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10931p1057-66 | Internal Audit | Risk
10931p1057-66
Gourav Vallabh Sharma < E X E C U T I V E S U M M A R Y >
◆ With the progressive deregulation
tal. For this it is essential to have in place effective risk management and internal control systems, which are crucial to the conduct of banking business not only to lead the bank more profitably but also in compliance of prudential guidelines, for which a professional approach in risk management is called for.
tional financial markets and the progressive deregulation and liberalisation of the Indian financial sector, the Reserve Bank of India has been advising the banks to adopt the emerging best practices in banking and finance and the need for having in place effective risk management and internal control systems. Initially, in February 1999 certain guidelines were issued to banks on Asset-Liability Management, which were followed by detailed guidelines in October 1999 on the broad framework of risk management. In October 2002, additional guidelines were released on the specific areas of Credit Risk and Market Risk Management. Taking into account these guidelines, and keeping in view that the primary responsibility of protecting ‘depositors’ interest and the interest of other stake holders through corporate governance is that of bank’s own management, each bank is required to set up proper risk management system, which should be regularly monitored at the highest level. A robust risk management system is also essential in view of the proposed Basel II Accord on Capital Adequacy. Under the proposed Accord, a Three Pillar Approach is to be adopted for assessment of Capital
and liberalization of the Indian financial sector, banks are increasingly exposed to various kinds of risk-both financial and non-financial. Efficiency of every bank depends on how effectively it is managing the risks and ensuring a competitive risk adjusted return on capi-
ith the progressive deregulation and liberalisation of the Indian financial sector, banks are increasingly exposed to various kinds of risk - both financial and non-financial. Efficiency of every bank depends on how effectively it is managing the risks and ensuring a competitive risk adjusted return on capital. For this, it is essential to have in place effective risk management and internal control systems, which are crucial to the conduct of banking business not only to lead the bank more profitably but also in compliance of prudential guidelines, for which a professional approach in risk management is called for. The evolvement of financial instruments and markets has enabled banks to undertake varied risk exposures. In line with the developments in the interna-
The author is Faculty (Finance), XLRI Jamshedpur. The views expressed herein are the personal views of the author and do not necessarily represent the views of the Institute. Comments, views and suggestions can be sent at gvallabh@xlri.ac.in
wherein the supervisory resources will be directed towards the areas of greater risk to the supervisory objectives which aim at protecting the interest of depositors. The guidance note on RBIA issued by the RBI in December 2002 deals with the broad contours of the risk based approach towards audit. Under the second pillar. Thus. covering all risks and their prioritisation based on the level and direction of each risk. which basically adopt the methodology of transaction testing. making it risk based. all these do not provide any opinion on the qualitative dimension of business management including risk management. there are various types of internal audit. the supervisory process would seek to leverage the work done by Internal auditors of banks. RBIA needs special attention at this juncture.FOCUS A sound internal audit function plays an important role in contributing to the effectiveness of the internal control system. Thus. managing and controlling risks. market and operational risks in banks. audit can be achieved by modifying the approach towards audit.AUDITING Adequacy. Policy formulation: Banks are required to bring out a clear-cut policy on adoption of risk based approach 1058 CHARTERED ACCOUNTANT APRIL 2004 .Development of risk profile and drawing up of risk matrix taking inherent business risk and effectiveness of the control system for monitoring the risk. the focus of the proposed RBIA will be on risk identification. adoption of RBIA is one of the items of bank-level preparedness for introduction of Risk Based Supervision by the RBI. prioritization of audit areas and allocation of audit resources in accordance with the risk assessment. It is generally understood that the banks have adopted different approaches towards RBIA. RBI had brought out in August 2001 a discussion paper on ‘Move towards risk-based supervision of banks’. . including putting in place risk based internal audit (RBIA) system. reliability and timeliness of control reports. RBIA would not only offer suggestions for mitigating current risks but also anticipate areas of potential risks and play an important role in protecting the bank from various risks. STAGES IN RISK BASED INTERNAL AUDIT: 1. Under the RBS approach. Part II of the discussion paper identified five significant areas for action on the part of banks. there is a need for redefining and redirecting the scope of audit so as to take care of adoption of modern tools of risk management. While focusing on effective risk management and controls. in this regard. According to the plan of action put forward by the RBI.Addressing transitional and change management issues. The above paradigm shift in the focus of internal 111. They must be at different levels of implementation including some banks that are yet to adopt a proper strategy to assess the level of risk in various business segments. testing of accuracy and reliability of accounting records and financial reports. Incidentally. However.Identification of appropriate personnel to undertake risk based audit and imparting them with relevant training. RBI had issued to banks in December 2002 broad guidelines on RBIA. . This also includes a certain amount of transaction testing to confirm or modify the pre-audit risk assessment. adequacy and effectiveness of such tools. which are expected to undertake an evaluation of the risk management systems and control procedures prevailing in branches as well as in other functional areas. the supervisor is required to review the risk management processes in the banks in order to satisfy itself that the capital maintained by the banks is in relation to the risks being taken by them. wherein the first pillar dealing with the minimum capital heavily relies on the risk assessment in the areas of credit. RBIA . At present. II. It should provide the management with accurate information on the effectiveness of risk management and internal controls including regulatory compliance by the bank.Adoption of a risk assessment methodology for formulating risk based audit plan. stability of the banking system and development of banks as agents of economic growth. . Towards this end.Development of a well defined policy for risk based internal audit. integrity. As such. . banks are expected to take various steps to introduce RBIA which include . This has led to the need for adoption of Risk Based Supervisory (RBS). and . a supervisor also looks up to the systems and practice in banks in assessing. Lastly. and adherence to legal and regulatory requirements.Preparation of annual audit plan. . such as Risk Based Internal Audit Report. as well as to assist the business units to mitigate the risks. when the banks are required to adopt risk management system in all areas of their working’.Setting up of communication channels between the audit staff and the management. the third pillar proposes to bring in market discipline on banks by introducing more and more disclosure and transparency.
but banks have either not implemented RBIA or adopted different yardsticks CHARTERED ACCOUNTANT 1059 APRIL 2004 . The RBIA will serve its purpose only when there is a Monitorable Action Plan (MAP). which has to be implemented timely. The availability of skilled auditors / inspectors has to be assessed on an ongoing basis so that audit resources can be re-allocated and where necessary training can be imparted to the officers and other staff. not only for drawing up risk profile and risk matrix. The roadmap should outline the arrangements for developing the risk profile and the sources thereof. all Category I branches will be Inspected/Audited once in 12 months and Categories II and III branches will be inspected / audited once in 24 months. The internal audit function can be suitably modified to suit Risk Focused Internal Audit (RFIA). the bank should draw up a roadmap for implementation of RBIA. Top branches of the bank. However. 2. Essentially. functions which should be subjected to risk based assessment and a checklist for risk mitigation. In effect. to assess the risk for RBIA. These branches account for over 90% of corporate advances and around 70% of overall advances. there should be a proper organisational set up. findings of the same are to be reported in Audit Report Format. contributing over 70% of interest income and 50% of other income (including forex income) were categorised as Category I (High Risk) branches. these branches can be subjected to audit by regional inspection departments and HO audit department. Conduct of RBIA: Once the policy is in place. Once the branches are subjected to audit as above. Such a policy. Audit report . which may consist of a Task Force of senior officers. these branches will be subject to one form of audit once in 12 months. Category II branches are high interest earning branches and