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Bank Audit

Introduction

Banks are the foundation of our economy. They handle a huge amount of deposits and savings of the public, so they have to be closely monitored and reviewed. A bank audit is one important process of this monitoring.

‘Audit’ or ‘Auditing’ refers to an activity that is carried out by any business entity on its own or to fulfil the compulsion laid under any law to evaluate the transactions, accounts and documents of the business and to confirm its accuracy and legitimacy. This examination is conducted by internal or external auditors.
Bank Audit can be divided into three categories viz.

  • Concurrent Audit
  • Internal Audit or Information Systems Audit
  • Statutory Audit

Concurrent Audit

Meaning: Concurrent audit refers to the examination or audit of the transaction at the time when it is actually taking place.

Features:

  • Continuous audit- Concurrent audit is a continuous audit that takes place throughout the year.
  • Monthly basis- Concurrent audit is carried out by external auditors i.e. Chartered Accountants (usually) every month.
  • Evaluation of daily transactions- Concurrent audits evaluate and check the transactions that take place on a daily basis which assures regularities.

 

Purpose:
Concurrent Audit leads to the smooth flow of working in branches of banks and assures the rectification of any mistakes to avert the cascading effect that germinates out of irregularities. Concurrent Audit is a way to help Branches in order to work in a smooth manner and rectify any mistakes to avoid the cascading effect of irregularities immediately at the time it takes place. It helps to detect fraud at formation level which leads to protection of the public funds.

Internal Audit or Information Systems Audit

Meaning: Internal Auditing is when any organization, including a bank, constitutes an audit team within its own organization to cater to its auditing requirements. Internal Audit may focus on any specified area or cover every aspect of the branch, depending on its audit programmes and requirements. It is conducted by the bank itself. The Internal Auditors visit branches one by one and carry out the audit process.

Features:

  • One by one visit: The internal auditors constituted from within the organization visit branches one by one at the place and on the time when auditing is to be done.
  • Aspect-centric: Internal Audit may be aspect-centric i.e. it may concentrate on any particular area/aspect of the branch or the whole spectrum of the branch, based on the audit programme and need.
  • Conducted by the organization itself: Internal audit is conducted by the organization itself or bank itself in case of the bank.

 

Purpose:
Internal Control audits to ensure the smooth, accurate and safe flow of information within the organization through the channels, the security (of information) etc.
Internal Control audits to ensure the functionality of new banking software along with its accessibility and security standards.
Information Systems Audit is a new area gaining importance in the last few years. With the rapid advancement in computerization in the banking sector – core banking, ATMs, mobile banking, internet banking are completely computerized and hence becoming necessary to have a periodical review over the working of these systems. Internal Control audit looks are the information flow, the channels, the security (of information) etc. It also checks and reviews the work ability of new emerging banking software’s and their rating on security and access.

Statutory Audit

Meaning: Statutory Audit refers to the audit that is mandatorily conducted by a Statutory Auditor as required by the law or Act. In the case of Banks, a statutory audit is a mandatory requirement prescribed by RBI. The Statutory Auditor is appointed by RBI in association with the Institute of Chartered Accountants of India.

Features:

Conducted in the March & April: Statutory Audit is conducted every year at the end of March or beginning of April. In banks, the closure of financial years marks the year-end audit i.e. Statutory Audit.

Concludes NPA: Statutory Audit concludes NPA and thus it is an important audit. It should be noted that NPA provisions affect the bank’s profits and so the Balance Sheet and Profit & Loss Account and ultimately the dividends of the shareholders.

RBI appoints the auditors: RBI appoints the Statutory Auditors in association with the ICAI, to appoint Chartered Accountants for conducting the audit.

Purpose:
Statutory Audit lay focus on the loans & advances, adherence to PSL requirements, SLR, CRR & so on along with compliances towards other statutory norms according to the latest notifications by RBI.
Banks carry out numerous transactions on a daily basis which leads to voluminous documentation & other formalities which the banks have to comply with. A concurrent audit helps to encounter any irregularities and non-conformities quickly and rectify it readily. This averts accumulation of irregularities which becomes a big trouble for any branch at the time of end audit. Concurrent Auditors keep a check on daily maximum cash balance adherence, KYC norms, documentation related to disbursement of loan and loan disbursement in consonance with rules & regulations, income leakage etc. Such details are furnished in the ‘concurrent audit report’.

Several banks carry out internal auditing along with concurrent auditing.
In the last few years, information systems audit- a part of internal audit has gained tremendous popularity with high-paced digitalization in banking industries. With the computerization of core banking activities and introduction & acceptance of concepts like mobile banking, ATMs, internet banking, periodical review of such systems through internal auditing has become very necessary.

The concurrent and internal audits take care of the fundamental working of the banks, whereas the Statutory Audit invests its attention on the loans & advances, loan disbursement as per RBI rules, compliance to PSL, SLR, CRR, etc.
So, a Bank Audit is a crucial activity to be conducted by internal and external auditors, to confirm compliant and fair banking practice.

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