The newly-constituted Banks Board Bureau should study the current auditor appointment process in banks and frame new norms for this purpose, Amarjit Chopra, former president of the CA Institute, has suggested.
“This (framing of auditor appointment norms) could be a reform area and should be entrusted to the Bureau. This should be added to the terms of reference of the Banks Board Bureau,” Chopra told BusinessLine .
The Bureau can lay down guidelines for both central statutory auditors and bank branch auditor appointments, he said. The Bureau, which first met on April 8, is due to meet next on April 22.
Chopra felt that India should go back to a system where the Reserve Bank of India or a committee set up by the Department of Financial Services (DFS) should appoint central statutory auditors.
This would be much better than the current practice of allowing the audit committees of respective banks to appoint auditors. As part of providing more functional autonomy to banks, the government had allowed banks (audit committees) to appoint central statutory auditors.
“It is a fact and quite unfortunate that corruption has crept in when it came to auditor appointments by bank boards or its audit committees,” Chopra said.
“I am not against functional autonomy. But there is need for greater checks and balances. Independence of auditors is being compromised in the current system. If there were no pitfalls in the earlier system, why not bring it back.”
He highlighted that the National Financial Reporting Authority (NFRA) is being talked about now primarily because there is a view that auditors are not independent.
“Otherwise where is the need to look at bringing in NFRA? NFRA is being spoken of because Parliamentarians felt the independence of auditors is being compromised somewhere.”
Chopra’s remarks are significant as they come at a time when there is a raging debate in the country on whether the current system of appointment of bank auditors and poor audit quality were important factors responsible for the rising non-performing assets (NPAs).
“I personally feel the old system (RBI making the appointments) was working fine. If the RBI does not want to do it, whatever DK Mittal did (set up committee) was working fine for two years and should be followed. He (Mittal) brought a representative from the RBI, Finance Ministry, CAG and IBA, and based on a criteria decided by them the auditors were appointed.” Earlier, appointments were made by the RBI in respect of central statutory auditors as well as branch auditors.
In respect of the former, the panel was firmed up by the Comptroller and Auditor General, based on RBI criteria, which was then finalised by the government. The CA institute had no role, Chopra said, adding that it is only in the case of appointment of branch auditors that the institute has a role.
Concurrent auditsChopra also felt that there is no case for discontinuing or reducing the extent of concurrent audits.
“In public sector banks, documentation is at branch level, whereas private sector banks are still getting branches audited as operational audit. You have to continue with concurrent audits, and it’s for public sector banks to make sure that concurrent audits perform,” he added.