RBI to take action against bank auditors

Reserve Bank of India is planning to form a framework to take appropriate action against banks’ Statutory Auditors (SAs) for any lapses observed in conducting the audit. The move comes in the backdrop of bad loans and frauds coming to light in the banking system in a big way in recent years.

RBI said this is in the interest of improving audit quality and with a view to instituting a transparent mechanism to examine accountability of SAs in a consistent manner.

The framework would cover instances of divergence identified in asset classification and provisioning during the RBI inspection vis-à-vis the audited financial statements of banks. The types of lapses on the part of the SAs that would be considered for invoking the enforcement framework would cover: lapses in carrying out audit assignments resulting in misstatement of a bank’s financial statements; wrong certifications given by the auditors with respect to list of certifications as advised by the RBI to banks; wrong information given in the Long Form Audit Report; issues related to misconduct by auditors in respect of their bank audit assignments.

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