Govt may review PSU banks' freedom to choose auditors

The finance ministry may put on hold the final phase of its two-year-old road map that was meant to give complete freedom to public sector banks (PSB) to choose their statutory central auditors.

The Institute of Chartered Accountants of India (ICAI), the audit standard setting and regulatory body, has been opposing the ‘autonomy’ move from the very beginning, as it felt that by giving the banks the powers to choose their auditors, the government was weakening the auditor’s powers to make critical observations against the PSBs.

Instead of the earlier decision to allow PSBs to obtain the names of eligible audit firms directly from the office of the Comptroller and Auditor General (CAG), and appoint their auditors from 2010-11 onwards, the ministry is likely to ask banks to follow the previous year’s practice, which necessitates the involvement of the Reserve Bank of India (RBI) in the selection process.

During 2009-10, RBI had forwarded a list of eligible audit firms containing the names of those equal to twice the number of vacancies identified for the year to the PSBs to choose from.

The preparation of this list was based on certain selection criteria.

The RBI guideline says the allotment of audit is being made strictly in the order of seniority of the firms in the ratio of 60:40 among the “experienced” and “new” audit firms, respectively. It had said this system of audit assignment on the basis of seniority would ensure equitable distribution among all eligible firms by way of rotation.

ICAI has been opposing this system, as it felt the age-old practice of RBI choosing the auditors for PSBs or the system followed in 2008-09, where RBI forwarded a list containing the names of audit firms equivalent to the total number of vacancies, were the only ones that empowered firms to do their job without fearlessly.

“We have met the Prime Minister, the finance minister and several key officials in the ministry to express our concern. Unless the number of audit firms chosen are exactly the same as that of existing vacancies, the 60:40 ratio prescribed by the government to ensure equitable distribution of audit assignments will not work,” said ICAI president Amarjit Copra.

“If navaratna and miniratna companies of the government are audited by CAG-selected firms, why should there be an autonomy to the banks where larger money is involved?” Chopra asked.

On the government’s plan to maintain status quo this year, Chopra said he would still prefer the old system.