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Audit of banks:-

The audit of the banks should be well-acquainted with the relevant provision of thespecial enactment that govern different types of banks, particularly those whichaffect the various items of the financial implications of the business carried on by banks and the types of the transaction that arise in the day-to-day operations.In this chapter, salient features of audit of the banks are considered in the context of the provision of the various enactment governing them.

Legislations relevant to Audit of banks:-

The provisions of many Acts relevant to audit of different types of banks. An auditor of the banks should acquaint with the specific provision of the Acts applicable to thetype of banks under audit.Nationalized banks are governed by the provisions of of the relevant Bankingcompanies Act. Certain provision of the Banking Regulation Act 1949 alsoapplicable to nationalized banksThe non-nationalized banking companies are governed by the provision of theBanking Regulation Act 1949.Co-operative banks are governed by the Co-operative Societies Act 1912 or theCo-operative Societies Act of the state in which they are situated, as well as by Part-v of the Banking Regulation act 1949.Certain provision of the Banking Regulationact have been modified while certain others have been omitted in their allocation toco-operative banks.Regional rural banks are governed by the Regional rural banks Act 1976. The provisions of the State bank of India Act 1955, and the State bank of India(subsidiary banks)Act 1959, apply State bank of India and its subsidiariesrespectively. Certain specified provisions of the Banking Regulation act 1949, areapplicable to regional rural banks as well as to the State bank of India and itssubsidiaries.

Provision relating to Accounts:-

Section 29 of the Banking Regulation Act deals with the obligation of the banksregarding maintenance of accounts and preparation of financial statements.Its main preparation as follows;

Banks have to prepare a balance sheet and profit and loss accounts as on 31

march every year in the form to set out in the Third schedule to the Act. Aforeign banking company has to similarly prepare a balance sheet and a profitand loss a/c every year in respect of the business transacted through its branchin India.

The financial statements of the banks are to signed by the manager or the principal officer and by atleast three directors. The financial statements of foreign banking companies are to be signed by the manager or the agent of principal office in India.

In cases of the banking companies the provisions of the companies Acts 1956,relating to the financial statements are also applicable to the extent they arenot inconsistent with requirements of the Banking Regulation Ac, 1949.

As per the third schedule to the Banking Regulation Act, the balance sheet of the bank as to classify the items of the Capital and Liabilities and those of theassets below:-

Capital & Liabilities: AssetsCapi tal Cash and balances with Rereserve bank of India Reserves and surplus. Balances with the banks money at call &,short notice Deposits investments Borrowings AdvancesOther liabilities and Fixed assetsprovisions Other assets Besides the above, contingent liabilities and bills for collection are also to bedisclosed.

The forms of the profits and losses a/c shows the main item of the income,expenditure and appropriations. The disclosure requirements of the Third Sheduledare discussed later in this chapter along with the audit to verify the various items of the financial statements.Apart from the requirements of the Third Schedule to the banking regulation act1949,the financial statement of the bank have to contain additional disclosuresrequired by RBI from time to time. Besides, listed banks have to also satisfy thedisclosure of listing agreement with stock exchange (s).RBI has issued detailed notes and instruction for completion of balance sheetand profit and loss account of banks. These notes and instructions provideinterpretation of the requirement of the Third schedule to the Banking RegulationAct and are thus useful to the auditor.

Provisions Relating to audit:

Appointment of the auditors;

The auditor of a banking company, a nationalized bank or a regional rural bank hasto be a person who is duly qualified under law to be an auditor of companies. Thus,the auditor of the companies under sec 226 of the companies Act 1956, and whodoes not attract any disqualification laid down therein.The auditor of a nationalized bank is appointed by the board of directors of the bank concerned, whereas the auditor of a banking company is appointed by theshareholder at the annual general meeting. Previous approval of RBI for appointment of the auditor is required in the both cases. The auditors of the state bank of India are appointed by RBI in consultation of the Central government. Theauditors of the subsidiaries of the state bank of India are appointed by the state bank of India. It may be mentioned in the State bank of India Act 1955, specially provides for the appointment of the ‘two or more auditors’. The auditors of theregional rural banks concerned with the approval of the Central Government.The appointment of auditor of a co-operative bank is governed by the relevant Co-operative bank is governed by the relevant Co-operative Societies Act.Procedure for the Appointment in the case of nationalized banks:-The statutory central auditors are appointed by the bank concerned on the basis of the names recommended by the RBI from out of panel of auditors. For this purpose,the RBI formulates detailed norms on the basis of which a panel is created by the