Audit of Specific Institutions: Banks, Insurance and Educational Institutions (Overview) Questions

Question 1

What is meant by audit of banks?

Accepted Answer

Audit of banks is a **special audit** of banking operations focusing on **loans, NPAs, income and compliance**.

Question 2

What is NPA?

Accepted Answer

**NPA** means **Non-Performing Asset**.

Question 3

State one major area in bank audit.

Accepted Answer

**Loans and advances** are a major area in bank audit.

Question 4

State one major area in insurance audit.

Accepted Answer

**Claims** verification is a major area in insurance audit.

Question 5

State one major area in educational institution audit.

Accepted Answer

**Fee collections** verification is a major area.

Question 6

What is provisioning?

Accepted Answer

**Provisioning** means setting aside an amount for expected losses/obligations (e.g., NPAs, claims).

Question 7

Why are audits of banks and insurance called special audits?

Accepted Answer

They are called **special audits** because these institutions are **highly regulated**, handle **public funds**, and have unique high-risk areas (banks: **loans/NPAs**; insurance: **claims/reserves**).

Auditor focuses more on **compliance**, **internal controls**, and correct provisioning.

Question 8

Explain key areas of bank audit (any three).

Accepted Answer

Key areas of **bank audit** (any three):
- **Loans and advances**: documentation, security, sanction.
- **NPAs and provisioning**: classification and provisions.
- **Interest income**: correct recognition, especially on NPAs.
- **Investments**: valuation and income.

These areas directly affect profitability and risk.

Question 9

Explain key areas of insurance audit (any three).

Accepted Answer

Key areas of **insurance audit** (any three):
- **Premium income**: completeness and correct period.
- **Claims**: verification and settlement controls.
- **Outstanding claims reserve**: adequate provisioning.
- **Reinsurance**: documentation and recoveries.

These ensure correct income recognition and liability measurement.

Question 10

Explain key areas of educational institution audit (any three).

Accepted Answer

Key areas (any three):
- **Fees**: completeness, receipts, concessions, arrears.
- **Grants/donations**: proper utilization and documentation.
- **Salaries**: payroll checks and bank payment verification.
- **Fixed assets**: purchase bills and verification.

Main objective is to prevent leakage and ensure proper use of funds.

Question 11

Explain the role of internal control in special institution audits.

Accepted Answer

In special audits, **internal control** is critical due to high transaction volume and sensitive funds. Auditor studies controls, tests key controls (authorisation, segregation), and decides extent of substantive checks.

Strong controls reduce risk; weak controls require more detailed verification.

Question 12

State any three common compliance areas in special audits.

Accepted Answer

Common compliance areas (any three):
- **Regulatory reporting** requirements.
- **Provisioning/reserve norms** (NPAs/claims).
- **KYC/AML** and documentation standards (banks).
- **Investment norms** (banks/insurance).

Compliance failures can cause misstatements and penalties.

Question 13

Explain the audit of banks. Mention key areas and checks with a table/flow.

Accepted Answer

### **Audit of Banks (key areas)**
Banks are special because they handle **public deposits** and are **highly regulated**.

**Important areas**:
- **Loans & advances**: sanction, documentation, security
- **NPAs** and **provisioning**: correct classification and provision
- **Interest income**: correct recognition (especially on NPAs)
- **Cash/bank balances**: physical verification, confirmations
- **Investments**: valuation and income

| Area | Key check |
|---|---|
| Loans | loan file, security, documentation |
| NPA | classification + provision |
| Interest | income recognition policy |

```text
Controls review → Loan/NPA checks → Income checks → Balance confirmations → Report
```

Thus bank audit focuses on compliance and correctness of high-risk items.

Question 14

Explain audit of insurance companies. Mention premium, claims and reserves with a table.

Accepted Answer

### **Audit of Insurance Companies (key areas)**
Insurance audit is special due to **premiums**, **claims**, and **reserves**.

**Important areas**:
- **Premium income**: completeness and correct period
- **Claims**: verification, approvals, settlement
- **Outstanding claims reserve**: adequate provision
- **Reinsurance**: documentation and recoveries
- **Investments**: valuation and compliance

| Item | Major risk |
|---|---|
| Premium | incompleteness/cut-off |
| Claims | inflated/false claims |
| Reserves | under-provisioning |

Thus insurance audit emphasizes proper provisioning and documentation.

Question 15

Explain audit of educational institutions. Mention fee verification and grant utilization with a flow/table.

Accepted Answer

### **Audit of Educational Institutions (key areas)**
Educational institutions deal mainly with **fees**, **grants/donations**, and **salary expenditure**.

**Key checks**:
- **Fees**: completeness, receipts, concessions, arrears
- **Grants**: utilization as per sanction, supporting documents
- **Salaries**: attendance/payroll, approvals, bank payments
- **Fixed assets**: purchase bills, capitalization, verification

```text
Student strength register → Fee receipts → Bank deposit → Accounting entry
```

| Area | Key risk | Audit focus |
|---|---|---|
| Fees | suppression/leakage | receipt controls, reconciliation |
| Grants | misuse | sanction + utilization proof |
| Salary | ghost employees | attendance + payroll review |

Thus educational audits focus on controls over receipts and proper use of funds.

Audit of Specific Institutions: Banks, Insurance and Educational Institutions (Overview)

8 more questions to unlock