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Bank Audits and Chartered Accountants

A healthy banking industry is the backbone of sustainable socio-economic growth of an economy. As such, banking is a high priority area for Governments and is an important tool to prioritise socio-economic development through allocation of precious finance for implementation of its ambitious schemes.

By lending credibility to their financial statements, audits and auditors have an extremely important role to play in building a resilient banking industry. Further, society now also expects bank auditors to help strengthen the governance practices in the banking industry. The challenge for the Accounting Profession lies in seamlessly integrating these expectations in their role as statutory auditors.

Thus, audit quality, as in any other audit, is of great significance. To help our members carry out statutory audits in the banking industry, an industry that deals with large amounts of public monies and is highly sensitive to reputation risk, the Council of the Institute at its recently cleared the 2015 Guidance Note on Audit of Banks. This Guidance Note contains comprehensive guidance on the various critical aspects of the banking industry and the financial statements of a bank that the members need to be wary of while conducting bank/bank audits. It also provides guidance on application of various Standards on Auditing in bank audits. Standards on Auditing (SAs) are a pre-requisite to ensure audit quality. Obtaining adequate understanding about the risks present in the banking system as well as in the internal and external environments in which a bank operates is essential. As a corollary, auditor’s understanding of the bank’s systems and processes in place to identify and address those risks would help the auditors to focus on critical areas, design appropriate audit procedures, decide optimum time and resource allocation, timely execution of work and avoid any last minute surprises.

Importantly, since a banking company would also be governed by the provisions of the Companies Act, 2013, (to the extent they are not contrary to the Banking Regulation Act 1949), they would also need to report in terms of provisions of the Section 143 of the Companies Act, 2013. Accordingly, the 2015 Guidance Note on Audit of Banks also contains illustrative formats of the auditor’s report of a banking company that meets these requirements in addition to the reporting requirements of the Banking Regulation Act 1949. As a corollary, the 2015 Guidance Note also provides a separate illustrative format of an engagement letter for use by the auditors of a banking company.

 

Today, the auditors’ commitment to audit quality and their close coordination with those charged with governance in the banks, particularly, the audit committees, has assumed added importance. Compliance with the Standards on Auditing not only helps ensure quality in audits, it also helps audits transform from a mere statutory compliance into a real value-added function. In fact, they can help build a stronger symbiotic between the statutory auditors and audit committees and contribute to effective governance. For example, the information generated during the risk assessments and internal control evaluations carried out by the statutory auditors can be of use to the Audit Committees in discharging their responsibilities relating to review of risks facing the entity, including financial statement risks.

Similarly, in addition, the other very important aspects from

statutory auditor’s use of professional skepticism. The auditor procedures with respect to audit of disclosures such as compliance with Accounting Standards, overall presentation of financial statements, adequacy of disclosures in providing necessary information to the users also have special significance.

At this juncture, it may also be worthwhile to remember that true and fair view is a dynamic concept. Its content evolves in response to changes in, inter alia, accounting and business practice.

Effective statutory audits and good governance in banks, therefore, are a collective responsibility/effort of the statutory auditors and those charged with governance in the banks, particularly, the audit committees. A regular and closer interaction between them can go a long way in ensuring that.

On a broader front, the ICAI has been persistently taking up the cause of branch audits as a nationally important issue related to the country’s financial health. The ICAI has been pushing for reduction in the threshold limit for extensive Bank branch audits back to ?6 crore with 1/3 of rest of the branches with advances of less than ? 6 crore. The present threshold limit is ?20 crore with 1/5th’of the rest of the branches with advances of less of ?20 crore every year. The increased threshold limit is not at all in the long term interest of the banks and the nation in view of possibility of public sector banks getting exposed to a higher risk by not covering majority number of branches and advances, thereby leaving a scope for undetected material misstatements including frauds. It also affects the fair reporting on the state of affairs in Public Sector Banks. ■

I -Editorial Board ICAI – Partner in Nation Building I

 

