Institute of Chartered Accountants of India (ICAI) extended support to the Reserve Bank of India's (RBI) decision of appointment of Statutory Central Auditors (SCAs) and Statutory Auditors (SAs) of Commercial Banks, Urban Co-operative Banks (UCBs) and Non-banking Financial Companies (NBFCs). The accounting body added that it always stood for joint audit as the concept.
“The new norms issued by RBI for Appointment of Statutory Central Auditors (SCAs) and Statutory Auditors (SAs) of Commercial Banks, Urban Co-operative Banks (UCBs) and Non-banking Financial Companies (NBFCs) including Housing Finance Companies (HFCs) is in the right direction and will enhance audit quality, auditor independence and strengthen corporate governance,” said CA Nihar N Jambusaria, President of ICAI.
Jambusaria added, “Harmonising norms for appointment of auditors of various entities in the financial sector, such as Private Banks, NBFCs, UCBs, HFCs is the right step towards ensuring independence and transparency in the selectionof auditors resulting in enhanced audit quality."
ICAI stated joint audits always worked well for improving audit quality and reliability apart from having fresh perspective from new firms. The body stated further, the joint audit will ensure due continuity in the audit process as one of the firms is continuing during rotation. "It has an advantage of utilising technical expertise pooled in from participating firms. This also enables each of the joint auditor to focus better on its area of expertise and mitigate systemic risk."
In addition, the rotation of audit firms after three years is already prevalent in Public Sector Banks (PSBs) and it was introduced in large companies on completion of five-year cycle by The Companies Act, 2013 which proved to be effective. Commenting on this, Jambusaria said, "Similar rotation of audit firms in other large intermediaries of banking and financial sector, will surely result in improved audit quality apart from having fresh perspective.”
The proposed restrictions on audit/non-audit services for related entities is largely aligned with the Code of Ethics of the Institute of Chartered Accountants of India (ICAI) and the principles in the Companies Act, 2013 in this regard.
The reduction in the tenure of audit engagement, cap on number of audits an audit firm can conduct in the banking and financial sector will not only lead to enhanced audit quality but also will lead to capacity building of audit firms, improved independence of audit firm.
Jambusaria added, “ There is no dearth of talent and the new RBI norms will be taping into the unutilised talent pool in the fraternity.”
According to ICAI, “Presently only 10 per cent of the eligible CA firms are appointed as SCAs and with the relaxed norms, the number of eligible firms is expected to increase by three times. This will help the corporates to choose their auditors from a larger pool from a location of their choice.”