The Banking system normally using the services of CA profession to examine the banking operations from a “Safety and Soundness” perspective.
Regulator Reserve Bank of India (RBI) has been depending upon the CA profession to ensure that the Banking system remains under control.
Statutory Audit -Every Bank under the respective Act to get its accounts audited. Reserve Bank of India Act requires RBI to have statutory audit and the rights and obligations of the Statutory Auditor are specified in the Act.
All the Financial Institutions in the country also have to get their accounts audited under the respective laws. The Co-operative Societies Act (Central and State) also prescribe statutory audit.
It is interesting to study the specific Sections under the respective laws and the Rules framed thereunder in relation to rights and obligations of the Statutory Auditor. There are certain fine distinctions in the rights as well as the obligations under the different laws. The Statutory Auditor therefore has to study them carefully while undertaking statutory audit.
Internal Audit -The banks appoint Chartered Accountants to carry out Internal Audit. The process of appointment, scope of audit, the frequency of audit and the levels to which Internal Auditors submit report differ from bank to bank.
Concurrent Audit – The Banks have been using the services of CA firms to carry out concurrent audit of banks in big way. The auditors are required to check transactions and documents on an ongoing basis when they carry out concurrent audit. The number of branches of various banks in the country is very large and therefore the scope for the audit profession is also very large.
Stock Audit -The banks appoint CA firms to verify and report on the stocks maintained by the borrowers of the Banks. The auditors are required to report on the system of record keeping and verify the actual stocks held on a timely basis.
Revenue Audit -The banks appoint CA firms to check the income of the branches and require the auditors to check that all the revenues of the bank are properly and regularly accounted for.
Credit Audit– Some banks ask CA firms to review and report on certain credit proposals. The CA firms look into the loan transaction covering the process of sanction, documentation and operation of the loan account. Such credit audit can bring out the lacunas, if any, in the processing and sanctioning of loans as well as the problems in documentation and monitoring of loan accounts.
KYC Audit– The importance of the documents taken at the time of opening of a bank account is tremendous. RBI is insisting on the banks that their guidelines about Know Your Customer (KYC) are extremely important. Therefore, some banks appoint auditors to verify and report on KYC documents.
NPA Audit– The identification of Non-performing Assets is extremely important for the bank since this aspect has impact on the income recognition and provisioning requirements. Certain banks appoint auditors to check whether the loan assets are correctly identified as Non-Performing Assets and consequently whether the income recognition and provisioning requirements are correctly followed.
Investment / Treasury -Audit RBI has issued specific guidelines on the investments to be made by the banks including the CRR & SLR requirements. Many banks appoint auditors to check that the Investment policy is correctly followed and all the investments are done in accordance with the RBI directives. These reports are required to be submitted at predetermined frequencies.
System Audit -Practically all banks in the country use computers. Many banks use core banking solutions which cover majority of their branches across the country. Certain banks use Software systems which cover some of their branches. In all these cases, it has become essential to appoint agencies to carry out Systems Audit. CA firms are well suited to carry out these System Audits.