The statutory Auditor of the Bank is required to submit Audit Report as per the requirements of the Banking Regulation Act, 1949. It is called as Statutory Audit Report. This audit report broadly gives a true and fair view on the financial statements. However, this report does not necessarily communicate the lacunae in the operations and internal control system at the bank. Hence, the RBI advised the Public Sector Banks to obtain the Long Form Audit Report (LFAR) from the auditor since 1985. LFAR is a separate report to be submitted to the Management in the format prescribed by the RBI. The format of LFAR was initially prescribed in 1985, was revised in 1992 and subsequently in the year 2003. The present format is effective from 31st March, 2003.
Over the period, there have been many changes in the operations in the Banking industry, viz. CBS environment, internet banking, SMS alerts, spread of ATM centres, etc. Considering the changes in the operations in the Banking industry, the format of LFAR is under review. However, till the new format is notified, the existing format is in use. Therefore, the statutory auditor is expected to report in the existing format given by RBI.
Statutory Auditor is expected to review the LFARs submitted by the branch auditors and draft his LFAR in the format prescribed for the bank as a whole. Therefore, it is necessary tor the branch auditors to draft the LFAR carefully and with clarity so that a relevant point if any, at the branch is not missed by the Central Statutory Auditor, while forming its opinion or giving his observations about the internal control and operations.
The format of LFAR is in a questionnaire form. These questions are to be answered clearly. These questions are only indicative and not exhaustive. Therefore, the auditor should not limit the report to only answering the questions. But, he may mention any relevant point which the auditor feels necessary
to mention, in the same in the LFAR. The auditor should be clear, precise and relevant while finalising the LFAR of the branch.
While drafting the LFAR the following aspects need to be considered.
- The LFAR is not a substitute for Statutory Audit Report. Nor is it deemed to be a part of Statutory Audit Report.
- The Statutory Audit Report is a self contained document and the auditor should not make any cross reference to the observation in the LFAR. In case of any matter of emphasis, the auditor should mention the same in the report clearly.
- The matters in the main report may be elaborated in the LFAR.
- Any adverse comment made by the auditor in the LFAR, the auditor should consider whether qualification in the main report is required.
- It is not necessary that every adverse comment in the LFAR will result into a qualification in the main report. Therefore, the auditor should use his judgment in the facts and circumstances in each case. However, every qualification in the auditors report should be elaborated in the LFAR.
- The details given in the LFAR should be clear on facts and the opinion of the auditor is also to be mentioned so that the SCA can take up the point appropriately
- Though the format of LFAR is in a questionnaire form, the auditor should not necessarily limit the answer to YES or NO. He should mention his opinion, if any, over there as well.
- Broad Structure of LFAR
In this article, the discussion is mainly on the LFAR applicable to the branch audit. Hence, the prescribed format of bank branch LFAR is discussed here.
The format of the LFAR consists of the questions on four major areas. Such as:
- Balances with RBI, SBI and other Banks.
- Money at call and Short Notice
- Other Assets
- Other Liabilities
- Contingent Liabilities
- Profit and Loss Account
- Books and Records
- Reconciliation of Control and Subsidiary records
- Inter branch Accounts
In addition to these questions, are also given questionnaires applicable to specialised branches
- Dealing in Foreign Exchange Transactions
- Dealing in very large advances in excess of ^ 100 crore.
- Dealing in NPAs such as Asset Recovery Management Branches.
- Dealing in clearing house operations, normally referred to as service Branches.
In addition to these questionnaires, there is a format for Annexure for Large/Irregular/Critical Advances. Normally, this annexure is to be filled up by the branch management and the auditor should verify the details mentioned in the Annexure. The details will be pertaining to the advance granted in excess of ^100 crore.
Some of the matters mentioned in the LFAR needs compilation of information at the branch. It is the responsibility of the concerned branch to compile the information and hand it over to the auditor for verification. The auditor should verify the correctness of information and include the same in his LFAR. In case, auditor faces any problem in getting such information or has a doubt about the correctness of information, he should report the same in his LFAR.
- Reporting Under Specific Clauses
The following are the broad guidelines for verification
and reporting under specific clauses
- The branch is expected to maintain the cash balance within the limit prescribed by the controlling authority. This is called the retention limit for the cash. In case the branch holds cash in excess of the retention limit, the auditor should report the same.
- The auditor should count the cash including the cash in ATM and see whether it tallies with the books.
The excess balance should also be reported to the controlling authority within the prescribed time