RBI EXTENDS 'REST' PERIOD FOR AUDITORS TO 6 YEARS

The RBI on Thursday criticised private and foreign banks for appointing the same set of auditors alternately after the mandatory rest period of two years. According to extant rules, an auditor has to be appointed for a period of four years and then there should be a rest of two years. It has extended the rest period to six years.

The Reserve Bank of India (RBI) on Thursday criticised private and foreign banks for appointing the same set of auditors alternately after the mandatory rest period of two years, as such a practice establishes a “comfortable relationship that may lead to compromise in strict adherence to audit principles”.

According to extant rules, a statutory auditor has to be appointed for a period of four years and then there should be a rest of two years. Now the central bank has extended the rest period to at least six years.

According to the RBI, in some cases at private and foreign banks, the same audit firm was reappointed after a gap of two years. At a few other 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,” RBI said in a notification on its website.

Criticising these banks, the central bank said the rest and rotation policy in appointment of auditors had been mandated so that books are looked at afresh, “as a new team is likely to examine the issues in a bank from a different perspective”.

In order to make the banks follow the policy in letter and spirit, the central bank said an auditor, after completion of its four year tenure at a bank “will not be eligible for appointment as SCA (statutory central auditor) of the same bank for a period of six years”.

The central bank’s directive assumes importance in the light of wide divergence found in the books of some private sector banks, which reported much lower nonperforming assets on their books for FY16 than what the central bank auditors later found. If the divergence found is more than 15 per cent from the RBI’s perspective, it is now mandatory the banks disclose the information in its annual report.