Inspection of Documents
The auditor should ascertain whether the investments made by the bank are within its authority. In this regard, the auditor should examine whether the legal requirements governing the bank, relating to investments, have been complied with and the investments made by the bank are not ultra vires the bank. Apart from the above, the auditor should also ascertain that any other covenants or conditions which restrict qualify or abridge the right of ownership and/or disposal of investments, have been complied with by the bank.
The auditor should satisfy himself that the transactions for the purchase/sale of investments are supported by approval of due authority and documentation. The acquisition/disposal of investments should be verified with reference to the broker’s contract note, bill of costs, receipts and other similar evidence. The auditors should also check the segregation of duties within the bank staff in terms of executing trades, settlement and monitoring of such trades, and accounting of the same (generally termed as front office, middle office and back office functions’ segregation).
Some typical audit procedures would include:
checking compliance with all applicable legal requirements.
checking approval and all supporting documents for purchase and sale of investments.
checking segregation of duties.
ensure that the inherent risk of management overriding controls is mitigated.