Tag: Statutory Auditors

RBI may give banks/NBFCs more time to appoint auditors

Banking & Finance

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The Reserve Bank of India may give more time to regulated entities, including banks, to implement the new guidelines on the appointment of statutory auditors.

Regulated entities are of the view that a year’s time should have been given for implementing the guidelines as some of them have already re-appointed auditors for FY22. The RBI’s new norms were unveiled on April 27. The guidelines allow regulated entities to appoint auditors for three years. What this means is that audit firms that have already completed the three-year period will have to discontinue their assignment.

Financial services industry veteran TT Srinivasaraghavan observed that some of the regulated entities have already had their AGMs in which appointment of Statutory Auditors is usually on the agenda. So, industry bodies want some more time (say, from April 1, 2022) for implementation of the guidelines.

“In the meantime, an advisory/ consultative group of key stakeholders — the RBI, the regulated entities, and the CA Institute — can be asked to assess the guidelines and give recommendations within two months… there will be a 360-degree view on the issues and the potential solutions,” Srinivasaraghavan suggested.

Applicable to banks

The guidelines are applicable to commercial banks (excluding Regional Rural Banks), urban co-operative banks and non-banking finance companies (NBFCs), including housing finance companies, from financial year 2021-22. However, non-deposit taking NBFCs with asset size below ₹1,000 crore can continue with their extant procedure.

Chartered Accountant Sethuratham Ravi said regulated entities can ask for a dispensation, seeking continuation of the current auditor for one more quarter. “A regulated entity can write to the RBI that it is in the process of appointing a new auditor and that the same needs to be ratified at the AGM… The RBI could have given one more year for implementation,” Ravi said.

P Sitaram, ED & CFO, IDBI Bank, said the guidelines came at a time when some banks would have proceeded with the appointment/re-appointment of auditors. “So, they should have done it (issued the guidelines) either in January or having issued it, they could have said the guidelines will be applicable from next year,” he said.

Banking expert V Viswanathan underscored that even if an audit firm has completed its three-year term, the status quo of March quarter will continue for the April-June quarter. The bank will apply for RBI approval, and it is given.

“Sometimes, public sector banks get the list (of eligible audit firms from RBI) after September also. In which case, the status quo continues for the second quarter also,” he said.

 

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RBI guidelines require banks, UCBs and NBFCs to appoint auditors for 3 years

Banking & Finance

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The Reserve Bank of India (RBI) on Tuesday issued guidelines for appointment of Statutory Central Auditors (SCAs)/Statutory Auditors (SAs) in commercial banks, urban co-operative banks and non-banking finance companies from FY22 onwards, whereby they will have to appoint SCAs/SAs for a continuous period of three years.

RBI guidelines regarding appointment of SCAs/SAs will be implemented for the first time for urban co-operative banks (UCBs) and non-banking finance companies/NBFCs (including housing finance companies) from FY 2021-22.

However, UCBs and NBFCs will have the flexibility to adopt these guidelines from H2 (second half) of FY 2021-22 in order to ensure that there is no disruption.

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Non-deposit taking NBFCs with asset size (total assets) below ₹1,000 crore have the option to continue with their extant procedure.

Commercial banks (excluding Regional Rural Banks/RRBs) and UCBs will be required to take prior approval of RBI (Department of Supervision) for appointment/reappointment of SCAs/SAs on an annual basis.

RBI tightens internal audit framework for NBFCs, UCBs

While NBFCs do not have to take prior approval of RBI for appointment of SCAs/SAs, all NBFCs need to inform RBI about the appointment for each year.

For entities (commercial banks. UCBs, and NBFCs) with asset size of ₹15,000 crore and above as at the end of previous year, the statutory audit has to be conducted under joint audit of a minimum of two audit firms [Partnership firms/Limited Liability Partnerships/LLPs].

All other entities have to appoint a minimum of one audit firm (Partnership firm/LLPs) for conducting statutory audit.

Entities need to ensure that joint auditors do not have any common partners and they are not under the same network of audit firms.

Asset size and numbers

The RBI said the entities should decide on the number of SCAs/SAs based on a board/local management committee (LMC) approved policy by taking into account factors such as the size and spread of assets, accounting and administrative units, complexity of transactions, level of computerisation, availability of other independent audit inputs, identified risks in financial reporting, etc.

The central bank prescribed that an entity with an asset size up to of ₹5 lakh crore can have a maximum of 4 SCAs/SAs; above ₹5 lakh crore and up to ₹10 lakh crore: maximum of 6 SCAs/SAs; above ₹10 lakh crore and up to ₹20 lakh crore: 8 SCAs/SAs and above ₹20 lakh crore: 12 SCAs/SAs.

In case of any concern with the management of the entities, such as non-availability of information/non-cooperation by the management, which may hamper the audit process, the SCAs/SAs are required to approach the Board/Audit Committee of the Board/Local Management Committee of the entity, under intimation to the concerned Senior Supervisory Manager (SSM)/Regional Office (RO) of RBI.

Concurrent auditors of the entity should not be considered for appointment as SCAs/SAs of the same entity.

The central bank emphasised that the audit of the entity and any entity with large exposure to the entity for the same reference year should also be explicitly factored in while assessing independence of the auditor.

Tenure and rotation

In order to protect the independence of the auditors/audit firms, the RBI said that entities will have to appoint the SCAs/SAs for a continuous period of three years, subject to the firms satisfying the eligibility norms each year.

Further, commercial banks (excluding RRBs) and UCBs can remove the audit firms during the three-year period only with the prior approval of the concerned office of RBI (Department of Supervision), as applicable for prior approval for appointment.

NBFCs removing the SCAs/SAs before completion of three years’ tenure have to inform the concerned SSM/RO at RBI about it, along with reasons/justification for the same, within a month of such a decision being taken.

An audit firm would not be eligible for reappointment in the same entity for six years (two tenures) after completion of full or part of one term of the audit tenure. However, audit firms can continue to undertake statutory audit of other entities.

The RBI said one audit firm can concurrently take up statutory audit of a maximum of four commercial banks [including not more than one PSB or one All India Financial Institution (Nabard, SIDBI, NHB, Exim Bank) or RBI], eight UCBs and eight NBFCs during a particular year.

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