The Reserve Bank of India on September 5, 2020, came up with a reviewed long format audit report (LFAR) rule with a view to improving the effectiveness of internal audit and risk management systems in the banks. The Central Bank stated that the LFAR, which will be applying to the statutory central auditors (SCA) and branch auditors of all banks, has been restructured keeping in view the large-scale variations in the complexities, size, business model and risks in the banking operations.
The reviewed Long audit report format will be placed into a function for the period covering FY 2020-21 and onwards, the central bank stated. The general objective of the LFAR must be to recognize and understand the gaps and weak areas in the business operations, compliance, risk management and the efficacy of internal audit and give an independent judgement on the same to the Board of the bank and provide their observations, the RBI told.
The RBI told the banks to make sure about the timely receipt of the LFAR from the auditors while issuing the revised norms. It further added that the LFAR must be submitted before the Audit Committee of Board and Local Advisory Board of the bank representing the action taken or suggested to be taken for the modification of the irregularities.
The Long Format Audit Report, which will be applicable to all Statutory Central Auditors (SCA) and branch auditors of the banks, has been reorganized keeping in view the large-scale variations in the size, complexities, business model and risks in the banking operations, the RBI told. The pandemic has created new needs for the banks as such and Central Bank is putting all efforts to restructure the system. The newly drafted LFAR format will be put into operation for a period covering FY 2020-21 and onwards, the RBI stated.
Under the new standards drafted, the banks would be asked to send a copy of the LFAR and the related agenda note, along with the Board’s views, suggestions or directions, to the Reserve Bank within 60 days of submission of the LFAR by the statutory auditors.
The RBI further added that the coverage in the LFAR should be credit risk areas, market risk areas, assurance functions and operational risk areas, capital adequacy and going concerned and liquidity risk assessment, among the other parameters.