account for about 25% of interest income and 40% of other income. classification of the branch / function into low.AUDITING towards internal audit. The Task Force should identify the transitional and change management issues. These are treated as Medium Risk branches. As per the above classification. etc. The following are some approaches to assess the risk for RBIA: A. but also for prompt detection and correction of any deviations. B C and D. the bank felt that Probability of Default and Loss Given Default in these branches will be high and Operational Risk is likely to be high on account of large number of Forex and other transactions. SOME APPROACHES TO ASSESS RISK IN RISK BASED INTERNAL AUDIT: Adoption of Risk Based approach towards Internal Audit of Branches / Business units is one of the banklevel preparedness for introduction of Risk Based Supervision. Marks based on the findings can be awarded for Rating of branches into A. These are detailed and cover all areas of branch functioning. the entire branches of a bank can be divided into three Gategories: I. The RBIA methodology has been divided into following two parts: Part I: Explanation of Risk Based Internal Audit Methodology Part II: Application of RBIA Methodology IV. B. that this method has not identified segmentwise risk in branches to arrive at the overall business risk and control risk. For the use of Risk Based Internal Audit Methodology various business activities of the bank can be grouped as follows called as “Audit Universe” for e. It will be observed from the above.: a) Project Finance Group b) Retail Banking Group c) Treasury d) Retail Assets Products Group e) Subsidiary Companies f) Information System. In view of the above. all concerned should be well aware of the risk management system in the bank. For the purpose of RFIA. Steps should also be taken to address any issues in manpower management. Organisational aspects: For implementation of the road map for RBIA. II and III. Though RBI issued broad guidelines on Risk Based Internal Audit (RBIA).preparation and follow-up: Risk based internal audit findings are to be recorded in a specific format to enable the responsible persons to follow-up the findings in order to correct any deviations.g. re-skill the staff and bring about an all-round awareness on risk management. approved by the bank’s Board of Directors. should contain the methodology for risk assessment selection of branches. The remaining small branches are Category III branches with Low Risk. medium and high risk and the periodicity of audit and the quantum of transaction testing. This also calls for robust technological support. 4. 3. The risk profile prepared earlier should be subject to periodical updation incorporating the findings of audit.
AUDITING PART I: EXPLANATION OF RBIA METHODOLOGY 1. Medium and High as shown in Chart 1. 5. Financial Exposure: In order to ensure that the scale of operations is also considered while selecting the audit unit. Quantification of Controls: To carry out this assessment. Out of the eight business risks as indicated by the RBI. the pre-audit risk assessment does not specifically take into account business risk and control risk. This gap would be an indicator of the control environment in the Audit Unit. the latest available Residual Risk Scores have been used to compile Residual Risk Scores. Growth of Advances. Growth of Profit. However in practice there would be a gap between the risks and controls. These models are divided into various sub-processes for a given business area For measuring controls in these sub processes. Monitoring of NPAs. Current Audit Rating. Branches with marks from 61 to 80 are medium risk branches and those with above 80 marks are low risk branches. four control risks are first classified into major items and each item is further divided into sub-items against which positive and negative factors are recorded to arrive at level of risk. For example. A summary of business risk and control risk is drawn in the following format: PART II: APPLICATION OF RBIA METHODOLOGY In case of business areas where the structures have changed. 3. All the risks are categorised into Low. Legal Regulatory. An illustrative detailed Internal Control Evaluation Checklist in the deposit and credit area as shown on page can be used to Evaluate Internal Control in those areas. etc. For the purpose of Risk and Control Assessment. Branches getting marks upto 40 are treated as Very High Risk branches and suggested to audit once in 6 months. Six business risks are first divided into major components. Risk Map: Based on the Residual Risk Score and Exposure Score. there can be four items under credit risk . Score of 1 signifies low risk and score of 6 signified higher risk. stable or decreasing. overall risk is assessed as shown in Chart 3 and auditable resources is allocated on the basis of Overall risk. 1-6. a Risk Map has been prepared for deciding the audit frequency of the business units. respectively. In the chart. The Audit findings can be reported in a detailed format and marks awarded for post-audit ratings. Based on the risk assessment of Business and Control area. Branch). All the business segments of the branch are subject to audit once it is selected for audit. parameters such as number of errors. Similarly. 