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 |
|
Good initiative , highly appreciated
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.
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.
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
Very Nice suggetions, keep it up
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
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.
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.
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.
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.
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.
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 .
Even data mentioned in CBCD is not tallied with the hard copy record maintained by the bank….
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.
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.
for better Results of audit PEER REVIEW System will Help.
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
why auditors cannot be appointed at year beginning instead of year end.?
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
A appropriate representation before competent authority.
CA VINOD KUMAR GUPTA
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.
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.
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