Checklist for Bank Audits – Making Audits More Effective

Checklist for Bank Audits
              Checklist for Bank Audits

Bank audit refers to the procedures for evaluating the services and processes in banks and other financial institutions. All financial firms need to undergo this routine procedure to ensure that they are complying with the industry-specific as well as jurisdictional laws and regulations. Bank audits  are conducted by specialist accountants known as bank auditors that focus on the completeness, accuracy and legitimacy of the financial activities. Although many banks and financial institutions find the audits a dreaded and strenuous experience, periodic audits are essential to ensure that the institute is fully in compliance with the regulations and is operating with high efficiency. Considering the significance of such audits, it’s important for an auditor to have a checklist for bank audits and use it as a tool to test and evaluate the processes. It also helps the auditor to ensure compliance with the laws and regulations of U.S. Securities and Exchange Commission (SEC) and International Financial Reporting Standards (IFRS).

Analyzing the Control Environment

It’s important for the auditor to understand the control environment of the banks and financial institutions and get familiarized with the factors that affect the transactions and corporate activities. There are internal as well as external factors that influence the banking activities. External factors relate to complying with the rules of government agencies whereas internal factors refers to working style of top management, human resources policies, ethical values, skill set of the staff and the financial robustness of the company. The competitive standing of a bank also impacts its control environment.

Evaluating Internal Controls

Evaluating internal controls is another prominent part of the checklist for bank audits. It’s the responsibility of an auditor to evaluate the internal controls of the banks on a random basis. Internal control refers to the directives established by the management for preventing errors, frauds or technological malfunctions. Testing and evaluating internal controls help the auditor gather evidences and important information regarding risks and procedures. Such information helps the auditor check if there are adequate and effective internal controls in place or not.

Ranking Risks and Controls

Evaluating internal controls helps an auditorget familiar with the controls. On the basis of this the auditor ranks the controls as “high”, “medium” and “low” depending on the expected loss. Generally Accepted Accounting Principles (GAAS) and Generally Accepted Accounting Principles (GAAP) are applied by an internal auditor for ranking the risks and controls. A bank’s Risk and Control Self-Assessment (RCSA) is also reviewed by the auditor. In RCSA, the senior risk manager of the bank provides information on the various controls and risks, along with their rating. Risks are ranked as “tier 1,” “tier 2” and “tier 3” on the basis of their loss possibility.

Issuing Final Audit Report

Before issuing the final audit report the auditor discusses the risk rankings with the senior management. This helps the manager in implementing appropriate corrective measures. “High” and “medium” risks may lead to significant losses. The auditor must also check if the financial statements are complete, accurate and compliant withGAAS, GAAP, IFRS and SEC rules. Complete financial statements include balance sheet, statement of cash flows, statement of profit and loss and statement of equity.




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