2. other credit risk in non fund based limits and adequacy of provisions. 6. exposure of the above risks has been measured on a scale for eg. 4. a set of standard processes. Growth of Deposit. which would indicate that the risks are fully covered by the existing controls. the size of the business of the Audit Unit would be other important factor for picking up the audit units. credit quality. both positive and negative factors are recorded and overall risk of each item is to be arrived at as Low. A chart (Chart 2) showing assessment of total credit exposure of Branch in different lines of activity is shown below. business specific rating models have been developed. In case of business areas where structures have remained unchanged. Financial. financial impact etc. capital and group risks are omitted and all the four control risks are retained. a control of 6 would be an ideal score. the latest available Residual Risk Scores have been used. Similarly. categorisation of the branches (Extra Large Branch and Very Large CHARTERED ACCOUNTANT 1060 APRIL 2004 .credit composition and growth. while branches with marks from 41 to 60 are treated as High Risk branches and considered for audit once in 12 months. The bank can draw branch risk-profile on the pattern of bank risk profile circulated by RBI. Risk Matrix is also drawn which is a combination of business risk and control risk. Risks can be identified as Operational. Against each item of credit risk. Certain marks are allotted for location of the branches in Metro and Urban areas. Medium and High with a provision for recording the direction of risk into increasing. In this method. Medium Risk and Low Risk branches are subjected to audit once in 12 to 15 months and once in 15 to 18 months. The bank can propose to adopt a simple way of assessing risk of branches for the purpose of audit. has been laid down. The total 100 marks can be allocated. C. which are generally common to any type of business. detailed questions on each item of credit risk are given. This factor has been termed as Exposure Score. 7. Reputational etc. A risk score is given for every process and every risk. Residual Risk Score: For every risk score. has been identified. the previous rating scores have been used to compile the Residual Risk Scores. For every process. In case of other business areas where structures have remained unchanged. D.
AUDITING Chart 1 Positive Factors Credit Risk Market Risk Earnings Risk Liquidity Risk Business Risk Operational Risk Overall Risk Direction of Risk Chart 2 Assessment of Total Credit Exposure of Bank Major Segments and Indicators of Credit Exposure 1. Credit Quality a) Classification of Assets ● Standard Assets to total Assets ● Reduction/increase in Standard Assets ● Sub-standard Assets to Total Assets ● Doubtful Assets to Total Assets ● Loss Assets to total Assets ● Watch/Special Watch Accounts ● Quick mortality Loans/Advances ● Devolved Liabilities ● Recoveries b) NPA Analysis ● Trend of Gross NPAs ● Chronic NPAs (more than 3 years old) Whole Retail Retail Project sale Banking Assets Finance Banking Products International business Negative Factors Low Overall Risk Assessed Medium High CHARTERED ACCOUNTANT 1061 APRIL 2004 . Composition Advances-growth Trend ● Credit to priority Sectors ● Credit to Non-Priority Sectors ● Exposure to Sensitive Sectors ● Non-Fund based limits ● Credit concentration 2.
Guarantees. ● Credit Risk on account of Forex contracts: 4.. 2) ADHERENCE TO SYSTEMS FOR ESTABLISHING AND VERFYING IDENTITY OF CUSTOMER CHARTERED ACCOUNTANT 1062 APRIL 2004 . etc.. Credit Risk-Non fund based limits: ● Exposure from LCs.DEPOSIT SPECIFIC: (Know Your Customer.KYC) 1 ) STAFF AWARENESS OF THE CONCEPT OF KYC GUIDELINES AND ADEQUACY OF TRAINING .AUDITING Net addition to NPAs ● Upgradation of NPAs ● Recoveries under compromise settlements ● Achievement under NPA targets ● amount of write offs 3.. Bills of Exchange discounted/redisco unted/co-accepted.Observance of formalities regarding opening of accounts. Adequate Provisions: ● Total Provisions Trend ● Understatement of provisions ● Provision as percentage to NPAs ● Quality of securities/collaterals Any other relevant Information ● Chart 3 Risk Matrix is drawn on the following format: Low Medium High High Risk Medium Risk Low Risk Low Very High Risk High Risk Medium Risk Medium Control Risk Extremely High Risk Very High Risk High Risk High Business Risk Internal Control Evaluation Procedure Checklist INTERNAL CONTROL.
