CA Amresh Vashisht
A chartered accountant is mandated to conduct statutory and other audit of banking industries. This is in compliance of various statutes applicable to audits, there are kind of audits and there are many ways to appoint the auditors for the Banking Sector. The appointment procedure of Statutory Central Auditors and statutory Branch Auditors are undergone many changes in the past. The ideal system for appointing the auditors to the banking industries is still awaited in a way to serve the purpose of such audits in fullest.
With the new regime in power at Delhi, many changes were expected. Recently RBI has communicated to the President of ICAI on dated 6th February 2015 having DBS.ARS. No. /08.91.008/2014-15 that Department of financial services, MOF, GOI has advised through their letter no. F No. 1/14/2004-BOA RBI that Govt. on dated 25th November 2014 has decided that the work of selection and appointment of SCA is delegated to individual PSB for the year 2014-15 and onwards subject to prescribed selection criteria by RBI . Through the communication RBI has prescribed the selection criteria along with norms on eligibility & empanelment of statutory central auditors.
With this the ongoing tussle of granting autonomy to PSB as a good work or bad work taken its last breath. Now it’s a reality that PSB are as free as private banks to choose their own sweet will auditors. This has rested the speculation since 2006 that the freedom would lead to compromise of good practices in PSB. This move has certainly rested a major controversy in the auditing community. The move, which is part of an enhanced autonomy package for PSBs, is in contrast to the earlier system under which the Reserve Bank of India was the sole authority to make auditor appointments in 27 government-controlled banks.
Under the new system, banks would have to directly source the names of auditors from the panel available with the Comptroller and Auditor General (CAG) for SCAs while the names for branch auditors would have to be obtained from the Institute of Chartered Accountants of India (ICAI). Earlier, CAG would empanel the SCAs and send the list to RBI for appointment. For branch auditors, the RBI used to obtain the panel from the ICAI. However, the Finance Ministry has now stipulated that the bank board’s must obtain prior approval of the central bank before making the final appointment. The RBI would also continue to fix the norms and remuneration for SCA and branch auditors as well as their empanelment. ICAI has totally failed to impress the Govt. that the adoption of decision to grant autonomy to PSB may result in jeopardizing the future of banking sector.
The Govt. being a major stake holder to the Bank capital has forfeited its right to appoint the auditor and vested it to the management of the PSB. The old mechanism of appointment through Selection Committee constituted by Government of India in coordination with Reserve Bank of India is the history now. The office of Comptroller & Auditor General (C&AG) will provide the list of eligible auditors available with them and PSBs can make selection out of the list with the prior approval of RBI. The Road Map for operationalisation of managerial autonomy and procedure for appointment of statutory auditors in PSBs w.e.f 2008-09 is implemented finally but the efficiency of the new guidelines will be judged in a couple of years because it is known fact that pursuant to financial crisis, the Governments in the Western countries were considering whether the appointment of auditors should be done by the Government, instead of by the entity concerned. The merits of western policy change didn’t got any ears to the knowledge of the regulators to stick to their policy of appointment of auditors by C& AG/ RBI and which is also in line with the stand taken by the Institute.
The Norms on eligibility, empanelment and selection of Statutory Central Auditors in Public Sector Banks are the same as in operations since long. The procedure for appointment of statutory auditors in public sector banks is also the same going on in the Banking Industry since long. So only change in the new regulation is that Bank Management shall appoint the eligible auditors as per new norms, which is the same wine in new bottle.
The said communication does not prescribe anything about the STATUTORY BRANCH AUDITORS and the old norms and procedures shall prevail. Statutory branch audit of PSBs may be carried out for all branches with advances of 20 Crore & above and 1/5th of the remaining branches covering a representative cross section of rural/semi-urban/urban and metropolitan branches, predominantly including branches which are not subjected to concurrent audit, so as to cover 90% of advances of a bank. CPUs/LPUs/and other centralized hubs by whatever nomenclature called would be included in the one fifth of the remaining branches every year.
