Co-ordination with Branch Management :
Now a days typically, SBA, are given limited time within which they have to undertake the audit of branches allotted to them. Co-ordination between the auditor and the branch management is essential for an effective audit, timely completion with the highest audit quality. NOC from the previous auditor should be obtained and kept on record by SBA. It is advisable that immediately after accepting the appointment, the SBA should send a formal communication to the branch management/HO accepting his appointment and other declarations and undertakings so required. Further, the SBA should also specify the books, records, and other information that he would require in the course of his audit. Such a communication would enable the branch management to keep the requisite documents, information, etc., ready.
After the completion of the appointment formalities, it is advisable for the SBA to visit the concerned branches allotted, so as to get the feel of the business, nature and competences of the staff and understanding of the flow of information and authority. Thereafter the SBA should draw up a detailed plan for the audit and it is advisable to complete the entire non-financial verification (like documentation, sanctioning terms, review of the supervision and monitoring terms, review of the concurrent/internal audit and inspection reports before the year-end. An illustrative format of written representation letter to be obtained from the branch management is given in Appendix – XI of this Guidance Note.
Standard on Auditing (SA) 600, “Using the Work of Another Auditor”
The SBA’s report on the financial statements examined by him is forwarded to the SCA with a copy to the management of the bank. The SCA, in
preparing his report on the financial statements of the bank as a whole, deals with the branch audit reports in such manner as he considers necessary. In such a reporting arrangement, Standard on Auditing (SA) 600, “Using the Work of Another Auditor” needs to be emphasised.
Nowadays with all banks operating on CBS platform and moving towards more centralization of functions at HO adds to the dynamics of reporting. Considering the volume of transactions to be verified and the organizational structure of bank, particularly in the case of public sector banks, SCA’s reliance on work done by the SBA is of utmost importance.
The SCA would be the Principal Auditor (PA), who is responsible for the reporting on the financial information for the bank as a whole and the SBA would be the other auditor (OA) other than the PA, who is responsible for reporting on financial information of the branch as a component. As per SA 600, the degree of reliance, SCA would have on the SBA would depend upon many considerations, few of which are discussed as follows:
(a) the materiality of the portion of the financial information which the SBA audits and its effect on the overall financial position;
(b) the technical competence and knowledge of the SBA and the degree of confidence he provides to the SCA;
(c) the SCA’s assessment of risk of material misstatements in the financial information of the components audited by the other auditor; and
(d) the performance of additional procedures as set out in SA 600 regarding the components audited by other auditor resulting in the principal auditor having significant participation in such audit.
The SCA should perform procedures to obtain sufficient appropriate audit evidence, that the work of the SBA is adequate for the SCA’s purposes in
the context of the specific assignment. The SCA might discuss with the SBA the audit procedures applied or review a written summary of the SBA’s procedures and findings which may be in the form of a completed questionnaire or check-list or an Audit Summary Memorandum. This is usually done via the personal meeting between the SCA and all the SBA or via the bank’s closing instruction as discussed before). The nature, timing and extent of procedures will depend on the circumstances of the engagement and the SCA’s knowledge of the professional competence of the SBA. The SCA may conclude that it is not necessary to apply procedures such as those described in above paragraph because sufficient appropriate audit evidence has been previously obtained that acceptable quality control policies and procedures are complied with in the conduct of SBA’s practice.
The SCA should consider the significant findings of the SBA. The SCA may consider it appropriate to discuss with the SBA and the management of the
component, the audit findings or other matters affecting the financial information of the components. He may also decide that supplemental tests of the records or the financial statements of the component are necessary. Such tests may, depending upon the circumstances, be performed by the SCA or the SBA.
In certain circumstances, the SBA may happen to be a person other than a professionally qualified auditor. This may happen, for instance, where a
component is situated in a foreign country and the applicable laws permit a person other than a professionally qualified auditor to audit the financial statements of such component. In such circumstances, the procedures outlined above assume added importance.
The SCA should document in his working papers the extent of reliance he has relied upon the work done by other auditors with reasons therefor. The
SCA should also document the procedures performed as prescribed by SA 600 and his conclusions reached. The SCA should document how he has dealt with a specified opinion (i.e. qualified, adverse or disclaimer) of the SBA in framing his own report.
Further, it is also the responsibility of the SBA to inform or bring to the notice of the SCA any areas of concern that have come to his knowledge in the
in which his work is to be used by the SCA. For example, by bringing to the SCA’s immediate attention any significant findings requiring to be dealt with at entity level, adhering to the time-table for audit of the component, etc. He should ensure compliance with the relevant statutory requirements. Similarly, the SCA should advise the SBA of any matters that come to his attention that he thinks may have an important bearing on the SBA’s work.
When the SCA has to base his opinion on the financial information of the entity as a whole relying upon the statements and reports of the SBAs, his
report should state clearly the division of responsibility for the financial information of the entity by indicating the extent to which the financial information of components audited by the SBAs have been included in the financial information of the entity, e.g., the number of divisions/branches/ subsidiaries or other components audited by SBAs. The SCA would not be responsible in respect of the work entrusted to the SBAs, except in circumstances which shouldbhave aroused his suspicion about the reliability of the work performed by the SBAs.