Skip to content

CA Intermediate · Auditing and Ethics · Audit of Banks

CA Anita is the statutory central auditor of a bank with 400 branches. She visited 25 branches and relied on branch auditors for 150 others, leaving the remaining branches unaudited as they are small. The bank's management argues that the unaudited branches are collectively insignificant. In the auditor's report, branch auditor reports for 150 branches cover advances of ₹6,000 crore, while the bank's total advances are ₹10,000 crore, with 25 visited branches covering ₹1,500 crore. Which response is most appropriate?

The auditor should compute coverage, which is 75 percent of advances, assess whether the remaining 25 percent is material, and perform additional procedures such as head office and analytical checks before concluding. Relying on management's view or an automatic disclaimer would both be inappropriate.

  1. ARely on management's view since the unaudited branches are small, and issue an unmodified report
  2. BEvaluate coverage: audited and branch-audited branches together cover ₹7,500 crore of ₹10,000 crore (75%); assess whether the uncovered ₹2,500 crore is material and, using other procedures at head office, decide whether sufficient appropriate evidence exists before concludingCorrect
  3. CIssue a disclaimer of opinion automatically because not all branches were audited
  4. DIncrease the number of branch auditors only after signing the report

Explanation

Coverage is 6,000 + 1,500 = 7,500 of 10,000, i.e., 75%, leaving 25% (₹2,500 crore). That is not obviously insignificant, so the auditor must assess materiality, perform alternative procedures such as analytical review and head office checks, and then conclude. Accepting management's view is unsupported, and an automatic disclaimer is premature.

Did you get it right without looking?

One question tells you little. A timed set on Audit of Banks shows your real accuracy, how long you take and where you lose marks.

Practise Audit of BanksFree diagnostic mock

More Audit of Banks questions