Chartered accountants’ apex body ICAI on Wednesday said
Reserve Bank‘s new norms for appointment of auditors will help bring in a large number of capable audit firms into the
banking and financial sector auditing works as well as enhance audit quality. Noting that the norms are in the “right direction”, ICAI President Nihar N Jambusaria said apart from audit quality, the norms will enhance “auditor independence and strengthen corporate governance”.
In April, the Reserve Bank of India (RBI) came out with the norms for appointment of Statutory Central Auditors (SCAs) and Statutory Auditors (SAs) of commercial banks, Urban Co-operative Banks (UCBs) and Non-banking Financial Companies (NBFCs), including Housing Finance Companies (HFCs).
Issuing a detailed statement, the Institute of Chartered Accountants of India (ICAI) said harmonising norms for appointment of auditors of various entities in the financial sector is the right step towards ensuring independence and transparency in the selection of auditors resulting in enhanced audit quality.
“ICAI has always stood for joint audit as the concept has always worked well for improving audit quality and reliability apart from having fresh perspective from new firms.
“Further, the joint audit will ensure due continuity in the audit process as one of the firms is continuing during rotation. It has an advantage of utilising technical expertise pooled in from participating firms. This also enables each of the joint auditor to focus better on its area of expertise and mitigate systemic risk,” it said.
Further, it said that rotation of audit firms after three years is already prevalent in Public Sector Banks (PSBs) and it was introduced in large companies on completion of five-year cycle by the Companies Act, 2013, “which proved to be effective”.
“Similar rotation of audit firms in other large intermediaries of banking and financial sector will surely result in improved audit quality apart from having fresh perspective,” Jambusaria said.
The new norms will bring in large number of capable audit firms into the banking and financial sector audit, he said adding there is no dearth of talent and the new RBI norms will be taping into the unutilised talent pool in the fraternity.
“Presently, only 10 per cent of the eligible CA firms are appointed as SCAs and with the relaxed norms, the number of eligible firms is expected to increase by three times. This will help the corporates choose their auditors from a larger pool from a location of their choice,” he pointed out.
Regarding restrictions on audit/ non-audit services for related entities, ICAI said it is largely aligned with the institute’s Code of Ethics and the principles in the Companies Act.
The reduction in the tenure of audit engagement and cap on number of audits an audit firm can conduct in the banking and financial sector will not only lead to enhanced audit quality but also capacity building of audit firms, it noted.
The ICAI President also said RBI should prescribe minimum number of SCAs that can be appointed by PSBs instead of maximum since in the past, the actual number of auditors appointed was quite less than the prescribed maximum.
“As per the present norm, compulsory cooling for 3 years of an SCA of a PSB is with that bank only. Instead of that, it should be mandated across all PSBs,” he said.
On Sunday, industry body CII had urged RBI to review its circular regarding appointment of auditors.
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