Page 257 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori

14 Special Features of Audit of Banks &

Non-Banking Financial Companies

Case Study – Viraj & Associates
Appointment: Viraj & Associates appointed as Statutory Central Auditors of a nationalized bank. Joint
auditors include CA. Mansukh, CA. Piyush Aggarwal, and CA. Gopal M. Hariharan.
Treasury Operations:
Significant for auditors due to their role in risk management.
Main components: Investments and forex & derivatives.
Importance: Non-compliance with regulations can materially affect bank's financial statements.
Automation: Investment function is automated, requiring understanding of IT controls.
Deposit Products:
Types include CASA and term deposits.
Reviewing determination of interest rates and other charges.
Verification of interest rate application and movement of interest expenses.
KYC & Customer Acceptance:
Reviewing bank's policy on customer acceptance.
Verifying compliance with KYC norms.
Customer Complaints:
Auditors review complaints due to potential material or contingent liabilities.
Credit Recovery:
CA. Piyush Aggarwal familiarizing with bank's credit recovery policy and RBI guidelines.
Ensuring consistency in income recognition and automation of credit recovery accounting.
Reviewing upgradation of NPAs as per RBI norms.
Credit Monitoring:
Reviewing activities of Credit monitoring and restructuring department.
Importance: Manages credit risks and sanctions restructuring of stressed advances as per RBI guidelines.
Internal Accounts:
CA. Gopal M. Hariharan verifying internal/office accounts, including sundry/suspense accounts.
Importance: Such accounts can be used for frauds, making their periodic reconciliation vital for auditors.

(CNO-BA.020) Introduction
Banks have certain characteristics distinguishing them from most other commercial enterprises.
(Shortcut: CROSS D Deadly Desert)
Complex Transactions: Banks handle numerous high-value transactions, relying heavily on IT for complex
accounting and internal controls.
Regulatory Influence: Government regulations influence banking sector accounting and auditing practices.
Off-Balance Sheet Items: Banks assume significant commitments without transferring funds, called 'off-
balance sheet' items, which can be hard to detect if not recorded.
Security and Custody: Managing large sums securely, including cash and negotiable instruments, is crucial for
banks. They must establish strict procedures, clear limits, and strong internal controls to prevent theft and
fraud during storage and transfers.
Systemic Risks: Integration of settlement systems can pose systemic risks.
Decentralized Operations: Operating through a wide branch network creates decentralized authority and
dispersed accounting functions, posing challenges in maintaining uniform practices, especially across borders.
Dispersed Transactions: Transactions can originate, be recorded, and managed at different locations.
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