An Analysis Of Audit Systems In The Banking Sector In Nigeria -By Oyetola Muyiwa Atoyebi & Tobenna Mogbo

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;

• The Central Bank of Nigeria Act 2007,
• The Companies and Allied Matters Act, 2020

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:

1. For the Appointment, power, and report of an approved auditor, providing that Subject to the approval of the Bank, every bank shall appoint a firm of auditors, whose duties shall be to present to the Shareholders a report of the annual Statement of Financial Position and Statement of Profit and Loss and Other Comprehensive Income of the bank and every such report shall contain statements as to the matters pertaining thereto and such other information as may be prescribed by the Bank.
2. (1)(b) the removal of an Auditor of a bank who, in the opinion of the bank, is not discharging its duties effectively.

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.

• Section 49(1) provides for the Audit of the Apex bank, which states that the accounts of the Bank shall be audited by an auditor or auditors appointed in accordance with the provisions of Section 6 of this Act.
• Section 49(2) The Auditor-General of the Federation shall conduct an Examination of the Bank, and submit a report thereon relating to the issue, re-issue, exchange, and withdrawal of currency notes and coins by the Bank and the Bank shall provide all necessary facilities for the purpose of the examination.
• Section 50(1) states the Bank shall, within two months after the close of each financial year, transmit to the National Assembly and the President a copy of its annual account certified by the Auditor.
• Section 50(3) states the Board shall ensure that accounts submitted pursuant to this Section shall as soon as possible be published in the Gazette.

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.

Also, Section 402 exempts a small company or a company which has not carried on any business since its incorporation from complying with audit requirements unless such company is a bank, an insurance company or such other company as may be denied exemption by the Corporate Affairs Commission.

Furthermore, Section 403makes extensive provisions on the qualification of an auditor. It is noteworthy that the law precludes any person having a form of interest, pecuniary or otherwise, in the company from being an auditor of the Company. This is to ensure transparency and good faith in the discharge of his (their) duties.

Moreover, Section 407 provides for the powers of Auditors to include the investigation of the accounting records of the Company, and the right of access to the books of account, records, vouchers etc., kept by the company.

CONCLUSION

The Banking Audit reveals financial institutions’ violations of rules and regulations, as well as their failure to follow the bank’s policies. Bank Auditors focus on the root cause of problems and give positive recommendations to the institution. Similarly, Audits of banks are necessary to guarantee that the bank’s practices are sound. Bank audits may be a source of relief for bank executives. If the goal of a financial institution is to be compliant at all levels, then Bank Audit is a must.

SNIPPET

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.

Keywords; Audit, Bank Audit, Auditors,

Mr Oyetola Muyiwa Atoyebi, SAN is the Managing Partner of O. M. Atoyebi, S.A.N & Partners (OMAPLEX Law Firm).

Mr. Atoyebi has expertise in and vast knowledge of Corporate Law Practice and this has seen him advise and represent his vast clientele in a myriad of high-level transactions.  He holds the honour of being the youngest lawyer in Nigeria’s history to be conferred with the rank of Senior Advocate of Nigeria.

He can be reached at atoyebi@omaplex.com.ng

CONTRIBUTOR: Tobenna Mogbo

Tobenna is a member of the Dispute Resolution Team at OMAPLEX Law Firm. He also holds commendable legal expertise in Corporate LawPractice

He can be reached at tobenna.mogbo@omaplex.com.ng

[1]https://www.taxmann.com<accessed on March 23, 2023>

[2]‘Banking Supervisors and External Auditors: Building a Constructive Relationship (1-4)’ Centre For Financial Reporting Reform World Bank Group

[3]https://vakilsearch.com<accessed on March 23, 2023>

[4]https://theinvestorsbook.com/bank-audit<accessed on March 23, 2023>