Report
of the Group to consider issues relating to equitable audit allotments,
mechanism to control tendering system and introduction of ceiling on number of
concurrent audit of banks per firm
The Institute of Chartered
Accountants of India
(Set up by an Act of Parliament)
INDEX
S. No.
|
Particulars
|
Page
no.
|
Annexure
|
1.
|
Prologue
|
5
|
|
2.
|
Objective
of the Group
|
5
|
|
3.
|
Composition of the Group
|
5
|
|
4.
|
Meetings of the Groups
|
6
|
|
5.
|
Issues Identified & Views of
the Group
|
6-22
|
|
6.
|
Recommendations
|
23-26
|
|
7.
|
Acknowledgement
|
27
|
|
8.
|
Mail dated 23rd March,
2013 of CA. Tarun J. Ghia
|
A (28-30)
|
|
9.
|
Mail dated 5th June,
2013 of CA. Atul Kumar Gupta
|
B (31-33)
|
|
10.
|
Mail dated 8th July,
2013 of CA. Atul Kumar Gupta
|
C (34-37)
|
|
11.
|
Bombay High Court Order on Writ Petition no. 1112 of 2006
|
D (38-40)
|
|
12.
|
Guidelines for Appointment of Statutory Auditors in Public Sector
Banks, as available on
http://rbi.org.in/scripts/bs_viewcontent.aspx?Id=946
|
E (41-51)
|
|
13.
|
Policy of Empanelment of CA Firms and Selection of Auditors of
PSUs, as available on www.cag.gov.in
|
F (52-54)
|
|
14.
|
Guidelines for Appointment of Statutory Auditors of Insurance
Companies, as available on
http://www.irdaindia.org/guidelines/guidelineaudit.pdf
|
G (55-61)
|
|
15.
|
Application for empanelment of auditors with Life Corporation of
India
http://www.licindia.in/Hindi/images/auditors_form_revised.pdf
|
H (62-66)
|
|
16.
|
Item for Executive Committee “Prescribing norms for evaluating the
technical and financial bids as model for
various regulators and persuading them to adopt those norms so that the
similar criteria for evaluation is used by all Agencies: To consider”
|
I (67-69)
I1
(110-154)
I2
(155-258)
|
|
17.
|
The recommended scale of fees
prescribed by the ICAI in the context of various professional assignments
|
J (70-74)
|
|
18.
|
Draft letter
which may be sent to the members across the country requesting them to
maintain cost sheet in the given format while submitting any tender/bid.
|
K (75-77)
|
|
19.
|
Draft letter
which may be sent to the authorities/companies floating tenders for CA
services.
|
L (78-79)
|
|
20.
|
Draft
Guidelines for procurement of Chartered Accountant Services and Competitive
bidding
|
M (80-84)
|
|
21.
|
Relevant extract of the Master Circular on Audit Systems issued by Department of
Financial Services, Ministry of Finance, Government of India vide its F.No.7/124/2012-BOA
dated 26th September, 2012
|
N (85-108)
|
|
22.
|
Details
of concurrent audit experience as available in MEF 2013-14
|
O (109)
|
1.
PROLOGUE
The Council at its 326th meeting held
from 27th to 29th July, 2013 at New Delhi, considered the
issue raised by CA. Tarun J. Ghia vide his e-mail dated 23rd March,
2013 (copy enclosed as Annexure A)
and those raised by CA. Atul Kumar Gupta vide his e-mails dated 5th
June, 2013 and 8th July, 2013 (copy enclosed as Annexure B & C respectively) under Item No.2, `Matters of
General Interest to the Profession’. Opining that the issues mentioned therein
involve larger issues and would affect majority of the practicing professionals,
it was decided to form a group to consider the following:
1.
Issues relating to
equitable audit allotments;
2.
development of a
mechanism to control tendering system and
3.
introduction of ceiling
on number of concurrent audit of banks per firm.
2.
OBJECTIVE OF THE GROUP
To consider issue relating to equitable audit
allotments, mechanism to control tendering system and introduction of ceiling
on number of concurrent audit of banks per firm.
3.
COMPOSITION OF THE GROUP
The study group comprised of the
following members:
1. CA. Tarun J. Ghia, Convener
2. CA. Pankaj I. C. Jain
3. CA. Mukesh Singh Kushwah
4. CA. Abhijit
Bandyopadhyay
5. CA. G. Sekar
6. CA. Charanjot Singh
Nanda
7. CA. Anuj Goyal
8. CA. Shyam Lal Agarwal
4. MEETINGS
OF THE GROUPS
Two meetings of the group were held on
18th September and 29th October, 2013. As discussed
during those meetings, draft of this report was prepared and mailed to all the
members of the group for their kind approval. After considering their comments
received thereon, the report has been finalised.
