Roles and Responsibilities of External Auditors (while auditing a Bank)

 Although external auditors are not, by definition, part of a banking organisation and therefore, are not part of its internal control system, they have an important impact on the quality of internal controls through their audit activities, including discussions with management and recommendations for improvement to internal controls. The external auditors provide important feedback on the effectiveness of the internal control system. 

While the primary purpose of the external audit function is to give an opinion on, or to certify, the annual accounts of a bank, the external auditor must choose whether to rely on the effectiveness of the bank's internal control system. For this reason, the external auditors have to conduct an evaluation of the internal control system in order to assess the extent to which they can rely on the system in determining the nature, timing and scope of their own audit procedures. 

The exact role of external auditors and the processes they use vary from country to country. Professional auditing standards in many countries require that audits be planned and performed to obtain reasonable assurance that financial statements are free of material misstatement. Auditors also examine, on a test basis, underlying transactions and records supporting financial statement balances and disclosures. An auditor assesses the accounting principles used and significant estimates made by management and evaluates the overall financial statement presentation. In some countries, external auditors are required by the supervisory authorities to provide a specific assessment of the scope, adequacy and effectiveness of a bank's internal control system, including the internal audit system. 

One consistency among countries, however, is the expectation that external auditors will gain an understanding of a bank's internal control process. The extent of attention given to the internal control system varies by auditor and by bank; however, it is generally expected that the auditor would identify significant weaknesses that exist at a bank and report material weaknesses to management orally or in confidential management letters and, in many countries, to the supervisory authority. Furthermore, external auditors may be subject to special supervisory requirements that specify the way that they evaluate and report on internal controls.