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A bank branch audit is an exercise which many chartered accountants are conducting over the
years almost like a yearly ritual in the last fortnight of March and the first fortnight of April.
Since the bank branch audit allotment happens usually in the second week of March, the
preparatory work before even getting the audit and knowing which branches one would auditing,
could be started from the first week of March itself . This article attempts to guide the auditors to
conduct an effective smart and intelligent bank audit exercise providing value and quality, given
and paucity of time and resources at the disposal of the auditor.
Pre-Audit Planning
Start Early:
Since the bank branch audit allotment happens usually in the second week of March, the
preparatory work before even getting the audit and knowing which branches one would be
auditing, could be started from the first week of March itself.
Knowledge of Business:
The key at the start of any audit is to have a thorough knowledge of the subject matter under
consideration which in this case is a complete knowledge of the banking business in India. This
updated overview can be found in ICAI publication ‘Guidance Note on Audit of Banks (2010
edition)’. One can also conduct a search on the internet for the purpose. The Auditor should also
go through the Standards on Auditing issued by the ICAI especially on Audit Sampling SA 530,
Audit Documentation SA 230.
Audit Planning: The next stage would be to plan the audit. One has to be absolutely clear on
what he is supposed to do, how it is to be done and who will be doing it and how it is to be done
and who wil be doing it and how. A bank branch audit involves certifying the Balance Sheet and
the Profit and Loss Accounts as starting a true and fair view, signing the Tax Audit Report,
submitting the LFAR, Ghosh and Jilani Committee recommendations, Mandatory Certifications
and Annexure to the Balance Sheet and the Profit and Loss accounts namely on accounts of
Capital Adequacy, Asset Liability Management, Non-performing Assets, SLR and CRR, DICGC
, etc. within the time constraints which may range from a maximum of a week, the auditor has to
plan his time with considering the audit staff available with him so that necessary audit
verification is done which will enable him to give his opinion.
If the auditor has conducted the bank branch audit previously or more so in the previous year,
he should go through his audit working, paper file and the statements certified by him to have a
feel and refresh himself. The closing instruction given by the bank for finalization of the
accounts with the due dates could be revisited. The audit programme and an audit check list used
previously could be the starting point for broadly drafting a similar audit programme and a check
list for the current year.
Detailed checklist on branch audit seminar compilations on this topic done by the various
regional councils of the ICAI and the auditor could refer the same and fine-tune it to the
requirement and the peculiarity of his branch under audit.
The auditor could also attend the seminars conducted by the ICAI to be conversant with the
view of various speakers and resolve any queries if any or get a feedback on grey audit areas if
any.
Audit Execution :
At the start of any audit, the testing of internal controls in operation in the branch is the primary
requisite to the validate the extent and manner of checking already determined in the audit
programme. This can be done by obtaining the organizational chart and doing an activity
mapping of all branch officials including outsourced officials. An understanding on the clarity of
individual roles, responsibilities, authority and accountability as well as effective segregation of
duties, financial powers, Maker Checker concept and the control/exception MIS Reports
available, internal policies, rules, procedures and guidelines and awareness of the same by the
branch officials, all aid in making an assessment of the internal control which would finally
validate the audit programme for deployment of audit staff and the manner and extent of
checking. Any weakness noticed at the internal control assessment stage should be formally
communicated to the branch and may also suitably form a part of the final audit report/LFAR as
the case may be. At this stage the audit programme drawn pre-audit and then modified post audit
subsequently after discussion with the branch officials should be retested and conclusively
finalized. The auditor must be aware of the various risk namely operational, market, financial,
reputational, strategic, business, systematic, regulatory etc. that could be faced by the bank.
Further, any weakness in internal controls is an open invitation controls is an open invitation to
frauds and the auditor should have a professional skepticism that frauds may occur.
Monitoring :
The audit in-charge should monitor the audit progress on an ongoing basis preferably taking
stock at end of every day whether things are as per the plan. The LFAR should be updated on an
ongoing basis for the questions already verified. Any deviations needing re-allocation of the
audit resources should be done immediately in the view of deadlines for issuance of the
reports/certifications.
