Skip to content

CA Intermediate · Auditing and Ethics · Audit of Banks

Kaveri Bank's branch records show a high volume of cash deposits just below Rs 10 lakh in several newly opened accounts, followed by immediate transfers to other entities. The statutory auditor, while auditing the bank, wonders whether to treat the matter as one requiring attention to fraud and law compliance. Which response is most appropriate under SA 240 and SA 250 principles?

The auditor should treat the pattern as a red flag for fraud and non-compliance, make inquiries, evaluate the operation of KYC and anti-money-laundering controls, and communicate with those charged with governance while considering reporting duties. Ignoring it or waiting for police confirmation would be wrong.

  1. AIgnore the pattern since detecting money laundering is solely the responsibility of the Financial Intelligence Unit
  2. BTreat it as an indicator of possible non-compliance and fraud risk, make inquiries of management, evaluate whether the bank's KYC/AML controls operated, and consider reporting responsibilities including to those charged with governanceCorrect
  3. CImmediately resign from the audit engagement without further inquiry
  4. DReport the matter in the audit report only after the police confirm the offence

Explanation

Unusual transaction patterns are red flags. The auditor should inquire, assess whether KYC/AML controls operated, evaluate the implications for the financial statements and report to those charged with governance, and consider any statutory reporting. Waiting for police confirmation or ignoring the matter would breach the auditor's responsibilities, and resignation without inquiry 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