Case Study
Case Study
Case Study
1. ABSTRACT 01
3. RESEARCH METHODOLOGY 03
4. INTRODUCTION 04
6. DEFINITION OF AUDITING 07
7. AUDIT OF BANK 08
8. LEGAL PROVISIONS 09
9. AUDIT COMMITTEE 11
14. CONCLUSION 21
ABSTRACT
This project is to view the task perform by an auditor while conducting the audit of bank
deposit and loans & advances. It explains the role played by different types of auditor, effect
of Non-Performing Asset on the asset of a bank. The auditor needs to be familiarizing with
the direction of RBI affecting the sanctioning and disbursement of advances. The auditor has
to ensure that documents are executed as per the terms of sanction. The auditor examine the
procedure for review of advances laid down by the authorities bas been complied with or not.
Basel II Recommendations affecting the capital adequacy norms advocated by the year,
which perhaps is the beneficial fall-out from the tightening of the prudential norms. The
auditing not only provide true and fair value but it also helps us to financial position and
internal control system of a bank.
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OBJECTIVES OF THE STUDY
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RESEARCH METHODOLOGY
SOURCES OF DATA
The data obtained was both primary and secondary, was obtained from various sources like
internet, gazette and reference books.
• As there are only limited players globally in this field and this being a niche segment
data collection was possible only through the internet and details provided by the
company.
• The other source of getting information regarding the audit of bank was from books.
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INTRODUCTION
The audit of banking companies plays a very important role in India as it help to
regulate the banking companies in right manner. In audit of banks includes various types of
audit which are normally carried out in banking companies such as statutory audit,
revenue/income expenditure audit, concurrent audit, computer and system audit etc. the
above audit is mainly conducted by the banks own staff or external auditor. However, the
rules 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 which the RBI guidelines is applicable. In
this, I have given more importance on the overall bank audit system. In today’s competitive
world audit is very much necessary as well as compulsory , because investor investing
decision is depend on that particular concept if auditor has expressing his view about
particular organization is true and fair then investor can get his ideas about how much he
should invest in particular companies.
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ORIGIN AND EVOLUATION OF AUDITING
1. Origin of term:
The term audit is derived from the Latin term “Audrie” mean to hear. In early
days, an auditor used to listing to the account read out by the accountant in order to check
them.
2. Ancient origin:
Auditing is as old as accounting. It was in use in all ancient countries such as
Mesopotamia, Egypt, Greece, Rome, U.K., and India. The Vedas,Ramayana,
Mahabharata contain references to accounting and auditing. Arthashasastra by Kautilya
gives detailed rules for accounting and auditing of public finances. The Mauryas, the
Guptas and the Mughals had developed and accounting and auditing system to control
state finances. Thus, basically, accounting and auditing had their origin in the need for the
government to control the income and expenditure of the state and the army. The original
object of auditing was to detect and prevent errors and frauds.
DEFINITION OF AUDITING
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AUDIT OF BANK
Special enactments govern the working of banks. The auditors should be aware of the
relevant provisions of the various considerations that govern the working of different types of
banks. They should be conversant with the legal and financial implications of the business
carried out by the banks.
Special considerations
Security: they have custody of large volumes of monetary items, including cash and
negotiable instruments, whose physical security has to be ensured. this applies to both the
storages and the transfer of monetary items and makes banks vulnerable to misappropriation
and fraud. Then therefore, need to establish formal operating procedures, well-defined limits
for individual discretion and rigours systems of internal control.
Complexity: they engage in a large volume and variety of transactions in terms of both
number and value. This necessarily requires complex accounting and internal control
systems.
Regulations: they are regulated by government authorities and the resultant regulation
requirements often influenced accounting and auditing practices in the banking sector.
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LEGAL PROVISIONS
Cooperative societies act, 1972 or the relevant state cooperative societies acts.
Besides, the above enactments, the act gives wide powers to reserve bank of India, 1934, also
effect the functioning of banks. the act gives wide powers to reserve bank of India to give
directions to banks; such directions also have effect on the functioning of banks.
2. Appointment of auditor: the banking regulations act requires that the balance sheet
and profit and loss account of a banking company should be audited by a person’s duly
qualified under any law for the time being in force to be an auditor of companies. similar
provisions are contained in the enactments governing nationalised banks, state bank of India,
subsidiaries, the auditor of a banking company is to be appointed at the annual general
meeting of the shareholders, whereas the auditor of a nationalised bank is to be appointed by
the bank concerned acting through its made. the auditors of the state bank of India are to be
appointed by the comptroller and auditor general of India in consultation with the central
government.
3. Powers of auditor: the auditor of a bank has the same powers as those of a company
auditor in the matter of access to the books, accounts, documents, and vouchers. he is also
entitled to require from the officers of the bank such information and explanations as he may
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think necessary for the performance of his duties. in the case of a banking company, he is
entitled to receive notice relating to any general meeting. he is also entitled to attend and to
he heard there at on part of the business, which concerns him as auditor. it is important to
more that the auditor of a nationalised bank may employ accountants or other persons at the
expenses of the bank to assist him in audit of accounts. thus, auditors of these banks can
appoint the auditors of branches.