Executions remains a key despite all the effective planning and scheduling. All necessary
details required for the audit are readily available from the MIS reports that a branch generates.
The key is knowing the MIS reports are being generated and using the same effectively for the
purpose of audit. The auditor has to stick to his audit programme. If any delays are occurring
during the course of audit either due to control weakness, lack of availability of information
reports or non co-operation by any official, the same should be sorted out immediately as not to
affect/alter the eventual deadlines or appropriately communicated to the regional authorities.
Audit issues, if any, raised during the course of audit should be clarified immediately with the
concerned official and should not be kept for resolution at the end of audit. In case of doubts, the
auditor could also liaison with the central statutory auditors.
i) As per the existing practice, branch auditors appointed annually are allowed to continue for a
period of five years in a bank, after which they are rotated/rested. As per the advice of Govt. of
India, from the financial year 2006-07 and onwards, it has been decided that branch auditors
appointed annually will be allowed to continue for a period of four years after which they will be
rotated /rested. Branch auditors appointed till financial year 2005-06, however, will be allowed
to complete their cycle of five years as branch auditors.
ii) While allotting branches, banks are advised to select auditors located in centres in which their
offices are situated or branches located in centres which are in close proximity to their offices.
(iii) Where the number of eligible auditors / audit firms is more than the number of branches to
be audited at particular centres (to be identified by RBI annually), selection of auditors / audit
firms should be done, keeping in view the criterion mentioned at (ii) above. Banks are also
advised to have a suitable mix of various categories of auditors / audit firms while selecting the
branch auditors keeping in view the size of the branches to be audited. The same auditors / audit
firms cannot audit the same bank for a continuous period exceeding four years. In such centres,
where the number of eligible auditors / audit firms is more than the number of branches to be
audited, the auditors / audit firms will be put to a period of compulsory rest for two years after
completion of four years of continuous branch audit.
iv) Where the number of eligible auditors / audit firms is less than the number of branches to be
audited at particular centres, the branches must be allotted equitably among all the auditors
subject to the condition that the same auditor / audit firm cannot audit the same bank for a
continuous period exceeding four years and keeping in view the criterion mentioned at (ii)
above. In such centres, where the number of eligible auditors / audit firms is less than the
number of branches to be audited, the branch auditors on completion of four years of continuous
audit with a bank will be subjected to the principle of rotation.
(v) The concept of Part C auditors (SCAs in the list of eligible central audit firms but which
could not be allotted SCA assignments) being considered for branch audit is discontinued from
financial year 2006-07. Consequently, there will be no separate list of Part C branch auditors.
(vi) As regards statutory branch audit to be carried out by SCAs, banks will arrange in such a
way that SCAs will be auditing the top branches (to be selected strictly in order of the level of
outstanding advances as at the end of March 31 of the previous year) in such a manner as to
cover a minimum of 15% of total gross advances of the bank by SCAs. SCAs will cover a
minimum of 5 branches and not more than 10 branches each. Further, if the process of
consolidation of branch returns is done at intermediate points i.e. Regional Office, Zonal Office,
etc., SCAs must be involved in the audit of those intermediate points. If consolidation is only
done at the Central/Head Office of banks, it may not be necessary for SCAs to be involved in
audit of Controlling Offices. Banks may also consider entrusting statutory audit of specialised
branches such as those dealing in forex, treasury, corporate loans, etc. to SCAs.
vii. As in the case of SCAs, while continuing the practice of appointing one audit firm (as branch
auditor) to one public sector bank, the banks opting for using the managerial autonomy in the
appointment of auditors will clearly advise the audit firms selected for consideration of
appointment that one audit firm can take up audit assignment (branch audit) in one PSB only
and also should give their consent in writing for consideration of appointment in the bank
concerned for the particular year and the subsequent continuing years. The consent given by an
audit firm will be treated as irrevocable and request, if any, from audit firms for changing the
bank, after giving its consent to the bank concerned will not be entertained.
