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Statutory Audit is a type of audit which is mandated by a Law or a Statute to ensure the books of accounts presented to the regulators and public are true and fair. Statutory audit is mandatory if certain criteria are being met by the business. It is performed by qualified Chartered Accountant who is independent of the business.
Statutory Audit is an audit which is prescribed by the different statute like Reserve Bank of India, Income Tax, Companies Act, etc. A Chartered Accountant need to conduct many audits as per the different statute requirement. Statutory Audit of banks is mandatory. Statutory Auditors are appointed by RBI in association with the ICAI. Every year after the end of the previous financial year, in every branch of the banks, a very rigorous audit is conducted.
The Statutory Auditors should ensure that the audit report issued by them complies with the requirements of Revised SA 700 – Forming an Opinion and reporting on financial statements, SA 705 – Modifications to the opinion in the Independent Auditor’s Report & SA 706 – Emphasis of matter paragraphs and other matter paragraphs in the Independent Auditor’s Report.
Nowadays, all statutory auditors are given a time frame in which they have to undertake the audit of the branches that are allotted to them. An auditor should immediately accept the appointment send a formal communication to the branch management and all other information that he would require in his audit. The auditor will have to ensure that their report should include the quantification of advances, deposits, interest income and interest expenses. The important elements to check in the statutory audit of banks are:
The auditors have to verify the cash balance at the branch at the end of 31st March. An auditor should follow the below-mentioned checklist for cash verification:
An auditor will also have to check all the tax-related items and compliances that are applicable to the bank like TDS, 15H & 15H etc. The important elements to check an compliance are mentioned below:
Loan accounts form a major part of the assets for banks. A statutory auditor should check the loan accounts very cautiously. The verification of Loan Accounts is divided into three parts:
The banks should do a preliminary check of all the accounts before considering the project for evaluation. An auditor should look at the following documents for checking the bank preliminary process:
An auditor should check that the disbursement should happen only if all the terms and conditions of the sanction letter have been fulfilled and an acceptance letter for the same have been acquired.
The bank should have a proper check on the active accounts. The important elements that a statutory auditor can check are as follows:
The auditor should check for any Non-Performing Asset (NPA). All accounts which are overdue or stops generating income for the banks continuously for 90 days, then it has to be treated as NPA.
After conducting the through audit, an auditor has to give an audit report for the same. An auditor is required to make a report as mentioned in the engagement letter in which he has to state the following:
To view an illustrative Statutory Audit Report, click here Illustrative audit report
|Heading||Brief of contents|
|The title||should mention that it is an ‘Independent Auditor’s Report’.|
|Addressee||Should mention clearly as to whom the report is being given to. For example Members of the company, Board of Directors|
|Management’s Responsibility for Financial Statements||Mentions that it is the Management’s responsibility to Prepare the Financial Statements.|
|Auditor’s Responsibility||Mention that responsibility of the Auditor is to express an unbiased opinion on the financial statements and issue an audit report.|
|Opinion||Should mention the overall impression obtained from the audit of financial statements. For example Modified Opinion, Unmodified Opinion|
|The basis of the Opinion||States the basis on which the opinion as reported has been achieved. Facts of the basis should be mentioned.|
|Other Reporting Responsibility||If any other reporting responsibility exists, the same should be mentioned. For example Report on Legal or Regulatory requirements|
|Signature of the Auditor||The engagement partner (auditor) shall sign the audit report.|
|Place of Signature||The city in which audit report is signed.|
|Date of Audit Report||Date on which the audit report is signed.|
Besides the normal audit report as per the statutory requirements, the terms of the public, private & foreign sector banks requires the auditors to furnish an LFAR. The matters which the banks want the auditors to check is been prescribed by RBI. The time limit for submission of LFAR is 30th June. An auditor should plan the audit for timely submission of LFAR. An auditor can give an executive summary of the LFAR is they feel its required.