The Art of Islamic Banking and Finance: Tools and Techniques for Community-Based Banking

firms, bank consulting firms and/orother parties knowledgeable in

banking.

Please note that the frequency of the audits suggested below is de-

termined in light of the risk-based audit discussed earlier.

1.Financial Statement Auditby a certified public accounting firm, CPA

An independent audit of financial statements should be designed

to ensure that the bank’s financial reports are prepared in accord-

ance with Generally Accepted Accounting Principles (GAAP) and

that the Independent Financial Statements are performed in accord-

ance with Generally Accepted Audit Standards (GAAS). The scope

of the audit will be sufficient to enable the CPA to express an opinion

on the bank’s financial statements.

The following list represents areas for which the board of direc-

tors requires an annual audit.

a.Cash and due from banks

b.Loans

c.Allowance for loan and lease losses (ALLL)

d.Premises and equipment

e.Other assets and liabilities

f.Deposits

g.Notes payable

h.Non-interest income

i.Expenses

j.Equity (holding company, if applicable)

k.Tax return

2.Operational, USA PATRIOT Act, Bank Secrecy Act (BSA), and Of-

fice of Foreign Assets Control (OFAC) Audits

These types of audits include a review of policies, procedures,

and operational controls to determine whether risk management, in-

ternal controls, and internal processes are adequate and efficient.

Operational audits generally include procedures to test the integrity

of accounts, regulatory reports, and other aspects of operations.

These audits may also include a review of management and

employee compliance with bank policies and procedures. The Oper-

ational, Bank Secrecy Act, and OFAC audits should be scheduled an-

nually at specific times.

3.Compliance Audit

This type of audit determines whether the bank is complying

with bank procedures and internal and external regulatory regula-

tions. This audit should be scheduled annually—or as frequently as

the risk analysis may call for—preferably in the first quarter of the

year but no later than the second quarter of the year. It focuses on

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