(viii) The list of eligible auditors/audit firms received from the Institute of Chartered
Accountants of India (ICAI) will be subjected to scrutiny to identify/ remove audit firms against
whom adverse remarks/disciplinary proceedings are pending. RBI, thereafter, will forward the
full and final list of all eligible auditors/audit firms to PSBs, which have opted for using the
autonomy in the appointment of auditors.
(ix) The PSBs will be required to select suitable auditors / audit firms in such a manner as to
enlist the required number of branch auditors to carry out the statutory audit of branches during
the year. As in the case of SCAs, in order to adhere to the concept of one PSB for one audit firm,
banks will obtain written consent from the auditors/audit firms selected by them for
consideration of appointment as branch auditors.
(x) The selection of branch auditors require the approval of the respective ACB/Board of
Directors of the banks concerned, after which banks will have to seek the approval from RBI
before their actual appointment.
(xi) RBI will be arranging for the approval of appropriate authorities / GOI of the statutory
branch auditors / audit firms in respect of those banks which may not opt to use the autonomy in
appointing statutory auditors, from out of the remaining names in the list of eligible
auditors/audit firms mentioned at (viii) above, after the selection/ approval of branch auditors in
respect of PSBs opting to use the managerial autonomy.
Government of India have suggested that in order to protect the independence of the
auditors/audit firms, banks will have to make the appointments of SCA/branch auditors
necessarily for a continuous period of three and four years respectively. Banks do not have any
authority to remove the audit firms during the above period without prior approval of the
Reserve Bank of India.
At first hand, this understanding could be gained by collecting the sketchy profile of the branch,
which will provide key information on the nature, size, products, operation and technological
environment of the branch.
Suggestively, this preparatory piece of planning should be taken up well before on-site visit to
the branches, as the understanding gained through these questionnaires would work as good
input for constitution of the audit-team, time-budgeting, travel plan, and other planning work.
Carrying out Preliminary Analytical Reviews :
In accordance with the guidance provided in SA-520 “Analytical Procedures”, following
analytical reviews carried out by the auditors as preliminary risk assessment procedures, would
help identifying the risk of material misstatements.
i. Comparing following trends and ratios of current year with that of previous year
e. Deposits
f. Advances
g. NPA
Thus, this little amount of analysis done at planning stage would help identifying many apparent
errors/inconsistencies. Auditors should obtain branch management’s written explanations for
their reliability. Sometimes unexplained/abnormal variances could be indications of possible
misstatements/window dressing. For instance, sudden spurt/downfall in near quarter end deposits
and figures could be a result of transfer entries from utilized credit limits to deposit accounts
before quarter end and vice-versa after quarter end.
Before applying final audit procedures, auditors are suggested to spend some time on following
preliminary work, which would help satisfying about the reconciliation of primary and
subsidiary ledgers and cross verification of records:
In addition, auditors should obtain for GL error report to ascertain for any error inconsistency in
balancing. Comparing balance sheet of current year with that of previous year will help
ascertaining that grouping of all sub heads into balance sheet heads is appropriate and consistent.
7. Determine that all periodical closing book -entries, e.g. provision for
interest on overdue term deposits etc, have been reversed in
accordance with bank’s closing guidelines.
However, auditors should not take up too much work at this stage itself, as the purpose is to
obtain preliminary assurance about the correctness and completeness at financial statements’
closing balances level.
However, “ In order for the external auditor to use the specific work of the internal auditors
shall evaluate and perform audit procedures on that work to determine its adequacy for the
external auditors’ purposes.”
Thus, at end of above hard work of planning, auditors should commence performing the audit .
Audit of branches
Audit of branches of banking companies is required under section 228 of the Companies Act,
1956. Hence, it is obligatory for a banking company to get the financial statements of each
of its branch offices audited except where exemption from audit is obtained in respect of
certain branches under the Companies (Branch Audit Exemption) Rules, 1961 and as per the
guidelines of the Reserve Bank of India issued from time to time.
