Rights and
Duties of the Auditor in case of audit of Banking Companies
The auditor of a Banking Company has a right
to examine the books and vouchers of the business to enable his to satisfy
himself whether or not the balance sheet is drawn up, so as to exhibit a true
or fair view of the state of affairs of the business, according to the best of
his information and explanation given to him. To enable him to perform his
duty, the auditor should take the following steps :
General:
1. Confirmation
of Appointment: He should, first of all, confirm that his appointment is in
order.
2. Annual
Accounts: He should see that Annual Accounts of the banking company have been
prepared in proper form.
3. Internal Check: Auditor has to rely on the internal
check system of the bank. He should take the written statement about the well
organized system of internal check.
4. Internal Audit Checking: Internal audit staff of
the bank completes the audit of bank record thoroughly. Independent auditor
should examine the audit work performed by the internal audit staff.
5. Balance with Other Banks: Auditor should obtain the
certificate from the state bank for the balances with other banks.
6. Verify Cash in Hand: Auditor should check the cash
in hand on the date of the balance sheet.
7. Verify Balance with RBI: If the money has
been kept with the Reserve Bank of India or any other bank, he should obtain a
certificate confirming the deposit.
8. Verification of unrecorded cheques and drafts: He
should specially check the receipt of drafts, cheques, etc., on the last
working day which has not been entered in the books.
9. Verify the Loans and Advances: Auditor should
verify the list of loans and advance with the ledgers. He should compare the
total of each schedule with general ledger.
Income:
10. Verification of Investments
and return thereon: He should verify investments and income
there from. It should be seen that investments have been properly valued.
11. Vouching of
Interest receivable: He should vouch the interest on loans and advances and
ensure that irrecoverable interest is adequately provided for.
12. Verification
of bills discounted and discount received: He should verify bills discounted
and also discount received in respect of such bills. It is to be ascertained
that the rebate on bills discounted and unmetered bills has been carried
forward.
13. Vouching of
commission earned: Sometimes, a banking company gets a commission from its
customers for services rendered to them. If so, such a commission received
should be vouched by proper vouchers.
14. Verification
of interest on securities deposited: He should verify the securities deposited
with bank for safe custody purpose and see that income in respect thereof has
been properly accounted for.
Expenditure:
15. Examine
capital and revenue expenditure: He should see that capital expenditure has
been properly dealt with in the books and proper distinction has been made
between capital and revenue.
16. Verification
of deposits accepted and interest payable: He should check the balance of
Current Account, Fixed Deposit and Savings Bank Ledgers with the schedules
obtained from the client and ascertain that all interest outstanding on
deposits has been provided for.
17. Inspect the Bad Debts: Auditor should verify all
the bad debts written off and doubtful debts provided for in the books of
accounts.
Miscellaneous:
18. Verify the Bank assets and liabilities: All
assets and liabilities should be verified and it should be seen that adequate
provision has been made for doubtful and bad debts. He should specially check
the overdrafts, etc.
19. Verify the Branch Return: He should examine
the Branch Returns and ensure that they are being properly incorporated in the
Head Office books.
20. Examine the Secret Reserves: He should go
through the details of Secret Reserves, if any, maintained and see that their
purpose is genuine.
21. Examine the
securities against loans and advances: He should ascertain the adequacy of
Securities in respect of loans and advances in both cases, fully secured and
partly secured.
22. Inspection of Reserve Fund: He should
ensure that 20% of profits before paying dividend are transferred to the
Reserve Fund as required under the Act.
23. He should
see that the provisions of the Banking Companies (Regulation) Act have been
fully complied with.
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