Introduction

Bank Audit plays a vital role in maintaining transparency, compliance, and financial accuracy in banks. It helps identify errors, prevent fraud, and ensure that banks follow RBI guidelines. A G A R & CO., a trusted CA in Jaipur, provides professional audit and advisory services to support effective banking operations. The three main types of Bank Audit are Concurrent Audit, Internal Audit, and Statutory Audit.
Bank Audit can be divided into three categories viz.

• Concurrent Audit
• Internal Audit or Information Systems Audit
• Statutory Audit

Concurrent Audit

Meaning: Concurrent audit refers to the examination or audit of the transaction at the time when it is actually taking place.

Features:

• Continuous audit- Concurrent audit is a continuous audit that takes place throughout the year.
• Monthly basis- Chartered Accountants perform concurrent audits every month i.e. Chartered Accountants (usually) every month.
• Evaluation of daily transactions- Concurrent audits evaluate and check the transactions that take place on a daily basis which assures regularities.

Purpose:

Concurrent Audit leads to the smooth flow of working in branches of banks and assures the rectification of any mistakes to avert the cascading effect that germinates out of irregularities. Concurrent Audit helps bank branches operate smoothly. It identifies mistakes quickly and prevents irregularities from growing into larger problems. It helps to detect fraud at formation level which leads to protection of the public funds.

Internal Audit or Information Systems Audit

Meaning: Internal Auditing is when any organization, including a bank, constitutes an audit team within its own organization to cater to its auditing requirements. Internal Audit may focus on a specific area. Alternatively, it may cover the entire branch based on audit requirements. It is conducted by the bank itself. The Internal Auditors visit branches one by one and carry out the audit process.

Features:

• One by one visit: The internal auditors constituted from within the organization visit branches one by one at the place and on the time when auditing is to be done.
• Aspect-centric: Internal Audit may be aspect-centric i.e. it may concentrate on any particular area/aspect of the branch or the whole spectrum of the branch, based on the audit programme and need.
• Conducted by the organization itself: The bank conducts its own internal audit.

Purpose:

Internal Control audits to ensure the smooth, accurate and safe flow of information within the organization through the channels, the security (of information) etc.

Internal Control audits to ensure the functionality of new banking software along with its accessibility and security standards. Information Systems Audit has gained importance in recent years. Furthermore, banks now rely heavily on digital systems. The banking sector relies heavily on technology. Core banking, ATMs, mobile banking, and internet banking require regular reviews to ensure security and efficiency. Internal Control audit looks are the information flow, the channels, the security (of information) etc. It also checks and reviews the work ability of new emerging banking software’s and their rating on security and access.

Statutory Audit

Meaning: Statutory Audit refers to the audit that is mandatorily conducted by a Statutory Auditor as required by the law or Act. In the case of Banks, a statutory audit is a mandatory requirement prescribed by RBI. RBI appoints Statutory Auditors in association with ICAI.

Features:

• Conducted in the March & April: Banks conduct Statutory Audits every year at the end of March or beginning of April. In banks, the closure of financial years marks the year-end audit i.e. Statutory Audit.
• Concludes NPA: Statutory Audit concludes NPA and thus it is an important audit. It should be noted that NPA provisions affect the bank’s profits and so the Balance Sheet and Profit & Loss Account and ultimately the dividends of the shareholders.
• RBI appoints the auditors: RBI appoints the Statutory Auditors in association with the ICAI, to appoint Chartered Accountants for conducting the audit.

Purpose:

Statutory Audit lay focus on the loans & advances, adherence to PSL requirements, SLR, CRR & so on along with compliances towards other statutory norms according to the latest notifications by RBI.

Banks process numerous transactions every day. Therefore, they must maintain extensive documentation and comply with regulatory requirements. A concurrent audit helps to encounter any irregularities and non-conformities quickly and rectify it readily. This averts accumulation of irregularities which becomes a big trouble for any branch at the time of end audit. Concurrent Auditors monitor cash balances and KYC compliance. Additionally, they review loan documentation, loan disbursements, and income leakage. Auditors include these details in the concurrent audit report.

Several banks perform internal audits along with concurrent audits. In the last few years, information systems audit- a part of internal audit has gained tremendous popularity with high-paced digitalization in banking industries. With the computerization of core banking activities and introduction & acceptance of concepts like mobile banking, ATMs, internet banking, periodical review of such systems through internal auditing has become very necessary.

The concurrent and internal audits take care of the fundamental working of the banks, whereas the Statutory Audit invests its attention on the loans & advances, loan disbursement as per RBI rules, compliance to PSL, SLR, CRR, etc.

So, a Bank Audit is a crucial activity to be conducted by internal and external auditors, to confirm compliant and fair banking practice.