RBI to Clarify New Auditor Appointment Standards Soon, Real Estate News, ET RealEstate
While industry body CII has spoken out against new standards that require a joint audit and also limit the term to three years among many other restrictions placed on large players, national auditors and independent observers have welcomed the same. by stating that the new circular issued on April 26 will go a long way to level the playing field for all by reducing the brutal domination of the few.
“We have received representations from various stakeholders requesting clarification, which are under consideration and we will publish those clarifications shortly,” RBI Deputy Governor MK Jain told reporters during the press post. – usual policy.
Without revealing what the main concerns raised in these clarifications are, the central bank hinted that they were only clarifications.
“But the broader objectives of these regulations are to put in place neutral ownership regulations, guaranteeing auditor independence, avoiding conflicts of interest and improving audit quality.
“These measures should also be viewed as part of the RBI’s efforts to strengthen the functions of entities under its regulations,” Jain said, implying that there is no rethinking of the announced restrictions.
The new standards put large non-banks and housing finance companies, as well as urban cooperatives, within its jurisdiction when it comes to appointing auditors and the new standards will take effect from this fiscal year. However, no deposit NBFCs with an asset size of less than Rs 1,000 crore can continue with their existing procedure.
The guidelines provide the necessary instructions for the appointment of statutory central auditors (SCA) / statutory auditors (AS), the number of auditors, their eligibility criteria, tenure and rotation, etc., while ensuring independence. auditors, said the Reserve Bank.
Banks and UCBs will be required to obtain prior approval from the RBI to appoint / rename SCA / SA on an annual basis, as per the guidelines, adding that for entities with an asset size of Rs 15,000 crore, the audit should be carried out under a joint audit of at least two audit firms. All other entities must appoint at least one audit firm to perform the statutory audit.
“We must ensure that the co-auditors of the entity do not have common partners and that they do not report to the same network of audit firms. In addition, the entity can finalize the distribution of work between the SCA / SA, before the start of the statutory audit. , in consultation with their SCA / SA, “he said.
The guidelines further specify that to protect the independence of auditors / audit firms, entities will be required to appoint SCAs / SAs for a rolling period of three years, subject to the firms meeting eligibility standards each year.
After CII publicly called on the RBI to review the standards, the local audit body ICAI publicly supported the policy saying the new standards would help improve audit quality, transparency and added value.
Many independent auditors have also questioned fears that joint auditing will increase costs and also suspect the ability of national audit firms to audit large companies as nonsense.
It is reported that no less than 645 audit firms today meet the eligibility criteria for appointment as statutory central auditors of PSBs as established by the CAG, but none can do so under the current standards, but under the current regime none of them work for them.
Some independent auditors are also of the opinion that concerns such as escalating costs in terms of meeting the new standards challenge the quality of small businesses without giving them a chance.
“If the audit is seen as a cost, then the best way forward is not to go for an audit,” Ved Jain, former chairman of the Institute of Chartered Accountants, said earlier this week. (ICAI).
“Regulatory compliance is part of the business and a good audit adds value to the business and the process generates value and not a waste of resources,” he added and stressed that a good audit mitigates risk and said those who suspect the quality and capacity of smaller local audit firms should remember Saytam Computers, IL&FS, DHFL, Yes Bank and many other scams in our own backyard and Enron and the Lehmans of the Western World.
Amarjit Chopra, a former president of ICAI, said that if there was a cost increase of, say, 10-15% due to the use of co-auditors, it would be neutralized over time. After all, he said, an audited entity can ask the co-auditors to split both the work and the fees, which will make the auditor more competitive.
“Anyone who says joint auditing doesn’t work is a myth and joint auditing will only add nonsense to the cost. You see, SBI has 14 co-auditors, they pay 14 times more than those with an auditor , and BoI, UBI and PNB each employ four to five auditors, so the higher cost is a myth and a joke, ”Chopra said.
ICAI President Nihar N Jambusaria said on May 26 that the new standards would improve “auditor independence and strengthen corporate governance,” and observed that currently only 10 percent of consulting firms The eligible auditors are appointed as statutory central auditors and with the standards relaxed, the number of eligible companies is expected to triple.
Renowned accountant and chairman of Mumbai-based Shailesh Haribhakti Associates, Shailesh Haribhakti said the measures taken by RBI will bring more transparency by avoiding collusion between auditees and auditors.
“It will also help bring out truthful and fair reporting on the financial health and performance of auditees, in addition to effectively opening the door for national audit firms to have a level playing field with respect to their global peers, ”he said.