Credit Investigation Reports wherever necessary and action thereon.Siphoning of funds borrowed for the purpose of unrelated operations of the borrower. preparation of quality credit reports. consisting of say around 30 questions can be prepared for risk profiling and against each question. but mostly of non-compliance with certain procedural aspects. . Godown checking. In this method the bank does not prepare any Risk Matrix. . Monitoring large value transactions.Suspicious transactions by individuals / firms including kite-flying activities. These questions cover various aspects of a branch. which are not based on business risk or control risk. some branches can be identified. A certain percentage of marks awarded under 4) 5) E. “name board of the branch requires replacement”.Delay in realization of Export Bills. This method is not qualitative in nature. SANCTION. Very High Risk and Extremely High Risk.dated transactions (TBC Branches) INTERNAL CONTROLS.Making market enquiries. QOS. CHARTERED ACCOUNTANT 1063 APRIL 2004 . timely filing of suits. periodical security valuation as per norms. identify warning signals if any take corrective action.Obtention of proper introduction as per guidelines. The bank can adopt a two-stage method of Risk Assessment. In this method of assessment of risk for the implementation of RBIA.Proper watch and control over newly opened/ staff/NRE/ In.Post sanction follow. A branch is subjected to Audit Rating first of all. . is mainly outsourced. etc 3) SYSTEM OF MONITORING RISK AND NRE ACCOUNTS . and for the time being both types of inspections will be conducted. MSOD. long overdue PCs high exposure to Listed countries. This method is better than the present method of inspection as that is not risk-oriented.Diversion of working capital funds. “outstanding amount of pension paid account is not reimbursed by the concerned branch”.Adherence to IT/RBI guidelines in cash transactions.e. . etc.Promptness in reporting and seeking ratification of transgressions/ Exceptional Drawings. overall risk level of a branch is arrived at. Medium Risk. . QUAILITY OF CREDIT INVESTIGATION: . The bank has no proper system of risk profiling of branches under this method. i. etc.Compliance of terms and conditions of sanction. . de linking of Export bills.up. “sub staff do not wear uniforms”. both under traditional approach and riskbased approach. obtention/ verification of proof of residence. asset inspection. . etc. SUPERVISION AND CONROL: . sanction of need based credit. adequate insurance and timely renewal thereof. Initially. Once risk has been assessed on the above basis.Proper verification of invoices. A questionnaire. for inspection under risk. conducting of pre.FINANCIAL) . proper analysis of financial statements. ensuring end use. 4) STSTEM OF REPORTING OF LARGE VALUE CASH WITHDRAWALS AND SUSPICIOUS TRANSACTIONS(FINANCIAL/ NON. 2) QUALITY OF APPRAISAL. Review of access log reports for unauthorized/ suspicious access made. High Risk.AUDITING . allotting marks ranging from 5 to 1 marks to each of the questions. obtention of decrees. Modification of critical parameters like back. Inspection. such as “branch has not implemented prescrolling system of cash”. “filing of circulars is pending”. Opening of current account with non.Timely submission of Credit Programme to controlling Offices.Obtention of stock statements and other feed back statements viz. marks ranging from 5 to 1 are allotted indicating Low Risk. 3) REVIEW/RENEWAL OF BORROWAL ACCOUNTS: . and ensuring that there is no diversion of funds. .consortium Banks.CREDIT SPECIFIC: 1) REPORTING TRANSGRESSIONS/ EXCEPTIIONAL DRAWINGS: .Sending of installment due notices. .based approach.Obtention of proper application data. and Valuation Reports at the time of sanction. etc.Timely renewal of borrowal accounts without frequent extensions. wherever required. F.reporting of large value cash transaction as per guidelines.Operative accounts.Conducting of Monthly Review in time and submission of feedback/ report to controlling Office. .sanction visits. . SYSTEM OF VERIFYING THE PURPOSE AND MONITORING THE ACCOUNTS INCLUDING DIVERSION OF FUNDS: .
