KSCAA along with Lucknow Chartered Accountants Society, Bombay Chartered Accountants Society and Chartered Accountants Ahmedabad have made a joint representation on ‘Statutory audit of branches of PSU Banks (in the wake of recent developments / irregularities in PNB)’ to the Governor, Reserve Bank of India, Board of Directors of all PSU Banks and the Secretary (Financial Services) and Ministry of Finance – Government of India. Text of the same is as follows:-

Statutory branch audit of branches of Indian PSU banks- In wake of recent developments/ irregularities in Punjab National Bank

14th March, 2018

Dr. Urjit R. Patel
Governor,
RESERVE BANK OF INDIA,
C/o CGM and Secretary
Secretary’s Department,
Reserve Bank of India,
16th floor, Central Office Building, Shahid Bhagat Singh Marg,
Mumbai – 400 001

Dear Sir/s

RE: Statutory branch audit of branches of Indian PSU banks- In wake of recent developments/ irregularities in Punjab National Bank

In wake of recent developments/irregularities noticed in the banking industry, we as professionals’ associations would like to draw your attention to the following issues which, if attended to effectively and with a sense of urgency, would go a long way in bringing about substantial improvement in the present situation in the banking industry :

1. (a) Environment created after change in policy of appointment of branch statutory auditors (giving autonomy to bank management) has not yielded desired results for the banking industry. Our regulatory body, the Institute of Chartered Accountants of India (ICAO has been opposing this change from the very beginning.

(b) The appointment of branch statutory auditors should be made latest by end of February. For instance, for F/Year 2017-18 the appointment should have been made latest by 28th of February 2018. Moreover, the instructions

circular/booklet issued by the Head Office to the branches for annual closing of accounts should be sent to the branch statutory auditors along with the appointment letters.

(c) Presently bank branches with advances of less than Rs. 20 crores are not subjected to annual independent audit. Instead of advances, only the branches with total business (deposits+advances) of less than Rs. 20 crores should be excluded from annual independent audit. Moreover, advances for this purpose should include both funded and as well as non-funded advances. It may be added that for concurrent audits and for various other purposes the branch categorisation is based on total business and not just advances. Also, presently only 1/5th of the remaining branches (branches with advances of less than Rs. 20 crores) are subjected to annual independent audit. We recommend that 1/3rd of the remaining branches (branches with business of less than Rs. 20 crores, including non-funded advances) should be also subject to annual independent audit along with the rider that all branches should be audited at least once every 3 years.

2.  Pressure exerted on the auditor on the pretext of reporting deadline (period at disposal of the branch auditor being squeezed from 15 days to merely a week-reporting being expected to be completed by end of 1st week of April) has been hampering both quality and depth of audit. Branch auditor should be given a period of at least 15 days which should start only after the full set of financial statements/annual returns is made available to the auditor. There is a mad rush and competition among the PSBs to be the earliest to declare their results and this is the main reason for the peer pressure.

3.    Pressure being exerted on the branch auditors to issue CLEAN REPORTS (with NIL MOC) by RO/ZO top officials is uncalled for and should be avoided.

4.  MOCs with material relevant changes, at times at a later stage are ignored/dropped without any valid reason and without any dialogue with branch statutory auditor who had initiated the MOC. This practice needs to be curtailed. We suggest that all the suggested changes in the MOC which are not considered at the time of finalisation of accounts at the Head Office should be listed in a statement and that statement should be placed before the Audit Committee for its consideration and comments

5.    Due care is not being taken at branch level to respond properly to the Letter of Engagements issued by branch auditors. This is taken by the branch management as an unnecessary requirement, not realizing this is essential for the proper conduct of branch audit and is also prescribed in the Standards on Auditing issued by ICAI, which the members of ICAI are governed by and must follow compulsorily.

6. Prior to commencement of branch statutory audits, it is important to organise meetings between the Bank Management, Central Statutory Auditors and Branch Statutory Auditors. Only a few banks are organising these meetings and even in most of such cases the meetings are not organised properly and with the seriousness that they deserve.

The above are some of our suggestions which if considered will go a long way in substantial improvement in allotment process, auditors’ independence, ensuring quality of reporting and substantial improvement in effective conduct of bank audits.

