INTRODUCTION The audit of banking companies plays a very important role in Indiaa s i t h e l p t o r e g u l a t e t h e b a n k i n g c o mp a n i e s i n r i g h t ma n n e r .

I n a u d i t o f b a n k s i n c l u d e s v a r i o u s t yp e s o f a u d i t wh i c h a r e n o r ma l l y c a r r i e d o u t i n b a n k i n g c o mp a n i e s s u c h a s s t a t u t o r y a u d i t , r e v e n u e / i n c o me e x p e n d i t u r e audit, concurrent audit, computer and system audit etc. the above audit ismainly conducted by the banks own staff or external auditor. However, therules and the regulation relating to the conduct of various types of audit or inspections differ from a bank to bank expect the statutory audit for whichthe RBI guidelines is applicable. In this, I have given more importance onthe overall bank audit system. In todays competitive wo rld audit is verymuch necessary as well as compulsory , because investor investing decisionis depend on that particular concept if auditor has expressing his view about particular organization is true and fair then investor can get his ideas abouthow much he should invest in particular companies. ORIGIN AND EVOLUATION OF AUDITING 1)Origin of term : T h e t e r m a u d i t i s d e r i v e d f r o m t h e L a t i n t e r m a u d i r e me a n t o hear. In early days, an auditor used to listing to the account read out bythe accountant in order to check them. 2)Ancient origin : Auditing is as old as accounting. It was in use in all a n c i e n t countries such as Mesopotamia, Egypt, Greece, Rome, U.K., and India.The Vedas,Ramayana, Mahabharata contain references to accounting andauditing. Arthashasastra by Kautilya gives detailed rules for accountinga n d a u d i t i n g o f p u b l i c f i n a n c e s . T h e M a u r y a s , t h e

G u p t a s a n d t h e Mughals had developed and accounting and auditing system to controlstate finances. Thus, basically, accounting and auditing had their origin inthe need for the government to control the income and expenditure of thes t a t e a n d t h e a r my. T h e o r i g i n al o b je c t o f a u d i t i n g wa s t o d e t e c t a n d prevent errors and frauds. 3)Compulsory audits of companies: Wi t h i n c r e a s i n g n u mb e r o f c o mp a n i e s , t h e c o mp a ni e s a c t s i n diffe rent countries began providing for compulsory audit of accounts of companies. Thus U.K. audit of accounts of limited companies becamec o mp u l s o r y i n 1 9 0 0 . I n I n d i a , t h e c o mp a n i e s a c t , 1 9 1 3 ma d e a u d i t o f company accounts compulsory. With increase in size of companies, theo b je c t o f a u d i t a l s o s h i f t e d t o a s c e r t a i n i n g wh e t h e r t h e a c c o u n t s w e r e true and fair rather than true and correct. Thus, the emphasis was notarithmetical accuracy but on fair representation of financial affairs. 4)Development of accounting and auditing standard: The international accounting standards committee and t h e accounting standards board of institute of chartered accountant of Indiahave developed standard accounting and auditing practices to guide theaccountants and auditor in their day-to-day work. 5) Computer technology: The latest development in auditing pertains to the use of computersin accounting as well as auditing.Really, auditing has come a long way from hearing the accountsin the ancient day to using computers to examine computerized accountsof today. DEFINITION OF AUDITING

Various persons such as the owners, shareholders, investors , creditors, lenders, government etc. use the final account of business concernfor different purposes. All these users need to be sure that the finalaccounts p r e p a r e d b y t h e ma n a g e me n t a r e r e l i a b l e . An a u d i t o r i s a n i n d e p e n d e n t expert who examines the accounts of a business concern and reports whether t h e f i n a l a c c o u n t s a r e r e l i a b l e o r n o t . Di f f e r e n t a u t h o r i t i e s h a v e d e f i n e d auditing as follows.

Mautz d e f i n e t h e a u d i t i n g a s a u d i t i n g i s c o n c e r n e d wi t h t h e v e r i f i c a t i o n o f a c c o u n t i n g d a ta , wi t h d e t e r mi n i n g t h e a c c u r a c y a n d reliability of accounting statement and reports.

I n t e r n a t i o n a l a u di t i n g g u i d e l i n e s d e f i n e s t h e a u d i t i n g a s auditing is an independent examination of financial information of anyentity with a view to expressing an opinion thereon BASIC PRINCIPAL OF AUDITING: 1)Integrity, objectivity and independence: T h e a u d i t o r s h o u l d b e h o n e s t a n d s i n c e r e i n h i s a ud i t wo r k . H e must be fair and objective. He should also be independent. 2 ) C o n f i d e n t i a l i t y: T h e a u d i t o r s h o u l d k e e p t h e i n f o r ma t i o n o b t a i n e d d u r i n g a u d i t , confidential. He should not disclose such information to any third party.He should, keep his eyes and ears open but his mouth shut. 3 ) S k i l l a n d c o mp e t e n c e : The auditor should have adequate training, experience and competence in Auditing. He should have a professional qualification ( i.e. be a Chartered

Accountant) and practical experience. He should be awareof recent developments in the field of auditing such as statement of ICAI,changes in company law, decisions of courts etc 4)Working papers: The auditor should maintain working papers of important mattersto prove that audit was conducted with due care according to the basic principles. 5)Planning: The auditor should plan his audit work. He should prepare an audit programmed to complete the audit efficiently and in time. 6)Audit evidence: The report of the auditor should be base on evidence obtained inthe course of audit. The evidence may be obtained through vouching of transactions, verification of assets and liabilities, ratio analysis etc. 7) Evaluation of accounting system and internal control: The auditor should ensure that the accounting system is adequate.He should see that all the transaction have been properly recorded. He should study and evaluate the internal controls. 8 ) Op i n i o n a n d r e p o r t : The auditor should arrive at his opinion on the account based ont h e a u d i t e v i d e n c e a n d s u b m i t h i s r e p o r t . T h e o p i n i o n m a y b e unqualified, qualified or adverse. The audit report should clearly expresshis opinion. Law should require the content and form of audit report.

