Norms on eligibility, empanelment and selection of Statutory Central Auditors and Statutory Branch Auditors in Public Sector Banks for the year 2015-16
Statutory Central Auditors as Annex I and Statutory Branch Auditors as Annex II
Norms on eligibility, empanelment and selection of
Statutory Central Auditors in Public Sector Banks
(i) The audit firm shall have a minimum 7 full time chartered accountants, of which at least 5 should be full time partners exclusively associated with the firm. The remaining 2 could be either exclusive partners or CA employees with a continuous association with the firm for a period of one year. These partners should have minimum continuous association with the firm i.e. one each should have continuous association with the firm at least for 15 years and 10 years, two with a minimum of 5 years each and one with a minimum of one year. Four of the partners should be FCAs. Also at least two of the partners should have minimum 15 and 10 years experience in practice. (In case the paid Chartered Accountant available with the firm without any break was admitted as a partner of the said firm at a future date, his association with the firm as a partner will be counted from the date of his joining the firm as a paid Chartered Accountant.)
(ii) The number of professional staff (excluding typists, stenographers, computer operators, secretary/ies and subordinate staff etc.), consisting of audit and articled clerks with knowledge in book-keeping and accountancy and engaged in outdoor audit should be 18.
(iii) The standing of the firm should be of at least 15 years which would be reckoned from the date of availability of one full time FCA continuously with the firm.
(iv) The firm should have minimum statutory central audit experience of 15 years of Public Sector Banks (before or after nationalisation) and/ or by way of statutory branch audit thereof or that of statutory audit experience of a private sector bank with deposits resources of not less than Rs.500 crore. (In case any of the partners of an audit firm is nominated / elected for a period of at least 3 years or more on the Board of any public sector bank then his / her such experience for a maximum period of three years will be considered as bank audit experience, provided such experience has not been earned by him/ her concurrently i.e. when his / her firm was assigned statutory audit of any PSB, select all India financial Institutions or RBI.)
(v) The firm should have statutory audit experience of 5 years of Public Sector Undertakings (either Central or State Government undertaking).
(While calculating such experience, more than one assignment given to a firm during a particular year or more than one year’s statutory audit (audits in arrears) assigned to the firm will be reckoned, as one year experience only, for the purpose of counting such experience.)
(vi) At least two partners of the firm or its paid Chartered Accountants must possess CISA / ISA qualification.
Note – 1. C&AG will empanel the Audit Firms based on the above parameters as on January 1 of the relevant year and send the panel to RBI.
2. If any audit firm empanelled by C&AG with the position as on January 1 undergoes change in its constitution after empanelment date, the audit firm will take all necessary steps to become eligible within a reasonable time and in any case, audit firm should be complying with above norms [Para 1 (i) to (vi)] on eligibility, empanelment and selection of Statutory Central Auditors in Public Sector Banks hosted on RBI web site before the following events:
- Appointment of the audit firms by the PSBs as SCAs. For this, the audit firm while giving consent to PSB for appointment may ensure that it complies with the norms.
- Before commencement of Annual Statutory Audit for Financial Year ending 31st March and till the completion of annual audit
- Quarterly Review of Accounts as on June 30, September 30 and December 31 every year till its completion.
In case any audit firm (after appointment) does not comply with any one of the norms (on account of resignation, death etc. of any of the partners, employees etc), it may promptly approach the PSB with full details. The PSB in turn may approach RBI.
PROCEDURE FOR APPOINTMENT OF
STATUTORY AUDITORS IN PUBLIC SECTOR BANKS
Statutory Central Auditors (SCAs)
1. The number of SCAs to be appointed in Public Sector Banks (PSBs) will be as under:
i) Category “A” Banks (Large Banks viz. Bank of Baroda, Bank of India, Canara Bank, Punjab National Bank, Central Bank of India and Union Bank of India) shall not have more than 6 SCAs. However, in case of SBI the number of SCAs shall not be more than 14.
ii) Category “B” Banks (Medium Banks viz. Allahabad Bank, Corporation Bank, Indian Bank, Indian Overseas Bank, Oriental Bank of Commerce, Syndicate Bank and UCO Bank) shall not have more than 5 SCAs, and;
iii) Category “C” Banks (Small Banks viz. Andhra Bank, Bank of Maharashtra, Dena Bank, Punjab & Sind Bank, United Bank of India, Vijaya Bank, State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore) shall not have more than 4 SCAs.
