## Long Form Audit Report (LFAR)

### What Is LFAR?

Beyond the statutory audit report, auditors of public sector banks, private sector banks, and foreign banks (including their branches) must submit a Long Form Audit Report (LFAR).

The matters to be covered in LFAR are specified by the Reserve Bank of India.
Statutory Central Auditors must submit LFAR to the bank by 30th June every year.
Proper planning is essential for timely submission.
Although the LFAR format does not require an executive summary, auditors may consider providing one to highlight key observations.

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## Reporting to the RBI

### Obligation Arising from RBI Circular

An RBI Circular (on recommendations of the Committee on Legal Aspects of Bank Frauds) applies to all scheduled commercial banks (excluding Regional Rural Banks). It places the following obligation on accounting professionals:

> If during internal audit, external audit, or institutional audit, an accounting professional finds anything susceptible to fraud, fraudulent activity, excess of power, or foul play in any transaction — they must refer the matter to the regulator (RBI). Deliberate failure to report renders the auditor liable for action.

### Relevant SAs

SA	Relevance
SA 250 — Laws and Regulations	The duty of confidentiality is overridden by statute, law, or courts — so reporting to RBI is mandated even if it breaches client confidentiality
SA 240 — Auditor's Responsibilities Relating to Fraud	Auditor is responsible for reasonable assurance that FS are free from material misstatement due to fraud or error

### Scope of Auditor's Duty

The auditor is not expected to examine every transaction — the duty is to evaluate the system as a whole.
If during normal duties the auditor comes across any instance of fraud/irregularity, they must report to RBI as well as the Chairman/MD/CEO of the concerned bank.

Worked example

### Example 1

Scenario: During a branch audit, the auditor notices that several loan accounts have had large credits entered just before year-end which were reversed shortly after. What should the auditor do?

Answer: Per Q15 guidance, the auditor should: (1) Document the sample transactions before and after year-end closing; (2) Assess whether these are designed to prevent NPA classification; (3) If foul play is suspected, report to RBI and to the Chairman/MD/CEO of the bank. The auditor cannot stay silent citing client confidentiality — SA 250 overrides the duty of confidentiality when statute requires reporting.

### Example 2

Exam Question: 'An auditor is not required to report to RBI if he discovers fraud only during external audit — only internal auditors have this duty.' — FALSE. The RBI circular applies to accounting professionals whether in the course of internal audit, external audit, or institutional audit.

⚠️ Common exam mistakes

Thinking LFAR is optional or a matter of terms of engagement — it is mandated by RBI for public sector, private sector, and foreign banks.
Confusing the LFAR submission deadline: it is 30th June, not the same as the statutory audit report deadline.
Assuming SA 250 confidentiality protects the auditor from reporting to RBI — SA 250 explicitly states confidentiality is overridden by statute/law.
Believing the auditor must check every transaction to fulfil the fraud-reporting obligation — the auditor evaluates the system as a whole and reports only when something is found during normal duties.

Reference:

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Long Form Audit Report (LFAR) and Reporting to RBI

Worked example

⚠️ Common exam mistakes