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.
“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.