An audit is a process of an analytical system of accounting and internal control. It is independent scrutiny of the financial information of a business entity. It provides trustworthiness of the financial statements of an organization/ company and gives confidence to the shareholders of the company that the accounts are true and fair.
Auditing of a bank is conducted as per the Banking Regulations Act, 1949. Bank branches are audited almost every year to investigate the affairs of the same. It is an inspection and examination of the books of accounts of a branch of a Bank. Such audits help the branch to maintain proper books of accounts. There are three types of bank audits. They are (1) Internal audit, (2) Concurrent audit, and (3) statutory audit.
Before taking up an audit, audit planning is an important aspect to evolve a general strategy and a detailed approach for expected nature, timing, and extent of the audit. It is planned by the auditors to perform the audit efficiently and within the stipulated time frame for completion of the same.
The following is the checklist to be taken care of, before the start of a bank branch audit.
Pre-audit Work- Auditors will have to review the latest available inspection reports of the branch and their compliance thereof. They will also look into the circulars issued by the head office of the bank and also look into the bank’s accounting policies, compliance of mandatory accounting standards and RBI guidelines.
Physical Verification- Auditors will have to verify cash in the branch and also an ATM. They have to verify adhesive stamps, postages and valuable stationeries like cheque books, etc.
Auditors have to verify Returns and reconciliation statements submitted to the branch controlling offices and RBI.
They have to verify the profit & loss account and balance sheet figures with General Ledger figures.
With regard to advances/ loans sanctioned, auditors have to verify sanctioning of the same, documentation, monitoring, and supervision by the branch. Adding, suit-filed accounts are taken into consideration to verify the accounts classified as non-performing assets and they are followed up.
With regard to Deposit accounts, they have to verify whether there is any unusual large movement of aggregate deposits between the date of balance sheet and till the date of auditing.
With regard to Profit & Loss account, auditors have to verify various aspects of the provision of interest on standard, substandard and doubtful assets. They have to do test checking of interest on deposits and advances; also, to verify the correctness of various income and expenditure accounts.
Auditors have to check items as per the LFAR (Long Form Audit Report) checklist.
Auditors to prepare the final report of the audit undertaken in the bank branch.
Auditors are responsible for providing information on issues given in Long Form Audit Report, i.e., LFAR. It is an important measure available for auditors by which they can comment on the balance sheet, Profit & Loss account, prudential norms, process lapses in operation and other issues relating to statutory audit of the branch.
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Banks have the responsibility of conducting a preliminary check of all accounts in a bank branch. So, an auditor is required to review the documents like the latest audited financial statements, projected Profit & Loss Account, Balance Sheet and Cash Flow Statement. They have to check advances/ loans given to borrowers and whether they have been disbursed as per the terms and conditions of sanction. They have to verify for Non-Performing Assets (NPA).
After thoroughly checking all the accounts and the laid down procedures, the auditors have to submit an audit report.
1. What is Branch Audit? Explain.
Ans. Branch audit is the investigation of the affairs of a branch of any entity or a company. Here branch audit refers to the inspection of the affairs of the bank branch by examining their books of accounts. The branch audit covers the verification of cash, security papers, etc. They also have to verify the deposits such as savings accounts, term deposits, current accounts, etc. of the customers of the branch. The advances, both funded and non-funded, are also to be verified. The advances are to be examined as to whether they are sanctioned as per the delegation of authority and if so, whether they have followed all the established norms laid down by the bank.
2. What are the provisions under the Audit and Auditors under the Companies Act?
Ans. The Companies Act, 2013 insists that every registered company has to maintain the books of accounts, documents, and other relevant details for auditing by either the company auditors or by an auditor appointed by the company.
As per Companies Act, each company shall appoint at the first annual general body meeting appoint an auditor. Before the appointment, the company should obtain written consent from the auditor. The Company shall place the matter of appointment of auditors for ratification by members at every Annual General Meeting. If the auditor is an individual, he can be appointed for not more than one term of five years and if it is a firm, they can be continued for another five-year term. The auditor appointed, may be removed before the expiry of the tenure only by a special resolution of the company, after obtaining the prior approval of the government.