Acceptance of statutory audit of cooperative urban bank

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G SAI VENKATA CHALAM (Querist)
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01 October 2015 May I accept Statutory Audit of Cooperative Urban Bank in which my own brother is a nominee director being a Law Professional.
If my acceptance is valid, should I disclose my interest to the Board of Directors of the
Cooperative Urban Bank? Kindly clarify.
G.Sai Venkata Chalam

G SAI VENKATA CHALAM

G SAI VENKATA CHALAM (Querist)
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11 November 2015 So Far No answer to my above query

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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14 July 2024 Accepting the statutory audit of a Cooperative Urban Bank where your own brother is a nominee director can pose ethical considerations and potential conflicts of interest. Here’s a detailed clarification on your queries:

### Validity of Accepting the Audit:

1. **Ethical Considerations**: As a professional, you need to assess whether accepting the audit assignment would compromise your independence or integrity. Having a close familial relationship with a nominee director could potentially impact your ability to perform the audit objectively.

2. **Professional Standards**: Auditors are required to maintain independence in both fact and appearance. This means avoiding situations where personal or financial interests could influence audit judgments or decisions.

### Disclosure of Interest:

1. **Legal Requirements**: Under the Companies Act, 2013 and other relevant laws, auditors are typically required to disclose any direct or indirect interest in the company being audited. This includes familial relationships with directors or significant shareholders.

2. **Board Disclosure**: It is considered good practice and often a legal requirement to disclose any interest or potential conflict of interest to the Board of Directors of the Cooperative Urban Bank. This allows the board to assess the situation and decide on the appropriate course of action.

### Steps to Consider:

1. **Evaluate Independence**: Assess whether your relationship with the nominee director (your brother) could compromise your independence as an auditor. Independence is crucial for audit credibility.

2. **Legal Advice**: Consult with a legal advisor or professional body (such as the Institute of Chartered Accountants of India, if applicable) to understand specific ethical and legal obligations in your jurisdiction.

3. **Disclosure**: If you decide to accept the audit engagement, disclose your relationship with the nominee director to the Board of Directors of the Cooperative Urban Bank. Provide details of the nature of the relationship and assure them of your commitment to maintaining professional standards and independence.

4. **Ethical Clearance**: Seek ethical clearance from your professional body, ensuring compliance with their ethical guidelines regarding conflicts of interest.

### Conclusion:

While accepting the statutory audit of a Cooperative Urban Bank where your brother is a nominee director may be legally permissible under certain conditions, it is crucial to carefully evaluate and disclose any potential conflicts of interest. Transparency and adherence to professional standards are essential to maintain audit credibility and integrity. Disclosing your interest to the Board of Directors and seeking appropriate clearances are prudent steps to manage and mitigate any ethical concerns that may arise.

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