Policy on appointment of Statutory Auditors by bank

Policy on appointment of Statutory Auditors by bank

Reserve Bank of India vide its circular RBI/2021-22/25 Ref. No.DoS.CO. ARG /SEC.01/08.91.001/2021-22 dated April27,2021 has issued Guidelines for Appointment of Statutory Central Auditors (SCAs)/Statutory Auditors(SAs) of Commercial Banks (excluding RRBs),UCBs and NBFCs (including HFCs).Summary of these guidelines applicable to our bank is as under:

Applicability:These guidelines will be applicable to us for Financial Year 2021-22 and onwards in respect of appointment/reappointment of Statutory Auditors. As RBI guidelines regarding appointment of statutory auditors shall be implemented for the first time from FY 2021-22.

We shall have the flexibility to adopt these guidelines from H2 (second half) of FY2021-22 in order to ensure that there is no disruption.

Prior Approval of RBI: We are required to take prior approval of RBI (Department of Supervision) for appointment /reappointment of Statutory Auditors on an annual basis in terms of the above-mentioned statutory provisions.

We have to apply to the tDepartment of Supervision, RBI before 31st July of the reference year. We have to approach Ahmedabad Regional Office of RBI (Department of Supervision),under whose jurisdiction our Head Office is located.

Looking to our size we have to appoint a minimum of one audit firm (Partnership firm/LLPs) for conducting statutory audit.

In terms of RBI guidelines statutory auditor shall visit and audit at least top 20% of the branches of the bank, to be selected in order of the level of outstanding advances, in such a manner as to cover a minimum of 15% of total gross advances of the Entities.

Eligibility Criteria of Auditors

As our assets size is between Rs. 1000 cr to Rs. 15000 cr., we are required to appoint audit firm as our statutory auditor fulfilling following criteria:

They should have Minimum 3 full time partners. Out of these at least 2 should be FCA and one of them should be CISA or ISA qualified. Firm should have minimum audit experience of 8 years and firm should have minimum 12 professional staff.

Independence of Auditors

The Board of Directors shall monitor and assess the independence of the auditors. Any concerns in this regard may be flagged by the Board to RBI Regional Office.

In case of any concern with the Management of the Bank such as non-availability of information/non-cooperation by the Management, which may hamper the audit process, the Statutory Auditor may approach the Board of Directors of the Bank under intimation to RO of RBI.

Concurrent auditors should not be considered for appointment as Statutory Auditors.

The time gap between any non-audit works Internal assignments, special assignments, etc., by the Statutory Auditors for the Bank or any audit/non-audit works should be at least one year, before or after its appointment as Statutory Auditor. However, during the tenure as Statutory Auditor, an audit firm may provide such services to the Bank which may not normally result in a conflict of interest. Bank may take its own decision in this regard, in consultation with the Board/ACB.

ProfessionalStandardsofStatutory Auditors

The SAs shall be strictly guided by the relevant professional standards in discharge of their audit responsibilities with highest diligence.

The Board /ACB of the Bank shall review the performance of Statutory Auditors on an annual basis. Any serious lapses/negligence in audit responsibilities or conduct issues on part of him or any other matter considered as relevant shall be reported to RBI within two months from completion of the annual audit.Such reports should be sent with the approval /recommendation of the Board/ACB, with the full details of the audit firm.

In the event of lapses in carrying out audit assignments resulting in misstatement of the bank’s financial statements, and any violations/lapses vis-à-vis the RBI’s directions/guidelines regarding the role and responsibilities of the statutory auditors in relation to the bank , the Statutory Auditor would be liable to be dealt with suitably under the relevant statutory/regulatory framework.

Tenure and Rotation

Bank has to appoint the Statutory Auditors for a continuous period of three years subject to the firms satisfying the eligibility norms each year. Further, the bank can remove the audit firms during the above period only with the prior approval of the Regional office of RBI (Department of Supervision)

An audit firm would not be eligible for reappointment for six years (two tenures) after completion of full or part of one term of the audit tenure. However, audit firms can continue to undertake statutory auditof other Entities.

One audit firm can concurrently take up statutory audit of a maximum of four Commercial Banks [including not more than one PSB or one All IndiaFinancial Institution (NABARD,SIDBI, NHB, EXIM Bank) or RBI], eight UCBs and eight NBFCs during a particular year, subject to compliance with required eligibility criteria and other conditions for each Entity and within overall ceiling prescribed by any other statutes or rules. The limits prescribed for UCBs exclude audit of other co-operative societies by the same audit firm.

Audit Fees and Exp

The audit fees for the Statutory Auditor shall be decided in terms of the relevant statutory/regulatory provisions. The audit fee shall be reasonable and commensurate with the scope and coverage of audit, size and spread of assets, accounting and administrative units, complexity of transactions, level of computerization, identified risks in financial reporting, etc.

The Board/ACB of the bank shall make recommendation to the shareholders as per the relevant statutory/regulatory instructions for fixing audit fees of Statutory Auditors.

Statutory Audit Policy and Appointment Procedure

Bank will follow the procedure prescribed in the above RBI circular in this regard which is detailed as under:

  • Bank will shortlist minimum of 2 audit firms for vacancy of Statutory Auditors. If firm at first preference is found to be ineligible/refuses appointment, the firm at second preference can be appointed so that the process of appointment of Statutory Auditor is not delayed.
  • However, in case of reappointment of Statutory Auditors till completion of tenure of continuous term of 3 years, there would not be any requirement of short listing and sending names of multiple audit firms to RBI while seeking approval to appointment.
  • Bank shall continue to follow the existing procedure followed by them for selection of Statutory Auditors. Bank will place the name of short listed audit firms, in order of preference, before the Audit Committee of the Board(ACB) for the selection as Statutory Auditors. Upon selection of Statutory Auditors by the bank in consultation with the ACB and verifying their compliance with the eligibility norms prescribed by RBI, the bank shall place the name of short listed audit firms, in order of preference, before their Board for recommendation to Shareholders. Bank shall seek RBI’s prior approval for appointment of SAs.
  • Bank shall obtain a certificate, along with relevant information as per Format provided by the RBI as Form –B in the above circular from the audit firm proposed to be appointed as Statutory Auditor, to the effect that the audit firm complies with all the eligibility norms prescribed by RBI for the purpose. Such certificate should be signed by the main partner/s of the audit firm proposed for appointment of SAs of the Entities, under the seal of the said audit firm.
  • Bank shall verify the compliance of audit firm(s) to the eligibility norms prescribed by RBI for the purpose and after being satisfied of their eligibility, recommend the names alongwith certificate, in the Form C, stating that the audit firm(s) proposed to be appointed as SA by the bank comply with all eligibility norms prescribed by RBI for the purpose.
  • While approaching the RBI for its prior approval for appointment of SAs, Bank shall indicate their total asset size as on March 31st of the previous year (audited figures),forward a copy of Board/ACB Resolution recommending names of audit firms for appointment as S t a t u t o r y A u d i t o r in the order of preference and also furnish information as per Form B and Form C as mentioned above, to facilitate expeditious approval of appointment/re-appointment of the concerned audit firm.

With regard to the eligibility criteria and procedure for the appointment of Statutory Auditors, the detailed instructions in the above RBI circular or revised RBI guidelines issued from time to time to be complied with meticulously.