The branch auditor has the same powers and duties in respect of audit of financial statements
of the branch as those of the central auditors in relation to audit of head office. The branch
auditor's report on the financial statements examined by him is forwarded to the central
auditors with a copy to the management of the bank. The branch auditor of a public sector
bank, private sector bank or foreign bank is also required to furnish a long form audit report
to the bank management and to send a copy thereof to the central auditors. The central
auditors, in preparing their report on the financial statements of the bank, deal with the
branch audit reports in such manner, as they consider necessary.
However, there are significant differences in the scope of audit between a branch audit and
HO audit. While the banking business takes place at the branches, the Head office takes care
of administrative and policy decisions. Besides, accounting for certain transactions such as
Treasury operations are centralized.
Audit Programme
Ensure that a comprehensive audit programme is chalked out. The size of the branch, the volume
of transactions, the level of computerization and the classification of the branch must be taken
into to account while drawing up the audit programme. The size and skill sets of the audit team
can be determined based on the above parameters. The audit programme should ensure that a
compliance test of the internal controls to identify areas of weaknesses is carried out. Based on
the results of the compliance testing, one may have to prepare a programme for substantive
testing.
The following areas require full checking irrespective of the level of internal controls:
1. Verification of Balance Sheet and Profit and Loss account with the main and subsidiary
ledgers
2. Verification of all closing returns with the ledgers and registers
3. Verification of all large advances granted during the year with specific reference to terms of
sanction and documents
4. Verification of all large NPA advances and the provisioning thereof
5. Balancing of books
6. Inter branch items and clearing differences
7. PMRY loans granted during the year
Verification of Advances
As advances constitute a very high percentage of the assets of the branch, verification of the
same is probably one of the most important aspects of a bank branch audit. It may be advisable
to draw up a programme separately for verification of advances. Design a format for noting
down the particulars of each advance while perusing the borrower credit files and the account
statement. The format should be designed to ensure that none of the significant information is
missed out. The format will also help at the time of compilation of the audit report and LFAR.
In order to carry out the audit effectively and within the stipulated time ensure that all the team
members are familiar with the following:
i. RBI circulars relating to income recognition, asset classification and provisioning norms. The
latest master circular covering all these aspects (DBOD No. BP. BC. 15/21.04.048/2006-2007
dated July 01, 2006) is available on the RBI website (www. rbi.org.in).
ii. Guidelines issued to the auditors by the banks with reference to certificates to be issued by
them.
iii. Accounts closing instructions issued to the branches by the central office.
iv. The accounting system of the bank and the related internal controls.
v. Salient features of the LFAR.
vi. Audit procedure to be adopted in a computerized environment.
It is imperative that auditing methodology and tools used must be modified to suit the IT
environment. For example, if one of the audit objectives is to check whether an account was in
excess of the sanctioned limit or drawing power during a particular period, the manual method
would be to review all the accounts and list out those accounts which have been in excess for all
the specified days. In a computerised environment the audit procedure to be performed should
include generation of an exceptional report of all accounts in excess of the DP/sanctioned limits
during a specified period. One needs to obtain an overall understanding of the computer system
in operation at the branch. A discussion with the systems manager or officer in charge will
be of immense help.
Every branch auditor needs to prepare two audit reports: one the short form wherein he expresses
his opinion on the financial statements of the branch and the other a Long Form Audit Report
(LFAR). Before starting to compile your report ensure that all the audit queries and observations
have been discussed with the branch management and their replies obtained. It is suggested that
the queries be discussed with the officers and branch manager on a daily basis. Discuss the draft
report in detail with the manager preferably in the presence of the officer in charge of advances
and ensure that they fully understand your views. Obtain a Management letter of representation.
Several Central Statutory Auditors in various forums have remarked that many branch auditors
just state YES, NO or NA for most of the points in LFAR. It should be ensured that all points are
answered setting out the full facts clearly. Avoid vague and general comments.
