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Unit 12: Special Features of Audit

with section 209 of the Companies Act, 1956. Banking generally includes a sound internal control Notes
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.

12.2.1 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
008-09 onwards. Thus, State Bank of India, Allahabad Bank, Bank of India, Bank of Baroda,
Canara Bank, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce,
Syndicate Bank, Punjab National Bank, UCO Bank and Union Bank of India would be
required to select/appoint their SBAs from the year 2008-09. In addition, Andhra Bank and
Punjab & Sind Bank which have opted to exercise autonomy in the matter of appointment
of statutory auditors will also select/appoint their SBAs in 2008-09.

2. For the remaining PSBs, the existing practice of RBI providing the list of audit firms to be
appointed as SBAs would continue during the years 2008-09.
3. In respect of the banks identified above, RBI to provide the list of eligible auditors/audit
firms. The existing categorization norms for empanelment of SBAs to continue.
4. The auditors/audit firms who got statutory audit of branches of PSBs in the year 04-05 and
afterwards will continue to get the audit of same bank except in certain exceptional cases.
Banks do not have any authority to remove the audit firms during this period without
prior approval of the Reserve Bank of India.
5. The concept of one audit firm for one PSB to continue. The consent given by an audit firm
will be treated as irrevocable.

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