AUDIT COMMITTEE

In pursuance of RBI circular September 26, 1995, a bank is requiredto constitute an Audit Committee of its Board. The membership of the auditc o mmi t t e e i s r e s t r i c t e d t o t h e E x e c u t i v e Di r e c t o r , n o mi n e e s o f C e n t r a l Government and the RBI, Chartered Accountant director and one of the non-official directors.One of the functions of this committee is to provide direction ando v e r s e e s t h e o p e r a t i o n s o f t h e t o t a l a u d i t f u n c t i o n i n t h e b a n k . T h e committee also has to review the internal inspection function in the bank,with special emphasis on the system, its quality and effectiveness in terms of f o l l o w u p . Th e c o mmi t t e e h a s t o r e v i e w t h e s ys t e m o f a p p o i nt me n t a n d remuneration of concurrent auditors.The audit committee is, therefore, connected with the functioning of the system of concurrent audit. The method of appointment of auditors, their remuneration and the quality of their work is to be reviewed by the AuditCommittee. It is in this context that periodical meeting by the members of the audit committee with the concurrent auditors help the audit committee tooversee the operations of the total audit function in the bank.

ADVANTAGES OF AUDITING 1)Assurance of true and fair accounts: Audit provides an assurance to the various users of final accounts such as owners, management, creditors, lenders, investors, governmentsetc. that the accounts are true and fair. 2)True and Fair balance sheet: The user accounts can be sure that the assets and liabilities shownin the audited balance sheet show the concern, as it is i.e. neither morenor less.

3)True and fair profit and loss account: The user can be confident that the audited profit and loss accountshows the true amount of profit or loss as it is i.e. neither more nor less. 4)Tally with books: The audited final account can be taken to tally with the books of accounts. Thus, the income-tax officer can start with the figure of audited books profit, make adjustments and compute the taxable income. Anoutside user need not go through the entire books. 5)As per standard accounting and auditing practices: The audited final accounts follow the standard accounting andauditing principles laid down by professional bodies. Thus, auditedaccounts are based on objectives standard and not on personal whims andfancies of a particular accountant or auditor. 6)Detection and prevention of errors and frauds: Audited accounts can be assumed reasonably free from errors andfrauds. The auditor with his expert knowledge would take due care to seethat Errors and frauds are detected so that the accounts shoe a true andfair view. 7)Advice on system, taxation, finance: The auditor can also advise the client about the accounting system,internal control, internal check, internal audit, taxation, finances etc LIMITATIONS OF AUDITING 1 .An a u d i t o r c a n n o t c h e c k e a c h a n d e v e r y t r a n s a c ti o n h e h a s t o c h e c k only the selected areas and transaction on a sample basis.2.Audit evidence is not conclusive in nature thus confirmation by a debtor is not conclusive evidence that the amount will be collected. It is said evidence is rather than conclusive in nature. 3.

An auditor cannot be expected to discover deeply laid frauds usuallyinvolves acts designed to conceal them such as forgery , celibate failuret o r e c o r d t r a n s a c t i o n s , f a l s e e x p l a n a t i o n a n d h e n c e a r e d i f f i c u l t t o detect.4.Audit cannot assure the users of account about the future profitability, prospects or the efficiency of the management. 5. An auditor has to rely upon expert auditor may have to rely on expert inr e l a t e d f i e l d s u c h a s l a w ye r s , e ng i n e e r s , v a l u e s e t c . f o r e s t i ma t i n g contingent liabilities, valuation of fixed assets et INTERNAL CONTROL IN CERTAIN SELECTED AREASGeneral Th e s t a f f a n d o f f i c e r o f a b a n k s h o u l d l i f t f o r m o n e p o s i t i o n t o another frequently and without prior notice. Th e wo r k o f o n e p e r s o n s h o u l d a lw a ys b e c h e c k e d b y a n o t h e r person in the normal course of business. A l l a r i t h m e t i c a l a c c u r a c y o f t h e b o o k s h o u l d b e p r o v e d independently every day. All bank form (e.g. books, demand draft book, travellers cheque,e t c . ) s h o u l d b e k e p t i n t h e p o s s e s s i o n o f a n o f f i c e r , a nd another responsible officer should occasionally verify t h e s t o c k o f s u c h stationary. The mail should be opened by responsible officers. Signature on allthe letters and advice received from other branches of the bank or its correspondence should be checked by an officer with signature book. Th e s i g n a t u r e b o o k o f t h e t e l e g r a p h i c c o d e b o o k s h o u l d b e k e p t with responsible officers, used, and seen by authorized officers only. T h e b a n k s h o u l d t a k e o u t i n s u r a n c e p o l i c i e s a g a i n s t l o s s a n d employees infidelity.

The power of officers of different grade should be clearly defined.