Working Papers
Last but not the least, ensure that all the working papers are organized properly. The need for
organizing and preserving the working papers assumes greater significance in the light of the
Peer Review Process. Working Papers:
1. Aid in the planning and performance of the audit.
2. Aid in the supervision and review of the audit work.
3. Provide evidence of the audit work performed to support the auditors’ opinion.
4. Become the basis for drafting the auditors’ report. Normally, working papers should include.
5. Nature of engagement.
6. The audit plan.
7. Papers and records which would provide. The basis for relying on the internal controls
8. The basis for deciding on the ‘sample selection’ for scrutiny
9. All confirmations and certificates wherever necessary
10. In areas where difference of opinion exists, the views of the organization should be obtained
in writing or minuted
11. Significant ratio and trend analysis
12. Significant audit observations culled out from other audit reports
13. Copies of expert opinion where the auditor has placed reliance on the opinion of the expert
14. Directive from Government/Regulatory authority, etc which have a bearing on the audit
Working papers are the property of the auditors and should be retained for a reasonable period to
satisfy the professional and possible legal requirements. Lack of proper/inadequate working
papers has landed many professionals in trouble with the Disciplinary Committee of the ICAI.
(a) Whether or not the information and explanations required by him have been found to be
satisfactory
(b) Whether or not the transaction of banking companies of banking company which have
come to his notice have been within powers of the company
(c) Whether or not the returns received from the branch officer of the company have been
found adequate for the purpose of audit
(d) Whether the profit and loss account shows true and fair view of profit and loss for the
year under audit
(e) Any other manner which he considers should be brought to the notice of shareholder.
In case of a Banking Company incorporated outside India, that accounts of such a company must
be audited by a qualified auditor. The auditor of banking company will have the same powers,
duties, responsibilities and is subjected to same penalties as that of an auditor appointed u/s 227
of Companies Act .
The auditor should examine the provision of bad and doubtful debt because the advances and
loans in the case of a bank are other than those considered bad and doubtful. Again since a bank
is allowed to create secret reserve the auditor should see that such reserves are not issued by it.
If an auditor willfully makes a false statement , return balance sheet or willfully omits to make
material statement he is liable to be imprisoned up to a period of 3 years and is also liable to be
fined.
Sec 456 of Banking Regulation Act provides for the public examination on oath of auditors of
Banking Companies if during the course of winding up, it is found that a loss has been caused by
any act or omission on part of an auditor. The auditor has to answer all such questions as may be
put to him by creditors. If the High Court is satisfied that he is not fit to perform his duties as an
auditor of a bank or a company it may pass as order removing him from the office for a period
not exceeding 5 years even if the auditor is innocent.
Sec 45H of the Banking Regulation Act further provides that if the High Court is satisfied, it
may make an order against the auditor to repay such money unless proved to the contrary.
The following is the text of Auditing and Assurance Standard (AAS) 19*, “Subsequent Events”,
issued by the Council of the Institute of Chartered Accountants of India. This Standard should be
read in conjunction with the "Preface to the Statements on Standard Auditing Practices", issued
by the Institute.
1. The purpose of this Auditing and Assurance Standard (AAS) is to establish standards on the
auditor's responsibility regarding subsequent events. In this AAS, the term "subsequent events" is
used to refer to significant events occurring between the balance sheet date and the date of the
auditor's report. In the context of audit of a component, such as a branch or division, of an entity
“subsequent events” would refer to significant events up to the date of the report of the auditor of
that component of the entity.
2. The auditor should consider the effect of subsequent events on the financial statements and on
the auditor's report.
3.Accounting Standard (AS) 4, “Contingencies and Events Occurring After the Balance Sheet
Date”, issued by the Institute of Chartered Accountants of India, deals with the treatment in
financial statements of events, both favorable and unfavorable, occurring between the balance
sheet date and the date on which the financial statements are approved by the Board of Directors
in the case of a company, and, by the corresponding approving authority in the case of any other
entity. AS 4 identifies two types of events:
(a) those which provide further evidence of conditions that existed at the balance sheet date; and
(b) those which are indicative of conditions that arose subsequent to the balance sheet date.
