CHAPTER I: INTRODUCTION

The audit of banking companies plays a very important role in India as it help to regulate the
banking companies in right manner. In audit of banks includes various types of audit which are
normally carried out in banking companies such as statutory audit, revenue/income expenditure
audit, concurrent audit, computer and system audit etc. the above audit is mainly conducted by the
banks own staff or external auditor. However, the rules and the regulation relating to the conduct
of various types of audit or inspections differ from a bank to bank expect the statutory audit for
which the RBI guidelines is applicable. In this, I have given more importance on the overall bank
audit system. In today’s competitive world audit is very much necessary as well as compulsory ,
because investor investing decision is depend on that particular concept if auditor has expressing
his view about particular organization is true and fair then investor can get his ideas about how
much he should invest in particular companies. Bank Management ensure that all transactions and
events, relating to the accounting period,areduly and faithfully recorded accurately and are
complete; and further, that the year-end account balances truly represent assets and rights(in
existence and with beneficial ownership), liabilities and obligations of the bank. Such financial
statements include assertions(implicit and explicit)related to the recognition, measurement,
presentation, and disclosure of the financial information contained therein in accordance with the
applicable statutory, regulatory(directives and guidelines)and the related Accounting Standards /
Indian Accounting Standards(translated into significant accounting policies), as also the
compliance of other applicable laws having effect on the financials. To ensure uniformity in
approach in the preparation of the financial statements, the bank managements encourage the issue
of periodic, and period end, internal instructions pursuant to the above, which instructions are
expected to be followed by all offices, branches, sections and department of the bank to enable
offices/branches to prepare their financial statements accordingly. With extensive use of
technology and its continuous evolution in a dynamic and changing environment, customers of the
Bank have the advantage of expeditious and convenient anytime-anywhere-banking, based on their
access on real time basis, to their information/data, stored in a safe and secure environment on the
bank’s servers. With the ever increasing number of customers having access to Internet and mobile
connectivity, monetary transactions from inception to finish have become expeditious through
banking; and, due to Core banking technology and extensive advancements there in banks have
achieved phenomenal and accelerated growth, and are able to venture into, and continuously offer,
a wide range of innovative products and services to their customers. Transactions in banks are not
only voluminous, but originate also from outside the branches. Though the RBI has desired that

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Banks ensure that all information relating to transactions of the branches be captured and built into
the centralized system, in reality it may not be practically possible. Bank guarantee renewals etc.
It is imperative that the auditor enquires into areas where the Branch needs to originate entries
which are not covered by, or to supplement, the centralized system. The system of capturing the
economic event/ information/ data, and integrity thereof needs to be optimally maintained at all
stages from origin, recording, transmission and storage; and the control systems that ensure that
the same is free of risks of errors, omissions, irregularities and frauds. Considering the challenges
of technology, bank managements continuously endeavour to focus on the internal control systems
to ensure that they are robust, safe and secure and risks are minimized. An audit involves an
objective independent examination of the financial statements of the banks that enhances their
value and credibility based on whether management’s assertions as to recognition, measurement,
presentation, and disclosure of the financial information contain there in can be supported by facts
and evidence. The purpose of such audits to express an opinion, and provide a reasonable assurance
as to whether or not the financial statements are presented fairly, in all material respects, that there
are no material errors or misstatements and, besides complying with the statutory and regulatory
impositions, give true and Fairview in accordance with the financial reporting framework. Given
the severe time constraints for the auditor to complete the bank branch audit exercise and furnish
his report as per the applicable auditing and assurance standards, it is imperative that he is equipped
with thorough knowledge of the relevant statutory and regulatory impositions for the time being
in force, the applicable Accounting Standards/ Indian Accounting Standards, and has there quest
expertise and skills to ensure timely execution of the audit assignment as per systematic plan. The
work performed needs to be well documented to enable him to support his audit opinion within
his reporting responsibilities. Banking operations are conducted only at the branches, while
other offices act as controlling authorities or administrative offices that lay down policies,
systems and internal control procedures for conduct of business. The auditor needs to
understand the scope of the assignment and the terms of engagement to enable him to plan
and perform so that all requisite reports/attestations are furnished within the severe time
constraints without, however, sacrificing quality Beyond the scope of the statutory audit .
and furnishing a report pursuant thereto, RBI requires the banks to obtain, in response to
a questionnaire in a structured format, a Long Form Audit Report (LFAR); and the banks
also appoint the auditors to conduct an audit under Section 44AB of the Income tax Act
1961.