Actual numbers of SCAs to be appointed can be decided by respective boards subject to the above limit.
2. The cooling off period after completing the term of three years as SCA will be of three years.
3. The appointment of SCAs will be made on an annual basis, subject to their fulfilling the eligibility norms prescribed by RBI from time to time and also subject to their suitability.
4. The Government has decided that from the financial year 2014-15, selection and appointment of SCAs is delegated to individual Public Sector Banks.
5. The procedure that will be followed for selection of SCAs by the PSBs is as under:
a) The eligible list of firms furnished by C&AG every year will be subjected to scrutiny by RBI for identifying the continuing, rested and non-continuing firms and excluding audit firms against whom adverse remarks/disciplinary proceedings are pending or who have been denied audit.
b) RBI will verify that the firm has minimum bank audit experience of 15 years from its records.
c) RBI will prepare separate list of rested, continuing and non continuing eligible audit firms after excluding the name of firms who have been denied audit by RBI/C&AG and the firms who have declined the offer of appointment given by Public Sector Banks. The list of non continuing eligible audit firms will be further split up into list of experienced audit firms and new audit firms.
An ‘Experienced’ firm is one which has a Statutory Central Audit experience of any of the Public Sector Banks and ‘New Firm’ is one who does not have such experience.
Reserve Bank will be giving Public Sector Banks i) List of continuing firms (i.e. the list of audit firms who have not completed three years of audit ii) List of eligible, non continuing audit firms in two parts viz. experienced audit firms and new audit firms.
d) The allotment of vacancies of SCA’s shall be in the ratio of 60:40 between ‘Experienced ‘ and ‘New’ audit firms. As regards ratio of 60:40, banks will round the number to the nearest round number and choose auditors from the ‘Experienced’ and ‘New’ firm list.
e) The Office of the Comptroller & Auditor General of India (C&AG) will provide a graded panel. The audit firms in case of both the panels i.e. experienced as well as new firms, will be ranked (highest to lowest) based on the points given by C&AG. The banks will select the statutory auditors as per norms from the two panels. For Category ‘A’ banks, cut off limit for selection of audit firms will be 4 times of vacancy in that category while for Category ‘B’ banks, cut off limit will be 8 times of vacancy. Category ‘C’ banks will have the liberty to choose audit firms from the entire panel. The cut offs for category ‘A’ and ‘B” banks, both for experienced as well as new firms, will be indicated by RBI at the time of forwarding the panels to banks.
f) While making final selection, the PSBs will take into consideration the following points:-
- As far as possible, the bank should have at least two audit firms having their Head Office from the same place where the banks’ HO/CO is located. This condition is applicable for the combined pool of continuing and fresh auditors.
- Audit firms are not selected in the PSB from where they last retired (after completing the full term) before going under rest.
- The firms whose partner/s are on the Boards of PSBs are not appointed as auditors for the same PSB.
- In case of SBI, only experienced audit firms are considered as SCAs.
- An audit firm is eligible to be appointed as a Central/ Branch auditor of only one PSB during a particular year.
- PSBs will make parameters for short listing the audit firms.
The above parameters may be approved by the Board.
PSBs will prepare list of shortlisted audit firms in terms of above parameters.
PSBs will obtain the willingness in writing from above shortlisted audit firm(s) to accept the assignment of Statutory Central Audit work.
In the willingness letter, it should be clearly mentioned that there is no commitment on the part of PSBs to allot the Statutory Central Audit work to the auditors and the audit firms are free to give similar willingness to multiple PSBs, if approached by other PSBs.
The list of shortlisted audit firms will be placed before ACB. The ACB will approve adequate number of audit firm (s) in order of preference. The number of audit firms approved should be adequate enough to take care of the situation where some firms may not give consent.
Thereafter, PSBs will approach the audit firms to obtain their consent in writing strictly in order of preference. The audit firm should give their consent in writing for consideration of appointment in the bank concerned for the particular year and the subsequent continuing years subject to complying with para 3 above. If the approached audit firm does not give consent, the bank will approach the next audit firm in order of preference for obtaining consent till the time the number of audit firms who have given the consent equals to number of vacancies for the particular year.
