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CONCURRENT AUDIT SYSTEM

Written by Talent KAS

Related Topics: Banking Frauds, Y.H. Malegam Committee

News

Reserve Bank of India (RBI) has revised the guidelines on concurrent audit system following the recommendations by an expert committee under Y.H. Malegam.

What is Concurrent Audit?

  • It is a systematic and timely examination of financial transactions on a regular basis to ensure accuracy, authenticity, compliance with procedures and guidelines.
  • The emphasis under concurrent audit is not on test checking but on substantial checking of transactions.
  • It is an ongoing appraisal of the financial health of an entity to determine whether the financial management arrangements (including internal control mechanisms) are effectively working and identify areas of improvement to enhance efficiency.
  • This audit is essentially a management process integral to the establishment of sound internal accounting functions and effective controls and setting the tone for a vigilant internal audit to preclude the incidence of serious errors and fraudulent manipulations.

Revised Guidelines

Tenure

  • According to the revised guidelines, concurrent auditors will be appointed for a period of not more than three years. Further, the age limit for retired staff engaged as concurrent auditors may be capped at 70 years.
  • Earlier the tenure of external concurrent auditors was fixed at five years on a continuous basis.

Appointment

  • The option to consider whether concurrent audit should be done by bank’s own staff or external auditors (which may include retired staff of its own bank) continues to be left to the discretion of individual banks.
  • In case the bank has engaged its own officials as concurrent auditors, they should be experienced, well trained and sufficiently senior.
  • The staff engaged in concurrent audit must be independent of the branch/business unit, where concurrent audit is conducted.

Coverage

  • Under the new guidelines, the scope of work for concurrent auditors is left to the discretion of the head of internal audit of banks, with the due prior approval of the Audit Committee of the Board of Directors (ACB)/Local Management Committee ((LMC) in case of foreign banks) of the bank.
  • Earlier, the audit covered at least 50% of the advances and 50% of deposits of a bank.
  • Banks should ensure that the concurrent audit covers risk sensitive areas identified by them as per their specific business models.
  • The broad areas of coverage under concurrent audit shall be based on the identified risk of the unit and must include random transaction testing of sufficiently large sample of such transactions wherever required.

Reporting System

  • Banks’ Internal Audit Department should develop a reporting system for concurrent auditors with the approval of ACB/LMC.
  • The findings of the concurrent auditors may be received in a structured format prescribed by the bank.
  • Minor irregularities pointed out by the concurrent auditors shall be rectified on the spot.
  • The major deficiencies/aberrations should be immediately brought to the notice of Head Office/Controlling Office of the concerned branch/business unit of the bank.

Annual Review

The guidelines require the ACB/LMC of the bank to review the effectiveness of the Concurrent Audit system as well as the performance of the concurrent auditors on an annual basis and take necessary measures to suitably strengthen the system.

[Source: Livemint, The Hindu]

 

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