Auditing bank books has always been a challenge. The complexity of banking products, the intensified automation and enhanced reliance of the regulators on external auditors under the Basel norms have cast additional responsibility on the auditors. Public and new private sector banks are run professionally with transparent procedures and reasonably good corporate governance practices. However, old private sector banks have a long way to go to adopt true corporate governance. This article summarizes the challenges, the grey areas and the additional responsibilities auditors may have to bear in the future.

In this age of liberalization and corporate governance, the role of auditors is crucial with the regulators depending on them. In the banking system, this audit requirement is more acutely felt in view of the fiduciary nature of banking activities. In view of this, the banking regulator, Reserve Bank of India (RBI), has specifically mentioned in many of its circulars, what is to be certified through the external auditors. RBI would like to depend more on them than on their own internal inspectors, after adopting an off-site surveillance as a monitoring tool and has generally stopped transaction specific onsite inspection as a routine.

Banks generally run the business with resources raised from the public at large. The bank may be owned by either the government, the public at large or some promoter groups or a combination of all these. With capital adequacy ratio of around 10%, the owner's stake therefore is relatively limited. The banking principles, the regulatory environment and the market forces are the same for all types of banks. RBI has now taken a deliberate decision to avoid issuing guidelines which are not uniform across private and public sector banks, to ensure a level playing field on the principle that the ownership of a bank itself should not normally alter the functioning and character of the institution and the banking principles to follow. Thus, the complexities of banks in public sector (with government shareholding varying from 51% and above to 100%) and private sector should be similar as far as the audit functions are concerned. In fact, RBI guidelines on bank audits are uniform, irrespective of the ownership.

The Accounting World Magazine, Private Sector Banks, Auditing Bank Books, Banking Products, Liberalization, Corporate Governance, Reserve Bank of India, RBI, Banking Principles, Risk Management Guidelines, Banking Ombudsman Scheme, Self-Regulatory Organizations, SROs, Forensic Audit, Public Sector Banks.