Effective Concurrent Audit/ Concurrent Audit Reporting

1. Effective Concurrent Audit/ Concurrent Audit Reporting By CA.R.Sivaraman Partner, M.Anandam & Co, Seunderabad

2. Why do we talk about that • Audit is evolving • Shift towards client orientation • More focus on concurrent audit • Stake holder expectation • Branch • Controlling offices • Statutory auditors • Reserve Bank of India • Depositors • Borrowers • General public

3. How do we achieve that? • Quality of delivery • Staffing • Updating knowledge – Industry knowledge - product knowledge – latest developments • CA vs Articles vs Retd Banker • Timely delivery • Understand the need of the consumer • Be a professional and not a salesman

4. I See an opportunity

5. I See an opportunity • Retirement of senior officers • Induction of fresh graduates • Inadequate training • Turnover of employees • Ever changing RBI guidelines • Your CA background • Opportunity as well as risk for concurrent auditors

6. Effective Concurrent Audit There is no shortcut to success • Proper Planning • Proper Execution • Clear Reporting

7. Planning Process First time Audit U need to understand • Business profile of the branch • Product mix of the branch • Staff complement • Features of CBS • Control mechanism in place HELPS U TO UNDERSTAND THE RISK LEVEL U HAVE TO ADDRESS

8. Planning Process First time Audit Review various documents like • Product manuals, • Circulars, • Delegation of powers, • Credit policy etc., HELPS TO U TO PREPARE AUDIT PROGRAMME

9. Planning Process Defined by the management • Audit universe, • Objective and • Scope Identify the skills required to perform the audit. In case of skill gaps train them to bring up the skill levels.

10. Planning Process • Divide the audit programme into daily, weekly, fortnightly and monthly. • Allocate activities for each team member. From second month onwards • Review circulars issued during previous month • Revise your audit programme based on the circulars

11. Execution process • Have a audit briefing meeting (entire audit team with key members of auditee) • Team leader to review the observations on a daily basis. • Team to discuss audit observations on a daily basis with the auditee. • Deliver the audit observations to the concerned on a daily basis and obtain their signature.(or send thro email) • Follow up for compliance.

12. Execution process • Do not step into shoes of the branch management. • Dispute resolution through team leader. • Partner in-charge to visit the branch and review the work done atleast once in a week

13. Effective Reporting Present state of affairs • Audit Manuals are provided by the Banks • Reporting Formats are provided by the Bank • Reporting Frequency is fixed by the Bank • Little scope for the auditors to modify the format. • Limited scope for bringing in any innovation • Under these restrictions auditors have to achieve maximum effectiveness

14. Effective Reporting Why report is important? • It determines the value of your work • It is a database of observations which will help tacking of compliance. • Protects auditor from future disputes • Report will talk about your capabilities with the Bank management.

15. Effective Reporting Points to be kept in mind while drafting reports • Observations should be specific not generic • Observations should be informative but short and crisp. • Draft the observation immediately and do not keep it for the last day. • Allocate sufficient time for report drafting • Planning/ execution/ reporting should be 25-50-25

16. Effective Reporting Points to be kept in mind while drafting reports • Mind your language; No offensive language; but pinpoint the observation. • No use of using adjectives

17. Two main ingredients • Report becomes effective when it • Adds Value for the auditee • Protects auditor’s interests

18. How to add value for the auditee • Adhere to the audit scope, frequency and time norms prescribed • Follow the format provided by the auditee • For all observations try and give circular reference or manual reference. • This makes auditee staff not to dispute over the observation. • Stray observations if rectified may be dropped.

19. How to add value for the auditee • Series of observations even after rectification may be highlighted as a system failure. • Serious irregularities/ Frauds should be brought to the next higher authority immediately. • Flash/ Special reports may be issued for serious irregularities. • Such Flash/ Special reports should be given a cross reference in the final report. • Highlight the violation to internal/ RBI guidelines.

20. How to add value for the auditee • Root cause for deviations may be highlighted. • Management response to be obtained for all observations • In case auditor is not convinced with the response given by the branch management, auditor can put a note explaining his stand beneath management response. • Do not copy simply copy paste CBS reports. Try to analyse the reports and add value to those reports.

21. How to add value for the auditee • Implications of deviations may be highlighted • Repeated observations may be highlighted • Pending observations of earlier reports may be grouped at one place. • Persons responsible for lapses, persons responsible for rectification and timeline for rectification may be highlighted.

22. Protect Auditor’s interest Follow SIA 4 Features of a good report • Clear • Factual • Specific • Concise • Unambigous • Timely

23. Protect Auditor’s interest • Compliance to generally accepted audit procedure • Disclose the Limitation on scope • Restriction on usage • Observation should be brought out in right perspective.

24. Layout suggested by SIA 4 • Title • Addressee • Report Distribution List • Period of coverage of the Report • Introductory paragraph • Objectives paragraph • Scope paragraph • Executive summary

25. Layout suggested by SIA 4 • Observations, findings and recommendations • Comments from the local management • Action taken report • Date of the report • Place of signature • Internal auditor’s signature with membership number

26. Examples of Observations Let the observation be specific • Few account opening forms are incomplete • In 10 out 0f 52 account opening forms Period of deposit has not been mentioned (provide the list of 10 instances) Avoid hypothetical observation • This could have resulted in revenue leakage • This has resulted in revenue leakage of Rs.10,200/-

27. Examples of Observations Let the actual deficiency be highlighted • In 50 instances the Account Opening Forms are not signed by the Branch Manager. • The Account Opening was not authorised by the Branch Manager in 50 instances. • In 50 instances Branch has opened the accounts without the approval of the Branch Manager.

28. THANK YOU