Every financial service company has a legal requirement to undergo audits regularly in order to comply with laws and regulations, as well as industry standards. A financial entity also requires continuous monitoring of transactions. For an entity like a Bank, the review mechanism must be robust and unabating.
INTRODUCTION
The Banking sector is an extremely crucial gear in our country’s economic sustenance and overall outlook. Thus, there exists an underlying necessity to undertake frequent and thorough audits of the financial system to ensure that operations are kept in check, as it is common knowledge that the economy and other important things depend largely on it.
Making sure the financial industry is well administered proves to be a crucial factor. Thus, reliable financial information accompanied by high-quality bank audits is one of the most crucial elements for the development of a safe and vibrant banking industry.
In this article, we will look more closely at the Regulatory bodies empowered by Acts and charged with the supervision of Auditing in the Banking Sector.
What is Bank Audit?
A Bank audit is a routine procedure designed to review the services of financial institutions to ensure they are in compliance with laws and industry standards. An accounting specialist known as a bank auditor carries out the review.[1]A bank audit is a formal process in which the services, systems, financial statements, and/or procedures of a bank, credit union, or other financial institutions are reviewed and summarized in a report.
Types of Banks Audit
Every financial service company has a legal requirement to undergo audits regularly in order to comply with laws and regulations, as well as industry standards. A financial entity also requires continuous monitoring of transactions. For an entity like a bank, the review mechanism must be robust and unabating. This Bank audit can be of the following types:
1. Internal Audit
Banks also perform internal audits for which they appoint an Internal Auditor to make a regular check on the financial activities of the bank throughout the year. Internal audit has several aims and principles to which it is necessary to adhere to. It is the board of directors of the bank, however, which bears final responsibility that the bank’s management applies an appropriate and effective system of internal control, a system of evaluating banking activity risk and risks concerning bank capital, appropriate methods of monitoring compliance with laws, measures, and internal procedures.
2.External Audit[2]
An External audit is a process by which an independent External Auditor will obtain sufficient appropriate audit evidence to give reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. This enables the Auditor to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework, and to report on the financial statements in accordance with the auditor’s findings.
3.Statutory Audit[3]
Statutory Audit itself comprises the word statute, which means regulation. Thus, it can be understood easily that the statutory audit is a mandatory audit defined under the law, in this case, the Companies and Allied Matters Act (CAMA) 2020, or as directed through policies from the Central Bank of Nigeria.
Some of the important aspects which should be covered under statutory audit are cash verification, tax-related issues, and loan accounts verification. After that, an Auditor prepares an audit report defining his opinion on a financial statement for which he has been allotted a specific time under which he has to perform an audit and submit his report.
4.Concurrent Audit[4]
Banks deal with a large number of transactions daily whose examination is also necessary on a continuous basis for determining the accuracy of the financial statement. For conducting such an audit, an external auditor is appointed by the bank known as a Concurrent Auditor who performs an audit of the transaction on a monthly basis.
The main objective of conducting a concurrent audit is to ensure compliance with the internal systems, procedures, and guidelines of the bank.
BANKING REGULATORY AUTHORITIES AND THEIR RESPECTIVE PROVISIONS ON AUDITING
Different laws and supervision rules are included inNigeria’s banking regulations.
The Banks and Other Financial Institutions Act is the main piece of law in Nigeria that governs and guides how banks do their business. (BOFIA of the Act). The Central Bank of Nigeria is given the right and ability to oversee and control all banks and other financial institutions in Nigeria under this Act. Some additional laws that regulate banking activities in Nigeria;
Each of these laws will be covered in more detail below.
The Banks and Other Financial Institutions Act, 2020
The BOFIA is the primary regulatory framework that governs the conduct of banks’ deposit-taking and lending activities.
Section28(1) provides:
The Central Bank of Nigeria Act,2007
The Central Bank of Nigeria acts as a Banker and Financial Adviser to the Federal Government of Nigeria. It keeps the accounts of the ministries, departments and agencies of the Federal Government. The Bank maintains deposits for the Federal Government and its agencies and makes payments on their behalf. The Bank is also entrusted with the management of government domestic debt and foreign exchange transactions.
The Companies and Allied Matters Act, 2020
The Companies and Allied Matters Act(CAMA) provides for Audit, including the appointment of Auditors, their functions, powers, etc., under Sections 401- 416. It may be apposite to consider a few of these provisions.
Section 401 provides for the appointment of an auditor or auditors. A person or persons appointed as auditors under this provision is/are to hold office from the conclusion of one annual general meeting to the conclusion of the next and such person(s) shall be reappointed unless he’s unwilling, or he’s disqualified, or a resolution barring his reappointment is passed. The section further provides for the powers of the directors to appoint (an) Auditor(s) to fill a casual vacancy.