Page 332 - CA Inter Audit PARAM

CA Ravi Taori
QNO— Applicability of CARO to Banks New Course – (SM25)
BA.21.50 Bhaskar CNO - BA.520
Is statutory auditor of a bank required to report on the requirements relating to Companies (Auditor’s
Report) Order, 2020?
Answer Requirements of Companies Act
 The auditor of a banking company is also required to state in the report in respect of matters
covered by Section 143 of the Companies Act, 2013. However, it is pertinent to mention that the
reporting requirements relating to the Companies (Auditor's Report) Order, 2020 is not applicate
to a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949.
 As per reporting requirements cast through Rule 11 of the Companies (Audit and Auditors) Rules,
2014 the auditor's report shall also include their views and comments on the following matters,
namely:
o Whether the bank has made provision, as required under the law or accounting standards,
for material foreseeable losses, if any, on long term contracts including derivative
contracts.
o Whether the bank has disclosed the impact, if any, of the pending litigations on its
financial position in its financial statements.
o Whether there has been any delay in transferring amounts, required to be transferred to
the Investment Education and Protection Fund by the bank

QNO Fraud Reporting (Regulator) Old Course-- (N18M)
BA.23 Bhaskar CNO - BA.540
“If an accounting professional, whether in the course of internal or external audit or in the process of
institutional audit finds anything susceptible to be fraud or fraudulent activity or act of excess power or
smells any foul play in any transaction, he should refer the matter to the regulator. Any deliberate failure
on the part of the auditor should render himself liable for action”. Analyse and explain the above RBI
Circular regarding liability of accounting and auditing profession.
Answer  Reporting to RBI -
 Applicability
The RBI issued a Circular relating to implementation of recommendations of Committee on
Legal Aspects of Bank Frauds applicable to all scheduled commercial banks (excluding
Regional Rural Banks). Regarding liability of accounting and auditing profession, the said
circular provided as under:

 Responsibility
“If an accounting professional, whether in the course of internal or external audit or in the
process of institutional audit finds anything susceptible to be fraud or fraudulent activity or
act of excess power or smell any foul play in any transaction, he should refer the matter to
the regulator. Any deliberate failure on the part of the auditor should render himself liable
for action”.

 As per the above requirement, the member shall be required to report the kind of matters
stated in the circular to RBI.

 Standards on Auditing
Auditor should also consider the compliance with provisions of Standards on Auditing.
 SA 250, “Consideration of Laws and Regulations in an Audit of Financial Statements”, explains
that the duty of confidentiality is over-ridden by statute, law or by courts.
 Whereas an auditor conducting an audit in accordance with SAs is responsible for obtaining
reasonable assurance that the financial statements taken as a whole are free from material
misstatement, whether caused by fraud or error according to SA 240

 Companies Act
 Further, as per sub-section 12 of section 143 of the Companies Act, 2013, if an auditor of a
company, in the course of the performance of duties as auditor, has reason to believe that
an offence of fraud involving such amount or amounts as may be prescribed, is being or has
been committed in the company by its officers or employees, the auditor shall report the

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