Page 270 - CA Final PARAM Digital Book.

Part 1- Audit of Banks

QNO Peculiarities which may necessitate special audit consideration- Old Course – (M19E, SM21)
447.001 TITANIUM CNO—BA.020 New Course – (SM23)
Banks, because of certain characteristics, are distinguished from other commercial enterprises and hence
it needs special audit consideration. As an auditor of a bank, specify the various peculiarities which may
necessitate special audit consideration to be taken care by you.
Answer ➢ Reasons
Shortcut: - Special Audit Considerations because of NewDONS in banking sector.

• the continuing development of New products and services and banking practices which may not
be matched by the concurrent development of accounting principles and auditing practices.
(E.g., Cash Backs, Reward Points with Various Conditions Attached)

• the extensive Dependence on IT to process transactions.
(E.g., Credit Cards, Debit Cards, Online Payments)

• the scale of banking Operations and the resultant significant exposures which can arise within
short period of time.
(E.g., Large number of branches, customers & transactions)

• the particular Nature of risks associated with the transactions undertaken.
(E.g., Heavy Cash Balances, Cash Movements, Assets in Lockers, Investments, Impact of Interest
Rates)
• the effect of the Statutory and regulatory requirements.
(E.g., Capital Adequacy Ratio, NPA Norms etc)

➢ Dependence on IT
Evolution of technology and providing services through Net Banking and Mobiles has exposed banks
to huge operational and financial risk. In today’s environment, the banks use different applications to
carry out different transactions which may include data flow from one application to other
application;(E.g., Customer went on vacation, duplicate sim was issued & bank account robbed)

➢ Effect of above factors
The auditor should consider the effect of the above factors in designing his audit approach. It is
imperative for Branch Auditor and SCAs to have detailed knowledge of the products offered and risks
associated with them, and appropriately address them in their audit plan to the extent they give rise
to the risk of material misstatements in the financial statements

QNO Investment (Portfolio Management Services- Separate Records) Old Course – (N20R, M21M)
447.005 TITANIUM CNO—BA.360
ABN Bank was engaged in the business of providing Portfolio Management Services to its customers, for
which it took prior approval from RBI. Your firm has been appointed as the statutory auditors of the
Bank’s financial statements for the year2019-20. Your senior has instructed you to verify the transactions

of Portfolio Management Services (PMS). While verifying the transactions you noticed that the bank has
not maintained separate record for PMS transactions from the Bank’s own investments. As a statutory
auditor what methodology will be adopted by you for verification of PMS transactions?
Part I -- Relevant Standards & Laws
▪ RBI guidelines

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