We remain,

Yours sincerely

Gyanesh Verma
President,
Lucknow Chartered Accountants’ Society
Kunal Ashvin Shah
President,
Ahmedabad Chartered Accountants’ Association
Raghavendra T.N.
President
Karnataka State Chartered Accountants’ Association
Narayan R. Pasari
President
Bombay Chartered Accountants Society
CC to:

1. The Board of Directors of all PSU banks;

2. Secretary (Financial Services), Ministry of Finance, Government of India;

3. The Governor, Reserve Bank of India

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29 responses to “Statutory branch audit of branches of PSU banks- In wake of recent developments/ irregularities in PNB”

  1. AVINASH says:

    Good initiative , highly appreciated

  2. CM Juneja says:

    Loved each and every word of the discussion going on. Would like to add one more thing what the hell is this cooling and why do we need that. do we have lesser number of auditees or do we have more auditors. As everyone from the community is aware of the fact that ICAI is passing out well considered number of CAs every year.

  3. Lavitha says:

    Most of CAs are not getting branch statutory Audit.
    Only those have contacts are getting three branches.. Why can’t they allot one CA one branch. At least all will get one branch to audit and quality of audit also increases. Allotment of auditors procedure is not all correct. allotment should be done by RBI itself.

    • CA NIRANJAN SONI says:

      TRUE…STEPS SHOULD BE TAKEN AGAIN FAIR ALLOTMENT OF BRANCHES AND ENSURE EACH FIRM DOES NOT GET MORE THAN TWO AND EACH FIRM GET ATLEAST ONE BRANCH DUE TO WHICH QUALITY OF AUDIT WILL ALSO GET INCREASED

  4. gnr says:

    One more avenue for making money. It is sufficient that the have consultants to fix Risk Management as most of the auditors send their teams for audit who are ill – equipped to do any good audit

  5. ca anil zabak says:

    Very Nice suggetions, keep it up

  6. Narendranath Damodar says:

    This is okay but why CA alone seen here , also CS and CMA and even MBA can do this bank branch audit. First of all CA monopoly should end and CA should equal with CS and CMA for this , also for all PSU audit by CAG,
    Also present bank branch audit fees is high considering time spent on it by these CA
    Therefore RBI shall also allow CS and CMA to do bank branch audits and to lower the audit fees to reasonable levels

    • Chaitanya Dalal says:

      Mr. Damodar I don’t agree with you, because these three Institutes represent three completely different professions. Although there is a lot of overlapping with due respects, Audit is a special technical job and if one is not trained in this field, he can make blunders. As a CA we are quite familiar with the Companies Act but the qualified CS is best suited to issue compliance certificate.
      Hence I don’t agree with compromising the quality of assignments. Just like the medical profession has its specialisation, so has Chartered Accountants who are best suited to carry out audits for this; because of their orientation.
      Only problem is that appoint made is too late, time allowed to Statutory audits is too short, and the stakes of fees are too high.

    • Abhi says:

      While mentioning about high audit fees, the irony is that if we (SME firms) even start charging ‘Minimum recommended scale of fees’ as prescribed by ICAI, we will lose majority of the clientele.

  7. Pawan Jain & Associates says:

    After decentralization of audit allotment, our firm is not getting the branch statutory audit from any of the nationalized banks.Our firm is more than 35 years old and has done statutory audit and concurrent audit of many banks. Every year our firms name appears in the panel prepared by the ICAI but not getting Statutory audit of banks, because we are not approaching / requesting the higher authorities of the banks for the allotments, which is regular practice now a days.

    • CM Juneja says:

      Its really a pity of not having contacts with the higher ups these days. Or if you want to shed some tip offs.Mine is also a 25 years old firm with a pretty good experience in banking audits of varied nature but no rescue for the last two years.

  8. Ram Avtar Sharma says:

    Very much requirement of these think but who will be applying it ,is matter of thinking as it should not be only discussion, who will follow these think. As per last records of our profession bank audit is now making distance with chartered accountant we are not able to understand what organisation will help us.

