Auditors will be asked to track the end-use of loans given to corporates when they start annual bank audits in a couple of months. The Institute of Chartered Accountants of India (ICAI), the country’s accounting regulator, has decided to ask member auditors to be more vigilant about the use of corporate loans from banks and financial institutions, a move sparked off by concerns over the housing loan scam. “There should be greater vigilance on the part of auditors,” ICAI president Amarjit Chopra said, adding that a directive will be issued in this regard.
Banks and financial institutions seek to ensure appropriate deployment of their funds by obtaining certification from chartered accountants, who will have to be careful while providing such certificates. And auditors will have to look at these certificates closely before certifying accounts.
“The role played by chartered accountants in vetting (end-use ) becomes critical, as any major default can put the onus on them,” an auditor with a large financial institution said, requesting anonymity.
An RBI circular on willful defaulters issued in July last says banks and financial institutions should not depend entirely on the certificates issued by chartered accountants, but also strengthen their internal controls and the credit risk management system.
Banks such as State Bank of India (SBI) have strongly argued that they constantly monitor advanced by them. The ICAI has also asked the Reserve Bank of India to ask banks to be more vigilant in tracking the end-use of funds. Mr Chopra, speaking at a RBI seminar on Friday , raised this issue before senior RBI officials . Auditors blame ineffective monitoring of funds on the banks’ haste to complete the audits.
“There seems to be a mad rush within the banks to finish their audits,” said a senior auditor. The situation is even worse in case of branch audits where auditors are given less than a week to finish audits. Banks argue they are already under scrutiny from RBI and the government.