NEW BRANCH STATUTORY AUDITORS POLICY AS ANNOUNCED BY MINISTRYdated the 26th September, 2012

Area of concern

1.    Internal audits shall be converting it into a stronger Risk Based Internal Audit (RBIA) function and to  strengthening the Concurrent Audit by bringing Risk focus into the Concurrent Audit  could reduce some of the other Audits ( BRANCH STATUTORY AUDITS) in the Branches wherein RBIA, CA are conducted.

2.    There was a lopsided empanelment and appointment procedure for Concurrent audits followed by Banks. The Committee feels that there is urgent need to rectify the position in order to make the Concurrent Audit System effective.

3.    Statutory Branch Audit has become routine and not much effective post implementation of CBS in PSBs.

NEW General Guiding Principles

1.    The Banks should move to Software based Audit process.

2.    The team should consists of a proper mix of audit officers / Chartered Accountants / Cost Accountants/ CISA Qualified / Seniors having experience in all the Banking functions/ Juniors having basic knowledge of various banking functions

3.    All the Audit team members should be made to sign Do's & Don'ts given in the manual attached.

 Guiding Principles on Information Systems (IS)Audit:

1.     The Banks should form separate IS Audit teams with persons having adequate IT experience and suitably CISA qualified Professionals. The IS Audit should be carried out on a continuous basis adopting Risk based Approach as per the IS Audit policy.

Guiding Principles on Concurrent Audit:

1.    For Concurrent Audit Chartered Accountant Firms should be appointed from the RBI panel as per the gradation based on the size of the Branch. The remuneration of Concurrent Auditors may be enhanced suitably based on the coverage of audit, quality of the audit, skill sets required, number of staff required etc

2.    The performance of Concurrent Auditor should be reviewed on Annual basis

3.     Suitable deterring provisions should be incorporated in the Concurrent Auditors engagement for delayed submission of Reports and unsatisfactory performance

4.    The functions performed by the statutory auditor should be transferred to Concurrent Auditors. Concurrent Auditors should be advised to provide various Certifications done presently by Branch Statutory Auditors, covering NPA provisioning, Insurance coverage, P & L Account, ALM, CRAR, DICGC, LFAR etc., similarly, Certification regarding Tax Audit may also be taken from the Concurrent Auditors.

5.    With regard to other Branches not covered under Concurrent Audit but is covered under the Branch Statutory Audit the threshold limit of advances should be enhanced suitably, ensuring adequate coverage of Urban, Semi-Urban and Rural branches keeping in view the inflation over time, on the following lines:

6.    All the branches not subjected to concurrent audit but covered under the Branch Statutory Audit, with the enhanced threshold limit of advances and 1/5th of remaining branches should be subjected to certification by external Chartered Accountants under Branch Statutory Audit System in the banks, where the CBS is not stabilized, for a maximum period of two years.

7.    However, in case of banks where the CBS is stabilized and running well, the certification as per the above norms should be done at central level by the Central Statutory Auditor.

8.    The above aspect of Annual Certifications should be kept in view while revising Fees of Concurrent Auditors as suggested earlier. This is expected to result in reduction in overall cost to the Banks and improvement in quality of CA on adopting this suggestion

9.    Thus, going forward the existing Branch Statutory Auditor appointment system gets phased out, in view of the above suggested guiding principles.