ICAI releases 2023 Bank Audits Guidance Note

The Institute of Chartered Accountants of India (ICAI) has released the 2023 Edition of the Bank Audits Guidance Note.

The ICAI Guidance Note on Audit of Banks 2023 offers detailed guidance to members who are carrying out audits of banks and their branches. This is necessary because auditing banks involves certain unique characteristics, such as a large number of transactions, complex operations, a widespread network of branches, a wide range of products and services offered, extensive use of technology, and close supervision by regulatory bodies. These factors pose significant challenges for auditors in maintaining the quality of bank audits.

Members’ attention is invited to relevant directions/circulars issued by the Reserve Bank of India up to February 28, 2023 available at ICAI website for ease of use and reference. Members are advised to keep track of legislative/regulatory developments, for example, circulars of the Reserve Bank of India, issued subsequent to the aforementioned date and having a bearing on the statutory audit of banks/bank branches for the year ended March 31, 2023.

Members are also advised to read this Guidance Note in conjunction with other two publications (Technical Guide on Audit of Internal Financial Controls in Case of Public Sector Banks and Technical Guide on Revised Formats of Long Form Audit Report) of AASB.

Over the past few decades, the Indian banking system has witnessed a radical shift in its functioning and way of operations as it is increasingly a technology and data driven business now. With the advent of increasing technological changes, there has been an increased focus on the spectrum of risk management, information systems and internal financial controls in banks by the regulatory authorities.

These developments have significant implications on functioning of banks and simultaneously have more expectations from the auditing profession than before. Thus, it is essential that the bank’s statutory auditors are well equipped in terms of their knowledge and keep themselves abreast with the latest developments in the banking sector.

The detailed Bank Audits Guidance Note by Institute of Chartered Accountants of India covers the following: –

Section A – Statutory Central Audit

Personal Banking Department

Retail Banking and Marketing Department

Financial Services provided by Banks

International Banking Division

Treasury Operations

Audit of Information Technology and Digital Banking

Division

Human Resources Department

Large Corporates and Loan Syndication

Micro, Small and Medium Enterprises Department

Rural and Agricultural Business Department

Law Department

Credit Recovery Department

Risk Management Department

Central Audit and Inspection Department

Credit Monitoring and Restructuring Department

Consolidation and Balance Sheet Preparation

Government Business Department

Consolidation of LFARs for the Bank

Certification

Section B – Bank Branch Audit

Practical Guide for Statutory Branch Auditors performing Bank Branch Audit for the First Time

Bank Branch Audit Planning

Audit Documentation in Bank Branch Audit

Overview of Standards on Auditing

Special Considerations in a CBS Environment

Cash

Balances with Reserve Bank of India, State Bank of India and Other Banks (For Branches with Treasury Operations)

Money at Call and Short Notice

Investments (For Branches Outside India)

Advances – Agriculture

Reporting for Advances

Fixed Assets and Other Assets

Borrowings and Deposits

Other Liabilities and Provisions

Contingent Liabilities and Bills for Collection

Profit and Loss Account

Audit Reports and Certificates

Gold/Bullion/ Security Items

Books and Records

Inter Branch/ Office Accounts

Fraud

Miscellaneous

Audit of Foreign Exchange Business

Clearing House Operations by Service Branches

Recovery of Non-Performing Assets by Asset Recovery Branches

Bank Branch Audit and GST Compliance

The following content are available at the ICAI website for further reference:

Foreword and Preface of Past Years

Text of Guidance Note on Audit of Banks (2023 Edition)

Appendices of Guidance Note on Audit of Banks (2023 Edition)

Appendices of Section A – Statutory Central Audit of the Guidance Note on Audit of Banks (2023 Edition)

Illustrative Format of Report of the Auditor on the

Standalone Financial Statements of a Nationalized Bank

Illustrative Format of Report of the Auditor on the Standalone Financial Statements of Banking Company

Illustrative Format of Engagement Letter in case of a Nationalized Bank

Illustrative Format of Engagement Letter in case of Nationalized Banks (Separate only for Audit of Internal Financial Controls Over Financial Reporting)

Illustrative Format of Engagement Letter to be sent to the Appointing Authority of the Banking Company

Illustrative Format of Engagement Letter to be sent to the Appointing Authority of the Banking

Company (Separate only for Audit of Internal Financial Controls over Financial Reporting under

Section 143(3)(i) of Companies Act, 2013)

Illustrative Format of Management Representation Letter to be obtained from Bank Management in case of Statutory Central Audit

Illustrative Format of Management Representation Letter to be obtained from Bank Management in connection with the Limited Review

Appendices of Section B – Bank Branch Audit of the Guidance Note on Audit of Banks (2023 Edition)

Text of Section 6 of the Banking Regulation Act, 1949

The Third Schedule to the Banking Regulation Act, 1949

Illustrative Format of Report of the Branch Auditor of a Nationalized Bank

Illustrative Format of Report of the Branch Auditor of a Banking Company

Illustrative Format of Engagement Letter to be sent to the Appointing Authority of the Nationalized Bank by Branch Auditor

Illustrative Format of Engagement Letter to be sent to the Appointing Authority of the Nationalized Bank by Branch Auditor (Separate only for Audit of Internal Financial Controls Over Financial Reporting)

Illustrative Format of Written Representation

Letter to be obtained from the Branch Management

Suggested Abbreviations used in the Banking Industry

Illustrative Bank Branch Audit Programme for the Year ended March 31, 2023

Typical reasons observed for the divergence in asset classification and provisioning (large accounts) during Supervisory Cycle 2022-23 (FY 2021-22), during Capital Assessment Exercise

Advisory for Statutory Bank Branch Auditors w.r.t. Specific Considerations while conducting Distance Audit / Remote Audit / Online Audit of Bank Branch under current Covid-19 situation issued on May 6, 2020

Additional Guidance on Advances (Refer Chapter 11 “Reporting for Advances”)

Text of Relevant Master Circulars issued by the RBI

Text of Relevant Master Directions issued by the RBI

Text of Relevant Notifications, FAQs and General Circulars

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