority will give appointment, there will be a possibility to compromisation of the independency of auditor by creating pressure on them. Secondly adequate time must be allowed to the auditor particularly for branch statutory audit which at present one to two days per branch.
Auditors of the banks should be given sufficient time to plan and perform the Audit functions effectively. In the present system in most of the bank branches Auditors are having only 2days time to complete and issue the Audit Report. In the first day itself bankers putting presure to complete the Audit and issue the report for submission to the Head office.
Even in case of closely held companies Auditors spending at least 30days time for completion of the assignment. But in case of banks, public money is involved and the auditors are not allowed to spend time to perform the Audit assignment.
The Auditors of the banks should be allotted the branches at least two months before the end of the year so that they can plan and visit the branches at the earliest to review the internal controls and implementation of those internal controls.
Auditors of the banks should be given sufficient time to plan and perform the Audit functions effectively. In the present system in most of the bank branches Auditors are having only 2days time to complete and issue the Audit Report. In the first day itself bankers putting presure to complete the Audit and issue the report for submission to the Head office.
Even in case of closely held companies Auditors spending at least 30days time for completion of the assignment and the auditors. But in case of banks, public money is involved and the auditors are not allowed to spend time to perform the Audit assignment.
The Auditors of the banks should be allotted the branches at least two months before the end of the month so that they can plan and visit the branches at the earliest to review the internal controls and implementation of those internal controls.
Well said as usual , Mr Anil.
Wake up call for all CAs and the ICAI itself. With respect to Bank audits, the CAs have been pushed around for too long. eg. with the year end round the corner till date most of the banks have not intimated the auditors about the branches they will be auditing. RBI has also to relook the process of appointment of auditors.
“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”. Same argument I gave to whoever asked me the question about CAs role in PNB.
Dear all
The appointment of the auditors for both branch and central of all the PSB should be completed before the December of the respective financial year to allow enough time to carry out the audit of branches and center,hence regulator should instruct the PSB’s complete the appointment well in advance