A group of chartered accountants has questioned the government’s decision to allow banks the liberty to select their own statutory auditors amid the concern over the role of auditors in the alleged fraud unearthed at Punjab National Bank.
According to the members of the Association of Chartered Accountants, this move is a departure from the earlier practice where RBI directly appointed the statutory auditors of banks, based on a list of eligible candidates prepared by the Institute of Chartered Accountants of India.
“Earlier, the RBI used to appoint the statutory auditors of banks. But, to our surprise, from 2014-15, the power of the RBI to appoint central and branch statutory auditors was snatched by the central government and was handed over to the respective banks. Now, the bank management selects the statutory auditors and takes only a nominal permission from the RBI before appointment,” said Kingsuk Datta, the general secretary of the Association of Chartered Accountants. The association is a separate body but its members are part of the ICAI.
“We demand a restoration of the pre-2014-15 situation regarding the appointment of statutory auditors of banks, which was under the control of the RBI, and not in the hands of the bank management,” Datta said.
The association fears that the quality of audit may deteriorate if the examinees are appointing their own examiners. The association also said that the finance ministry, in a guideline issued in 2012, had noted that statutory branch audit has become routine and not much effective after the implementation of core banking system in public sector banks.
To cut down on audit costs, the number of auditors scrutinising bank accounts at the branch and headquarters have also been reduced.
Statutory branch audit of public sector banks are usually carried out for all branches with advances of Rs 20 crore and above and one-fifth of the remaining branches covering a representative cross-section of rural/semi-urban/urban and metropolitan branches to cover 90 per cent of the advances of a bank.
“Internal audit cannot be a substitute for statutory audit. Chartered accountants have to be appointed in all branches as statutory branch auditor through the RBI,” Datta said.