BANK BRANCH AUDIT-VALUE ADDITION

FOR THE ATTENTION OF MEMBERS

12 THE CHARTERED ACCOUNTANT april 2012

1472

The Reserve Bank of India had set up a Working

Group on “Revision in the Norms for Empanelment

of Statutory Auditors and Other Issues Related to

Appointment of Auditors in Public Sector Banks”. On

the basis of the recommendation of the Group, it was

proposed to carry out changes in allotment of bank

branch audits of the public sector banks as under:

i. All branches having outstanding advances of

R20 crore and above as on March 31, 2012

need to be audited for the year 2011-2012.

ii. Of the remaining (branches having outstanding

less than R20 crore) 1/5 (one fifth), branches

are to be selected at random in such a way that

all the remaining branches are audited at least

once in five years.

iii. Banks have to cover 90% of the total advances

outstanding as on March 31, 2012, through

branch audit.

iv. Any other branch/es that may be required to be

taken up for audit for any special reason/s like

fraud, embezzlement of funds, etc., or where

transactions of suspicious nature have been

noticed.

The plea behind the proposal was that there

was no need of extensive branch audit in view of

implementation of CBS in all public sector banks.

ICAI’s Viewpoint

In all the four meetings of the Working Group, the ICAI

stressed that it was not agreeable to the proposal,

and examination of materiality aspect to certify the

accounts in view of unaudited advances needs to be

done by them. In this regard, timely representations

were submitted to Shri Vijaya Bhaskar, Executive

Director, Reserve Bank of India. ICAI representative

also gave a presentation on ‘Relevance of bank branch

audit post CBS’ in the one of meetings of the Working

Group which focused on the need for extensive branch

audit and why branch audit should not be done away

with even in CBS environment.

The branch auditor as per the existing norms are

required to report on various functions including

advances, deposits, housekeeping, inter branch

adjustments, income and expenditure audit, etc. It is

observed that, during the audit, there is a significant

improvement in housekeeping. The audit at branch level

acts as a catalyst to strengthen and maintain a better

control environment. Since PSBs have their branches

in every nook and corner of the country, branch audit

is necessary to ensure authenticity of data flowing from

branches to head office. Understanding the current

banking scenario where CBS is yet to fully stabilise,

auditors are required to carry out audit function most

diligently and effectively.

In case, the said proposal would have been approved,

the public sector banks would have got exposed

to a higher risk by not covering majority number of

branches and advances, thereby leaving a scope for

undetected material misstatements including frauds,

whereas the saving in cost would have been negligible

in the hands of the banks. Further, ICAI as a regulator

of the auditing profession, firmly believes that such

proposal, if implemented, would have undermined

the fair reporting on the state of affairs in Public Sector

Banks.

Further, the President and the Council of the Institute

remained fully seized of the matter. Proactive steps

were taken to engage the Government and appropriate

authorities in a dialogue. Representations were submitted

to Dr. M. Veerappa Moily, Hon’ble Minister of Corporate

Affairs, Shri Yashwant Sinha, Chairman, Parliamentary

Standing Committee on Finance, CA. K. Rahman Khan,

Hon’ble Deputy Chairman of Rajya Sabha, CA. Piyush

Goyal, Hon’ble Member of Parliament, Shri D. K. Mittal,

Secretary, Department of Financial Services, Ministry

of Finance, Government of India and others explaining

the need of extensive branch audit even in CBS.

A delegation also met Shri Pranab Mukherjee, Hon’ble

Union Minister of Finance, Government of India, to

emphasise on the need of extensive branch audit in

public sector banks.

Considering the merit in the case made out by ICAI,

it has been finally decided that:

1. All branches having outstanding advances of

R6 crore and above as on March 31, 2012

need to be audited for the year 2011-2012.

2. Of the remaining (branches having

outstanding less than R6 crore), 1/3 (one

third) branches are to be selected at random

in such a way that all the remaining branches

are audited at least once in three years.

This is an opportunity for us to prove our worth

once again and show the value addition we make

through the branch audit to the financial statement of

Banks. n

Branch Audit of Public Sector Banks for the Year 2011-12: An Update