The term "audit" typically refers to the financial statements of a company's expenditures, and it is an important aspect that all corporate entities should consider. Audits are the inspection or examination of the books of accounts to verify that every department is following the guidelines and obligations assigned to them.
There are various kinds of audits carried out in companies, banks and other companies. Regarding different types of audits in India, the management audit is a brand new idea that we borrowed from the USA. The primary goal of the audit is to assist the business in maximising profits by focusing on the improvement of efficiency.
Did you know?
The statutory audits are carried out in India every fiscal year, which runs from April 1 until March 31, but not as in the calendar year. Management audits have been implemented in recent times and are a relatively new concept in India. We took the idea of a management audit from the USA.
What Is a Bank Audit?
The bank audit is an annual review of the documents and services provided by an institution like a bank or another financial institution to see if they comply with the rules and regulations of the field.
Banks' auditing procedures may be external, internal accountants or auditors of banks carrying out the audit, and Bank auditors conduct specific tests to produce their conclusions.
A bank auditor closely investigates a bank's transactions, such as bank wires. Examining the financial and regulatory records and audits ensures that the bank's monetary flow is recorded accurately to demonstrate timeliness and completeness. Companies who work together with banks might receive requests from the authorities for additional documentation to facilitate the process.
Auditing techniques for banks also involve checking that the institution's financial system is functioning efficiently. They conduct tests to identify any illegal or untrue methods of reporting. One such test is called control testing.
A major and significant aspect of an audit of a bank is the ability to uncover any law violations. It's also vital that the bank auditor finds any problems with how they've implemented the bank's guidelines. Financial institutions need to be aware of the significance of an audit by a bank.
A financial institution can be subject to evaluating its risk management processes. The risk in question is:
- Operational risk
- Risks of compliance
- Strategic risk
- Reputation risk
- Credit risk
- Cyber and IT risk
There are multiple types of Audit types which we have illustrated below.
The audits of banks are broadly divided into these types.
- Concurrent audit
- Statutory audit
- Internal audit and information system audit
- Government audits
- Insurance audit
- Compliance audit
- Financial audit
You need to understand the concurrent audit. Don't worry. To help you, we have illustrated the complete information below.
What Is a Concurrent Audit?
A concurrent audit means including the inspection of the current transaction or the current transaction. It's conducted every month, and it is an ongoing audit. Banks can record many transactions that occur every day that requires a record to be maintained. That's why banks get involved in concurrent audits. This helps banks avoid inconsistencies, the burden of work and overlapping the transactions and can be very beneficial as the year draws to a close.
What Is Concurrent Audit of Banks and How Does It Work?
- In the case of a statutory audit, the emphasis is usually on the finalisation of the financial statement.
- Poor quality of bookkeeping/accounts and insufficient accuracy of financial reports.
- Unadjusted amount of advances and no follow-up to pay outstanding advances.
- The need for continuous support to finance personnel to enhance the management of finances and systems for accounting.
- The lack of follow-up audits can lead to repeated mistakes that last long.
Taking care of everything we mentioned above comes under concurrent auditor responsibilities.
The concurrent audit seeks to reduce the time between the transactions and the independent audit. This is crucial to implementing solid internal accounting procedures and efficient controls.
It is considered an early warning system that ensures the prompt identification of serious errors and irregularities. It can also help in preventing fraud and security in banks. Also, you can learn the basics of accounting to get a better grip on calculations and handling your business.
The Concurrent Audit Procedure
The concurrent audit checks all transactions of the bank. To figure out the concurrent audit procedure, it's imperative to understand the banks' policies.
Following are the inclusive banking functions:
- Acceptance of deposits
- Loans and advances
- Cash management
- Safety lockers
- Bill payment
Banks' functions need to be fragmented into transactions to conduct a concurrent audit. There can be some additional functions also, which go through a check during the concurrent audit procedure.
What Should You Do to Handle a Concurrent Audit of Banks?
Although concurrent audit procedures can be stressful for bank executives, they are normal procedures. This is a list of suggestions to assist you in responding appropriately to an audit at your bank:
Reread the Request
Be patient in reviewing and comprehending the formal request. Take note of any deadlines or other relevant requirements. If you're unsure about something, seek clarification from the person you have contacted.
Talk About an Audit Together With the Most Important Team Members
Everyone must be aware of what's taking place, including financial leaders and accounting managers who have direct contact with the sources of the requested information. Concentrate on what you need to accomplish and think about any issues you might face.
Employ a Lawyer if You Need To
We strongly recommend you engage a trustworthy attorney to help you with the process and ensure legal conformity.
Set up a Central Document Storage Area for All Documents
It should be a storage space for networks and a safe physical location, and only a few people should be able to access it.
Sort and Organise the Needed Information
It is possible to seek the assistance of a tech expert to extract all relevant information from off-site storage locations and backup drives in a safe way.
Check All Details
It's crucial to check all the data against other financial reports in your system. The more validation methods you use, the more likely you will attain accuracy.
Combine Data into an Information Package
Once you've collected all the information you need and the documentation to support it, it all into an information packet. Include an official letter that summarises the findings you've made and the legal steps you'll take to deal with any potential risks or issues.
Submit Your Audit Information
How you present your information is contingent on the kind of audit you request. Process audits require an inspection on-site.
Make Sure That You Have Confirmation of Your Conformity With the Audit of Your Documents
After you've submitted your details for review, you'll need to seek an audit-compliance statement from your auditor representative to prove your compliance with the audit. It should contain detailing the changes made based on the auditor's findings.
In short, bank audits involve routine tests and procedures that examine the validity and accuracy of the financial institution's control, operations documents, policies and rules. It also involves identifying any potential risks in the business and provides recommendations to mitigate those risks.
There are various software options to facilitate the bank audit process more efficient and easier for everyone. Some firms assist you in developing your bank auditing framework for the best way to handle the procedure.
After this formula, we have another solution for keeping all business transactions accessible within the reports that you can freely download with just a few clicks. Yes, Khatabook makes it possible, that too for completely free.