The consent letter may clearly state that this selection of the audit firms as Statutory Central Auditor is subject to approval of RBI and any force majeure events and, in such cases, the audit firms will not have any claim against the PSBs and RBI. The PSBs may also clearly mention in the consent letter that appointment is subject to complying with the stipulated norms on eligibility and empanelment issued by RBI from time to time. In the consent letter, the audit firm should declare that consent is given to one PSB only.
It may also be incorporated in the consent letter that the consent given by an audit firm will be treated as irrevocable and request, if any, from audit firms for changing the bank, after giving its consent to the bank concerned will not be entertained.
The list of such selected firms (i.e. the firms who have given consent in the manner as stated above) who have given consent for appointment as statutory central auditors in PSBs may be placed before the ACB for its concurrence before it is forwarded to RBI for final approval.
6. Audit firm(s) selected by the PSBs after obtaining consent in writing from the audit firm will be debarred for a period of 3 years for selection if the firm refuses to accept the appointment without a reasonable ground, that is ground not to the satisfaction of RBI.
7. The above norms will be implemented during the selection process of SCAs for the year 2015-16 and onwards.
8. After selection, as per the statutory requirement, banks, in turn, are required to forward the names of the selected SCAs to RBI for its prior approval before their actual appointment.
9. A feedback on the quality of audit of SCAs may be given by PSBs to RBI after the annual audit of banks.
10. Other guidelines
- In order to protect the independence of the auditors/audit firms, banks will have to make the appointments of SCA for a continuous period of three years subject to the firms satisfying the eligibility norms each year. Banks cannot remove the audit firms during the above period without the prior approval of the Reserve Bank of India
- All PSBs are required to have a Board approved policy for appointment of statutory auditors and the same may be hosted on the bank’s website. Banks are also required to ensure that the policy framed by the Board in the matter of selection of auditors/audit firms for appointment of auditors is strictly adhered to.
- The audit firms applying for empanelment as SCAs in PSBs will be required to give an undertaking that, in case of selection in PSBs, they would give up the existing SCA assignment, if any, in Private Banks/Foreign Banks/RBI/Financial Institutions such as National Housing Bank, EXIM Bank etc. and they cannot refuse appointment of PSBs once selected. This stipulation however, will not be applicable for the auditors of the banks with no presence in India.
Note : A full time partner does not include a person who is:
(1) A partner in other firms.
(2) Employed full time/part time elsewhere, practicing in own name or engaged in practice otherwise or engaged in other activity which would be deemed to be in practice under Section 2 (2) of the Chartered Accountants Act, 1949.
A. Norms for the empanelment of audit firms to be appointed as statutory branch auditors for Public Sector Banks (2015-16)
|Category||No. of CAs exclusively associated with the firm
|No. of partners exclusively associated with the firm
(full time) (Out of 2)
|Bank audit experience||Standing of the audit firm|
|I.||5||3||8||The firm or at least one of the partners should have a minimum of 8 years experience of branch audit of a nationalised bank and/ or of a private sector bank.||8 years|
|II.||3||2||6||The firm or at least one of the partners should have preferably conducted branch audit of a nationalised bank or of a private sector bank for at least 5 years.||6 years
(for the firm or at least one partner)
|III.||2||1||4||The firm or at least one of the CAs should have preferably conducted branch audit of a nationalised bank or of a private sector bank for at least 3 years||5 years
(for the firm or at least one partner)
|IV.||2||2||2||Not necessary||3 years|
|Even proprietorship concern without bank audit experience may be considered as hitherto.
(The proprietary concerns of Chartered Accountants with 1 paid CA, 2 professional staff and not having any statutory branch audit experience of a nationalised bank or of a private sector bank will be treated at par with the partnership firm after deducting their 3 years seniority from the date of their establishment).
B. PROCEDURE FOR APPOINTMENT OF STATUTORY BRANCH AUDITORS IN PUBLIC SECTOR BANKS
1. The norms for selection of branches of PSBs for statutory audit from the year 2015-16 and onwards will be based on the following:
- Statutory branch audit of PSBs may be carried out for all branches with advances of ₹ 20 crore & above and 1/5th of the remaining branches covering a representative cross section of rural/semi-urban/urban and metropolitan branches, predominantly including branches which are not subjected to concurrent audit, so as to cover 90% of advances of a bank. CPUs/LPUs/and other centralized hubs by whatever nomenclature called would be included in the one fifth of the remaining branches every year.
