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CA Intermediate · Auditing and Ethics · Audit of Banks

CA Tanvi is the statutory auditor of Indus Bank Ltd., a banking company, for the year ended 31 March. During the audit she observes that the bank's financial statements have been prepared in the format of Third Schedule to the Banking Regulation Act, 1949, but the auditor's report is being drafted. Which of the following is correct about her reporting responsibilities?

She should report under the Banking Regulation Act and the applicable Companies Act provisions, including whether necessary information was obtained and whether the statements give a true and fair view. Banks are not exempt from the Companies Act, and an opinion, not a mere certificate, must be given.

  1. AShe need not report on adequacy of internal financial controls because banks are exempt from the Companies Act
  2. BShe should report on the matters required under the Banking Regulation Act, 1949 and applicable provisions of the Companies Act, including whether she obtained all information necessary for audit and whether the bank's financial statements give a true and fair viewCorrect
  3. CShe need only report whether the bank complies with RBI directives and give no opinion on true and fair view
  4. DShe should issue a certificate and not an opinion because banks are regulated entities

Explanation

A banking company's auditor reports under both the Banking Regulation Act (including whether information and explanations necessary for audit were obtained and the true and fair view on balance sheet and profit and loss account) and the applicable Companies Act provisions. Banks are not exempt from the Companies Act wherever it is not inconsistent with banking law. An audit opinion, not a certificate, is issued.

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