5. ISSUES
IDENTIFIED & VIEWS OF THE GROUP
Issues identified:
1.
Issues relating to
equitable audit allotments,
2.
development of a
mechanism to control tendering system and
3.
introduction of ceiling
on number of concurrent audit of banks per firm.
As the gamut of all the above mentioned issues was
quite large, it was decided to take these items one by one, discuss it
thoroughly, call for further appropriate papers, discuss them again and
conceptualise and formulise the recommendations of the group for the
consideration of ICAI’s Council. Accordingly, following issues were discussed
threadbare:
1. Equitable audit allotments
As there was no specific
reference, it was presumed that the given issue includes not only bank branch
statutory audit (for which panel is prepared by ICAI) but other audits also. For the purpose, following papers were
provided to the group:
(i) Bombay High Court Order on Writ
Petition no. 1112 of 2006, copy enclosed as Annexure D;
(ii) Guidelines for Appointment of Statutory Auditors in Public
Sector Banks, as available on www.rbi.org.in copy enclosed
as Annexure E;
(iii) Policy of Empanelment of CA Firms and Selection of Auditors of
PSUs, as available on www.cag.gov.in copy enclosed as Annexure F;
(iv) Guidelines
for Appointment of Statutory Auditors of Insurance Companies, as available on
Insurance Regulatory Development Authority’s website, copy enclosed as Annexure G;
(v) Application
for empanelment of auditors with Life Corporation of India, as available on the
website of LIC, copy enclosed as Annexure
H.
(vi) Details of bank branch audit allotment done for the year
2012-13 of various public sector banks, as was available on RBI website.
It was discussed that the said documents [mentioned
at sl. No. (i), (ii) and (vi)] would help in assessing whether equitable
distribution of audits has been carried out as per the Bombay High Court Order
in this regard. It was group’s
considered view that the said High Court Order as was applicable to RBI in the
matter of empanelment, allotment of branch audit of public sector banks is
applicable in toto to all the banks as now empanelment is being done by Reserve
Bank of India and allotment is being
done by public sector banks themselves.
Members expressed the view that the eligibility
criteria of three years’ seniority in profession (in case of branch statutory auditors
of public sector banks) should be removed as it serves more as a
hindrance/obstacle for the new professionals.
The group further contemplated as to whether to emphasise
reservation/preference to firms with less than 10/7 years standing in the
profession or those with the annual turnover of less than Rs. 10 lakhs for
stock and/or revenue audits and/or other assignments in banks.
The group was also apprised of various
complaints and views received from the members in respect of the empanelment
and allotment of bank branch audits for the financial year 2012-13, the process
followed and the criteria adopted thereof.
It was further informed that many chartered
accountants were aggrieved by the fact that allotments were being made not by
the central office but by the zonal or circle offices of the banks which
creates scope for favoritism, bias and prejudice in the allotment
procedure. Therefore, it was discussed
that to introduce transparency and objectivity in the allotment criteria, the
banks should be required to amplify the criteria adopted for allotment of
audit, in terms of cooling/resting period, category relevant to size of the
branch reasoning out the adoption of a particular criteria. Moreover, it should be as elaborate as
possible so as to leave no room for ambiguity.
It was further considered that directly the
Institute does not have the power.
However, we can send a request letter to all the banks under the
signatures of the President to provide all the details of the allotments done
and that allotment should be strictly as per the pre-determined criteria and
ICAI as a regulator would be interested in ensuring that all allotments are
done on the basis of an objective and decided criteria. Moreover, as and when next allotment happens,
in the interest of all the stakeholders and to ensure transparency in the
matter, banks should be forthcoming with the requisite details like advances
level of their branches, how the selection of branches (with advances level of
less than Rs. 20 crore) has been done for audit, etc. The Group reiterated that the ICAI must
write to all the banks about the need to follow the directives of the Bombay
High Court as also the need to be transparent and objective in allotments.
The group discussed that Institute
should approach those entities where empanelments are not happening but ideally
should happen including public authorities or entities in which funds of the
government or semi-government organizations are employed substantially as the
same is a public organization wherein substantial public interest is involved.
