# Bank Audit Reports & Engagement Team Discussions

## Reports to be Issued by Statutory Central Auditors (SCAs)

In addition to the main audit report, SCAs of banks must furnish the following reports:

1. Report on adequacy and operating effectiveness of ICFR — only for banks registered as companies under the Companies Act.

2. Long Form Audit Report (LFAR).

3. Report on compliance with Statutory Liquidity Ratio (SLR) requirements.

4. Report on treasury operations — whether conducted as per RBI's instructions.

5. Report on IRACP — whether Income Recognition, Asset Classification and Provisioning norms have been followed per RBI guidelines.

6. Report on any serious irregularity noticed in the working of the bank requiring immediate attention.

7. Report on compliance with Ghosh Committee recommendations (frauds and malpractices) and Jilani Committee (Internal Controls).

8. Report on instances of adverse credit-deposit ratio in rural areas.

## Engagement Team Discussions (per SA 315 & SA 240)

Engagement Team = all personnel performing an engagement, including any experts brought in.

The team must hold discussions to:

Gain a better understanding of the bank and its environment (including Internal Control).
Assess the potential for Material Misstatement (MM) of FS.
These discussions must be documented for future reference.

### Matters Discussed (Mandatory Coverage)

1. Errors that may be more likely to occur in the bank.

2. Errors identified in prior years.

3. Method by which fraud might be perpetrated by bank personnel.

4. Audit responses to engagement risk and specific risks.

5. Need to maintain professional skepticism throughout the engagement.

6. Need to remain alert to information or conditions indicating MM may have occurred.

### Advantages of Engagement Team Discussion

Provides specific emphasis to the susceptibility of the bank's FS to MM due to fraud.
Enables Engagement Partner (EP) to delegate work to experienced engagement team members.
EP can review the need to involve specialists to address fraud-related issues.

Worked example

### Example 1

Example — Identify the report:

The SCA writes a report stating that interest is being recognised on accounts where the borrower has not paid for the last 5 months. Which separate report covers this?

Answer: Report on IRACP (Income Recognition, Asset Classification and Provisioning) — accruing interest on an NPA is a violation of RBI's IRACP norms.

### Example 2

Example — Engagement discussion:

In the prior year audit, a branch manager was found to have authorised loans to fictitious borrowers. What should the engagement team discuss?

Answer: (i) the prior-year fraud (errors identified in prior years), (ii) the method used (fictitious loans) as a possible recurrence, (iii) audit responses such as enhanced verification of new loan accounts, and (iv) need for specialists if forensic expertise is required.

⚠️ Common exam mistakes

Forgetting that LFAR and ICFR are separate reports from the main audit report.
Listing ICFR report for nationalised banks — ICFR is only for banks registered as companies.
Believing engagement team discussions are optional — they are mandatory under SA 315/240.

Reference:

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