Karnataka State Chartered Accountants Association (R) made a representation seeking rationalisation of eligibility criteria for appointment of statutory auditors for of Commercial Banks (excluding RRBs), Urban Cooperative Banks (UCBs) and NBFCs (including HFCs).
Representation was made before Reserve Bank of India highlighting the concerns of small and medium practicing members on the new eligibility norms specified for appointment of auditors of Banks, UCB, etc.
Text of their representation is as follows:-
KARNATAKA STATE CHARTERED ACCOUNTANTS ASSOCIATION (R)
Date: 26th August. 2021
Shri Ajay Kumar Choudhary
Chief General Manager-In-Charge
Deportment of Sunni:Ion
Reserve Bank of India
Centre I, World Trade Centre.
Mumbai 400 005
SUBJECT: Representation seeking rationalisation of eligibility criteria for appointment of statutory auditors for of Commercial Banks (excluding RRBs), Urban Cooperative Banks (UCBs) and NBFCs (including HFCs)
REF. No.DoS.CO.ARG/SEC.01/08.91.001/2021-22 dated 27th April, 2021
1. The Karnataka State Chartered Accountants Association (R) (in shot KSCAA) is an Association of Chartered Accountants. registered under the Karnataka Societies Registration Act. in the year 1957. KSCAA is primarily formed for the welfare of Chartered Accountants and represents before various regulatory authorities to resolve the problems / hardships faced by Chartered Accountants and business community.
2. However, there are rote genuine concerns arising out of your circular No.Do&COARG/SEC.01/08.91.001/2021-22 dated 27th April. 2021. which might cause unwarranted difficulties and hardship to banks & chartered accountants. We thought to bring these concerns on the table through this representation and request you to take cognizaace of these concerns and hardship: faced by our members and provide amicable resolution to the same.
3. Some changes proposed in the Circular, particularly relating to UCBs and the corresponding hardship caused to banks/accountants. as per our opinion. are as follows:
|S.No.||Eligibility Criteria||Our comments/Suggestions|
|1.||Only audit firms (Partnership firm/LLPs) shall be appointed for conducting statutory audits.
One audit firm can take up statutory audit of a maximum of four Commercial Banks. eight UCBs and eight NBFCs during a particular year.
|Most UCBs in the state of Karnataka and perhaps may also be In other states of India. are situated in Mofussil areas
wherein majority of the audit practitioners are sole-proprietors or individuals or small / medium sit* partnership limns. and at the drop of a hat by virtue of this circular suddenly rich Arms have lost their eligibility for conducting these audits. This drastically and in a very harsh way eliminates a vast number of small audit firms from the gamut of UCB audits in turn. giving rise to an imbalance between the number of OCRs and eligible auditors This will lead to a Staten where CA arms located in Metropolitan Cities located at far flung places will have to be appointed. which will lead to complete obliteration Further, such a situation will create chaos in the coming days as the eligible partnership firm auditors may not have knowledge of the local language of the state in which the UCB is located. To add to that it will also increase the compliance cost and overheads for the UCBs due to travel, boarding and accommodation cost of auditors and their staff members as assigned for audit.
|2||Eligibility Criteria (as per below table)||These eligibility criteria’s are esoteric and are patently difficult to be fulfilled by small and medium sized audit firms, which would virtually eliminate. discourage and disqualify them from the fray from being appointed as auditors. Just to take one instance, a new CA firm is helpless but need to wait for a long period 6 years before being qualified for the appointment as statutory auditors. In audit firms with higher value of asset size, the requirement can go up to 15 years, which is very high. Today, appointment of young blood (with requisite knowledge and skill) to conduct the audit, at least of smaller branches will be fruitful since most of them are tech-savvy & can conduct the analytical review procedures with greater ease and in a better way.
While specifying these eligibility criteria’s it seems to suggest that RBI has completely ignored and disregarded the interest, merits. Scholarships, capabilities. etc. of small and medium audit firms by determining the eligibility criteria’s merely and simply based on mechanical numbers which would favour only and only large audit firms.
RBI should consider relaxing these conditions which will be a brave step in the right direction, at a time when the Government of India is easing the way of doing business promoting SMEs.
One way to test the knowledge, skill or capabilities of young audit practitioners could be by way of conduct competitive eligibility tests so that skilled practitioners do not lose out on the opportunity only and only because of non-fulfilment of mechanical and artificial numbers driven eligibility criteria’s specified in the said circular.
|Asset Size of Entity as on 31st March of Previous Year||Minimum No. of Full time partners (FTPs) associated with the firm for a period of at least three Years
|Out of total FTPs Minimum No. of follow Chartered Accountant (FCA) Partners associated with the firm for a period of at least three Year||Minimum No. of Full Time partners/Paid CA with CISA/ISA qualification Note 2||Minimum No. of years of Audit Experience of the firm
|Minimum No. of professional staff
|Above Rs. 15000 crore||5||4||2||15||18|
|Above Rs. 1000 crore and up to Rs. 15000 crore||3||2||1||0||12|
|Upto Rs. 1000 crore||2||1||1||6||8|
4. We at KSCAA sincerely .sh to convey our support to most of the guidelines issued by the Reserve Bank of India on the captioned matter and we hope it will only make audit profession more robust, more competitive and freer from oligopolies and concentration. However, it is also true that .1 the 3 constituents regulator (RBI), the watchdog (Auditor) and the Bank all need to work in harmony with each other for the benefit of stakeholders at large.
5. We believe hardships, concerns and the purported grave injustice caused to our members from small and medium practitioner categories along, with suggestions as listed above would invite your kind consideration. We m.e also optimistic that you would definitely make an ‘all out’ effort to ensure that the necessary steps would be taken to provide appropriate relief by easing those harsh and difficult eligibility conditions that are specified in the said circular. This would also serve the national in.rest by encouraging overall development of the professional audit firms from all strata with a level playing field by providing an equitable treatment and distribution of audits to all firms from all categories.
For Karnataka State Chartered Accountants Association (R)
|CA. Kumar S Jigajinni
|CA Pramod Srihari
|CA. Ganesh V Shandage
1. Shaktikanta Das, Governor. Reserve Bank of India
2. S. S. C. Murmu, Executive Director. Reserve Bank of India – Department of Supervision.