as per RBI guidelines. and Operational Risk as part of “Business Risk” and Internal Control Risk and Compliance Risk form “Control Risk”. ● There is a need to re-emphasize proper assessment of risk on the basis of the business carried on by the branches and the level of controls over such business. advances growth. So far. Head Office and other controlling offices and subsidiaries will be subjected to management audit. etc. as auditors gain experience. However in some cases. based on a robust MIS and other sources of information. Large Branches. a Rating Chart can be introduced for branches. But the risk focused audit report is drawn as in traditional inspection. it is for the branch as a whole. A combination of levels of risk in Business and Control leads to a composite risk. etc. Liquidity Risk. While some public sector banks have attempted risk profiling more or less on the pattern of bank level risk profile. if the questions outlined in post audit format are used for pre-audit risk profiling and risk assessment. with the direction of risk. The remaining 85% of marks for Risk Assessment Methodology are allotted for the remaining part of ‘Control Risk” and “Business Risk”. is a simple exercise consisting of certain statistical information and categories of risk as High. however. The marks obtained by a branch under “Controls” part of Audit Rating can be given certain weightage say of 15% out of the total marks for “Risk Assessment Methodology” and treated as part of “Control Risk” for the purpose of Risk Based Internal Audit. the bank proposes to adopt “Risk Matrix” on the lines suggested by RBI and decide the periodicity of audit from 6 months to 15 months. ● The methodology adopted for risk assessment in some cases is found to be too simple to carry out RBIA. such as deposit growth. The remaining 150 marks are allotted to Controls. Transaction testing would continue to remain an essential aspect of risk based internal audit. Risk assessment of branches can be done into High Risk. V SUMMARY AND FUTURE STRATEGIES Summary Although most of the banks in India have initiated action to switch over to RBIA. Risk profiling. VLB. most of the banks have decided to continue with 100% transaction testing. Medium Risk and Low Risk and periodicity of audit ranges from 12 months to 18 months. Earning Risk. Extent of transaction testing would depend on risk assessment. the policy does not lay down clear-cut strategy for risk profiling and methodology for risk assessment. an ELB or a branch with higher growth in Deposits and Advances can be treated as a Higher Risk branch. The bank can decide to introduce Risk Focused Internal Audit in ELB. and categorization of branches on the basis of volume of business and the importance of the branch to them in so far as income generation is concerned. etc. cash management. G. 100 marks are allotted to Business Growth. Risks at the branches are categorized as: Credit Risk. Business Risk. These are elaborated as under. a metro branch. Thus. the branch is awarded marks out of 200. there have been wide disparities in understanding the concept and action to be taken under the system. CHARTERED ACCOUNTANT 1064 APRIL 2004 . customer service.AUDITING Audit Rating are taken to “Control Risk” under the “Risk Assessment Methodology”. ● As the RBIA is in the initial stage of development. etc. profit. inherent risk in business is not captured in Business Risk Assessment. for the purpose of Business Risk. The latter segment is further divided into quality of credit management. a branch with low or negative growth in deposits. such an assessment will be risk focused and audit resources can be suitably deployed. However. this method of audit is not risk focused. other banks have correlated risk to the location of the branches. As the rating can be given only after examination of all aspects of a branch functioning. ● Preparation of risk matrix is another area where banks need a little more guidance to correlate control risks with the business risks. the banks have not correlated transaction testing to the risk level in specific functional areas. advances or profits gets categorized as “Low Risk” branch. As regarding Audit Rating. On the contrary. Medium and Low. covering all aspects of branch functioning. Categorising the branches under “Business Risk” and “Control Risk” as explained above. risk based approach would be extended to all branches within a period of say two years. house keeping. At best. Out of the total say 250 marks. besides suggesting future strategies: ● Most of the banks have developed a policy on RBIA and put up to their Board of Directors. Wherever the banks have proposed different levels of transaction testing. controlling offices. Gradually. Post audit. Some of the banks have suggested that RBI may bring out a model risk profiling and assessment of a branch which can suitably be modified by each bank depending on the specific requirements.
