RBI revises audit norms for banks to improve risk management

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September 5, 2020 9:09 PM

The LFAR, which applies to statutory central auditors (SCA) and branch auditors of banks, has been updated keeping in view the large scale changes in the size, complexities, business model and risks in the banking operations, the RBI said.

The PSL guidelines issued by RBI were last reviewed for commercial banks in April 2015 and for urban cooperative banks (UCBs) in May 2018, the central bank said in a circular.The revised LFAR format will be put into operation for the period covering 2020-21 and onwards, the central bank said.

The Reserve Bank on Saturday came up with revised long format audit report (LFAR) norms with a view to improving efficacy of internal audit and risk management systems.

The LFAR, which applies to statutory central auditors (SCA) and branch auditors of banks, has been updated keeping in view the large scale changes in the size, complexities, business model and risks in the banking operations, the RBI said.

The revised LFAR format will be put into operation for the period covering 2020-21 and onwards, the central bank said.

“The overall objective of the LFAR should be to identify and assess the gaps and vulnerable areas in the business operations, risk management, compliance and the efficacy of internal audit and provide an independent opinion on the same to the Board of the bank and provide their observations,” the RBI said.

While issuing the revised norms, the RBI asked the banks to ensure timely receipt of the LFAR from auditors.

It further said that the LFAR should be placed before the Audit Committee of Board and Local Advisory Board of the bank indicating the action taken or proposed to be taken for rectification of the irregularities.

Under the new norms, the banks would be required to send a copy the LFAR and the relative agenda note, together with the Board’s views or directions, to the Reserve Bank within 60 days of submission of the LFAR by the statutory auditors.

The RBI further said the coverage in the LFAR should be ‘credit risk areas’, ‘market risk areas’, assurance functions and operational risk areas’, ‘capital adequacy’ and ‘going concern and liquidity risk assessment’, among others.

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