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Unit 12: Special Features of Audit

Appointment of Auditor: As per the provisions of the relevant enactments, the auditor of a Notes
banking company is to be appointed at the annual general meeting of the shareholders, whereas
the auditor of a nationalised bank is to be appointed by the bank concerned acting through its
Board of Directors. In either case, approval of the Reserve Bank is required before the appointment
is made. The auditors of the State Bank of India are to be appointed by the Reserve Bank of India
in consultation with the Central Government. The auditors of the subsidiaries of the State Bank
of India are to be appointed by the State Bank of India. The auditors of regional rural banks are
to be appointed by the bank concerned with the approval of the Central Government.

As mentioned earlier, the State Bank of India Act, 1955, specifically provides for appointment of
two or more auditors. Besides, nationalised banks and subsidiaries of State Bank of India also
generally appoint two or more firms as joint auditors.
Remuneration of Auditor: The remuneration of auditor of a banking company is to be fixed in
accordance with the provisions of section 224 of the Companies Act, 1956 (i.e., by the company
in general meeting or in such manner as the company in general meeting may determine). The
remuneration of auditors of nationalised banks and State Bank of India is to be fixed by the
Reserve Bank of India in consultation with the Central Government. The remuneration of auditors
of subsidiaries of State Bank of India is to be fixed by the latter. In the case of regional rural
banks, the auditors’ remuneration is to be determined by the bank concerned with the approval
of the Central Government.
Powers of Auditor: The auditor of a banking company or of a nationalised bank, State Bank of
India, a subsidiary of State Bank of India, or a regional rural bank has the same powers as those
of a company auditor in the matter of access to the books, accounts, documents and vouchers. He
is also entitled to require from the officers of the bank such information and explanations as he
may think necessary for the performance of his duties. In the case of a banking company, he is
entitled to receive notice relating to any general meeting. He is also entitled to attend any
general meeting and to be heard there at on any part of the business, which concerns him as
auditor.
It is important to note that under section 10 of the Banking Companies (Acquisition and Transfer
of Undertakings) Act, 1970/1980, the auditor of a nationalised bank may employ accountants or
other persons at the expense of the bank to assist him in audit of accounts. Similar provisions
exist in section 41 of the State Bank of India Act, 1955 and the State Bank of India (Subsidiary
Banks) Act, 1959. These provisions are aimed at facilitating the work of auditors of these banks
by empowering them to appoint the auditors of branches and are particularly important in the
context of the fact that the above enactments do not contain any specific provisions for audit of
branches of these banks. This is unlike banking companies where audit of branches is required
under section 228 of the Companies Act, 1956. It may be noted that the Regional Rural Banks Act,
1976, does not contain any provisions relating to audit of branches. Accordingly, in the case of
such banks, audit of branches is also carried out by the auditors appointed for the bank as a
whole.
Auditor’s Report: In the case of a nationalised bank, the auditor is required to make a report to
the Central Government in which he has to state the following:

(a) whether, in his opinion, the balance sheet is a full and fair balance sheet containing all the
necessary particulars and is properly drawn up so as to exhibit a true and fair view of the
affairs of the bank, and in case he had called for any explanation or information, whether
it has been given and whether it is satisfactory;

(b) whether or not the transactions of the bank, which have come to his notice, have been
within the powers of that bank;

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