● Too much simplicity in risk assessment is not desired. it covers almost all aspects of a branch and not necessarily linked to risk management. On organizational side. the classification of branches for RBIA is not only simple. there is a need to re-define the focus of Concurrent Audit. ● Whether spot rectification of defective documents. ● There should be some time limit required for RBIA. If RBIA is to replace internal audit (as practised presently). enough to provide some exposure to banks. there will be a need to decentralise the function to the levels of Zonal / Regional Managers / Regional Inspectorates. ● Collective efforts are called for in developing the required checklists questionnaires. Some sophistication in risk profiling is called for with the available technological support. till some level of comfort is attained. As regards manual on RBIA. thereafter. so that uniformity can be established. can be attempted under RBIA. the whole process is centralised. All the banks have imparted some training to the internal auditors / inspectors and other officers. General: ● ● ● Future Strategies Specific: ● The existing guidance note of the RBI is good ● It may be a good idea if an outside expert is associated initially for developing RBIA. it may consider taking some training initiative. ● Whether the existing system of inspection rating can be modified under RBIA will have to be examined.AUDITING ● ● ● ● ● ● ● ● ● ● ● Some of the banks have prepared Audit Report Format for reporting findings of the RBIA. after gaining some experience. In future. Similarly. As RBIA is yet to take off properly. there is no system of quality assurance. However. Collective efforts will be found useful. This holds well in respect of small sized banks. It is desirable that the road-map should not only contain the proposed strategy. Subsequently. most of the banks have proposed to prepare the same. the scope of Credit Audit is to be reexamined. But detailed guidelines are required to bring about some commonality in approach. At the present stage of RBIA. with sufficient guidance from Audit Committee of the Board. quantum of transaction testing. but also steps to be taken by the banks in development of manpower. It should be attempted to identify benchmarks on certain areas. quality check may ensure correctness of on. Regarding follow-up of audit findings. As the format covers all areas of branch operation. there is no check-list for risk mitigation. all the banks have entrusted the responsibility of ushering in RBIA to senior management. MIS for risk profiling and technological support for risk matrix. It is observed that in some cases. time required to conduct RBIA and time required for rectification. There seems to be a fear element in full-scale adop- CHARTERED ACCOUNTANT 1065 APRIL 2004 . but also centralised at Head Office.line examination. ● There is a need to adopt some common approach towards branch risk profiling and drawing up risk matrix. Similarly. linking of transaction testing to the level of risk as well as the frequency of audit based on the risk. Therefore. wherein branches are required to rectify their deficiencies and report compliance to the regional offices / regional audit centres. audit report format and risk assessment methodology. The auditors are. Some part of RBIA can be conducted on-line taking advantage of technology. which are to be put on RBIA at different time intervals. banks have proposed to continue the existing traditional audit. whether there is any need to change focus of Off-Site control over branches. Some of the banks have pointed out that the training imparted by external agencies is too theoretical. which needs to be made more practical oriented. Since risk profiling is found to be a simple exercise. etc. There is unanimity among banks on the various sources of input for risk profiling. given the audit report format containing various control questions to answer at the time of audit of the branches. ● IBA may come out with a booklet covering the broad procedures. ● There is a need for strengthening Concurrent Audit / Internal Control machinery. The road map for switching over to RBIA contains only the number of branches. particularly for smaller private banks. etc. the banks proposed to continue the existing format. Banks are not clear about the role of auditors in risk mitigation. such as availability of risk profile at RO / ZO level. they have designed to rate the branches by giving marks and arriving at an alpha score. Further. As stated above. so that transaction testing under RBIA can be reduced. the banks have not yet devised a system to dovetail audit findings to the existing risk profile. Management Audit needs to be strengthened. success of RBIA will depend on proper systems and procedures. Similarly. Alternatively.
