Auditing and Ethics · Audit of Banks

Appointment and Types of Bank Audit for CA Intermediate

Updated 5 October 2026

Bank audit covers who audits a bank and in what form. In private banks, shareholders appoint the statutory central auditor at the AGM with prior RBI approval. In nationalised banks the bank appoints in consultation with the RBI, and in SBI the RBI appoints, both with Central Government approval. The main types are statutory, internal, concurrent and stock audit.

Understand Appointment and Types of Bank Audit

A bank handles public money, so its audit is more regulated than that of an ordinary company. The Reserve Bank of India (RBI) supervises banks and has a say in who may audit them.

The statutory central auditor is a chartered accountant firm that audits the bank as a whole and signs the main audit report on the financial statements. Branches are too many for one firm to visit. So statutory branch auditors audit selected branches and send their reports to the central auditor, who must consider them. The central auditor stays responsible for the opinion on the bank's financial statements as a whole.

The central auditor is appointed under the bank's governing law, with RBI approval or involvement. Branch auditors are appointed by the bank, through its Board, as per RBI guidelines on the number of branches to be covered. The details depend on the type of bank. In every case, the branch auditor reports to the central auditor.

For appointment of the central auditor, the rules differ by type of bank:

Nationalised banks: the bank, acting through its Board, appoints the auditors in consultation with the RBI, and the Central Government approves the appointment.
State Bank of India: the auditors are appointed by the RBI with the approval of the Central Government, under the State Bank of India Act, 1955.
Private sector banks (banking companies): the shareholders appoint the auditors at the AGM, and the prior approval of the RBI is required.

SBI and nationalised banks are audited as per their governing Acts, that is, the State Bank of India Act, 1955 and the Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and 1980.

Section 30 of the Banking Regulation Act, 1949 applies directly to banking companies. Under Section 30(1), the balance sheet and profit and loss account of a banking company must be audited by a person qualified to be an auditor of companies. Section 30(1A) requires the prior approval of the RBI for the appointment, reappointment or removal of the auditor. The auditor's remuneration is also fixed with the approval of the RBI. Under Section 30(1B), the RBI may order a special audit in the public interest or in the interest of depositors.

Beyond the statutory audit there are other checks. Internal audit is done by the bank's own staff or outside firms for the management. It reviews systems and controls through the year. Concurrent audit is a continuous, near real-time check of daily transactions, mainly at large branches and high-risk areas, done by outside CA firms or own staff as the bank decides. Stock audit checks the stock, book debts and security charged against working capital advances, to confirm that the borrower's security exists and is properly valued.

The key difference is purpose. Statutory audit gives an opinion on the financial statements for outsiders. For banking companies, the statutory audit report is addressed to the members. For nationalised banks it goes to the Board of Directors, and for SBI to the President of India, as per the governing Acts. It is also submitted to the RBI as a filing requirement. The other audits are internal control tools for management, so they do not give an opinion for shareholders.

Key rules to remember

Statutory central auditor: Private bank: AGM appoints with prior RBI approval | Nationalised bank: bank appoints in consultation with RBI, Central Government approves | SBI: RBI appoints with Central Government approval → audits whole bank → signs main report; Section 30 of the Banking Regulation Act, 1949 applies directly to banking companies. Section 30(1) requires the balance sheet and profit and loss account to be audited by a person qualified to be an auditor of companies. Section 30(1A) requires prior RBI approval for appointment, reappointment and removal of the auditor. The auditor's remuneration is fixed with RBI approval. Under Section 30(1B), the RBI may order a special audit in the public interest or in the interest of depositors. SBI and nationalised banks are audited as per their governing Acts.
Statutory branch auditor: Branch audit report → sent to central auditor → central auditor considers it in forming the opinion; The central auditor may give instructions to branch auditors and remains responsible for the overall opinion. Branch auditors are appointed by the bank, through its Board, as per RBI guidelines on the number of branches covered. The details depend on the type of bank. They report to the central auditor.
Statutory audit vs concurrent audit: Statutory: annual, opinion on financial statements, for stakeholders | Concurrent: ongoing, checks daily transactions, for management; Use this contrast in a differentiate question.
Stock audit: Purpose = verify existence, quantity, quality and valuation of stock and book debts charged to the bank; It supports credit monitoring, not an opinion on bank accounts.
Internal audit: Done for management | covers systems, risk and controls | reports to the bank's management and Board as per its audit policy; The internal auditor does not report to shareholders.

How to solve Appointment and Types of Bank Audit questions

Use this method for any question on appointment or types of bank audit.

1Read the question and identify what is asked: appointment, a type of audit, or a comparison.
2Name the type of bank first: nationalised bank or SBI, or private bank. The appointment route depends on it.
3State who appoints the auditor and what role the RBI plays, in plain words.
4If branches are involved, state that branch auditors report to the central auditor, who remains responsible for the opinion.
5For types of audit, give purpose, who performs it, timing and who receives the report.
6For a difference question, use a two-column style with at least four points: purpose, timing, reporting, and who it is done for.
7Close with one line of conclusion tied to the facts in the question.

Quickest way: Four-point check for bank audit questions

When to use it: Use it for MCQs and for short written answers when time is limited.