For other audits, the group discussed and
deliberated to suggest all the government authorities, regulators,
organizations to allot audits/assignments on empanelment basis. At the least, process and criteria of
empanelment should be clearly specified and should be made available not only
on the website of the Institute but also as and when the same is in progress,
the same should be publicised through local newspapers also and the ultimate
allotment should be done in a very transparent and objective manner. There should be conspicuous intimation to the
chartered accountants about the empanelment taking place.
Further, Group was also provided list of
representations made in last five years in respect of various empanelments or
allotments.
Various statutes empower different
authorities/regulators to appoint auditors for various entities like Registrar
of Co-operative Societies of various states for co-operative Societies of
respective states, O/o C&AG
for Government companies, Reserve Bank of India for banking companies etc. Therefore,
in case we wish to have/achieve equitable allotment of audit assignments, we
need to have a strong and continuous liaison with all such appointing
authorities across the country. However, the same cannot be said about audit of
private companies, partnership firms, tax audits, service tax audit, etc.
Moreover, another view point was also expressed by the members. As
we all know before cutting the cake,
we should know the size of the cake i.e. we should know the actual number of
audits and the audit fee at present available for chartered accountants. For
this, we need to collect data from all the practicing firms in respect of their receipts from
audit/accounting/tax audit/concurrent audit/ management assignments/ any specific special assignment along with
details of specialization of respective firms and their capacity i.e. staff
strength, qualification and experience.
We need to know actually how many members are in practice and
separating them from those in industry. It was suggested that we can call for
this data
- from the
respective companies (which may be very difficult as many of them may not
consider it important to reply) or
- we may
make it mandatory for all our members to inform the Institute (which is most
plausible) as ICAI is the
regulator of Accountancy profession or
- as a one
time measure (or once in a decade), we may call for income-tax return from all
the practicing members so as to identify
those members who are otherwise claiming to be in full time practice but are actually
working in the industry on full time basis.
All the above mentioned measures will increase the confidence of
practicing professional in the Institute and consequently
will firm up the status of the Institute not only among its members but also amongst
other regulators and Government of India. This will also enable us to put our
case strongly before all the concerned
authorities and benefits may help us in emphasizing need/importance of equitable
allotment of audits.
2. Development of Mechanism to control
tendering system
Since the amendment in the Chartered
Accountants Act, 1949, done in the year 2006, undercutting has been taken off
the list of professional misconduct. Now, the firms are allowed to quote/bid as
per their cost benefit analysis. It was opined that post amendment 2006, this
has been one of the most contentious issues plaguing the CA profession. The group was further informed that an item
in this regard is also pending before the Executive committee “Prescribing norms for evaluating the technical and financial bids as
model for various regulators and persuading them to adopt those norms so that
the similar criteria for evaluation is used by all Agencies: To consider”,
copy enclosed as Annexure I (One of
the items referred by the referred by the
Professional Development Committee to the Group.
For the consideration of the said item, following
documents were placed before the Executive committee:
The series of correspondence on the issue of responding to tenders, advertisements and circulars by chartered accountants and firms thereof so as to frame guidelines on the subject matter to streamline the prevalent practices while responding to tenders wherein the Professional Development Committee of the Institute at its 190th meeting held on 16th April, 2010 had decided that where there is a huge (abnormal) difference between the lowest quote received for a tender (on which the tender is ultimately allotted) and the next lowest quote, then peer review of the said assignment and/or concerned chartered accountants/firms thereof can be ordered, copy enclosed as Annexure I1 consisting of the following:
S.N.
|
Document and
Issue/Topic/Brief
|
Reference
|
1
|
Note
sent to the Secretary, Ethical Standard Board (ESB) on 1st June,
2009 regarding responding to tenders, advertisements and circulars by
Chartered Accountants and firms thereof requesting them to propose guidelines
on the subject matter to streamline the prevalent practice while responding
to tenders, enclosing
|
Annexure 1
(113-115)
Annexure 1A
(116)
Annexure 1B
(117-118)
|
2
|
Extracts
taken from minutes of item No.9 of 187th meeting of Professional
Development Committee held on 14th July, 2009 regarding tenders/opportunities
available for chartered accountants/firms whereby the Committee noted the
steps being taken by the office on the matter.
|
Annexure
2
(119)
|
3
|
Note
No. 29-CA/Law/NDM-663 dated 20th August, 2009 received from Legal
Section containing opinion received from Shri Parag P. Tripathi, Additional
Solicitor General of India clarifying that the Institute can formulate
guidelines under Clause (6) of Part I of First Schedule of the Chartered
Accountants Act, 1949.
