I. ICAI’s quest for financial transparency in the financial reporting of the Indian banking sector
The ICAI wishes to draw the attention of the RBI in respect of certain circulars issued by it relating to the restructuring proposals. In this context, the attention is drawn to circular dated February 4, 2009 wherein the date has been extended from January 31, 2009 to March 31, 2009. As per the Circular, by simple receipt of application for proposal for restructuring package by this particular date i.e. March 31, 2009 indicating that restructuring package will be put in place within a period of 120 days and, thus, all such accounts will be treated as standard assets and no provisioning would be required. It implies that in case, even if only an application for restructuring has been received from an account which was standard till September 1, 2008 and has downgraded since then, that account would be treated as standard asset in the financial statement of that particular bank being prepared as on 31.3.2009.
It appears from the above that by this kind of treatment, it appears that no non-performing assets shall be reflected on the balance sheet of banks as late as December 31, 2009. We are of the view that this has implications for the auditing standards to be followed by the auditors while giving their opinion on the quality of assets shown in the banks’ balance sheet. The issue is being further examined by the Auditing and Assurance Standards Board of the Institute at its next meeting to be held on March 24, 2009 to provide guidance to the auditors in this particular matter.
II. ICAI opposes managerial autonomy of Public Sector Banks in the matter of appointment of auditors
In December, 2008, RBI drew a roadmap to implement the Ministry of Finance’s circular issued in December, 2005 in respect of exercising of managerial autonomy of Boards of Public Sector Banks in the matter of appointment of auditors. In the said circular, an option was always there with the Boards to let the old system of appointment of auditors continued to be made by RBI. However, the RBI’s roadmap makes it compulsory for all public sector banks to move to managerial autonomy in a prescribed time frame. Such an approach has strong implication for the independence of bank auditors. Because, the auditors may have divergent views from that of the Banks managements on many matters, especially identification and classification of NPAs and provisions thereof and therefore, may not agree with the management. Moreover, recent instances of financial failures have only been in private banks and cooperative banks where appointment is being done mostly by the management itself, putting clients and investors’ interests at stake. Also, under the Companies Act, 1956 an auditor is appointed by the shareholders and not by the Board. There provisions’ assure the independence of auditors who take care of the interests of the shareholders in the company. The proposed road map, though does not violate the letter of the legislations, not at all navigates the provisions of Companies Act, 1956.
III. Time given for conducting bank branch statutory audit assignment.
As per policy, an auditor is generally assigned 3 branches of a bank for audit. Though appointment letter states that audit has to be completed at the earliest, auditors are generally impressed upon to complete the same by 7th/8th April, every year. This year, this will practically give 4 ½ working days to auditors to complete the audit assignment of 3 branches. This issue has been time and again raised with the RBI. It had vide its letter in 2003, had informed that all PSBs were advised suitably in the matter, however, the practice of giving such impractical deadline is still continuing. Though with advent of CBS, processing and checking at branch level has become faster still as we have all seen, information technology is one area which can be helpful to the extent we want it to be. Therefore, we once again earnestly request RBI to advise all banks not to put unnecessary pressure on auditors to complete their assignment in haste, signing on documents prepared by the branch without checking them thoroughly.