For MCQs, look for the word RBI. Appointment, reappointment and removal of a private bank's auditor need prior RBI approval under Section 30(1A), and the RBI also approves the remuneration as per its guidelines. Check each option against this rule.
Eliminate options that say the branch auditor gives the final opinion on the whole bank. The central auditor does.
Match the audit to its keyword: continuous means concurrent, stock and book debts means stock audit, management means internal, financial statements means statutory.
In written answers, use four headings: who appoints, who approves, purpose, and report to whom. Each earns marks.
Write one example sentence per type to show application.

Common mistakes in Appointment and Types of Bank Audit

Saying the bank's shareholders or board alone appoint the auditor in every bank, ignoring the RBI.
Students carry over the Companies Act idea that the AGM appoints the auditor.
Fix: State that for banks the RBI is involved. Private banks appoint at the AGM with prior RBI approval. Nationalised banks appoint in consultation with the RBI, with Central Government approval. In SBI, the RBI appoints with Central Government approval.
Treating branch auditors as giving the final opinion on the bank.
Students see that branch auditors sign reports and assume equal responsibility.
Fix: Write that the branch report goes to the central auditor, who considers it and signs the main report.
Confusing concurrent audit with statutory audit.
Both check transactions, so they look similar.
Fix: Remember that concurrent audit is continuous and for management, while statutory audit is annual and gives an opinion.
Calling stock audit a check of the bank's own cash and investments.
The word stock suggests the bank's own holdings.
Fix: Stock audit checks the borrower's stock and book debts offered as security for advances.
Mixing up Section 30(1), Section 30(1A) and Section 30(1B) of the Banking Regulation Act, 1949.
All deal with the audit of a banking company, so the sub-sections look alike.
Fix: Link Section 30(1) to audit by a qualified auditor, Section 30(1A) to prior RBI approval of appointment, reappointment or removal, and Section 30(1B) to a special audit that the RBI may order in the public interest or in the interest of depositors. Remember that the RBI also approves the auditor's remuneration as per its guidelines.

Worked examples

Example 1

Distinguish between statutory central auditor and statutory branch auditor of a bank. (4 marks)

Show the solution

Start with role: the central auditor audits the bank as a whole and signs the main report. The branch auditor audits an assigned branch.
Reporting: the branch auditor sends a report to the central auditor. The central auditor considers it and may give instructions.
Responsibility: the central auditor stays responsible for the opinion on the whole bank. The branch auditor is responsible for the branch report.
Appointment: the central auditor is appointed under the bank's governing law with RBI approval or involvement, as per the type of bank. Branch auditors are appointed by the bank, through its Board, as per RBI guidelines on the number of branches covered. The details depend on the type of bank. They report to the central auditor.
Conclude that the central auditor combines the branch information with the head office audit.

Answer: The central auditor audits the whole bank and gives the opinion on the financial statements. The branch auditor audits a branch and reports to the central auditor, who considers that report and remains responsible for the overall opinion.

Example 2

Differentiate statutory audit from concurrent audit of a bank. (5 marks)

Show the solution

Purpose: statutory audit gives an opinion on whether the financial statements give a true and fair view. Concurrent audit checks daily transactions for control and early detection of errors and fraud.
Timing: statutory audit is done for the financial year. Concurrent audit is continuous, close to the time of the transactions.
Performed by: statutory audit by independent auditors appointed with RBI involvement. Concurrent audit by firms or staff chosen by the bank.
Report to: statutory audit report is addressed to the members for banking companies, to the Board of Directors for nationalised banks and to the President of India for SBI, as per the governing Acts. It is also submitted to the RBI. Concurrent audit goes to bank management and its Board.
Coverage: statutory audit covers the whole bank through central and branch auditors. Concurrent audit covers large branches and risk-sensitive areas.
Conclude that concurrent audit supports management control, while statutory audit gives assurance to outsiders.

Answer: Statutory audit is periodic, independent and gives an opinion on the financial statements. Concurrent audit is continuous, management-oriented and checks daily transactions at risk-sensitive branches and areas.

Exam tips

Write RBI in every appointment answer and state its role: prior approval for private banks, consultation for nationalised banks (with Central Government approval), and appointment with Central Government approval for SBI.
In a difference question, give four or five points in two columns, not a paragraph.
Remember who gets the report: the statutory audit report goes to the members for banking companies, to the Board of Directors for nationalised banks and to the President of India for SBI, while internal, concurrent and stock audits serve the bank's management.
Do not quote the long form audit report as a separate topic here. Say only that branch auditors report to the central auditor.
Use a short example, such as a large branch with heavy cash flow needing concurrent audit.

Practice questions from Audit of Banks

Appointment and Types of Bank Audit: frequently asked questions

Who appoints the statutory central auditor of a bank?

It depends on the type of bank. In private banks, the shareholders appoint the auditor at the AGM with the prior approval of the RBI. In nationalised banks, the bank appoints the auditor in consultation with the RBI, with Central Government approval. In SBI, the RBI appoints the auditor with Central Government approval.

Do branch auditors give an opinion on the whole bank?

No. They report on their branches to the central auditor. The central auditor considers these reports and signs the opinion on the whole bank.

What is the difference between statutory audit and concurrent audit of banks?

Statutory audit is an independent annual audit with an opinion on the financial statements. Concurrent audit is continuous checking of daily transactions for management. The first gives assurance to outsiders, and the second strengthens internal control.

What does a stock audit check?

It checks the borrower's stock and book debts that are given as security against bank credit. It confirms existence, quantity, quality and valuation.