  9. Praveen Bhargava says:

    To audit bank or any other establishment the auditor must act independently and must go to any deep as the audit progress without hitch and take all the bank officers in full confidence.Auditor must not feel or act otherwise if there is any qualification in his audit report to honestly fulfill his duties as an auditor.

  10. rajiv mangrulkar says:

    letter is written/referred to governor -rbi and cc also referred to governor -rbi – can auditors go wrong?

    unless auditors like govt officers be given prosecution/investigation powers based on their serious findings with cc to sfio/finance ministry/national financial authority with report on legal audit of all high value transactions along with its legal documentation irrespective of approving authority are enforced,few rogue govt bank workers can be reigned since the volume of transactions and continuous trust for financial transactions is must for economy to survive.

  11. cabkbanka says:

    It’s really a nice step.A lot has been said for auditor and this is the time to point out the procedural lacunas and way to overcome the same.

  12. CA. S.C.Podder says:

    Thanks for the brave move , but the matter will be continued with out any doubt , this is my experience since 1970, till this date .
    We the chartered accounts firms and individuals are equally responsibly no to do proper audit not only at the Banks but in other areas .

  13. Manoj says:

    Even data mentioned in CBCD is not tallied with the hard copy record maintained by the bank….

  14. VINOD KUMAR GUPTA says:

    One more sentence I would like to add that their must be transparency in allotment of bank audit . their are so many firms , still running in cooling.

  15. M V Krishna says:

    The is nice representation. The contents of the letter is the feelings of all chartered accountants doing Branch audits. Instead of personal representation, it is good that a group of chartered accountant societies representing to the RBI. If given sufficient time, we the chartered accountants will do the real audit work of Bank financial statements.

  16. ravi says:

    for better Results of audit PEER REVIEW System will Help.

  17. Pawan Kumar Rungta says:

    The appointment should be made by 31st December enabling auditors to verify the loan documents in January /February itself which will reduce year end pressure. . P K Rungta FCA, Bangalore

  18. m g raman says:

    why auditors cannot be appointed at year beginning instead of year end.?

  19. naresh k gupta says:

    Centralisation of bank Branch audits will further add to chaos as can be seen from the forwarding the names by RBI to Banks. The list has been sent by institute some time in Nov/ dec 2017 and it has been languishing at RBI for more than 3 months. Banks are expected to complete the job in about 5-6 working days including selection of names of new auditors in place of auditors shifted to cooling period, preparation of draft list as per RBI,

    guidelines, calling meeting of ACB and submission of these names to RBI before finalisation of list of branch auditors. As i understand, the software claimed to have been developed by ICAI has not been able to provide the proposed list till today to most of banks who opted for that. It is suggested that RBI/ DFS or even ICAI does not meddle into all this and Bank managements are better equipped,at least as compared to these deptts/ bodies and it be left to Banks and Central Statutory auditor of respective Bank.
    Auditors must learn not to succumb to the pressure and face the music if they do not do their duty as per law in case they succumb to pressure.
    As regards timing, appointment must be complete by mid February so that the auditors can frame their opinion on assets (loans/securities etc) before year end and only the year end figures/ reports are left to be attended to after 31st March
    As is known to one and all, same way as in case of assignment of CAG audits, there will be grave manipulations/ malpractices if the system is centralised

  20. VINOD KUMAR GUPTA says:

    A appropriate representation before competent authority.
    CA VINOD KUMAR GUPTA

  21. CA J V BHANU PRAKASH says:

    Thanks a lot for the initiative taken by the associations rather it should have been taken by our institute further, the appointment process should be completed by the end of December of the current financial year so that enough time will be available to the professionals to address the matters required professionally.

  22. Raju S Narayanan says:

    What has been stated in the Article is true. Appointments should be software-driven and completely online. Also, the auditors should be given online training before appointment in the software used by banks.

  23. Rajagopal says:

    Very good representation. But nothing will work out as long as banks and higher up wanted to hide NPA. Present option is not to accept audit if NPA determination in not enabled in CBS software and inspection of units where abnormal credit are found in Feb and mar to regularise NPA

    • CA. S.SRINIVASAN says:

      Very nice suggestions .
      One more suggestion may be added. The appointment should be made directly by RBi, instead of the concerned Bank to avoid direct contact of Banks with the SBAs .

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