Bank Audit
Bank have the following characteristics which distinguish them from most other commercial enterprises:
1. Security: They have custody of large volumes of monetary items, including cash and negotiable instruments, whose physical security has to be ensured. This applies to both the storage and the transfer of monetary item and makes banks vulnerable to misappropriation and fraud. They, therefore, need to establish formal operating procedures, well-define limits for individual discretion and rigorous systems of internal control.
2. Complexity: They engage in a large volume and variety of transactions in terms of both number and value. This necessarily requires complex accounting and internal control systems.
3. Branch-Network: They normally operate through a wide network of branches and departments which are geographically dispersed. Of accounting and control function, with consequent difficulties in maintaining uniform operating practices and accounting systems, particularly when the branch network transcends national boundaries.
4. Off-Balance-Sheet Items: They often assume significant commitments without any transfer of funds. These items, commonly called ‘off-balance-sheet’ items, may not involve accounting entries and, consequently, the failure to record such item may be difficult to detect.
5. Regulations: They are regulated by governmental authorities and the resultant regulatory requirements often influence accounting and auditing practices in the banking sector.
Special audit considerations arise in the audit of bank because of:
1. The particular nature of risks associated with the transactions undertaken by banks;
2. The scale of banking operations and the resultant significant exposures which can arise within short periods of time;
3. The effect of the statutory and regulatory requirements; and
4. The continuing development of accounting principles and auditing practices
The auditor should consider the effect of the above factors in designing
1. Security: They have custody of large volumes of monetary items, including cash and negotiable instruments, whose physical security has to be ensured. This applies to both the storage and the transfer of monetary item and makes banks vulnerable to misappropriation and fraud. They, therefore, need to establish formal operating procedures, well-define limits for individual discretion and rigorous systems of internal control.
2. Complexity: They engage in a large volume and variety of transactions in terms of both number and value. This necessarily requires complex accounting and internal control systems.
3. Branch-Network: They normally operate through a wide network of branches and departments which are geographically dispersed. Of accounting and control function, with consequent difficulties in maintaining uniform operating practices and accounting systems, particularly when the branch network transcends national boundaries.
4. Off-Balance-Sheet Items: They often assume significant commitments without any transfer of funds. These items, commonly called ‘off-balance-sheet’ items, may not involve accounting entries and, consequently, the failure to record such item may be difficult to detect.
5. Regulations: They are regulated by governmental authorities and the resultant regulatory requirements often influence accounting and auditing practices in the banking sector.
Special audit considerations arise in the audit of bank because of:
1. The particular nature of risks associated with the transactions undertaken by banks;
2. The scale of banking operations and the resultant significant exposures which can arise within short periods of time;
3. The effect of the statutory and regulatory requirements; and
4. The continuing development of accounting principles and auditing practices
The auditor should consider the effect of the above factors in designing