Further Going forward, in mutual discussions with GoI and SCAs, based, inter alia, on the operational efficiency and robustness of CBS, system driven identification of NPAs, and integrity of MIS, managements of individual PSBs may decide on the threshold level of advances for the purpose of selecting branches for statutory audit. At present there is no indication from any PSB is going to reduce the threshold level of advances. As per policy progressively, the threshold level of advances may be increased so that the number of branches to be taken up for statutory audit is phased down over a period of time.
The phasing out of branch auditors is very much evident from the no of firms who secured the allotment as Statutory Bank Branch Auditors drastically. In the year 2009-10 , there were 19189 firms who undertook the branch audits for 56700 bank branches in comparison to the year 2013-14 ,where the number of firms reduced to 14178 and the audits were for 22310 bank branches. This trend will go on and on. From 2009-10 onwards those firms who have completed their one tenure of 4 years, very few firms got renewals of their appointment. There are only 33 centers approved by RBI as cooling centers and two year cool period is prescribed for them but the undeclared cooling is going on since 2009-10 onward. The ICAI has failed to read out the impact of reduction of Branches under audit and only added the mess up affairs suggesting the banks to carry the cooling in the name of gap period of audit by taking the details from the applicant through its MEF mechanism. The below table indicates the impact over the audit fraternity because in the five year span the empanelment has reached manifolds but availability of work is for only 1/3 of the empanelled firms. This table reflects the sliding trend of this professional opportunity.
Number of Audit Firms got allotment of Statutory Bank Branches.
| YEAR | 2013-14 | 2012-13 | 2011-12 | 2010-11 | 2008-09 |
| ALLAHABAD BANK | 456 | 492 | 603 | 686 | 648 |
| ANDRA BANK | 355 | 373 | 436 | 479 | 415 |
| BANK OF BARODA | 795 | 712 | 998 | 1131 | 1096 |
| BANK OF INDIA | 707 | 739 | 955 | 1023 | 945 |
| BANK OF MAHARASTHRA | 349 | 342 | 448 | 503 | 546 |
| CANARA BANK | 805 | 854 | 957 | 995 | 894 |
| CENTRAL BANK OF INDIA | 491 | 635 | 870 | 1046 | 994 |
| CORPORATION BANK | 358 | 317 | 376 | 405 | 413 |
| DENA BANK | 205 | 191 | 302 | 331 | 396 |
| INDIAN BANK | 699 | 620 | 704 | 639 | 737 |
| INDIAN OVERSEAS BANK | 562 | 558 | 610 | 641 | 577 |
| OBC | 548 | 487 | 502 | 497 | 453 |
| PSB | 177 | 220 | 228 | 261 | 263 |
| PNB | 1022 | 1261 | 1325 | 1631 | 1291 |
| SBBJ | 223 | 202 | 281 | 278 | 337 |
| State Bank Of Hyderabad | 341 | 301 | 419 | 395 | 467 |
| SBI | 3498 | 3057 | 4271 | 3967 | 3764 |
| State bank Of Indore | XXX | XXX | XXX | 221 | 233 |
| State Bank OF Mysore | 191 | 177 | 274 | 307 | 312 |
| State Bank Of Patiala | 208 | 247 | 341 | 356 | 319 |
| State Bank Of Travancore | 341 | 315 | 340 | 329 | 342 |
| Syndicate Bank | 513 | 657 | 711 | 805 | 683 |
| UCO Bank | 365 | 415 | 524 | 600 | 589 |
| Union Bank Of India | 546 | 615 | 780 | 822 | 810 |
| United Bank Of India | 215 | 305 | 347 | 404 | 577 |
| Vijaya Bank | 208 | 171 | 361 | 437 | 571 |
| TOTAL AUDIT FIRMS | 14178 | 14263 | 17963 | 19189 | 18672 |
| No. Of Branches Audited | 22310 | 22500 | 49870 | 56700 | 57200 |
There is an old saying; we cannot step into the same river twice. To put it another way, an opportunity lost stays lost forever. While I agree with the spirit of that saying but I have found that there are times when exceptions are granted and by carrying the consistent efforts for the opportunities, the same can be regenerated.
