“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 ICAI.

“Harmonizing 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” President, ICAI further added. This is more so considering the increased public interest in these entities, considering their size and spread throughout the nation.

ICAI has always stood for Joint Audit as the concept has always worked well for improving audit quality and reliability apart from having fresh perspective from new firms. 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.

Rotation of audit firms after three years is already prevalent inPublic 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. According to President, ICAI “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.

CA. Nihar N Jambusaria, President, ICAI is of the view that “ The new norms will bring in large number of capable audit firms into the banking and financial sector audit. There is no dearth of talent and the new RBI norms will be taping into the unutilized talent pool in the fraternity.”

According to President, ICAI “Presently only 10% 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.”

The President, ICAI is of the view that “RBI should prescribe minimum number of statutory central auditors that can be appointed by the Public Sector Banks instead of maximum, especially considering the fact that, in the past, the actual numbers of auditors appointed were quite less than the prescribed maximum. As per the present norm, compulsory cooling for 3 years of an SCA of a PSB is with that bank only. Instead of that, it should be mandated across all PSBs.”