ICAI red-flags auditor selection process at PSU banks

Raising concerns, the chartered accountants’ apex body Institute of Chartered Accountants of India (ICAI) has said the current process for selecting auditors at public sector banks could compromise their “independence” in carrying out the auditing job.

ICAI has conveyed its concerns on the issue to the finance ministry and the Reserve Bank of India (RBI), among others.

Under the current process, a public sector bank’s management and audit committee are empowered to select the auditors. A panel used to appoint the auditors earlier.

Emphasising that banks should be more careful while appointing auditors, ICAI President Manoj Fadnis said the lenders need to design systems for ensuring transparency in the whole process.

“In the autonomy granted to banks for the appointment of central statutory auditors, we have a lot of concerns... The process followed by them needs a lot of refinement,” Fadnis told PTI in an interview.

The ICAI president, stressed that a greater independence of auditors is always “desirable”.

“What we believe is that the entire procedure will have to be implemented more carefully and the banks would have to design more systems for transparent method for appointment of auditors.”

Fadnis said the appointment of auditors is of great importance to ensure their independence is not compromised.

The new system is being followed pursuant to the finance ministry and RBI recently deciding to grant autonomy to public sector banks with regard to appointment of auditors. There are 27 public sector banks in the country.

In the earlier system, an auditor was selected by a committee with representations from the finance ministry, Comptroller and Auditor General and the Indian Banks’ Association.

Noting that appointment of auditors by the management is “not a desirable situation”, Fadnis said the earlier selection process through the committee was transparent and better.

“Now, suddenly this year the decision has been given to the banks. So the banks’ management and audit committees have been given the powers to appoint the auditors,” he noted.

Some appointments of auditors under the new method has already been made.

On the response from the finance ministry and RBI about concerns raised by ICAI, Fadnis said they were waiting to see the results.

"We have expressed our concerns to the Finance Ministry and RBI and we are told that this year they have carried out the methodology and are looking at the results, in the sense that how the process was carried out," Fadnis said.