# Audit of Bank Expenses — Interest and Operating Expenses
## A. Audit of Interest Expenses
### Primary Objective
Assess the overall reasonableness of interest expense by analysing interest rate ratios relative to average deposit/borrowing volumes.
### Audit Procedures
1. Analytical review of ratios — Compute interest paid on each type of deposit and borrowing as a ratio of the average quantum of those liabilities during the year.
2. Quarterly deposit analysis — Obtain a break-up of various types of deposits outstanding at the end of each quarter.
3. Year-on-year comparison — Compare the average interest rate paid on each deposit category with the prior year's rate. Investigate and explain any material differences.
4. GL break-up — Obtain the general ledger break-up for interest expense on deposits and borrowings for each month/quarter and trace to ledger balances.
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## B. Audit of Operating Expenses
### Primary Objective
Verify that operating expenses are properly authorised, reasonable in amount, and supported by adequate documentation.
### Audit Procedures
1. Evaluate internal controls — Study the system of internal control over expenses, including authorization procedures, to determine the nature, timing, and extent of substantive procedures.
2. Trend analysis — Examine whether there are divergent trends in major expense items (e.g., rent spiking while headcount is flat).
3. Substantive analytical procedures — Compute each expense as a ratio to total operating expenses and compare with prior year. Investigate material variances.
4. Vouching — Verify expenses against supporting documents and check arithmetic calculations.
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## Summary: Auditor's Toolkit for Expense Audit
| Procedure | Interest Expense | Operating Expense |
|---|---|---|
| Ratio analysis | Rate vs. average liabilities | Expense as % of total opex |
| YoY comparison | Average rate by deposit type | Individual line items |
| GL break-up review | Monthly/quarterly | As needed |
| Internal control evaluation | Limited | Primary step |
| Vouching with documents | Sample | Yes |
| Trend / divergence check | Rate movements | Yes |