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CA Intermediate · Auditing and Ethics · Audit of Banks

Statutory auditors of Vindhya Gramin Bank are planning the audit of its advances portfolio. Which of the following is a feature of bank audit that distinguishes it from the audit of a manufacturing company?

The distinguishing feature is that a bank works through a large branch network with a high volume of transactions, so the central auditors must use branch auditors' work and assess internal controls. Banks do prepare financial statements, and RBI supervision does not replace the statutory audit or control assessment.

  1. ABanks are not required to prepare financial statements under any Act
  2. BBanks are audited only by internal auditors appointed by the Reserve Bank
  3. CA large part of a bank's operations is carried out through many branches, so the auditor must rely on branch auditors and the bank's internal controlsCorrect
  4. DThe audit of banks does not require any assessment of internal controls because of RBI supervision

Explanation

A bank operates through a large network of branches and handles a high volume of transactions, so the central statutory auditors depend on branch auditors' work and on assessing the bank's internal controls. Banks do prepare financial statements, they are audited by statutory auditors, and RBI supervision does not remove the need for control assessment.

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