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RBI's new norms to help enhance audit quality, transparency: Experts

IBEF:  May 31, 2021

According to various auditing experts, the Reserve Bank's (RBI) new norms for auditors would help boost the overall audit quality, transparency, and add value to the businesses.

In April, the RBI issued a notice for a new norms for statutory central auditors’ appointment and statutory auditors for commercial banks, large urban co-operatives and large non-banks and housing finance firms.

The new measure was welcomed by numerous mid-sized and small audit companies, including rotation of auditors, stipulating joint auditor, topping number of assignments for each company, curbs on combining audit and non-audit work and treating auditors under same network as one entity. These steps aim at increasing opportunities for all the key stakeholder.

 

Mr. Ved Jain, a former president of the Institute of Chartered Accountants (ICAI) said, “The best way is not to go for an audit, if it is considered as a cost."

 

He added, "Good audit adds to value to a business and regulatory compliance is part of the business. The whole process is value accretive. Good audit mitigates risks.”

 

According to a Sr. auditor from a large domestic company the new norms would enhance audit quality and ensure financial stability.

 

For statutory central auditors of large non-banks and public sector banks, there is a three-tenure in place.

 

Mr. Amarjit Chopra, an ex-president of ICAI, said, “Considering there is a cost escalation of ~ 10-15% due to joint auditors appointment, over time, it would get neutralised. An audited entity can ask joint auditors to divide both the job and the fee, making auditor more competitive.”

 

He added, "For instance, SBI has 14-odd joint auditors, and they don’t pay 14 times > those with one auditor. Similarly, BoI, UBI and PNB employ four-five auditors each. So higher cost is a myth.”

ICAI President Mr. Nihar N Jambusaria said, “The new norms would boost auditor independence and bolster corporate governance.”

He stated that at present, ~ 10% of the eligible audit companies are appointed as statutory central auditors. The relaxed norms would see more numbers (3x) of eligible firms.

At present, 645 audit firms are reported to meet the eligibility criteria for statutory central auditors’ appointment for PSBs as empanelled by the CAG. However, none could do under the present norms.

Further, the new norms would apply only for ~ 300 of > 9,600 NBFCs while the remaining non-deposit taking NBFCs with asset size below Rs. 1,000 crore (US$ 138.17 million) can remain with their existing auditors.

Mr. Chopra, a former ICAI president, said, “There are just the ‘Big Four’ or may be 10 large auditing firms globally.”

According to chartered accountant and Chairman of the Mumbai-based Shailesh Haribhakti Associates, Mr. Shailesh Haribhakti, “RBI’s initiative would bring in more transparency by avoiding complicity among auditees and auditors.”

He added. "This will also bring financial health stability and good performance of auditees and opening more opportunities for domestic audit companies.”

Mr. Rajesh Narain Gupta, a noted financial sector lawyer and Managing Partner at the city-based SNG & Partners, addressed the new norms as a ‘game-changer’ to improve the audit quality and ensure independence of auditors.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.