|
Annexure
3
(120-131)
|
4
|
Note
sent to the Secretary, ESB on 1st October, 2009 requesting them to
consider the appropriateness of the proposed clauses specified therein having
regard to implications arising out of provisions of Code of Ethics.
|
Annexure
4
(132-133)
|
5
|
Item
for the 291st Council meeting scheduled on 16th/17th
December, 2009 regarding requirement of earnest or deposit money while
responding to tenders or enquiries issued by various users of professional
services or organization from time to time enclosing
|
Annexure
5
(134-136)
Annexure
5A
(137-138)
Part
of Annexure 3
(121-131)
Annexure
5B
(139-142)
|
6
|
Abridged
Minutes of 291st meeting of the Council held from 16th/17th
December, 2009 wherein the Council referred the matter to ESB for its
recommendation on the matter.
|
Annexure
6
(143)
|
7
|
Extract
taken from minutes of 188th meeting of PDC held on 31st
January, 2010 wherein the Committee noted that as informed by ESB, it’s a
purely contractual matter and as such there is no need to draft any
guidelines in this regard; and directed the office to frame guidelines to be
followed by firms while responding to tenders which after due consideration
by PDC may be forwarded to ESB and then to Council for approval.
|
Annexure
7
(144-147)
|
8
|
Extract
taken from minutes of 189th meeting of PDC held on 11th
March, 2010 wherein draft guidelines were placed before the Committee and the
Committee authorized the Chairman to do the needful.
|
Annexure
8
(148-151)
|
9
|
Extract
taken from minutes of 190th meeting of PDC held on 16th
April, 2010 wherein it was decided that where there is a huge (abnormal) difference
between the lowest quote received for a tender (on which the tender is
ultimately allotted) and the next lowest quote, then peer review of the said
assignment and/or concerned chartered accountants/firms thereof can be
ordered
|
Annexure
9
(152-154)
|
Further, the Executive Committee
was apprised that the evaluation guidelines are intended to be organization and
work specific. It was also informed that many organizations follow combination
of technical evaluation followed by financial bids. Because, in this regard,
the circular issued by Central Vigilance Commission lay down several guidelines
in respect of tendering process to be followed in the public sector and the
government departments (enclosed as Annexure
I2).
The Council of the
Institute at its 301st meeting
held in December, 2010 had decided that-
“A cost sheet be
maintained by members of the Institute responding to tenders and accepting the
professional work based thereupon, incorporating details of the costs being
incurred therein having regard to number of persons involved, hours to be
spent, etc, so that the same may be called for by the Institute for perusal”.
The members opined that
tendering should be discouraged in the exclusive areas of practice of our
members like audit and attestation services. It was the unanimous view that
tendering should not be allowed in such practice areas and group preferred to
have norms in such areas. It was opined that such norms need to be improvised
so as to suit the needs of all concerned. In this regard, the office apprised
the members about the following two decisions of the Institute:
The Group was of the
view that we can control our members not the Government
departments/authorities. If we can prohibit/restrict members from responding to
exclusive areas in respect of pure audit assignments and attestation services,
that will be most ideal. In respect of the areas not exclusively belonging to
our members, it would not be prudent to prohibit our members from responding
because in such cases other service providers will get advantage of such
prohibition on our members and our members would loose the opportunities.
However, at the same time the professionalism and dignity of the chartered
accountants should be maintained while responding to such tenders. The Group
was of the opinion that such professionalism and dignity of the chartered
accountant in particular would ultimately have an impact on the brand image of
the chartered accountants and the image of the ICAI. The members must adhere to
the (REVISED) recommended scale of fees prescribed by the ICAI in the context
of various professional assignments, copy of the same is enclosed as Annexure J. To ensure such adherence, a
member responding to a tender should be required to furnish to the ICAI’s
specified website the maximum details about the estimated hours to be devoted
by the partner/proprietor, paid CAs, other staff and the fees quoted in the
tender. Such details will be furnished by the member within a period of seven
days of his responding to the tender. If the member is successful in securing
the tendered assignment, then the member will also furnish the actual hours
devoted by the partner/proprietor, paid CAs and the staff.
A draft letter which may be sent to the members across the country
requesting them to maintain cost sheet in the given format while submitting any
tender/bid was also discussed by the Group, copy of the same is enclosed as Annexure K.
Group also discussed draft letter which may be sent to the
authorities/companies floating tenders for CA services, copy of the same is enclosed as Annexure L.
