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Unit 13: Audit of Banking and Insurance Company



            Objectives                                                                            Notes


            After studying this unit, you will be able to:
                 Discuss about audit of Banking companies;
                 State audit of cooperative banks and institutions;
                 Discuss about audit of general insurance business companies.

            Introduction

            There are several areas in banking, cooperative banking and insurance accounting and finance,
            both at the corporate level and operational level that need an auditor’s focused attention and
            critical review.

            13.1 Audit of Banking Companies


            A banking company requires maintaining the books of account in accordance with section 209 of
            the Companies Act, 1956. Banking generally includes a sound internal control system in 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
            forms an important part of the balance sheet. Most of the banks 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.


                !
              Caution  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.
            It would be fitting to conclude that Auditing is an art as well as a Science in as much as one need
            to apply the principles to the actual realities in an innovative manner. While the regulatory
            prescriptions and bank’s own policy guidelines form the boundaries within which the bank’s
            investment operations are required and expected to be carried out, it is the auditing process that
            culls out and highlights the bubbles and weaknesses in the procedures adopted by the bank’s
            operating personnel and forewarn the management about the likely risks which have the
            potential to undermine the Corporate Objectives of the bank.

            Procedure of Allotment of Bank Audit

            1.   The large PSBs having balance sheet size (assets + liabilities) of above ` 1 lac crore each to
                 exercise managerial autonomy in regard to appointment of SBAs also from the year





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