What is Branch Audit?
An audit is a process of an analytical system of accounting and internal control. It is independent scrutiny of the financial information of a business entity. It provides trustworthiness of the financial statements of an organization/ company and gives confidence to the shareholders of the company that the accounts are true and fair.
Bank Branch Audit
Auditing of a bank is conducted as per the Banking Regulations Act, 1949. Bank branches are audited almost every year to investigate the affairs of the same. It is an inspection and examination of the books of accounts of a branch of a Bank. Such audits help the branch to maintain proper books of accounts. There are three types of bank audits. They are (1) Internal audit, (2) Concurrent audit, and (3) statutory audit.
Bank Branch Audit Planning
Before taking up an audit, audit planning is an important aspect to evolve a general strategy and a detailed approach for expected nature, timing, and extent of the audit. It is planned by the auditors to perform the audit efficiently and within the stipulated time frame for completion of the same.
Bank Branch Audit Checklist
The following is the checklist to be taken care of, before the start of a bank branch audit.
Pre-audit Work- Auditors will have to review the latest available inspection reports of the branch and their compliance thereof. They will also look into the circulars issued by the head office of the bank and also look into the bank’s accounting policies, compliance of mandatory accounting standards and RBI guidelines.
Physical Verification- Auditors will have to verify cash in the branch and also an ATM. They have to verify adhesive stamps, postages and valuable stationeries like cheque books, etc.
Auditors have to verify Returns and reconciliation statements submitted to the branch controlling offices and RBI.
They have to verify the profit & loss account and balance sheet figures with General Ledger figures.
With regard to advances/ loans sanctioned, auditors have to verify sanctioning of the same, documentation, monitoring, and supervision by the branch. Adding, suit-filed accounts are taken into consideration to verify the accounts classified as non-performing assets and they are followed up.
With regard to Deposit accounts, they have to verify whether there is any unusual large movement of aggregate deposits between the date of balance sheet and till the date of auditing.
With regard to Profit & Loss account, auditors have to verify various aspects of the provision of interest on standard, substandard and doubtful assets. They have to do test checking of interest on deposits and advances; also, to verify the correctness of various income and expenditure accounts.
Auditors have to check items as per the LFAR (Long Form Audit Report) checklist.
Auditors to prepare the final report of the audit undertaken in the bank branch.
Branch Audit Report Format
Auditors are responsible for providing information on issues given in Long Form Audit Report, i.e., LFAR. It is an important measure available for auditors by which they can comment on the balance sheet, Profit & Loss account, prudential norms, process lapses in operation and other issues relating to statutory audit of the branch.
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Bank Branch Audit Procedures and Guidelines
Banks have the responsibility of conducting a preliminary check of all accounts in a bank branch. So, an auditor is required to review the documents like the latest audited financial statements, projected Profit & Loss Account, Balance Sheet and Cash Flow Statement. They have to check advances/ loans given to borrowers and whether they have been disbursed as per the terms and conditions of sanction. They have to verify for Non-Performing Assets (NPA).
After thoroughly checking all the accounts and the laid down procedures, the auditors have to submit an audit report.
FAQs on Audit and Auditors: Companies Act Essentials
1. What is an audit as defined under the Companies Act, 2013?
An audit, under the Companies Act, 2013, is a mandatory independent examination of a company's financial information and statements. Its primary purpose is to enable an auditor to express an objective opinion on whether the financial statements present a true and fair view of the company's financial position and performance, ensuring they are free from material misstatement and comply with accounting standards.
2. Who is responsible for appointing the first auditor of a new company?
As per the Companies Act, 2013, the Board of Directors is responsible for appointing the first auditor of a company. This appointment must be made within 30 days of the company's registration. If the Board fails to do so, it must inform the members, who then have 90 days to appoint an auditor at an extraordinary general meeting (EGM).
3. What is the process for appointing subsequent auditors under Section 139?
Under Section 139 of the Companies Act, 2013, every company must appoint a subsequent auditor at its first Annual General Meeting (AGM). This auditor holds office from the conclusion of that AGM until the conclusion of its sixth AGM. The company must place the matter of such appointment for ratification by members at every subsequent AGM during this tenure.
4. Why is the rotation of auditors considered an essential practice for certain companies?
The rotation of auditors is an essential governance practice primarily to ensure auditor independence and enhance audit quality. It prevents the development of long-term familiarity between the auditor and the management, which could potentially compromise objectivity. Mandatory rotation brings a fresh perspective to the audit process, reduces the risk of complacency, and strengthens the overall credibility and trustworthiness of the financial reporting.
5. What is a branch audit and what are its key areas of focus?
A branch audit is the examination of the books of accounts and financial records of a company's branch office. The key areas of focus typically include:
- Verification of cash balances, both in hand and at the bank.
- Examination of advances and loans sanctioned by the branch, ensuring they are within delegated authority and properly documented.
- Checking customer deposit accounts (savings, current, term deposits) for any unusual activity.
- Ensuring the branch adheres to the accounting policies and internal controls set by the head office.
- Verifying compliance with relevant statutory guidelines, such as RBI norms in the case of a bank branch.
6. How does the role of a company's auditor differ from that of its accountant?
The roles are distinct. An accountant is an employee of the company responsible for the day-to-day recording and maintenance of financial transactions and preparing the financial statements. In contrast, an auditor is an independent external party whose role is to examine and review the financial statements prepared by the accountant. The auditor's goal is to provide an objective opinion on the truth and fairness of these statements, not to prepare them.
7. What is the main purpose of a Long Form Audit Report (LFAR) in a bank audit?
The main purpose of a Long Form Audit Report (LFAR) extends beyond the standard audit opinion on financial statements. It is a detailed questionnaire and report format prescribed by the RBI for bank auditors. Its objective is to provide a comprehensive commentary on the bank's internal control systems, operational efficiency, and adherence to prudential norms. It helps the Reserve Bank of India and the bank's management to assess process lapses and weaknesses that may not be apparent from the balance sheet alone.
