Table of Contents:
- Introduction
- Important Dates for Bank Audit FY 2024-25
- ICAI Guidance Note 2025: What’s New?
- Key Areas to Focus During Bank Branch Audit
- LFAR 2025: Format and Changes
- Compliance Checklist for Statutory Bank Audit
- Common Fraud Scenarios in Bank Branches
- ICAI Expert Panel for April 2025: How to Submit Queries
- FAQs
1. Introduction
The bank audit season for FY 2024-25 is officially underway. Every year, after March 31st, statutory branch auditors are appointed to perform audits of public and private sector banks as mandated by the Reserve Bank of India (RBI). These audits aim to ensure the integrity of financial reporting, adherence to regulatory requirements, and internal controls at the branch level.
Auditing a bank branch is a highly responsible task that involves reviewing the accuracy of accounts, verifying compliance with RBI guidelines, identifying non-performing assets (NPAs), and evaluating the branch’s risk management framework. This guide is crafted to help you navigate the audit process smoothly, especially in light of the newly released ICAI Guidance Note 2025.
2. Important Dates for Bank Audit FY 2024-25
To stay on top of your audit responsibilities, here are the key dates you should remember:
- March 31, 2025: End of Financial Year
- April 1 to April 15, 2025: ICAI Online Expert Panel available for audit query resolution
- June 30, 2025: Deadline for submission of Long Form Audit Report (LFAR) to bank management and RBI
3. ICAI Guidance Note 2025: What’s New?
The Institute of Chartered Accountants of India (ICAI) released the Guidance Note on Audit of Banks (2025 Edition) on February 18, 2025. It provides clarity on audit procedures, reporting obligations, and expected standards of documentation. Key updates include:
- Enhanced focus on credit risk assessment, especially for large advances
- Emphasis on independent verification of provisioning for NPAs
- Expanded guidance on income recognition and MSME classification
- Revised reporting format under LFAR
- Stronger expectations around compliance with KYC and AML norms
4. Key Areas to Focus During Bank Branch Audit
Auditors must devote special attention to the following components of a bank branch:
- Cash & Balances with RBI: Verify physical cash balances and reconciliation with books
- Advances: Evaluate sanctioning process, documentation, end-use verification, and asset classification
- Revenue Recognition: Ensure interest income is recognized as per IRAC norms
- NPA Identification: Re-check whether the branch has correctly classified overdue accounts
- Fraud Risk Monitoring: Identify red flag indicators and check for unusual transaction patterns
- Third-Party Products: Ensure proper agreements and disclosures for cross-selling activities
5. LFAR 2025: Format and Changes
The Long Form Audit Report (LFAR) is a core deliverable of the branch audit. For FY 2024-25, LFAR includes expanded disclosures on the following:
- MSME performance and classification
- Restructured accounts and provisioning adequacy
- Internal audit follow-up and system overrides
- KYC/AML exceptions and reporting
- Use of CBS (Core Banking System) data for audit trails
6. Compliance Checklist for Statutory Bank Audit
Here is a detailed checklist to streamline your fieldwork:
- Obtain complete trial balance and balance confirmation statements
- Review system-generated NPA list and cross-check with actual account behavior
- Perform test checks on provisioning calculations and security documentation
- Verify stock statements for cash credit and OD accounts
- Examine documentation for restructured or rescheduled accounts
- Review reversal of income in NPA cases
- Verify compliance with RBI circulars related to COVID-related restructuring, if any
- Confirm with concurrent and internal audit reports
7. Common Fraud Scenarios in Bank Branches
Auditors must remain vigilant for the following commonly observed fraud patterns:
1. Overdraft (OD) Regularisation via Term Loans
Branches sometimes create term loans at year-end to regularise overdue OD accounts. This window dressing violates income recognition norms and conceals NPAs.
2. Related Party Accommodation
Loans extended to group entities without proper disclosures or on relaxed terms often indicate misuse of power. Watch out for round-tripping and layering through current accounts.
3. Frequent Ad-Hoc Limits
Unusual instances of repeatedly granting ad-hoc enhancements without proper review indicate poor credit discipline and may be used to mask stress.
4. Evergreening Through Transfer of Funds
Accounts are kept regular through circular transactions or transferring funds between related accounts. Verify source of repayments critically.
5. Diversion of Funds
Term loans meant for capital expenditure are used for working capital or unrelated purposes. Perform end-use verification through invoices and site visits.
6. Unsecured Lending without Documentation
Temporary OD or cash credits extended without proper documentation or security in anticipation of approvals.
7. Inflated Stock Statements for Drawing Power (DP) Calculation
Borrowers may submit inflated stock figures or outdated stock reports to artificially increase drawing power under working capital limits. Auditors should verify the consistency between stock reports, stock audit reports (if any), and actual business turnover. Discrepancies between reported stock and creditor/supplier payments can be a red flag.
Each of these modus operandi must be thoroughly examined and red-flagged in the LFAR or Audit Memorandum.
8. ICAI Expert Panel for April 2025: How to Submit Queries
Recognizing the complexities involved in statutory audits, ICAI has set up an Online Expert Panel from April 1 to April 15, 2025. This panel is open to all practicing members of ICAI who need guidance on technical or procedural audit queries.
To submit a query:
- Visit the [ICAI Expert Panel Portal]
- Provide a brief background and supporting documents (if any)
- Expect a response typically within 24 to 48 hours
9. FAQs
Q1: Is LFAR mandatory for all bank branches?
LFAR is generally applicable to branches above a certain threshold limit as specified by RBI. However, most statutory audits require its submission.
Q2: Can the audit be conducted remotely or digitally?
Yes, ICAI encourages use of digital audit techniques. However, final reports and documentation should follow regulatory guidelines including wet signatures where required.
Q3: What if the branch does not provide required information?
Record such instances in your audit report and communicate with the Central Statutory Auditor immediately.
Q4: Can I continue using formats from last year?
No, the formats and checklists have been revised in the 2025 edition of ICAI’s guidance note. Always refer to the latest version.
Q5: Is it mandatory to review internal audit or concurrent audit reports?
Yes, these reports are essential for understanding past audit findings and areas of repeated non-compliance.
Conclusion: A successful bank branch audit in FY 2024-25 requires not just technical know-how, but also strict adherence to ICAI’s latest guidance. With increasing emphasis on risk assessment, digital documentation, and regulatory compliance, auditors must remain updated and diligent. By following this comprehensive guide, remaining alert to potential frauds, and making use of ICAI’s support mechanisms, you can ensure a smooth and effective audit process.
For more such detailed guides and real-time compliance tools, visit StoxNTax.com regularly.
Stox N Tax 
Leave a comment