(About the Author- Author was Member of ICAI- Regional Research Committee 2013-14 and ICAI- Committee For Direct Taxes 2011-12 and can be reached at email amresh_vashisht@yahoo.com or on phone Phone: 0 1 2 1-2 6 6 1 9 4 6. Cell: 9 8 3 7 5 1 5 4 3 2 having office at 1 1 5, Chappel Street, Meerut Cantt, UP, INDIA)
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Where the free panel of branch auditors defined, it is commonly used for the allotment of audits from the free panel submitted by the RBI to the PSBs?
Where is the independence of the Audit professional when the SBA are appointed directly by the bank Management and the RBI and ICAI are silent spectators. All the banks are now slowly dominating the CA professionals and paying them a petty remuneration as Concurrent auditors, revenue auditors etc and started blaming them for their NPAs. CAs should think of going for employment rather than starting practice incur huge overheads and beg these people for audit assignment.
CA PRADEEP KUMAR AGARWAL
FIRM NAME GARIMA& CO.,LAST FOUR YEAR I HAVE NOT RECEIVED BANK BRANCH AUDIT NOW OUR CATAGORY IS 3 KINDLY LET US KNOW HOW WE SHALL GET THE BANK BRANCH AUDIT 2015-16
i have been applying for STATUTORY AUDITS of banka & i have been allotted category iv since last 3 years but at the time of final panel i have not been allotted any statutory audit, i do not know the reason behind this, pls. let me know who is allotting statutory audits whether banks or R.B.I. & now pls advise what i should do for this, mine is aproprietory concern & i am on panel of 09 nationalised banks , i have been in pracrice since 1990, i have done almost all types of bank audits, such as concurrent/revenue/inspection stock audits etc, pls guide me how i can get the statutory audit of banks, pls note further i have come across many people who have never done any bank audits but they were allotted such audits, only because of the partnership status, if u are going to allott such audits only to the partnership firms then why u are collecting applications from proprietory concerns. secondly u are requested to let me know when ICAI will host the empenelment form for banks for 2015/16
hether there is any mechanism to see whether all the firms get audit with
respect to their category mentioned in the MEF Panel? It is a fact that certain proprietary firms get more fees than the partnership firms. The audit fees should have some bearing with respect to number of partners and experience. Whether cooling period is applied strictly for one year or it extends to more than one year? Whether there is any forum where the affected firms (who didn’t get audit at all or the cooling period is more or the audits allotted didn’t match their experience and number of partners)are able to put-forth their grievances? On the other side whether the RBI is strictly monitoring the banks with respect to the minimum number of branches to be audited, percentage of advances to be covered etc.,? Since the Banks are given the freedom of selection of auditors they may tend to choose the ‘management friendly auditors’ who do not go deep into the NPA. Likewise they may appoint such auditors for prestigious branches where fees is more and work is less. Lastly whether the banks would be advised to strictly follow the 100% system generated NPA leaving no chance for manual interference by the management? – See more at: https://taxguru.in/chartered-accountant/decoding-2015-statutory-audits-banks.html#sthash.1nt5FIbA.x9FahFtJ.dpuf
1. Adherence by banks to the norms prescribed by RBI are monitored reg allotment of brnaches, cooling period, etc.judiciously.
2. How the RBI ensures Whether all names in the MEF panel are given allotments.
3. Like in my case, the firm has not got allotment after 2011, though the firm is based in a city, where no cooling period is applicable, inspite of my name appearing in the MEF panel every year.
I have seen a number of us saying that atleast one branch should be allotted to each firm so that everybody gets audit. We must realise that the objective of audit is not to give work to us. Also appreciate how difficult it is for the bankers to coordinate with so many auditors for their appointment, completion of audit and the fees payment. Banks would prefer to deal with smaller no. of firms. So banks may allot two branches to each firm for the reason that the auditor gets ample time to audit the financials/ advances properly. Then we should not sound desperate also to maintain our dignity. Article indeed is very good.
In small cities some firms are getting allotment for 3 branches without cooling period.
Some firms are not getting any allotment for three years.
In our opinion the maximum number of branches to be audited shd be restricted to two only. It will give allotment to more number of firms.
It will be more rational.
Every firm on approved panel should be allotted minimum one branch. It is possible so far the number of branches are more than the number of firms.
Sir, In our case the cooling period is 10 years after total branch audit experience of 11 years !
