Tag: Grant Thornton

The Reserve Bank of India may not relent on its new norms that mandate joint audit of banks and NBFCs above a threshold and auditor rotation despite widespread opposition from banks, NBFCs and auditors.

The central bank sees it as a game-changing move, which will ensure the independence of auditors and increase opportunities for firms, according to a report.

According to RBI, the guidelines are compulsorily applicable to only 300 NBFCs, out of the 9,600 in India, and other NBFCs with asset size below Rs 1,000 crore can continue with the existing system.

The statutory auditors of public sector banks, financial institutions already have a tenure of three years, and RBI has reduced the tenure of private bank auditors from four years to three, according to the report.

The six-year rotation policy of auditors is in place for private and foreign banks which has been extended to NBFCs.

Audit firms at loggerheads

Top multinational auditing firms in the country are at loggerheads with their Indian peers once again, with the former lobbying to make the Reserve Bank of India reconsider its latest auditing regulations that open up new opportunities for smaller Indian firms.

The new guidelines will curtail growth opportunities for multinational firms and create substantial transitional issues, but Indian firms a chance to get more audit business from the lucrative financial sector currently dominated by the Big Four.

Multinational auditors have started reaching out to RBI, industry associations like CII and FDCI, and even larger financial companies to highlight transition problems and risks of joint audits.

Indian firms have launched a counter-offensive by supporting the central bank’s move and taking their case to the regulator and financial companies directly and through industry associations such as Assocham.

The RBI regulations

On April 27, the RBI released new guidelines for statutory auditors of financial entities to enhance the independence of auditors and tackle concentration issues. The guidelines require mandatory rotation of auditors after three years with a six-year cooling-off period, and appointment of joint auditors in entities having asset size of Rs 15,000 crore and above.

The opposition

The regulations ran into opposition from bankers and auditors who wanted it to be deferred citing less time to appoint auditors and crunch. “The new guidelines have come in at the end of April. We have to evaluate how we can sort of look at appointing new auditors so quickly.

Because the RBI guidelines say that existing auditors cannot continue (auditing) if they have done three years. I think in the case of most companies (non-bank lenders), the auditors would have already done more than three years, probably done four years… So, I hope that RBI defers this applicability by year or so because the year has already started, and a lot of them would have to start looking around for new audit firms,” Keki Mistry, MD and Vice Chairman Keki Mistry had told ETCFO.

“Many challenges here if implemented from FY22. Some bank auditors have already finished three years — they will only have weeks to make a new selection. The pool available to choose from will be limited for FY22 and many potential suitors would be conflicted under the new one-year cooling-off period having done such non-audit services in FY21,” Grant Thornton Bharat CEO Vishesh Chandiok had said.