Members considered to
make it (the cost sheet) compulsory for the members to file a copy online of
the bid submitted by them in response to any tender within 30 days with
ICAI. It was opined that
the office should check whether recommended scale of fees has been followed or
not in the bids. Some of the members suggested that first of all, we
should delineate the purpose of calling such huge details from the members,
method or structure required for the purpose and methodology should also be set
so that there is no ambiguity at later stages. It was also considered whether we can
make it mandatory for members to maintain or submit bids in specified format
which can be called for by the Institute any time and any member who does not
provide the information within the given time period may be referred to the
Disciplinary Section.
Further, as discussed during the
meetings, following documents have been studied to prepare draft guidelines for
procurement of Chartered Accountant Services and Competitive bidding, copy
enclosed as Annexure M:
1. Public
Procurement Bill, 2012
2. UNCITRAL
model law on procurement of goods and services (July, 2011)
3. Procurement of goods, works and
non-consulting services under IBRD loans and IDA credits & grants by World
Bank borrowers (January, 2011).
3. Introduction of ceiling on number of
concurrent audit of banks per firm
In this regard, members were apprised of the Master Circular on
Audit Systems issued by Department of Financial Services, Ministry of Finance, Government
of India vide its F.No.7/124/2012-BOA dated 26th September, 2012
enclosing therewith Guidelines on Audit Systems in Public Sector Banks and
Model Audit Manual on Internal Audit, Information Systems Audit and Concurrent
Audit in Public Sector Banks issued by Department of Financial Services,
Ministry of Finance, Government of India vide its letter no. F. No.
7/112/2011-BOA dated 28th June, 2012 to all Public Sector Banks,
wherein in the Concurrent Audit Policy Model, it has been mentioned that the
audit firm for conducting concurrent audit should be selected from the RBI
panel as per gradation suggested for branch statutory auditors’ appointment
which implies that no firm which is not appearing in Bank Branch Auditors’ Panel
of RBI can be appointed as concurrent auditor of any of the public sector bank.
[Please refer para 6 (Selection of the audit firms for conducting
concurrent audit) of Chapter 4 (CONCURRENT AUDIT POLICY), copy enclosed
as Annexure N.]
It was
informed to the members that the criteria for selection of concurrent auditors
are not known to the office. Then the members were of the view that we may
write to all the banks, requesting them to provide details of allotment of
concurrent audit for the year 2012-13 and have an allotment policy for
concurrent audits also as norms lead to less flexibility, less maneuverability
resulting in less corruption. However,
whatever may be the criteria, the same should be available on the bank’s
website so that the whole procedure is transparent. Members also opined that as
CAG also reserves big audit assignment for bigger firms, RBI also follows the
same then why not smaller audits be reserved for smaller firms only. The group
also contemplated as to whether we should advise banks that one concurrent
audit be allotted per two partners of firm; and not more than five concurrent
audits on overall basis be allotted to a firm. Further, the office was asked to
provide an analysis of the details of concurrent audit experience, as received
in MEF 2013-14, details as provided to the Group are enclosed in Annexure O.
It was decided that a
proprietary concern cannot take up more than 1 bank branch concurrent audit at
a time. However, if such proprietary concern has a full time paid CA employee for a period of 12 months or more immediately preceding the
date of appointment as a concurrent auditor, then the proprietary concern can
take one more branch concurrent audit per such paid CA employee. However, at
the time of renewal of a concurrent audit, the same criteria will be applicable
as if it is a fresh audit.
It was discussed that
slab should be made in a manner that will not reduce opportunities for bigger
firms. There should be no discrimination of size. Smaller firms should be
protected to the extent possible. Moreover, such a limit should not serve as an
incentive to partners of bigger firms to form smaller firms.
In the cases of
partnership firms, the group contemplated to allow a firm to take concurrent
audit of one branch per partner. Similarly, for every paid CA employee for 12
months or more immediately the preceding the date of appointment, one
additional concurrent audit can be taken.
The Group at its 2nd
meeting again discussed at length the proposed advice and decided that one
concurrent audit be allotted per 2 partners of firm and not more than five
concurrent audits on overall basis be allotted to a firm. However, at the time
of renewal of a concurrent audit, the same criteria will be applicable as if it
is a fresh audit.
The Group contemplated
on issue of introduction of ceiling on number of concurrent audit of banks per
firm. The group was of the view that Council of the Institute should promulgate
strong recommendation/guideline for concurrent audit limit like tax audit
limit.