4. Auditor’s report: in the case of a nationalised bank, the auditor is required to make a
report to the central government in which he has to state the following:
a) Whether, in his opinion, the balance sheet is a full and fair balance sheet containing
all the necessary particular and is properly drawn up so as to exhibit a true and fair
view of the affairs of the bank, and in case he had called for any explanation or
information, whether it has been given and whether it is satisfactory.
b) Whether or not the transaction of the bank, which have come to his notice, have been
within the powers of that bank.
c) Whether or not the returns received from the offices and branches of the bank have
been found adequate for the purpose of his audit.
d) Whether the profit and loss account show a true balance of profit or loss for the period
covered by such account; and any other matter which he considers should be brought
o the notice of the central government.
It may be noted that in the case of a banking company, the auditor has to specifically report
whether, in his opinion, the profit and loss account and balance sheet of the banking company
comply with the accounting standards referred to his sub-section (3C) of section 211 of the
companies act, 1956.
It may be also be noted that the Companies (auditor’s report) order [CARO], 2003 (revised in
2005), is not applicable to banking companies.
5. Long form audit report: besides the audit report as per the statutory requirement
discussed above, the terms of appointment of auditors of public sector banks, private sector
banks and foreign banks as well as their branches, require the auditors to also furnish a long
form audit report (LFAR). the matters which the banks require their auditors to deal with in
the long form audit report have been specified by the Reserve Bank of India.
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AUDIT COMMITTEE
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 Audit
Committee. It is in this context that periodical meeting by the members of the
audit committee with the concurrent auditors help the audit committee to
oversee the operations of the total audit function in the bank.
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Considering the coverage of this audit assignment and the specialized nature of
work there is also a need for training to be imported to the staff of the auditors.
This training has to be given in specialized field such as foreign exchange,
computerization, and areas of income leakage, fraud prone areas, determination
of credit rating and other similar specialized areas. The bank can organize such
training programmed at various places so that it can ensure the quality of audit.
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1.Statutory audit:
The statutory audit, which is compulsory as per the law. The statutory audit of banks includes
examination and inspection of internal audit, concurrent audit, etc. The statutory audit of
banks is like a post-mortem activity. The suggestions of the statutory auditors can assist the
bank management in improving the effectiveness of internal audit/concurrent audit/inspection
functions, etc. In this way statutory plays, a very important role in regulating the banking
companies.
2.Internal audit:
Banks generally have a well-organized system of internal audit. There internal auditors pay
frequent visit to the branches. They are an important link in internal control of the bank. The
systems of internal audit in different banks also have a system of regular inspection of
branches and head office. A separate department within the banks by firms of chartered
accountants carries out the internal audit and inspection function.
3.Concurrent audit:
Concurrent audit is the system which introduced by the RBI with the view that interval
between the occurrence of transaction and its overview kept to the minimum extent and
examination of transactions by the auditors take place as soon as the transaction take place. It
has perceived the effective means of control. The main view of concurrent auditors is to see
that the transactions are properly recorded, documented, and vouched.
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4.System audit:
System audit is the audit of such computer environment/system and comprises the following
internal controls over EDP activities and with application controls specific control procedures
over accounting applications/assuring that all transaction are recorded and authorized and
completely, accurately, timely processed manner which in turn are verified by computer.
5.Revenue audit:
Revenue audit refers to the audit of revenues/ incomes. In revenue audit of banking
companies, auditors go through the various sources of revenues from which bank earn
income. In revenue audit of banks, the auditor inspects that all the records are showing true
and fair picture of revenues or not.
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ADVANTAGES OF AUDITING
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AUDIT RISK
3) Control Risks:
Control Risk is the risk of error or misstatement in financial statements due to
the failure of internal controls.
Example: Failure on the part of management to control and prevent transaction
carried out by staff who is not authorized to carry out those transactions in the first
place.
4) Detection Risks:
Detection risk is the risk of failure on the part of the Auditor to detect any
errors or misstatements in financial statements, thereby giving an incorrect opinion
about the financial statements of the firm.
Example: Failure by Auditors to identify the continuous misreporting of
financial statements by the company.
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Based on the above risk factors, Auditors can arrive at the level of risk and decide on
the strategy to deal with it.
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LIMITATIONS OF AUDITING
1. An auditor cannot check each and every transaction he has to check only the selected
areas and transaction on a sample basis.
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 in related field
such as lawyers, engineers, value’s etc. for estimating contingent liabilities, valuation of
fixed assets etc.
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CONCLUSION
The project the position of Indian banking system as well as the principal laid down by the Basel
Committee on banking supervision. This assessment was done in seven major areas, which are core
principals, concurrent audit, internal audit, deposit, loan accounting and transparency and foreign
exchange transaction. The project concluded that, given the complexity and development of Indian
banking sector, the overall level of compliances with the standards and codes is of high order. This
project gives the correct ideas about how the major areas can be found by way of effective auditing
system i.e. errors, frauds, manipulations etc. form this auditor get the clear ideas how to
recommend on the banks position. Project also contain that how to conduct of audit of the banks,
what are the various procedure through which audit of banks should be done. Form auditing point of
view, there is proper follow up of work done in every organization whether it is banking company or
any other company or any other company there no misconduct of transactions is taken places for
that purpose the auditing is very important aspect in today’s scenario form company and point of
view.
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