Challenges in Bank Branch Audit

CA.K.RaghuCA.K.Raghu

Central Council Member Central Council Member

Peculiarity of Bank Audit

Peculiar nature of banks and need for special audit considerations owing to risks associated with the transactions- custody of large volumes of monetary items,

which needs to be stored and transferred, they are vulnerable to misappropriation and fraud

Scale of operations large number of branches –inland and overseas large volume and variety of transaction in both numbers and value

extensive dependence on IT to process transactions as operates through wide network of branches requiring decentralization of authority and

delegation of power. Wide range of services offered such as ATM, net/phone banking, etc.

Statutory and regulatory requirements Increasing number of new services and banking options Large number of branches requiring decentralization of authority and delegation of

power.

Audit Planning

Time is short as Banks desire adoption of audited accounts within a few

weeks of the year end Many a times appointments of auditors are delayed There is a limited time available for familiarisation of

systems & processes Time available does not match the scope and risk Computerisation has increased the banking activity

manifold . This makes off site preparation and pre-

commencement work essential

Audit Planning contd.

The basis audit activity can be divided into three segments namely

Off Site Preparations On Site and Audit Executions.

Pre- commencement activities

Off site activities

Get information on Bank profile, Staff, etc. Study thoroughly

Previous report of Branch Auditors Concurrent Audit report of the branche Revenue Audit report (if any) System Audit report Unit/stock Inspection reports Diligence reports RBI inspection reports Bank internal management report

Relevant laws/ regulations /RBI circulars Knowledge of banking business

Off site activities contd.

Receipt of appointment letter Audit Engagement letter Send acceptance letter

HR allocation and skills

Plan for the requisite staff Number Adequate knowledge and experience

Obtain updated information on changes RBI circulars Change in related laws

Corporate laws Foreign policy

Other pre-commencement activities

Knowledge of business Banking Industry and the Bank Organisational structure of the Bank Products of Bank Banking terminology and schemes

AAS relevant in understanding business of branch A reading of Guidance note on audit of banks by

ICAI would provide valuable guidance. Review accounting policies and auditors report of

the bank for the preceding year. Ratio analysis with previous years figures

Coordination

Co-ordination with management for effective and efficient audit Availability of books, personnel and equipment Travel to unit visits chosen by you – especially

outstation Discussion of serious pending issues

Audit Programme

Audit programme

Scope of audit Expected assessment of inherent and control risk Delegation of work to audit team Nature, timing and extent of audit procedure Going concern assumption Materiality thresholds Time schedule Flexibility to accommodate change in programme to

focus on weak areas Remember , Audit planning is a continuous exercise

Compliance aspects

Compliance with RBI/ICAI Guidelines Compliance with Banks internal

guidelines/manual of instructions Compliance with terms of appointment Compliance with Accounting Standards Compliance with Auditing and Assurance

Standards.

Peer Review

ICAI has introduced Peer Review in 2007 Assessing the quality of attestation service

engagements performed by practise units. Ensuring that the practise unit has maintained

adequate documentation Peer Reviewers appointed by Peer Review Board Records for immediately preceding three completed

financial years are verified by the Peer Reviewer.

Peer Review for Branch Auditors

All Central Statutory Auditors of Public Sector, Private Sector Banks and ForeignBanks are covered by Peer Review in Stage 1

Peer Review ensures that the practise units comply with the professional and ethical standards

Practise units have adequate training programmes and systems and procedures for conducting audit

Q & A