Skip to content

CA Intermediate · Auditing and Ethics · Audit of Banks

Sahyadri Co-operative Bank Ltd. is a scheduled commercial bank whose branch advances are large and spread across many branches. The statutory central auditor is planning the audit of advances. Which of the following is the correct audit response in selecting branches for the audit?

The central auditor should select branches for visit on the basis of coverage of advances and risk, in consultation with the bank, and rely on the branch auditors' reports for the others. Visiting every branch is not required, and management cannot decide the selection because that would impair independence.

  1. AVisit every branch each year, since sampling of branches is not permitted for a bank audit
  2. BSelect branches to be visited by the central auditor on the basis of coverage of advances and risk, in consultation with the bank, and rely on the reports of branch auditors for the restCorrect
  3. CLeave the selection of branches entirely to the bank's management so that the audit is not disturbed
  4. DSelect only those branches that report no non-performing assets, as they are the easiest to verify

Explanation

In a bank audit the central statutory auditor, with the bank, decides which branches are audited by statutory branch auditors and which are visited, based on coverage of advances, deposits and risk. Sampling of branches is accepted practice, so visiting every branch is not required. Leaving selection to management compromises independence.

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