The Group noted that
during the commission of the group, following items as were relevant to the
terms of reference of the group were referred by the Professional Development
Committee to the Group:
1. Prescribing
norms for evaluating the technical and financial bids as model for various
regulators and persuading them to adopt those norms so that the similar
criteria for evaluation are used by all Agencies.
Already referred above.
2. Enormously low fees charged by the Chartered
Accountants in Government tender – Referred by Committee for Members in
Entrepreneurship & Public Service
Facts
|
E-mail
dated 19th October, 2012 received from the Committee for Members
in Entrepreneurship & Public Service containing issues raised at Residential
Workshop for ICAI Members in Public Service regarding low fees charged by the
Chartered Accountants in Govt. tender.
The matter was placed before the 201st meeting of PDC held on 19th
June, 2013 wherein members were apprised about the following:
The
Council of the Institute at its 301st meeting held in December,
2010 had decided that a cost sheet be maintained by members of the Institute
responding to tenders and accepting the professional work based thereupon,
incorporating details of the costs being incurred therein having regard to
number of persons involved, hours to be spent, etc, so that the same may be
called for by the Institute for perusal.
The
Committee at its 191st
meeting held on 19th
August, 2010 decided that where
there is a huge (abnormal) difference between the lowest quote received for a
tender (on which the tender is ultimately allotted) and the next lowest
quote, then peer review of the said assignment and/or concerned chartered
accountants/firm thereof can be ordered.
The
Committee at its 201st meeting held on 19th June, 2013
noted the concerns expressed by various members across the country (through
emails and letters) and those sittings around the table on the issue of low
bidding on tenders. Considering the
above mentioned decisions, the Committee decided to entrust Task Forces at
State level /Regional Councils with the responsibility to inform PDC
Secretariat about tenders coming to their knowledge to whom appropriate
representation may then be sent by the office informing them of the pit falls
of selecting a bidder with low bid and apprising them of the minimum
recommended scale of fees approved by the Council of the Institute and making
them aware about the quality-cum-cost based selection of service providers.
The
Professional Development Committee at its 202nd meeting held on 10th
October, 2013 again considered the matter and referred this issue to the
group formed to consider issues relating to equitable audit allotments,
development of a mechanism to control tendering system and introduction of
ceiling on number of concurrent audit of banks per firm under the
convenorship of CA. Tarun J Ghia.
|
3. E-
Mail received from CA. Naresh Agarwala, Coopted Member of Professional
Development Committee raising certain issues for the consideration of PDC
Facts
|
CA. Naresh Agarwala, Coopted Member of
Professional Development Committee vide e-mail dated 7th October,
2013, had raised certain issues for the consideration of the Committee at its
202nd Meeting which is as follows:
1.
“Campus Placement: ………….
2.
Conversion Audit/ Information System Audit: ……………...
3.
Tender for Audit Fees: Presently, many government and other departments call for tender
for Audit fees. In many such cases of education Ministry of different States,
nature of work, or even no communication address/communication numbers are
given.
This gives rise to absolute cut throat
competition among the members, which gives rise to deterioration of quality
of work also. So, response to such bids may be banned for the members and
audit fees fixed on certain acceptable criteria. Further such audit may also
be allotted by some independent authority, on the basis of empanelment
therefor.
4.
C&AG :
……………………..
The Professional Development Committee at
its 202nd meeting decided to refer the para no. 3 for the
consideration of the group formed to consider issues relating to equitable
audit allotments, development of a mechanism to control tendering system and
introduction of ceiling on number of concurrent audit of banks per firm under
the convenorship of CA. Tarun J Ghia.
|
6. RECOMMENDATIONS
1. Equitable audit allotments
1.
Eligibility criteria of
three years’ seniority in profession (in case of Bank Branch Auditors) may be
reconsidered.
2.
To find ways and means
for reservation/preference to firms with less than 10/7 years standing in the
profession or those with the annual turnover of less than Rs. 10 lakhs in stock
and/or revenue audits and/or other assignments in banks.
3.
To send a letter to all
the banks under the signatures of the President informing that allotment should
be strictly as per the pre-determined criteria and ICAI as a regulator is
interested in ensuring that all allotments are done on the basis of an
objective and decided criteria and to provide details of the allotments of
branch statutory audit done. Moreover, as and when next allotment happens, in
the interest of all the stakeholders and to ensure transparency in the matter,
banks should be forthcoming with the requisite details like advances level of
their branches, how the selection of branches (with advances level of less than
Rs. 20 crore) has been done for audit, etc.
