The recent crisis at Punjab and Maharashtra Cooperative Bank (PMC) has once again brought the role of auditors to the forefront – an area where the Reserve Bank of India (RBI) has taken a tough stance and could once again do so.

According to the disclosures made by Joy Thomas, former Managing Director at PMC Bank, its statutory auditors were only checking the incremental advances and not the entire operations in all the accounts due to time constraints and the increasing size of operations. The auditors, then, merely validated the incremental loans and advances and scrutinised the accounts which were shown by the bank.

According to sources, there will be more clarity when the inspection at the PMC bank is over in the next few days.

“The RBI has been taking a strict view on the role of auditors and has been giving approvals after careful consideration. The problem at PMC Bank was clearly a failure at many levels, including that at the level of the statutory auditors,” said a source who did not wish to be named.

In the annual report 2018-19, PMC Bank’s auditors, Lakdawala and Co,had certified that during the course of their audit, they have generally not come across transactions which appear to be contrary to the provisions of the Act, the Rules or the Bye-Laws of the Bank.

Also read: How the PMC Bank scam was kept hidden for many years

In its annual general meeting, that was scheduled for September 28 and was subsequently cancelled, PMC Bank had proposed to appoint statutory auditors for 2019-20.

Experts point out that ideally statutory auditors must look through accounts in a more detailed manner irrespective of the size of operations to ensure there are no concerns and do not rule out action by the RBI.

“There is often huge pressure on auditors due to growing size of businesses. But it is their responsibility. In the case of banks, the accounts are automated and they also have CBS. So audit is all about being able to read and analyse the data,” noted Ameet Patel, Partner, Manohar Chowdhry and Associates.

The RBI has in the past also taken a strict view on the responsibility of auditors. In June this year, it barred EY member SR Batliboi & Co LLP, Chartered Accountants, for carrying out statutory audit assignments in commercial banks for one year starting from April 1, 2019.This was based on the “lapses identified in a statutory audit assignment carried out by the firm,” the RBI said, without giving any details.

In June 2018, the RBI had put in place an enforcement action framework in respect of statutory auditors for the lapses in the statutory audit of commercial banks.

Meanwhile, in the IL&FS case, the Ministry of Corporate Affairs has sought a five year ban on Deloitte and BSR & Associates.

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