Auditors in public sector banks (PSBs) must be appointed by the Reserve Bank of India (RBI) and the current practice of allowing bank managements to decide on such appointments must be done away with, the new President of the CA Institute, Mr Amarjit Chopra, has said.

Best practice

“From every perspective, the older system was better. We must go back to the system where the RBI decides on the auditors for PSBs.

“Why have we changed it? We must continue the way it was happening earlier.

That was the best practice. It must continue,” Mr Chopra told on Saturday, a day after he assumed charge as ICAI President for 2010-11.

Under the autonomy package to banks, the senior management of banks were, in fiscal 2008-09, empowered by the Government to decide their own statutory auditors.

“Autonomy in administrative decisions is one thing, but maintaining checks and balances is something else. Appointment of auditors by outside agencies is issue of checks and balances. It should have continued.

Checks and balances

“You allow autonomy to banks in making their policy decisions like setting interest rates, but at least maintain checks and balances. The entire financial system hinges around checks and balances. Auditor appointment from outside is matter of checks and balances.

“At least from that point, auditor should be appointed by the RBI. That takes care of independence also,” Mr Chopra said.

The ICAI President said that he would approach the Finance Minister, Mr Pranab Mukherjee, to resolve this matter.

“Even in a company, technically the shareholders appoint auditors. How can you tell the directors of a bank to appoint auditors?” he pointed out.

In fact, the CA institute had, in March 2009, made a case for appointment of auditors of PSBs to be centralised with the RBI.

It then argued that the system of appointment of bank auditors by directors undermined the independence of auditors.

However, the Government has so far not rolled back its decision.

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0 responses to “Statutory auditor of bank should be appointed by RBI: ICAI President”

  1. CA. A.D. Vidyarthi says:

    I am of the same view of our President and support his views fully. In the upkeeping of independence and self respect of a C.A., the management of the Bank should never be given the authority to appoint their Auditors. Only the R.B.I. in support with I.C.A.I should be so given the authority.

  2. CA. A.D. Vidyarthi says:

    I fully support the views of our (I.C.A.I.) President most honourable Shri Amrjeet Chopra. Auditors independence will be maintained only if the Auditors are appointed by the Authority other than the Auditee. You can not say, ” You check me and make a report on my faults and for that I will pay you handsome remuneration. I also promise to reappoint you in the following 3-4 years.”

    R.B.I. is the best choice as appointing Authority for the most dignified Authorities (C.A.), in consultation with our highly rated and most respected I.C.A.I.

    If you want the good for nation, if you want to unearthen the scams and scandles, if you want to put a real check on the evils, errors, omissions, mistakes, you have to leave the Auditors free to use their professional skills, take tem out of any pressure, give them sufficient time to perform and to conclude, so that they may beget fruitful results. I am one hundred percent confident that the C.A. have all technical competence to detect all frauds, so if they, in some cases, could not do so, it clearly means that they were under some sort of pressure or no full disclosure or exposure were provided to them. Clearly there was the pressure of Management. It is very sad part that owners and managers (directors) become the same person(s).
    The appointment of Bank Auditors by the Management of the same Bank is very much humiliating for the C.As. It is an attack on their independence, dignity and self-respect and the same can never be tolerated any more. The Bank Management harras the C.As. while releasing the Offer letter to them. They want immediate response, but do not have courtesy enough to confirm/reject the appointment, even the query is not replied. Is this good ? Self-respect of a person (C.A.) is not hurt ? Management of Bank takes advantage of the situation in a shrewd manner.

  3. Ca Ravinder K Sharma says:

    Yes, RBI should appoint the auditors of PSB on lines similar to the Appointment of Auditors by shareholders under the Companies Act, 1956. Govt must think over it again keeping in view the “possible falls due to appointment by Managemennt” in order to give best control and regulation to Banking sector.

  4. ssmohideen says:

    Mr Chopra has rightly voiced against the unwarranted procedure of appointing the statutory auditors by the regulatory Body of the bank. The change forced upon most of the banks who are reluctant to implement and also against most of the CAs seem to be not in a right perspective or honest motive. The public interest will be jeopardised. It is very much against the basic norms that the Trustees of the Public money have their own choice to select a person to certify their own conduct. Does it seem to be ridiculous and funny?

  5. A.BANERJEE says:

    It is a good idea, though not very novel, but will it, if implemented, alter the fundamental infirmities in the entire system and methodology of appointing auditors/awarding audits and the purposefulness of carrying out these tasks just for the sake of formality, without any regard for the content or quality? What is required is for the ICAI to make an objective study of the system and suggest to the authorities (RBI or CAG, or any other govt. authority) that, if a meaningful audit is the purpose, then the auditors must not be treated as traders and their fees must not be based on the rates quoted in the tenders and they must be given as much time for audit as the CAG’s Revenue and Commercial audit teams are allowed. Otherwise, the so called statutory audits will remain just a meaningless and time-wasting formality as of now.
    And, the new President can also think of pursuading the authorities to amend the provisions of the Cos. Act to empower CAs to render objective service to the exchequer and not treat these audits as merely money making ventures. The other area which the new President can address is to consider is whether there must be a reasonable extent of participation allowed to younger CAs as against continuing this great institution as a stepping stone to greener pastures for the chosen few.

  6. Macharla Rosaiah says:

    yes, the statement made by newly elected president of ICAI is true. Moreover, it reinstates the independence of duties of the auditor.

  7. Ashok Aggarwal says:

    Yes Mr. Chopra is right in his new approach to make statutory auditors an independent one.

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