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1.2 OBJECTIVE OF THE STUDY

1. To learn bank auditing

2. To understand importance of bank audit
3. To learn process of bank audit
4. To learn period of bank audit
5. To understand role of manager in bank audit
6. To understand why bank auditing is necessary

1.3 SCOPE OF STUDY

Indian banking sector is witnessing major changes in recent years, as a result of which new
regulations are being brought into practice. With the implementation of Basel III requirements,
more importance is given to risk-based bank audits. With more guidance and circulars from RBI
for regulating the banking business in the country, bank’s management is focused to bring about a
robust framework which will identify, assess and manage the financial risks. In order to achieve
this target, the internal audit of banks is necessary. A periodic internal audit is required to monitor
the bank’s system of internal control and procedures. Good internal audit process helps the
management in the effective discharge of its responsibilities. It gives them the assurance of the
risk and operational performance of the bank. Based on the volume and value of its transactions,
every bank should conduct an internal audit to fulfil its responsibilities and to achieve its
objectives.

Generally, the scope of any bank’s internal audit revolves around the following:

1. Evaluating the effectiveness of the internal control systems and monitor its application
2. Review the adequacy of the risk management procedures and methodologies
3. Checking the efficiency of routine operations of the bank
4. Evaluate the reliability and accuracy of the financial records and reports
5. Review the management information system and the efficiency of the electronic banking
Services
6. Implementation of policies and procedures and ensure its effectiveness
7. Ensure that the procedures comply with the legal and regulatory requirements
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 8. The undertaking of fraud investigations, if required
9. Ensuring the adequacy of procedures to safeguard the bank’s assets
10. Monitoring the bank’s Non-Performing Assets (NPA) and alarming the management when
required

1.4 RESEARCH METHODOLOGY

Data collection

The present study is of analytical and exploratory nature. Accordingly, the use is made of primary
data. The primary data is collected with the help of questionnaires from a sample of respondent of
E-banking services.

The key intention of the study is to evaluate the security and infrastructure measures of electronic
banking adopted so far. Therefor main objective of the study is evaluation of E-banking measures
adopted in nationalized banks.

Primary data

This is firsthand information is collected from the respondents associated with selected banks.

Observation method

Interview method

Structured Questionnaires

Secondary data

The secondary data was collected through the website, brochures of the bank, and though research
peppers on E-banking.

Annual reports of the bank

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Articles and research peppers

Books and internet

1.5 LIMITATIONS OF THE STUDY

Schedule time span was suufficient to cover all information

As an independent bank audit firm the information of the case study is not adequate for

This study

As a internship was the first practice experience it was not possible for me to

Know all and everything of bank audit

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1.6 EXICUTIVE SUMMERY

A banking companies are requires maintaining the books of account in accordance with section
209 of the companies act, 1956. Banking generally a sound internal control system their day to
day transaction. The auditor has to evaluate such system carefully. The fundamental requirement
of an audit, as regards reporting on statement of account can be discharged from the examination
of the internal checked and verification of assets and liabilities by making a comparison and
reconciliation of balance with those in the year and that of amount of income and expenses by
application of test checks. The banking regulation act casts greater responsibilities on the directors
of banks as compared to those of other companies in the matter of supervision over their working.
Therefore, they exercise, or are expected to exercise greater supervision over the affairs of bank.
The auditor is entities to rely on such supervision and to limit his checking to test checks. The
financial position of a bank is depended on the condition of assets, loan, investment, cash balanced
and those of its liabilities and fund. Their verification form an important part of the balance sheet.
Most of the bank have their own internal audit or inspection department entrusted with the
responsibilities of checking the account of various branches. The statutory auditor may not,
therefore, duplicate