Statutory Audit Of Banks: Procedure and it’s needs

Last Updated at: December 28, 2019
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Why Statutory Audit of Banks are done

For the smooth functioning of any system, it is necessary to carry out various surveys and tests to maintain transparency. One of the fundamental aspects of the Government is the finances on which the economy and different major things depend. It is quite essential to carry out regular audits to provide unbiased decisions and rules to every individual. Let’s check on what is the statutory audit of banks with its procedures and needs.

What are Statutory Audits of Banks?

The audits that are carried out to check that the accounts and financial statements presented to the individuals as well as the Income Tax Department are fair and correct. It is mandatory by the Income Tax Department and other banks of a high order to conduct these audits regularly. The RBI (Reserve Bank of India) along with the ICAI appoints qualified Chartered Accountants also called the Statutory Auditors. These audits are conducted rigorously for every branch of a bank at the end of the financial year.

Process of Statutory Audit

While issuing the reports, the auditors ensure that these reports follow the essential requirements and standards which include:

  • SA (Standard of Auditing) 700: An opinion is formed, along with which the financial statements are reported.
  • SA (Standard of Auditing) 705: On the report provided by the Auditor, various opinions regarding the modifications are offered.
  • And SA (Standard of Auditing) 706: In the report provided by the Auditor, the emphasis is laid on matter paragraphs and others.

All these audits have to be conducted within a given time by the appointed auditors. The auditors intimate the banks in prior for the same along with sending the details of the information that they would require during the audits.

Elements to be verified during a Statutory Audit

The Auditor checks whether all the financial statements including the interests, deposits, incomes, loans, advances and other such things in the report.

The elements that have to be verified during the Statutory Audits include:

  • The procedure for cash verification
  • Items related to tax
  • Loan accounts and their verification

Cash Verification Procedure:

Before the termination of the financial year, i.e. 31st March, the auditors have to check the cash balance mandatorily for every branch of the bank. While verifying the cash balance, the various points that one should consider includes:

  • Checking whether the department is open according to the timings specified by the guidelines. Also, the branch manager must be present while opening the bank each day.
  • Checking whether the joint custodians themselves are always opening the cash safe/cash vault.
  • No unrecorded documents are placed in the cash safe or lockers.
  • A record has to be mandatorily maintained while collecting cash from the people, along with proper checking of the currency for originality and mutilation.
  • Checking whether the burglar alarm system is functioning or not.
  • While opening the cash room, all the other doors and entrances of the bank have to be closed for security purposes.
  • No weapons are present inside the cash room.
  • Carry the cash in a locker box always.
  • Checking the condition of the lamps, and all the other machines along with the cash-counting equipment.

Tax-related Items:

The Auditor also has to check whether the bank follows all the items related to tax, along with the compliances. These include:

  • During all the transactions and payments, the appropriate tax as per the guidelines is applied or not.
  • On-time payments of all the taxes have to be done.
  • On-time filing of the tax returns is done.
  • Collection of TDS certificate along with the Form 15G/15H is done, and timely submitted.
  • The RBI conducts the Checking of quality of the compliance and that verification and audits for the branch earlier.
  • The branch must have an insurance policy.
  • Checking whether any outstanding entry has been made. If yes, then the reasons for the same.

Verification of Loan Accounts:

The loan accounts are quite a significant part of the transactions and finances of the bank, due to which their confirmation takes place carefully in three steps, including:

  • Preliminary Check: The bank must do this before accepting any loan-application. It involves reviewing all the documents of the individual as well as the documents set by the Government.
  • Disbursement: All the terms and conditions of the sanction letter have to be fulfilled under this procedure. And thereby, you will receive an acceptance letter for the same.
  • Post-disbursement Inspection: After all this, the final verification steps will take place, including the checking of documents that are under the custody of the bank.

Statutory Audit Report and Long-form Audit Report:

After the successful completion of the audit, the auditors have to submit the report as per the requirements under the RBI.

Conclusion

As such, the Government conducts these Audits for the proper functioning of the banks under RBI and maintaining transparency in the system.

