Audit heat on private banks
Private banks and insurers could lose their right to appoint auditors of their choice if regulators like the Reserve Bank of India accept a proposal put forth by the Institute of Chartered Accountants of India (ICAI).
Soon after the Satyam scam broke in early January, the premier accounting forum started lobbying the regulators of financial services to tighten rules for the appointment of auditors with a proper mechanism for oversight.
The move to trammel the rights of private banks and insurers is an offshoot of the ICAI’s proposal to clamp down on public sector banks.
Until 2006, the RBI used to create a panel of audit firms in consultation with the Comptroller and Auditor General (CAG). The RBI then farmed out the task relating to a state-run bank to one of the empanelled firms.
In 2006, the large public sector banks —those with assets and liabilities of over Rs 1 lakh crore — were granted the freedom to pick their statutory auditors.
At present, 14 state-owned banks, including the State Bank of India, Bank of Baroda, Punjab National Bank and Allahabad Bank, have the right to appoint their statutory branch auditors (SBAs).
After the Satyam scam broke, the ICAI insisted that the RBI and the other financial service regulators revert to the position that prevailed before 2006. The accountant’s forum — which is the second largest in the world — went a step further and said the rule should be extended to private banks and insurers as well.
The ICAI is eager to protect the interests of ordinary depositors and the public at large, said a council member. “We are keen to bring back the old system under which the RBI and the CAG picked the auditors for a bank’s head office and its branches. Why shouldn’t this rule be extended to private banks and insurance companies, considering that their depositors could be at risk as their public sector counterparts,” he asked.
The ICAI has already approached the finance ministry, the RBI and the CAG with the plan for PSU banks.
It plans to approach the IRDA shortly to bring about independence in audit at insurance companies.
“We have received assurances from the finance ministry that they will consider this move in the new financial year,” ICAI president Uttam Agarwal told The Telegraph.
Agarwal confirmed that several banks had not appointed their auditors even though this was the last month of the financial year 2008-09.
After banks were nationalised in 1969, the power to appoint auditors for state-run banks was given to RBI and the CAG who, in turn, appointed statutory and branch auditors.
ICAI members say that the autonomy granted to the state-owned banks in 2006 had created more problems than they solved because of the conflict of interest that it posed for the audit firms.
The ICAI has also been debating the appointment of joint auditors and rotation of auditors in listed companies after the Satyam fraud became public. However, it is unlikely that there will be any development on that front immediately.
“First, let us try and restore a system—on the appointment of auditors for PSU banks by the RBI—that was working well in the first place. Once, we have managed to restore the independence of auditors in the case of banks, we will tackle the private sector entities,” said Agarwal.
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