Economics · Bank Audit
An internal auditor discovers that a branch has been holding several 'Sundry Creditors' balances for more than three years without any movement. These balances represent small amounts deducted from customer accounts for services that were never rendered. The branch manager wants to credit them to the profit account for the current year to meet targets. How should the auditor handle this situation based on bank audit principles and RBI guidelines?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The auditor should ignore the balances if the total amount is less than 1 percent of the branch's total deposits.
- 2The auditor should suggest that the manager use these funds for internal staff welfare expenses.
- 3The auditor must insist that these balances be investigated and if the customers cannot be identified, the amount must be transferred to the DEAF account as per RBI norms.✓
- 4The auditor should agree with the manager and allow the transfer as it improves the bank's bottom line.
Correct answer
The auditor must insist that these balances be investigated and if the customers cannot be identified, the amount must be transferred to the DEAF account as per RBI norms.
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