Check out this blog: Types of audits in India.

Statutory Audit Of Banks: Procedure and it’s needs

361

For the smooth functioning of any system, it is necessary to carry out various surveys and tests to maintain transparency. One of the fundamental aspects of the Government is the finances on which the economy and different major things depend. It is quite essential to carry out regular audits to provide unbiased decisions and rules to every individual. Let’s check on what is the statutory audit of banks with its procedures and needs.

What are Statutory Audits of Banks?

The audits that are carried out to check that the accounts and financial statements presented to the individuals as well as the Income Tax Department are fair and correct. It is mandatory by the Income Tax Department and other banks of a high order to conduct these audits regularly. The RBI (Reserve Bank of India) along with the ICAI appoints qualified Chartered Accountants also called the Statutory Auditors. These audits are conducted rigorously for every branch of a bank at the end of the financial year.

Process of Statutory Audit

While issuing the reports, the auditors ensure that these reports follow the essential requirements and standards which include:

  • SA (Standard of Auditing) 700: An opinion is formed, along with which the financial statements are reported.
  • SA (Standard of Auditing) 705: On the report provided by the Auditor, various opinions regarding the modifications are offered.
  • And SA (Standard of Auditing) 706: In the report provided by the Auditor, the emphasis is laid on matter paragraphs and others.

All these audits have to be conducted within a given time by the appointed auditors. The auditors intimate the banks in prior for the same along with sending the details of the information that they would require during the audits.

Elements to be verified during a Statutory Audit

The Auditor checks whether all the financial statements including the interests, deposits, incomes, loans, advances and other such things in the report.

The elements that have to be verified during the Statutory Audits include:

  • The procedure for cash verification
  • Items related to tax
  • Loan accounts and their verification

Cash Verification Procedure:

Before the termination of the financial year, i.e. 31st March, the auditors have to check the cash balance mandatorily for every branch of the bank. While verifying the cash balance, the various points that one should consider includes:

  • Checking whether the department is open according to the timings specified by the guidelines. Also, the branch manager must be present while opening the bank each day.
  • Checking whether the joint custodians themselves are always opening the cash safe/cash vault.
  • No unrecorded documents are placed in the cash safe or lockers.
  • A record has to be mandatorily maintained while collecting cash from the people, along with proper checking of the currency for originality and mutilation.
  • Checking whether the burglar alarm system is functioning or not.
  • While opening the cash room, all the other doors and entrances of the bank have to be closed for security purposes.
  • No weapons are present inside the cash room.
  • Carry the cash in a locker box always.
  • Checking the condition of the lamps, and all the other machines along with the cash-counting equipment.

Tax-related Items:

The Auditor also has to check whether the bank follows all the items related to tax, along with the compliances. These include:

  • During all the transactions and payments, the appropriate tax as per the guidelines is applied or not.
  • On-time payments of all the taxes have to be done.
  • On-time filing of the tax returns is done.
  • Collection of TDS certificate along with the Form 15G/15H is done, and timely submitted.
  • The RBI conducts the Checking of quality of the compliance and that verification and audits for the branch earlier.
  • The branch must have an insurance policy.
  • Checking whether any outstanding entry has been made. If yes, then the reasons for the same.

Verification of Loan Accounts:

The loan accounts are quite a significant part of the transactions and finances of the bank, due to which their confirmation takes place carefully in three steps, including:

  • Preliminary Check: The bank must do this before accepting any loan-application. It involves reviewing all the documents of the individual as well as the documents set by the Government.
  • Disbursement: All the terms and conditions of the sanction letter have to be fulfilled under this procedure. And thereby, you will receive an acceptance letter for the same.
  • Post-disbursement Inspection: After all this, the final verification steps will take place, including the checking of documents that are under the custody of the bank.

Statutory Audit Report and Long-form Audit Report:

After the successful completion of the audit, the auditors have to submit the report as per the requirements under the RBI.

Conclusion

As such, the Government conducts these Audits for the proper functioning of the banks under RBI and maintaining transparency in the system.

Check out this blog: Types of audits in India.

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