The LFAR which applies to
statutory central auditors (SCA) and branch auditors of banks has been updated
keeping in view the large scale changes in the size, complexities, business
model, and risks in the banking operations, the RBI said. “The mandate and scope of the audit will
broadly be as per given format and if the SCA feels the need of any material
additions, etc., this may be done by giving specific justification by the SCA
and with the prior intimation of the bank’s Audit Committee of Board (ACB)”.
SCA may resort to need-based limited transaction testing as hitherto. In deciding whether a qualification in the
main report is necessary, the auditors should use their judgment based on the
available pieces of evidence/facts and circumstances of each case, it said.
The revised long format audit
report (LFAR) norms had been announced with the scope of the mandate of an
audit covering areas of ‘Credit risk’, ‘market risk’, assurance functions and
operational risk areas’, ‘capital adequacy’ and ‘going concern and liquidity
risk assessment’, among others. This may also involve commenting on various
risks to which the banks are exposed to like credit, market, operational and
liquidity risk and risk management efficacy, assessment of the appropriateness
of procedures for preparation of supervisory returns, KYC/AML/CFT issues,
cybersecurity, business performance, business strategy including very high
growth / high ROE accompanied with high risks, etc., RBI said. The revised
LFAR format will be put into operation for the period covering 2020-21 and
onwards, RBI said.
The Central Bank further said
that the LFAR should be placed before the Audit Committee of Board and Local
Advisory Board of the bank indicating the action taken or proposed to be taken
for rectification of the irregularities. A copy each of the LFAR (i.e. for the
bank / all Indian Offices of a foreign bank as a whole) and the relative agenda
note, together with the Board’s views or directions, should be forwarded to the
concerned Senior Supervisory Manager (SSM) in the Department of Supervision,
Reserve Bank of India within 60 days of submission of the LFAR by the statutory
auditors, Central Bank said.
Under the new norms, banks are
asked to ensure timely receipt of the LFAR from auditors and send a copy the
LFAR and the relative agenda note, together with the Board’s views or
directions, to the Reserve Bank within 60 days of submission of the LFAR by the
statutory auditors.
[Source:
RBI Notification Ref.No.DOS.CO.PPG./SEC.01/11.01.005/2020-21]
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