Audit Procedures
4. The auditor should perform procedures designed to obtain sufficient appropriate audit
evidence that all events up to the date of the auditor's report that may require adjustment of, or
disclosure in, the financial statements have been identified. These procedures are in addition to
routine procedures which may be applied to specified transactions occurring after the balance
sheet date to obtain audit evidence as to account balances as at the balance sheet date, for
example, the testing of inventory cut-off and payments to creditors. The auditor is not, however,
expected to conduct a continuing review of all matters to which previously applied procedures
have provided satisfactory conclusions.
5. The procedures to identify events that may require adjustment of, or disclosure in, the
financial statements would be performed as near as practicable to the date of the auditor's report
and ordinarily include the following:
¨ Reviewing procedures that the management has established to ensure that subsequent events
are identified.
¨ Reading minutes of the meetings of shareholders, the board of directors and audit and executive
committees held after the balance sheet date and inquiring about matters discussed at meetings
for which minutes are not yet recorded.
¨ Reading the entity's latest available interim financial statements and, as considered necessary
and appropriate, budgets, cash flow forecasts and other related management reports.
¨ Inquiring, or extending previous oral or written inquiries, of the entity's lawyers concerning
litigation and claims.
¨ Inquiring of management as to whether any subsequent events have occurred after the balance
sheet date which might affect the financial statements. Examples of inquiries of management on
specific matters are:
(i) The current status of items that were accounted for on the basis of preliminary or inconclusive
data.
(ii) Whether there have been any developments regarding risk areas and contingencies.
(iii) Whether any unusual accounting adjustments have been made or are contemplated.
(iv) Whether any events have occurred or are likely to occur which will bring into question the
appropriateness of accounting policies used in the financial statements as would be the case, for
example, if such events call into question the validity of the going concern assumption.
6. When a component, such as a division or a branch, of an entity, has already been audited by
another auditor, the principal auditor would make similar enquiries as set out in para 5 in respect
of events, occurring between the date of signing of the report of the auditor of the component of
the entity and signing of his report.
7. When the auditor becomes aware of events which materially affect the financial statements,
the auditor should consider whether such events are properly accounted for in the financial
statements. When the management does not account for such events that the auditor believes
should be accounted for, the auditor should express a qualified opinion or an adverse opinion, as
appropriate.
8. This Auditing and Assurance Standard becomes operative for all audits commencing on or
after 1st April, 2000.
CHANGES IN PROCEDURE IN THE MATTER OF
APPOINTMENT OF STATUTORY AUDITORS IN PUBLIC
SECTOR BANKS
1) In order to provide more opportunities to eligible audit firms, the existing cycle of four years
of continuous statutory central audit in PSBs with compulsory rest of two years will be reduced
with prospective effect to a cycle of three years of continuous statutory central audit with
compulsory rest of two years. This will be effective from 2006-07 in respect of SCAs appointed
in 2006-07 and onwards. The existing continuing auditors will be allowed to complete their four
years’ cycle after which they will be rested for a period of two years. The appointment of SCAs
will be made on an annual basis, subject to their fulfilling the eligibility norms prescribed by RBI
from time to time and also subject to their suitability.
2) As suggested by the GoI, the allotment of vacancies of SCAs among the “experienced” and
“new” audit firms will be made in the ratio of 60:40 instead of the existing 80:20 from the
financial year 2006-07 and onwards, in order to provide adequate opportunities to the “new”
firms.
3) While continuing the practice of appointing one audit firm (as SCA and/or branch auditor) to
one public sector bank, the banks opting for using the managerial autonomy in the appointment
of auditors will clearly advise the audit firms selected for consideration of appointment that one
audit firm can take up audit assignment (central and /or branch audit) in one PSB only and also
should give their consent in writing for consideration of appointment in the bank concerned for
the particular year and the subsequent continuing years. The consent given by an audit firm will
be treated as irrevocable and request, if any, from audit firms for changing the bank, after giving
its consent to the bank concerned will not be entertained.
