An audit firm will not be eligible for appointment as statutory central auditor (SCA) of a bank for six years after completing its four-year tenure in that particular private or foreign bank.
This follows the decision of the Reserve Bank of India (RBI) to modify the rest period in the appointment of SCAs by banks.
‘Confined to two firms’
Hitherto, an audit firm, subject to its fulfilling the prescribed eligibility norms, was allowed to continue as the SCA for a particular bank for a period of four years, and, thereafter, it was compulsorily rested for a period of two years.
“It has been observed in a review of the appointment of statutory auditors in private sector/foreign banks that, in some cases, the same audit firm was reappointed after a gap of two years’ rest. In a few other private sector/foreign banks, the immediately preceding statutory auditor firm was appointed on completion of the four-year tenure of the current statutory auditor.
“The statutory central audit responsibility in such banks thus remained confined to two audit firms which were appointed on a cyclical basis,” the RBI said.
The rest and rotation policy in appointment of SCAs for banks had been mandated to ensure that the audit functions were looked at afresh, the RBI said. It was expected that the new team would always examine the issues in a bank from a different perspective, it pointed out. “The policy also aims to deter the auditors and auditee from establishing a comfortable relationship that may lead to compromise, in strict adherence to audit principles.”
The modification of rest period was done to ensure that the ‘rest and rotation policy’ was followed in letter and spirit. The new guidelines are also applicable to foreign banks.