4.
Institute
should approach those entities where empanelments are not happening but ideally
should happen including public authorities or entities in which funds of the
government or semi-government organizations are employed substantially as the
same is a public organization wherein substantial public interest is involved.
5.
For other audits, to
suggest all the government authorities, regulators, organizations to allot
audits/assignments on empanelment basis.
At the least, process and criteria of empanelment should be clearly
specified and should be made available not only on the website of the Institute
but also as and when the same is in progress, the same should be publicised
through local newspapers also and the ultimate allotment should be done in a
very transparent and objective manner.
There should be conspicuous intimation to the chartered accountants
about the empanelment taking place.
6.
Strong and continuous liaison with different
authorities/regulators empowered
by various
statutes to appoint auditors for various entities like Registrar of
Co-operative Societies of various states for co-operative Societies of
respective states, O/o C&AG for
Government companies, Reserve Bank of India for banking companies etc.
7.
To collect data from all the practicing firms in respect of their receipts from
audit/accounting/tax audit/concurrent audit/management assignments/ any specific special assignment along with
details of specialization of respective firms and their capacity i.e. staff
strength, qualification and experience.
8.
To know the actual number of members in practice and in
industry, details may be called:
- from the
respective companies or
- making it
mandatory for all our members to inform the Institute
- call for
income-tax return from all the practicing members, as a one-time measure.
2. Development of Mechanism to control
tendering system
1.
Tendering should be discouraged in the exclusive areas of practice of
our members like audit and attestation services. It was the unanimous view that
tendering should not be allowed in such practice areas and group preferred to
have norms in such areas, copy enclosed as Annexure
M.
2.
If we can
prohibit / restrict members from responding to exclusive areas in respect of
pure audit assignments and attestation services, that will be most ideal.
3.
The members
must adhere to the recommended scale of fees prescribed by the ICAI in the
context of various professional assignments. To ensure such adherence, a member
responding to a tender should be required to furnish to the ICAI’s specified
website the maximum details about the estimated hours to be devoted by the
partner/proprietor, paid CAs, other staff and the fees quoted in the tender. Such
details will be furnished by the member within a period of seven days of his
responding to the tender. If the member is successful in securing the tendered
assignment, then the member will also furnish the actual hours devoted by the
partner/proprietor, paid CAs and the staff.
4.
A draft letter which may be considered to
be sent to the members across the country requesting them to maintain cost
sheet in the given format while submitting any tender/bid as discussed by the
Group enclosed as Annexure K.
5.
A draft letter which may be considered to
be sent to the authorities/companies floating tenders for services of Chartered
Accountants enclosed as Annexure L.
6.
It should be made compulsory for the members to file an online copy of
the bid submitted by them in response to any tender within 30 days with ICAI. The
office should check whether recommended scale of fees has been followed or not
in the bids. The purpose of calling such huge details from the members, method
or structure required for the purpose and methodology should also be set so
that there is no ambiguity at later stages. Any member who does not provide the
information within the given time period may be referred to the Disciplinary
Section.
3. Introduction of ceiling on number of
concurrent audit of banks per firm
1.
To write to all the banks, requesting them for details of allotment of
concurrent audit for the year 2012-13 and to have an allotment policy be framed
for concurrent audits and make it available on the bank’s website so that the
whole procedure is transparent.
2.
To make efforts and get smaller audits be reserved for smaller firms.
3.
A
proprietary concern be allowed to take up 1 bank branch concurrent audit at a
time. However, if such proprietary concern has a full time paid CA. employee for a period of 12 months or more, immediately preceding
the date of appointment as a concurrent auditor, then the proprietary concern be
allowed to take one more branch concurrent audit per such paid CA. employee.
However, at the time of renewal of a concurrent audit, the same criteria will
be applicable as if it is a fresh audit.
4.
In the
cases of partnership firms, the firm be allowed to take one concurrent audit
per 2 partners of firm and not more than five concurrent audits on overall basis.
However, at the time of renewal of a concurrent audit, the same criteria will
be applicable as if it is a fresh audit.
5.
Council of
the Institute should promulgate strong recommendation/guideline for concurrent
audit limit like tax audit limit.
The Institute
of Chartered Accountants of India, New Delhi
(Set up by an
Act of Parliament)
ACKNOWLEDGEMENT
At the outset the Group Members thank
the President, ICAI for forming the study group to consider Issue of UCN to all
practicing units for conducting various assignments of banks other than
statutory audit and providing an opportunity to work for the benefit of the
members of the Institute.
