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CA Intermediate · Auditing and Ethics · Audit of Banks

The statutory auditor of Narmada Bank is planning the audit and wishes to rely on the bank's Long Form Audit Report (LFAR) process for communicating detailed findings. Which statement about the LFAR is correct?

The LFAR is a detailed additional report, required by RBI, that the statutory auditor submits to the bank's management on specified matters such as systems, advances and other areas. It does not replace the audit report on the financial statements and is not optional or prepared by the internal auditor.

  1. ALFAR replaces the auditor's report on the financial statements and is filed with the Registrar of Companies
  2. BLFAR is a detailed report to the bank's management, prepared by the auditor in addition to the audit report, covering matters specified by RBI such as the adequacy of the bank's systems and quality of advances and other areasCorrect
  3. CLFAR is prepared by the bank's internal auditor and only reviewed by the statutory auditor
  4. DLFAR is optional and prepared only if the board requests it

Explanation

The LFAR is an additional detailed report submitted by the statutory auditor to the bank's management, as required by RBI, covering specified matters including systems, advances and other areas. It does not replace the audit report on the financial statements. It is not prepared by the internal auditor and is not optional.

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