A banking companies are requires maintaining the books of account in accordance with section 209 of the companies act, 1956. Banking generally a sound internal control system their day to day transaction.
The auditor has to evaluate such system carefully. The fundamental requirement of an audit, as regards reporting on statement of account can be discharged from the examination of the internal checked and verification of assets and liabilities by making a comparison and reconciliation of balance with those in the year and that of amount of income and expenses by application of test checks. The banking regulation act casts greater responsibilities on the directors of banks as compared to those of other companies in the matter of supervision over their working. Therefore, they exercise, or are expected to exercise greater supervision over the affairs of bank. The auditor is entities to rely on such supervision and to limit his checking to test checks. The financial position of a bank is depended on the condition of assets, loan, investment, cash balanced and those of its liabilities and fund. Their verification form an important part of the balance sheet. Most of the bank have their own internal audit or inspection department entrusted with the responsibilities of checking the account of various branches. The statutory auditor may not, therefore, duplicate work.
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.
Basic Principal Of Auditing
• Integrity, objectivity and independence:
The auditor should be honest and sincere in his audit work. He must be fair and objective. He should also be independent.
The auditor should keep the information obtained during audit, confidential. He should not disclose such information to any third party. He should, keep his eyes and ears open but his mouth shut.
• Skill and competence:
The auditor should have adequate training, experience and competence in Auditing. He should have a professional qualification ( i.e. be a Chartered Accountant) and practical experience. He should be aware of recent developments in the field of auditing such as statement of ICAI, changes in company law, decisions of courts etc.
• Working papers:
The auditor should maintain working papers of important matters to prove that audit was conducted with due care according to the basic principles.
The auditor should plan his audit work. He should prepare an audit programmed to complete the audit efficiently and in time.
• Audit evidence:
The report of the auditor should be base on evidence obtained in the course of audit. The evidence may be obtained through vouching of transactions, verification of assets and liabilities, ratio analysis etc.
• Evaluation of accounting system and internal control:
The auditor should ensure that the accounting system is adequate. He should see that all the transaction have been properly recorded. He should study and evaluate the internal controls.
• Opinion and report:
The auditor should arrive at his opinion on the account based on the audit evidence and submit his report. The opinion may be unqualified, qualified or adverse. The audit report should clearly express his opinion. Law should require the content and form of audit report.
Stages In Auditing
• Preliminary work:
• The auditor should acquire knowledge of the regulatory environment in which the bank operates. Thus, the auditor should familiarize himself with the relevant provisions of applicable laws and ascertain the scope of his duties and responsibilities in accordance with such laws. He should be well acquainted with the provisions of the Banking Regulation act, 1956 in the case of audit of a banking company as far as they relate of preparation and presentation of financial statements and their audit.
• The auditor should also acquire knowledge of the economic environment in which the bank operates. Similarly, the auditor needs to acquire good working knowledge of the services offered by the bank. In acquiring such knowledge, the auditor needs to be aware of the many variation in the basic deposit, loan and treasury services that are offered and continue to be developed by banks in response to market conditions. To do so, the auditor needs to understand the nature of services rendered through instruments such as letters of credit, acceptances, forward contracts and other similar instruments.
• The auditor should also obtain and understanding of the nature of books and records maintained and the terminology used by the bank to describe various types of transaction and operations. In case of joint auditors, it would be preferable that the auditor also obtains a general understanding of the books and records, etc, relating to the work of the other auditors, In addition to the above, the auditor should undertake the following:
• Obtaining internal audit reports, inspection reports, inspection reports and concurrent audit reports pertaining to the bank/branch.
• Obtaining the latest report of revenue or income and expenditure audits, where available.
• In te case of branch auditors, obtaining the report given by the outgoing branch manager to the incoming branch in the case of change in incumbent at the branch during the year under audit, to the extent the same is relevant for the audit.
• RBI has introduced and offsite surveillance system for commercial banks on various aspects of operations including solvency, liquidity, asset quality, earnings, performance, insider trading etc., and has indicated that such reports shall be submitted at periodic intervals from the year commencing 1-04-1995. It will be appropriate to be familiar with the reports submitted and to review them to the event that they are relevant for the purpose of audit.