The Council of the Institute of Chartered Accountants of India (ICAI) at its recently held meeting in New Delhi approved the Draft of the Guidance Note on Audit of Banks to ensure that the statutory auditors are well equipped in terms of the knowledge of the banking industry. Guidance Note on Audit of Banks is an important tool in the kitty of the members of the Institute to gain an insight into the systems and processes in the significant functional areas of the banking industry, such as the acceptance of deposits, lending, investments, fixed assets, branch functions etc. these all are obviously aimed at helping the members understand and effectively evaluate the internal controls and accounting systems in a bank.
A number of changes have taken in the banking sector, having a bearing on the functioning of the banks as also, consequently, statutory audit of banks. The 2005 edition of the Guidance Note, therefore, is an extensively revised and updated version of the 2001 Guidance Note and the 2003 Supplement, all with the basic aim of keeping our members abreast with the latest developments in the area of bank audits. Like the 2001 Guidance Note and the Supplement, the 2005 edition too delves into the impact of several new circulars in the field of prudential and income recognition norms, investment norms, exposure of investments, investment portfolio etc., on the functioning of as well as financial reporting by the banks. In addition, the Guidance Note also touches upon the aspect of application of various Accounting Standards, issued after the 2003 Supplement as well as the Report of the N D Gupta Committee on Compliance with Accounting Standards by Banks. Another critical area in the banking industry, which is being stressed upon by the Reserve Bank of India is prevention of money laundering. The regulator has issued a number of circulars relating to "Know Your Customer" guidelines. These circulars too have been dealt with by the revised Guidance Note. Guidance Note also provides guidance to auditor to ensure that money laundering activities do not take place.
The revised Guidance Note also provides an insight into the technological advancement impacting the banking sector, such as the internet banking feature etc. In addition to the above, as is the norm, the Appendices to the revised Guidance Note contain the text of various relevant circulars issued by the Reserve Bank of India as a source of ready reference for readers as also the illustrative format of the auditor's report. In nutshell, the Guidance Note aims to provide a comprehensive overview of the functioning of a bank and critical aspects of a bank audit.