4) In order to determine the inter-se seniority of both “experienced” and “new” audit firms for
appointment as SCAs, a marking system based on various parameters such as the number of
partners, period of association of partners, experience of the firms, full-time CA employees and
bank audit/ PSU audit experience of the firms was followed by RBI during 2005-06. The
seniority list thus prepared for the financial year 2005-06 will be treated as the base list. Further
additions to the list will be made every year to include fresh additions / firms which are to be re-
inducted from rest, etc. Allotment of audit will be made strictly in the order of seniority of the
firms in the list in the ratio of 60:40 among the “experienced” and “new” audit firms
respectively, from the financial year 2006-07 and onwards. This system of allotment of audit
assignment as per the seniority will ensure equitable distribution of audit assignments among all
eligible firms by way of rotation.
5) From the financial year 2006-07, the marking system to determine the inter-se seniority of
audit firms will be applicable only to the “new” audit firms and the “experienced” audit firms
will not be subjected to the marking system. “Experienced” firms which are to be re-inducted or
appearing afresh will be placed in the seniority list as per the earliest date on which the firm was
put on the list of existing auditors and in case of rested auditors the earliest date on which the
firm was rested. “New” firms to be added to the SCA panel in subsequent years will be arranged
strictly as per the seniority after subjecting the firms to the marking system. A firm will be
subjected to marking system only at the time of its placement in the panel of SCAs.
6) It has also been decided that from the financial year 2006-07, while subjecting the “new”
firms to the marking system, additional points accruing to a firm on account of merger with
another firm will be given effect only after two years of the merger.
7) The procedure for selecting SCAs by banks which opt for using the autonomy has been
decided as under:
(i) RBI will prepare a list of SCAs equivalent to the total number of vacancies in PSBs for a
particular year strictly on the basis of seniority of each SCA in the panel of SCAs maintained by
RBI on the basis of panel prepared for the year 2005-06.
(ii) The banks will select SCAs equivalent to the vacancies arising in respect of each bank from
the list and obtain the consent of the audit firms in writing for consideration of appointment as
SCAs in the banks concerned.
(iii) Banks will obtain the approval of respective ACB/Board of Directors in respect of the
selected firms and afterwards seek the approval of RBI for the appointment.
(iv) After obtaining the RBI approval, the actual appointment of SCAs will take place.
8)In respect of banks which do not opt to use the autonomy in the matter of appointment of
auditors, RBI will be arranging to obtain the approval of the appropriate authorities/Government
of India for SCAs from out of the remaining names in the list given to banks, after the selection /
approval of SCAs in respect of PSBs opting to use the managerial autonomy.
i) As per the existing practice, branch auditors appointed annually are allowed to continue for a
period of five years in a bank, after which they are rotated/rested. As per the advice of Govt. of
India, from the financial year 2006-07 and onwards, it has been decided that branch auditors
appointed annually will be allowed to continue for a period of four years after which they will be
rotated /rested. Branch auditors appointed till financial year 2005-06, however, will be allowed
to complete their cycle of five years as branch auditors.
ii) While allotting branches, banks are advised to select auditors located in centres in which their
offices are situated or branches located in centres which are in close proximity to their offices.
(iii) Where the number of eligible auditors / audit firms is more than the number of branches to
be audited at particular centres (to be identified by RBI annually), selection of auditors / audit
firms should be done, keeping in view the criterion mentioned at (ii) above. Banks are also
advised to have a suitable mix of various categories of auditors / audit firms while selecting the
branch auditors keeping in view the size of the branches to be audited. The same auditors / audit
firms cannot audit the same bank for a continuous period exceeding four years. In such centres,
where the number of eligible auditors / audit firms is more than the number of branches to be
audited, the auditors / audit firms will be put to a period of compulsory rest for two years after
completion of four years of continuous branch audit.
iv) Where the number of eligible auditors / audit firms is less than the number of branches to be
audited at particular centres, the branches must be allotted equitably among all the auditors
subject to the condition that the same auditor / audit firm cannot audit the same bank for a
continuous period exceeding four years and keeping in view the criterion mentioned at (ii)
above. In such centres, where the number of eligible auditors / audit firms is less than the
number of branches to be audited, the branch auditors on completion of four years of continuous
audit with a bank will be subjected to the principle of rotation.
