Bank Audit: Ensuring Financial Integrity
Banks are the foundation of our economy, managing public deposits and savings. Given their crucial role, they must be closely monitored and reviewed to ensure transparency and compliance. A bank audit is a key process in this monitoring.
What is a Bank Audit?
A bank audit is a thorough examination of a bank’s transactions, accounts, and financial documents to verify their accuracy, legitimacy, and compliance with regulations. This audit can be conducted by internal or external auditors based on legal or regulatory requirements.
Bank Audit: Ensuring Accuracy & Compliance
Bank audits are classified into three key categories:
- Concurrent Audit
- Internal Audit / Information Systems Audit
- Statutory Audit
Concurrent Audit: Real-Time Transaction Monitoring
Meaning:
A concurrent audit is a real-time examination of transactions as they occur to ensure accuracy and compliance.
Key Features:
Continuous Audit – Conducted throughout the year
Monthly Review – Performed by external auditors (typically Chartered Accountants)
Daily Transaction Checks – Ensures transaction regularity and compliance.
Internal Audit / Information Systems Audit: Strengthening Internal Controls
Meaning:
An internal audit is conducted by the bank itself through an in-house audit team. It may focus on specific areas or cover all aspects of a branch, depending on audit requirements. The internal auditors visit branches individually to carry out the audit process.
Key Features:
Branch-by-branch audits where auditors visit branches individually
Aspect-centric approach that can focus on specific areas or conduct a full-spectrum audit
Conducted by the bank itself rather than external auditors
Purpose:
- Internal control audits ensure the smooth, secure, and accurate flow of information within the bank
- Information systems audits assess the functionality, security, and accessibility of banking software, including core banking systems, ATMs, mobile banking, and internet banking
With rapid digitalization in banking, information systems audits have gained prominence, ensuring data security, compliance, and operational efficiency.
Statutory Audit: Ensuring Compliance and Financial Accuracy
Meaning
Statutory Audit is a mandatory audit conducted by a Statutory Auditor as required by law. In the case of banks, the Reserve Bank of India (RBI) mandates this audit, appointing auditors in association with the Institute of Chartered Accountants of India (ICAI).
Key Features:
- Conducted annually at the end of March or the beginning of April, coinciding with the financial year-end
- Determines Non-Performing Assets (NPA), which impact the bank’s balance sheet, profit and loss account, and shareholder dividends
- RBI, in association with ICAI, appoints Chartered Accountants as statutory auditor:
- Verification of loans and advances
- Adherence to Priority Sector Lending (PSL) requirements
- Compliance with regulatory requirements such as Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR)
- Ensuring compliance with RBI’s latest guidelines
Role in Banking Audits
- Concurrent and Internal Audits handle daily transactions, compliance checks, and operational reviews
- Statutory Audit focuses on financial reporting, regulatory compliance, and key areas like loans and advances