Banks, Regional Rural Banks (RRBs), Urban Cooperative Banks (UCBs), and Non-Banking Finance Companies (NBFCs) with an asset size of Rs 15,000 crore and above, will need to appoint two audit firms, said Reserve Bank of India (RBI).
RBI stated that the guidelines shall become applicable from FY 2021-22 and onwards. However, UCBs and NBFCs shall have the flexibility to adopt these guidelines from H2 of FY 2021-22 so that there is no disruption.
On December 4, 2020, RBI governor Shaktikanta Das during monetary policy announcement had stated about its adoption of Risk Based Internal Audit (RBIA).The new guidelines are related to RBI’s decision to strengthen internal audit function, as the third line of defence.
On Tuesday, the banking regulator in its order stated, “For Entities with asset size of Rs 15,000 crore and above as at the end of previous year, the statutory audit should be conducted under joint audit of a minimum of two audit firms [Partnership firms/Limited Liability Partnerships (LLPs)].” In addition, it has to be ensured that joint auditors of the entity do not have any common partners and they are not under the same network of audit firms.
The regulator stated further that all other entities should appoint a minimum of one audit firm (Partnership firm/LLPs) for conducting statutory audit.
The regulator stated that entities up to Rs 5 lakh crore and more in asset size will have to have 4 to 12 Statutory Central Auditors (SCAs)/Statutory Auditors (SAs). This number will be decided by the boards of respective entities. Entities up to Rs 5 lakh crore; between Rs 5 lakh crore and Rs 10 lakh crore; up to Rs 20 lakh crore; and above Rs 20 lakh crore, a maximum of four auditors; six auditors; eight auditors and 12 auditors respectively can be appointed.
Banks, RRBs, UCBs, and NBFCs can shortlist minimum of two audit firms for every vacancy of SCAs/SAs so that even if firm at first preference is found to be ineligible/refuses appointment, the firm at second preference can be appointed and the process of appointment of SCAs/SAs does not get delayed. “However, in case of reappointment of SCAs/SAs by banks/UCBs till completion of tenure of continuous term of 3 years, there would not be any requirement of shortlisting and sending names of multiple audit firms to RBI while seeking approval to appointment.” Meanwhile, an audit firm would not be eligible for reappointment in the same Entity for six years (two tenures) after completion of full or part of one term of the audit tenure. However, audit firms can continue to undertake statutory audit of other Entities.
For Public Sector Banks (PSBs), empanelment of audit firms will continue to be done by the Office of C&AG, based on the norms prescribed by RBI, as on January 1 of the relevant year.