Requisites of a Quality Bank Audit

Statutory bank branch audit is a two-step process wherein the branches are audited by the respective branch auditors who are appointed by the Head Office of the respective banks through a well-regulated and laid down process. The branch auditors are required to conduct the statutory audits of the bank branches allotted to them and issue their reports to the respective Statutory Central Auditors (SCAs) who have been entrusted with the exercise of consolidation of the branches under respective regional office(s)/zonal office(s). Once all SCAs are able to conduct the verification of the consolidation of the respective branches allotted to them, along with the completion of audit of the respective audit areas allotted to each one of them at the bank’s Head Office, the overall consolidated financial statements of the bank, including Notes to Accounts, are drawn up by the bank’s Head Office and verified by the SCAs, and the draft audit report on the consolidated financial statements of the bank as a whole is issued by them. Post this, the financial statements are reviewed by the audit committees of the respective banks who, on being satisfied, recommend the same to the bank’s Board of Directors for adoption/approval. On approval of the financial statements by the bank’s Board, the same are signed off by all the SCAs of the bank along with the audit report on the said financial statements.

Therefore, the statutory audits of all public sector banks are conducted in two phases i.e., first at the branch level, and then at the Head Office level, after which the overall set of financial statements of the bank as a whole is produced.

In case of private sector banks, however, there are usually two joint auditors who undertake the work of the statutory audit of the entire bank, and there is usually no involvement of statutory bank branch auditors.

While conducting the bank branch audits, the following issues need to be kept in mind:

1. The audit work needs to be carried out diligently, ensuring compliance of all the applicable regulations.
2. Recently, on November 28, 2025, the Reserve Bank of India has announced the consolidation of its appx. 9,455 circulars into 244 Master Directions with the aim to simplify its regulatory framework and enhance compliance efficiency. The branch auditors need to be updated on this aspect to ensure that the audit is conducted by taking into consideration the relevant Master Directions. Every year, the Auditing and Assurance Standards Board (AASB) of the Institute of Chartered Accountants of India (ICAI) issues the revised edition of the “Guidance Note on Audit of Banks” to provide detailed guidance to the auditors carrying out audit of banks and bank branches. For detailed guidance, reference may be made to this Guidance Note.
3. Invariably, there is a pressure of time within which the branch audit work is supposed to have been completed. The branch auditors have to appreciate that, in view of the two-stage process of the audit (as explained earlier), their output in the form of issuance of their audit report becomes the input for the SCAs who have to take their observations into consideration.

The time-frame is usually shared with the branch auditors as part of their appointment letter and is to be respected. Under no circumstances should the branch auditors hold up their work, which in turn would lead to the holding up of the audit work of the bank as a whole. In case the desired information is not made available, they should clearly mention that fact in their statutory audit report. SCAs are duty bound to go through the contents of each branch audit report (in respect of the branches allotted to them) and take appropriate view of the same.

1. The best way to ensure that the audit work is concluded on time is to plan for the audit work well in advance by duly identifying the audit team members and giving them adequate training so that the audit work progresses smoothly while the audit is underway. Understanding the scope of work is equally important for the above planning. The engagement partner (EP) needs to lead the team in terms of understanding the final deliverable i.e., the authentication of financial statements, related schedules, annexures and details, various certificates, Long Form Audit Report, Tax Audit Report etc. The EP needs to allocate his resources for each of the above activities so that the work on the above progresses simultaneously, or else it would be a challenge to meet the deadlines.
2. The audit team should have a good mix of experienced and trainees/article assistants, who need to be guided properly before commencement of the audit work, along with adequately detailed check-lists in respect of all the audit work-related areas. There is no substitute for experience and therefore, each bank branch under audit needs to be handled by an EP and audit manager having adequate experience of conducting bank audits.
3. It is to be clearly understood that there are a variety of audit reports to be issued while conducting the branch audit such as Statutory Report, Long Form Audit Report (LFAR), Tax Audit Report etc. The branch auditors need to be sure that each of the above reports are independent of each other and not a substitute. Mere LFAR reporting is not sufficient, particularly in case of non-compliance of RBI IRAC norms i.e., if in the opinion of the branch auditor, an account is NPA and a detailed write-up of the same is mentioned in the LFAR, that alone is not sufficient. This fact has to be duly reported in the main report, i.e., the Statutory Audit Report as well through Memorandum of Changes (MoC).
4. The branch auditors may be aware that the bank branch audit is unlike any other audit where the auditor ensures that the requisite rectification accounting entries are passed in case of any deviation/error. In case of bank branch audit, no accounting entry needs to be passed at the branch level and all the rectification accounting entries suggested by the branch auditor need to be routed through the MoC. All such entries suggested through the MoC are then compiled by the bank management and, on their due verification by SCAs, effect thereof is given at the bank’s Head Office.
5. It is generally seen that for many audit firms, audit fee from the bank branch audit is their main source of income. Therefore, it is all the more important to ensure that adequate planning is done so as to be able to deliver a quality audit.
6. It goes without saying that the branch auditors have to be cognisant of the fact that they need to maintain sufficient working papers demonstrating the execution of work, duly documenting issues raised, and their resolution and the methodology followed while conducting the branch audit. It is to be remembered that ‘work not documented is work not done’.
7. It is to be noted that AASB, every year during the bank audit season, takes the initiative to set up an expert panel for resolving the issues being faced by the bank branch auditors. It is suggested to make use of this resource to the maximum possible extent.