- In respect of branches below the cut-off point, which are subject to concurrent audit by chartered accountants, henceforth, LFARs and other certifications done earlier by SBAs will now be submitted by the concurrent auditors to the Chairman of the bank and such branches may not generally be subject to statutory audit. The banks in turn will consolidate/compile all such LFARs and other certifications submitted by the Concurrent Auditors and submit to Statutory Central Auditor as an internal document of the bank.
- Going forward, in mutual discussions with GoI and SCAs, based, inter alia, on the operational efficiency and robustness of CBS, system driven identification of NPAs, and integrity of MIS, managements of individual PSBs may decide on the threshold level of advances for the purpose of selecting branches for statutory audit.
- Progressively, the threshold level of advances may be increased so that the number of branches to be taken up for statutory audit is phased down over a period of time.
2. The following procedure will be followed for appointment of Statutory Branch Auditors (SBAs) in Public Sector Banks (PSBs):
- The list of eligible auditors/audit firms will be prepared by the Institute of Chartered Accountants of India (ICAI) as per the norms prescribed by RBI.
- The above list will be subjected to scrutiny by RBI for identifying the continuing and rested firms and excluding audit firms against whom adverse remarks/disciplinary proceedings are pending or who have been denied audit.
- RBI will, thereafter, forward the final list of all eligible auditors/audit firms to PSBs for selection.
- The PSBs will select the required number of branch auditors/audit firms. Banks will be required to clearly advise the audit firms selected for consideration of appointment that each audit firm can take up audit assignment (branch audit) in one PSB only. The audit firm should give their consent in writing for consideration of appointment in the bank concerned for the particular year and the subsequent continuing years.
- The consent given by an audit firm will be treated as irrevocable and request, if any, from audit firms for changing the bank, after giving its consent to the bank concerned will not be entertained.
- After the selection of branch auditors, PSBs will be required to recommend the names of both continuing and selected branch auditors to RBI for seeking its prior approval before their actual appointment, as per statutory requirement.
3. SBAs will have a maximum tenure of four years. The appointment of SBAs will be made on an annual basis, subject to their fulfilling the eligibility norms prescribed by RBI from time to time and also subject to their suitability.
4. The number of eligible auditors / audit firms is more than the number of branches to be audited at the following 33 centres (viz. Mumbai, Kolhapur, Pune, Solapur, Thane, Kolkata, Chennai, Coimbatore, Delhi/ New Delhi, Ajmer, Bikaner, Jaipur, Kota, Udaipur, Ahmedabad, Vadodara, Surat, Hyderabad, Chandigarh, Raipur, Faridabad, Gurgaon, Panchkula, Panipat, Sonipat, Bangalore, Ernakulam, Indore, Nagpur, Ludhiana, Jodhpur, Bhilwara, and Ghaziabad). In such centres, the auditors/ audit firms will be put to a period of compulsory rest for two years after completion of four years of continuous branch audit. In other centres, where the number of eligible auditors / audit firms is less than the number of branches to be audited, the branch auditors on completion of four years of continuous branch audit will be subjected to the policy of rotation.
5. While allotting branches, banks are required to select auditors/audit firms which are in close proximity to their offices/branches. Banks are also required to have a suitable mix of various categories of auditors / audit firms while selecting the branch auditors keeping in view the size of the branches to be audited.
6. As regards statutory branch audit to be carried out by SCAs, banks will allot the top 20 branches(to be selected strictly 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 bank by SCAs.
C. General Guidelines applicable to SBAs
(i) All PSBs are required to have a Board approved policy for appointment of statutory auditors and the same may be hosted on the bank’s web-site. Banks are also required to ensure that the policy framed by the Board in the matter of selection of auditors/audit firms for appointment of auditors is strictly adhered to. Further, the list of firms selected for appointment as statutory branch auditors may be placed before the ACB/Board of bank before for its concurrence before it is forwarded to RBI for final approval.
(ii) The policy of one audit firm for one PSB will be continued. Accordingly an audit firm will be eligible to be appointed as a central/branch auditor of only one PSB during a particular year.
(iii) In order to protect the independence of the auditors/audit firms, banks will have to make the appointments of branch auditors for a continuous period of four years subject to the firms satisfying the eligibility norms each year. Banks cannot remove the audit firms during the above period without the prior approval of the Reserve Bank of India.