RBI revises LFAR norms for banks to improve audit efficacy, risk management

The Reserve Bank on Saturday came up with revised long format audit report (LFAR) norms with a view to improving efficacy of internal audit and risk management systems.

The LFAR, which applies to statutory central auditors (SCA) and branch auditors of banks, has been updated keeping in view the large scale changes in the size, complexities, business model and risks in the banking operations, the RBI said.

The revised LFAR format will be put into operation for the period covering 2020-21 and onwards, the central bank said.

“The overall objective of the LFAR should be to identify and assess the gaps and vulnerable areas in the business operations, risk management, compliance and the efficacy of internal audit and provide an independent opinion on the same to the Board of the bank and provide their observations,” the RBI said.It further said that the LFAR should be placed before the Audit Committee of Board and Local Advisory Board of the bank indicating the action taken or proposed to be taken for rectification of the irregularities.The RBI further said the coverage in the LFAR should be ‘credit risk areas’, ‘market risk areas’, assurance functions and operational risk areas’, ‘capital adequacy’ and ‘going concern and liquidity risk assessment’, among others.

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