Allotment process of Branch statutory auditors has started from 27/03/2015 due to multi
consent given by quite of number audit firms . as per portal. Our NETAAs are quite silent about the matter of allotment of Bank branch auditors for the year 2014-2015.
Madras High also issued Notice to the ICAI for their financial irregularities , land scam, etc. ( 26/03/2015 )
Very very good article this will shows how professional role are reducing in the banking statutory audit.
Very Good article, useful for meetings with RBI and Government Authorities. I request any one having information that CA filed MEF forms but not got any branch for more than 5 years, 10 years etc. It is also useful for various authorities.
Thanks to Ca Amresh Vashisht sir for a very good article on Bank Audit opportunity going to reduce year by year and i think we should always change as time is changing in Banking industry.
we should think that for a period of 4 to 6 days working banks are giving 2 to 3 lacs fees to ca’s , it is not justifiable at all for 4 to 6 days. This fees
is painful to Bank Managements, hence if ICAI suggest to GOI that Ca ‘s Max. fees per day can be decided upto Rs.10 k per day & Max. fees 30 K for 1 branch for a period of 5 days working, work opportunity can be generated from banks. but it should also ensure that CA’s have to do work with full honesty
I think if regular Half yearly/yearly audit will start in all Bank branches with a reasonable remuneration, ca firms can very good perform & provide good results in revenue leakages/AML cases/Deficiency in Documentation etc.
we all should appose revenue audit for fees of Rs. 5000 to 7000 for 1 day working.
if we should united then we can get victory.
Very Good statistical analysis – Eye opener indeed
Some of our colleagues who were casual while discharging professional responsibilities are responsible for this situation
We should be upright on our own – Not be kept upright by others – Code of conduct is first for self discipline and least for disciplinary actions
Appreciate the effort of the writer. Auditor independence is the first and most important factor of a an Audit. The present policy of appointment of SCA in PSB applicable from FY 2014-15 does not safeguard auditor independence.The prime objective of central council of institute should be to enhance quality of services provided by members.
Its a good article, thanks for that. not only on bank audits but in other cliental sectors too, the demand for external chartered /cost accountants have reduced. Basically its supply has exceeded than demand for CA’s . Most of the audit assignments/reviews are managed by internal professionals.
hence like OPEC the ICAI, ICWAI have to stop CA production/supply for 2 or 3 years. 3 years cooling period of production of CA’s required to match demand supply chain. Hence ICAI could stop conducting exams for 3 years, to match with the demand requirements.
RBI SHOULD ACT WISELY, BECAUSE IRRESPONSIBLE SANCTIONING OF PUBLIC MONEY TURNING TO NON PERFORMING ASSETS. THESE ARE DRESSED AS PERFORMING AT THE TIME OF AUDITS. WINDOW DRESSINGS, BANK FRAUDS. REDUCING THE COUNT OF BRANCH AUDITS IS VULNERABLE SITUATION TO BANK FRAUDS.
ICAI SHOULD GIVE STRONG REPRESENTATION ON THIS ISSUE.
SUBSTANCE OVER FORM OR FORM OVER SUBSTANCE….
CURTAILING OF PROFESSIONAL OPPORTUNITIES IT IS NOT GOOD FOR ENTIRE FRATERNITY.
Whether there is any mechanism to see whether all the firms get audit with respect to their category mentioned in the MEF Panel? It is a fact that certain proprietary firms get more fees than the partnership firms. The audit fees should have some bearing with respect to number of partners and experience. Whether cooling period is applied strictly for one year or it extends to more than one year? Whether there is any forum where the affected firms (who didn’t get audit at all or the cooling period is more or the audits allotted didn’t match their experience and number of partners)are able to put-forth their grievances? On the other side whether the RBI is strictly monitoring the banks with respect to the minimum number of branches to be audited, percentage of advances to be covered etc.,? Since the Banks are given the freedom of selection of auditors they may tend to choose the ‘management friendly auditors’ who do not go deep into the NPA. Likewise they may appoint such auditors for prestigious branches where fees is more and work is less. Lastly whether the banks would be advised to strictly follow the 100% system generated NPA leaving no chance for manual interference by the management?