security arrangements. Professional Development Committee of the Institute as its contribution in this regard has revised this publication on Professional Opportunities to inform the members about existing and evolving avenues available to them. But most of the banks expect further guidelines from RBI on various aspects of RBIA.and is available at the Sale Counter. we may fix accountability as well as incentives. Payable at New Delhi. NOTE: Rs. may kindly send their request letter. There is a need to impart practical oriented training to officers / auditors identified for the purpose. We hope that this revised publication is of relevance to the members of our Institute. CONCLUSION Thus. In future. Institute of Chartered Accountants of India. VI. October 21. drawing up of risk matrix and audit report format and its follow up. 2002. during their visit to the branch. 1999. The last year has witnessed several changes in the economic scenario resulting in best performance of India as compared to the other neighbouring Asian economies. etc. custody of important documents. As a future strategy. RMs. Once RBIA is stabilised. 2) “Risk Management System in Banks” . October 1999. New Delhi .Discussion Paper.RBI Circular. . there does not seem to be any uniform approach in respect of risk assessment. In the last one-year many new avenues have opened up for the members of the Institute and Chartered Accountants by their sheer determination have made inroads into several areas. it is suggested that a dialogue between banks and the RBI to examine the suggestions discussed above should initiate. India is one of the fastest growing nations of the world. As the advancement of the profession of Chartered Accountancy has its roots connected to the economic development of the Country. for the cost of the publication alongwith the postage mentioned below. it is found that the banks in India would like to REVISED PUBLICATION ON “PROFESSIONAL OPPORTUNITIES FOR MEMBERS . What is required is change of mind-set for which an environment is to be created through training. THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. therefore.110 002. We have tried to put sincere efforts to ensure that various new developments and the avenues are incorporated in this revised edition. August 13. Today. clearly mentioning the title of the Publication alongwith a Demand Draft in favour of THE SECRETARY.AUDITING tion of RBIA. Those interested to purchase the above publication via post. CHARTERED ACCOUNTANT 1066 APRIL 2004 . education. they may have to undertake a surprise check of cash holding.7100. 2001. The RBIA team should be well acquainted with the knowledge of risk management. all these positive changes would be beneficial for the profession of Chartered Accountancy as well. Further. ■ December 27.20 has to be remitted extra if a publication is required to be sent by Courier.RBI Circular. There are a few success stories on implementation of RBIA. which were not available to them earlier.Post Box No. looks into the developmental role of the branch. Please send your request to purchase Publications to: Deptt of HRD P & A (Postal Sale). RBI. etc. 4) “Risk Based Internal Audit in Banks”.AN APPRAISAL” The environment in which professional accountants work is changing very fast. Corporate Governance in branch operations needs to be ensured. carry out RBIA along with traditional internal audit / inspection for the time being. Towards this end. there is need to recruit / identify specialised auditors for conducting RBIA. RBIA should also be cost effective. 3) “Move towards Risk Based Supervision”. This publication is priced at Rs 75/. Indraprastha Marg. ● ● ● ● ● ● ● REFERENCES 1) “Core Principles of Effective Banking Supervision: The Indian Position” RBI Report. Presently. .
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