SPECIAL AUDIT OF BANKING COMPANY

CHARACTERISTICS OF SPECIAL BANK'S AUDIT

The guidance notes on audit of banks issued by ICAI remarks that the audit of bank involves essentially the same stages as in other audit.
At each of these stages, the auditor had to take note

of the following special characteristics of bank audit.

1. custody of large volumes of money with the banks require formal operation, procedure, well-defined limits on individual discretion and rigorous internal controls.
2. Large volume and variety of transactions and continuing development of new services involve complex accounting.

3. Wide dispersal of operations throughout the country makes it difficult to maintain uniform accounting system.

4. Significant commitments are made without transfer of funds and without formal recognition in books of account like issue of letters of credit etc.

5. special risks are associated with operations.

6. The legal and the regulatory framework is strict and they influence accounting and auditing.

 The stages of the audit of banks as also in any other

audit are as follows:

(a) Preliminary work

(b) Evaluation of interval control system

(c) Substantive testing (d) Finalisation of audit report.

(a) Preliminary work : 1. the auditor should be well-acquainted with the laws governing the particular banking institution under audit. the auditor should also obtain an understanding of the various relevant guidelines issued by RBI.

he should also require a good working knowledge of the services offered by the bank and its operating procedures.

he should also have the knowledge of the books and records maintained by the bank. he should also go through the previous years audit-report of the bank.

2. The auditor should be conversant with the risk of bank, e.g. credit risk, interest rate risk, marketing risk and operating risk.

3. In the case of audit of head offices of nationalized banks, state bank of India and its subsidiaries , a number of auditors are appointed and an important preliminary work is discuss and finalize the allocation of work among them.

SCOPE OF BRANCH AUDIT

1.

In case of Banking companies there are significant difference between the scope of audit at head office level and branch level.

2. At branch level only basic banking operating are done. E.g. accepting deposits, advances, treating interest incomes and expenses etc. at treated as branch level.

3.

The brand auditor had to send his report to the central auditors.

4.

The unaudited branches have to send returns which include Balance sheet, Profit and Loss Account and other relevant accounting information.

5. At the branch level the auditor has to mainly examine items of incomes, expenses, assets and liabilities which derive from basic banking operations, namely, accepting deposits and granting loans and advances. 6. Besides these, if the letter of his appointment specifies certain specific matters to be audited, then he has to comply with it.

7. According to the advise of the Reserve Bank the auditor is required to examine the matter which is susceptible to be a fraud of fraudulent activity or any foul play in any transaction. 8. Also he has to forward this specific report to the chairman and managing director of the bank both also to the regional office of the reserve bank.

9. If the amount involved is rupees one crore or more, the report had to be send to the central office of the Reserve Bank.

10. The branch auditor has to communicate with the previous branch auditor before accepting the appointment.

11. Before starting the branch audit the auditor has to familiarizes himself with the instructions as regards closing accounts received from Head Office.

12. He should also study the procedures and practices of the branches.

13. He should also familiarize himself with certain ratios relating to Non-performing Assets (NPA).

14. He should also study some of the ratios relating to the profits, interest and other incomes and expenses.

15. The branch auditor should soon after accepting the appointment, consult the branch management and inform them about keeping ready the books, records and other information required by him for the purpose of his audit.

Verification of assets and liabilities:

:
Cash Advances Fixed assets

Premises
Other fixed assets Borrowing

 Cash:

The branches has to maintain sufficient cash on hand for normal course of business.
a. According to the RBI Act, every scheduled bank has to maintain with RBI, an average daily balance, which shall not be less than 3% of the total of its demand and time liabilities in India.