(v) The concept of Part C auditors (SCAs in the list of eligible central audit firms but which
could not be allotted SCA assignments) being considered for branch audit is discontinued from
financial year 2006-07. Consequently, there will be no separate list of Part C branch auditors.
(vi) As regards statutory branch audit to be carried out by SCAs, banks will arrange in such a
way that SCAs will be auditing the top branches (to be selected strictly in order of the level of
outstanding advances as at the end of March 31 of the previous year) in such a manner as to
cover a minimum of 15% of total gross advances of the bank by SCAs. SCAs will cover a
minimum of 5 branches and not more than 10 branches each. Further, if the process of
consolidation of branch returns is done at intermediate points i.e. Regional Office, Zonal Office,
etc., SCAs must be involved in the audit of those intermediate points. If consolidation is only
done at the Central/Head Office of banks, it may not be necessary for SCAs to be involved in
audit of Controlling Offices. Banks may also consider entrusting statutory audit of specialised
branches such as those dealing in forex, treasury, corporate loans, etc. to SCAs.
vii. As in the case of SCAs, while continuing the practice of appointing one audit firm (as branch
auditor) to one public sector bank, the banks opting for using the managerial autonomy in the
appointment of auditors will clearly advise the audit firms selected for consideration of
appointment that one audit firm can take up audit assignment (branch audit) in one PSB only
and also should give their consent in writing for consideration of appointment in the bank
concerned for the particular year and the subsequent continuing years. The consent given by an
audit firm will be treated as irrevocable and request, if any, from audit firms for changing the
bank, after giving its consent to the bank concerned will not be entertained.
(viii) The list of eligible auditors/audit firms received from the Institute of Chartered
Accountants of India (ICAI) will be subjected to scrutiny to identify/ remove audit firms against
whom adverse remarks/disciplinary proceedings are pending. RBI, thereafter, will forward the
full and final list of all eligible auditors/audit firms to PSBs, which have opted for using the
autonomy in the appointment of auditors.
(ix) The PSBs will be required to select suitable auditors / audit firms in such a manner as to
enlist the required number of branch auditors to carry out the statutory audit of branches during
the year. As in the case of SCAs, in order to adhere to the concept of one PSB for one audit firm,
banks will obtain written consent from the auditors/audit firms selected by them for
consideration of appointment as branch auditors.
(x) The selection of branch auditors require the approval of the respective ACB/Board of
Directors of the banks concerned, after which banks will have to seek the approval from RBI
before their actual appointment.
(xi) RBI will be arranging for the approval of appropriate authorities / GoI of the statutory
branch auditors / audit firms in respect of those banks which may not opt to use the autonomy in
appointing statutory auditors, from out of the remaining names in the list of eligible
auditors/audit firms mentioned at (viii) above, after the selection/ approval of branch auditors in
respect of PSBs opting to use the managerial autonomy.
Government of India have suggested that in order to protect the independence of the
auditors/audit firms, banks will have to make the appointments of SCA/branch auditors
necessarily for a continuous period of three and four years respectively. Banks do not have any
authority to remove the audit firms during the above period without prior approval of the
Reserve Bank of India.
Requirements
Certificates
Acknowledgement
Research Methodology
Executive summary
Index
1.8 Carrying out Preliminary Analytical Reviews Using the Work of Internal
Auditors
Verification of Assets
Verification of Liabilities
Chapter 3 Reporting
Chapter 7 Suggestion
Bibliography