Audit of Banking

Banks and banking institutions play an essential role in developing a country. The banks are economic agents, and as with various other sectors, they are also exposed to risky operations. In an audit of banking, a bank auditor reviews the services of the banking sectors. An accounting specialist is designated with the title of a bank auditor who reviews the process. Credit union or bank audits can either be external audits or internal audits. Its goal is to provide a self-standing evaluation of the bank’s activities, information systems and controls. Tests are carried out on the systems, findings are generated, and auditors recommend the bank’s corrective actions.

Audit of Banking

An audit of banking is an activity that is executed to inspect the financial persistence of an institution to ensure that the rules and regulations are followed as directed by the statutes. A bank auditor is assigned to audit banking companies.

The aim of an audit of a banking company is rooted in compliance. The target of a bank audit is to review whether the financial activities of the institutions are legal, fair, and complete. The main objective of the bank audit is to conduct an independent inspection of the bank’s performance, its information systems and control.

The system has to undergo various examinations to generate the findings, and auditors can suggest some possible reformative actions that the institution should take to perform better. Regulatory and financial reports are inspected to determine if they were appropriately filed or not. Tests are taken to identify incomplete, inaccurate or unauthorised transactions. A method of test known as control testing is used to relate if the bank is being operated appropriately and effectively.

Types of Bank Audits

There are many types of bank audits: risk-based internal audit, statutory audit and tax audit, stock audit, credit audit, RBI inspection system audit, forensic audit, concurrent audit, snap audit, and foreign exchange.

• Risk-based internal audits provide reasonable assurance to top management and the Board about the effectiveness and adequacy of the risk management and control framework in the institutions’ operations

• A statutory audit is carried out by chartered accountants instructed by a statute or law to ensure that the books of accounts presented to different regulators and the public are fair

• RBI inspection of bank branches empowers the Reserve Bank of India to supervise and inspect commercial banks

• Credit audit can bring out the spaces in the processing and sanctioning loans and monitoring loan accounts and wrong documentation

• According to the bank’s stock audit policy, the bank’s external auditors shall inspect assets charged to the bank once or twice a year as desired by the bank

• A forensic audit examines a company’s financial records to derive evidence from them and use it in a court of legal proceedings

• The forensic auditor’s report can help prosecute the parties involved in embezzlement, fraud, or other financial misappropriations

There are many more different types of audits than the ones mentioned above. The banking audit unveils the violation of rules or regulations of different financial institutions and failures in compliance with the institution’s policies. Bank auditors look for the primary set of issues to develop profiting proposals. Their discoveries are then documented and noted on a file by the bank.

Statutory Audit of Banks

A statutory audit of banks is a type of banking that ensures that the financial statements and books of account conferred to the regulators and the public are fair and precise. Statutory auditors must ensure that the audit reports are compliant with the requirements mentioned in the following standards.

The standard of auditing 700 involves forming an opinion on financial statements, the standard of auditing 705, which includes modifications to the opinion in the self-reliant auditor’s report and the standard of auditing 706 that emphasises the matter paragraphs and further matter paragraphs in the unconventional auditor’s report.

Statutory auditors are usually given a time frame within which they have to audit the bank’s branches allocated. An auditor should accept the appointment immediately and send a formal intimation to the branch manager about the information necessary to conduct and complete an audit. The assigned auditor should ensure that their report qualifies for advances, interest expenses, deposits, etc. The essential elements to verify in a statutory audit of a bank are tax-related objects, verification of cash procedures and loan accounts.

Process of Audit

The audit of banking involves various stages to complete the procedure successfully.

• The first stage is the initial consideration by the statutory auditor by the declaration of Indebtedness, engagement risks, team discussion

• The second stage is to identify the risk of misstatement and access the risk management

• The third stage is understanding the institution’s environment and control system to process the next step, accounting

• The next steps are team discussions to plan an overall strategy to develop an audit plan

• Reviewing the previous year’s audit reports and internal inspection reports is very beneficial

Conclusion

The banking audit uncovers the breaching of laws and regulations of the financial institutions and their negligence in following the bank’s policies. Bank auditors focus on the cause of issues and make favourable recommendations for the institution. They document their findings and keep them on the file of the bank.

Bank audits are essential to ensure that the bank’s practices are good. The bank audits can be stress alleviating for the bank managers. Many audit software solutions can help the bank smooth out the stay compliant for an easy audit process. The aim of an audit of a banking company is rooted in compliance and can help the financial institution grow.