Contents
VOICE

1187 Editorial

– Bank Audits and Chartered Accountants

1192      From the President

1206 Action Plan 2015-16

PROFILE

1190              Our New President

1191              Our New Vice President

1212 Professional Success and

Glory Mark ICAI’s 65th Annual Function

Spearheading Professional Excellence
1222 ICAI 2015 International

Conference, 29-31 January 2015, Bengaluru

\ n

m £

1275

INTERN/

1309

THE CHARTERED ACCOUNTANT
www.icai.org
www.i
MARCH 2015
4
COMMITTEE LIST

1316 Compositions of Committees Year 2015-16

ICAI NEWS

1323              Result: IPC – November 2014

1324              Amendments in the Chartered Accountants’ Regulations, 1998 1326 ICAI Awards for Excellence in Financial Reporting

1328       New Branch of CICASA: Ujjain

1328 Revised Rate of Stipend for Articled Assistants

1330       Commencement of Certificate Course on Forex and Treasury Management

1330              Invitation for the Articles

1331              Use of Designation(s) other than Chartered Accountant

1332              Amnesty Scheme: Restoration of Membership

1334 Launch of 100 Hours Advanced ITT Course 1334                Non-Receipt of 7he Chartered Accountant Journal

MARCH 2015

IN THIS ISSUE…

UPDATES

1242 Legal Update

–   Circulars and Notifications

–  Legal Decisions

JVItlVlDCtO

1196 22nd Council Photograph 1198 Photographs 1240 Know Your Ethics 1262 Opinion

– Presentation of Write-Back of Provisions No Longer Required in the Statement of Profit And Loss 1335 Classifieds

THE CHARTERED | ACCOUNTANT!
EDITOR                             CA.  MANOJ FADNIS,

President

JOINT EDITOR                 CA.  M. DEVARAJA REDDY,

Vice-President

MEMBERS                         CA. JAY CHHAIRA

CA. NIHAR N. JAMBUSARIA CA. DHINAL ASHVINBHAI SHAH CA. ABRAHAM KALLIVAYALIL BABU CA. K. RAGHU

CA. SUBODH KUMAR AGRAWAL CA. MUKESH SINGH KUSHWAH CA. SANJIV KUMAR CHAUDHARY CA. ATUL KUMAR GUPTA CA. VIJAY KUMAR GUPTA DR. BHASKAR CHATTERJEE SHRI SUNIL KANORIA SHRI R.K. JAIN

SECRETARY                    NADEEM AHMED

ICAI EDITORIAL TEAM SUSANTA K. SAHU DR. N. K. RANJAN NIMISHA SINGH

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ICAI Bhawan, Post Box No.7100, Indraprastha Marg,

New Delhi-110002, Tel: +91 (11) 39893989.

E-mail: [email protected], Website: www.icai.org

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CLASSIFIEDS:

Minimum ? 1,000/- for the first 25 words or part thereof and T250/- for five words or part thereof over and above first twenty five words. Please contact: The Journal Section at ICAI Bhawan, A-29, Sector-62, Noida or call at +91(120) 3045955 or e-mail [email protected]

EDITORIAL SUPPORT, DESIGN, ADVERTISEMENT & MARKETING SPENTA MULTIMEDIA V. Kalidasan, Kankshi Mehta, Nilesh Juvalekar, Ganesh Waradkar. MUMBAI: Spenta Multimedia, Peninsula Spenta, Mathuradas Mill Compound, N. M. Joshi Marg, Lower Parel. Mumbai-400013.

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ICAI RESERVES THE RIGHT TO REJECT ADVERTISEMENTS Printed and published by Vijay Kapur on behalf of The Institute of Chartered Accountants of India (ICAI)

Editor – CA. K. Raghu

Published at ICAI Bhawan, P. O. Box No. 7100, Indraprastha Marg, New Delhi -110 002 and printed at Spenta Multimedia. Peninsula Spenta, Mathuradas Mill Compound. N. M. Joshi Marg, Lower Parel, Mumbai – 400013

The views and opinions expressed or implied in THE CHARTERED ACCOUNTANT are those of the authors and do not necessarily reflect those of ICAI. Unsolicited articles and transparencies are sent in at the owner’s risk and the publisher accepts no liability for loss or damage. Material in this publication may not be reproduced, whether in part or in whole, without the consent of ICAI. DISCLAIMER: The ICAI is not in any way responsible for the result of any action taken on the basis of the advertisement published in the Journal. The members, however, may bear in mind the provision of the Code of Ethics while responding to the advertisements.

TOTAL CIRCULATION: 2,51,360

Total No. of Pages: 156 including Covers

Inside images and Graphics: www.shutterstock.com

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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