The Group wishes to acknowledge the
immense support and guidance received from CA. Subodh Kumar Agrawal, President,
ICAI, CA. K. Raghu, Vice- President, ICAI.
The Group also wishes to place on
record its appreciation for the support which was received from Ms. Seema
Gerotra, Deputy Director & Acting Secretary, Professional Development
Committee. The Group also wishes to acknowledge the contributions by CA.
Namrata Khandelwal, Assistant Secretary & Secretary to the Group.
(CA. Tarun J. Ghia)
Convener
of the Group and Member, Central Council
Annexure A
Mail dated 23rd March, 2013 of CA.
Tarun J. Ghia
Subject: Fw: Council
Meeting-matter of gen. Int.-for equitable allotments of empaneled audits
Hon'ble President,
In ensuing Council Meeting to
be held on 24th March, 2013, under the Agenda Item of “Matters of General
Interests” with the kind permission of the Hon’ble President, I would like to
mention and press for a suitable resolution in the attached subject matter
titled as “ For Equitable Allotments of Empaneled Audits- Support SMPs -
Principled and Categorical Stand needed".
Pl. find attachment.
I request the Secretary, ICAI
to kindly circulate the contents of this email and the attachment hereto, to
all the Council Members for their perusal and consideration. In the meantime I
am emailing the same to all the Council Members.
With Regards,
CA. Ghia Tarun Jamnadas
Central Council Member
Enclosure:
For
Equitable Allotments of Empaneled Audits- Support SMPs - Principled and
Categorical Stand needed
Dear
President, Vice President and other Council Colleagues,
We at the ICAI are striving our best to
increase the professional opportunities including in the context of bank branch
audits for our members. In this connection, some of my views are as follows:
1.
In the context of ceiling of Rs. 20 crores in bank branch audits, it is quite
heartening to receive regular updates from Hon'ble President Informing ICAI's
persistent efforts to prevail upon the powers that be that the same is not good
for the economic health of the country. However, in the matter of equitable
distribution of available audits categorical steps are needed on very priority
basis. I had therefore before a few days emailed my these same views to Hon'ble
President and all Council Members. However, it appears that no concrete steps
have been yet taken in the requested direction.
2. In the context of allotments of bank branch
audits, there needs complete tranparency and objectivity. It appears that RBI
is forwarding the list of eligible firms to various banks. These banks appoint
auditors on their own in the name of autonomy.
ICAI should prevail upon all the banks to frame objective criteria for
such allotments, preferably in consultation with the ICAI but in any case such
criteria are a must. The criteria should be such that, as far as possible, all
eligible firms are allotted audits, may be of lesser numbers, depending upon
availability. ICAI should obtain details of all such allotments and place the
same on its website along with criteria of allotment for clarity to members.
This will also be helpfull to all of us because we as the Council Members are
receiving numourous queries from members in such contexts. Once all the details
are transparently available, the system will remove or reduce the grievances.
In the context of autonomy of the banks, it should also be clear that public
sector banks stand on a different footing than the private limited and public
limited companies. The managements of the public organisations are required to
be transparent and objective in their policies and actions. The Mumbai HC order
in my case directing the ICAI and the RBI in the context of empanelments for
and allotments of bank audits is equally applicable to all the banks also.
3.
In audit allotments of all public organisations, ICAI should strongly represent
for empanelment based allotments. In the
context of all empanelled audit allotments, ICAI should strongly represent for
transparency and objectivity. Lack of transparency and objectivity leads to
unhealthy practices of liaisoning and marketing. When the allotments of audits
of public organisations are subjected to marketing and liaisoning, the
concerned members who indulge in such practices, compromise in their dignity
and the profession is placed in dim light. Suffice to say that in a
materialistic world, pecuniary benefits are not conferred without considerations.
Other members who do not indulge so, are deprived of professional
opportunities. To lack of transparency and objectivity entailing such
implications, ICAI can not be a moot spectator.
4. The above
should be equally applicable to concurrent audits of banks, C and AG audit
allotments and audits of all public organisations.
5. Steps should
be earnestly initiated and augmented in
the above directions.
6. Stand of the
ICAI should be principled, categorical and pro SMPs and pro active steps need
to be initiated.
With warm
regards,
CA. Tarun Ghia,
CCM.
Annexure B
Mail dated 5th June, 2013 of CA.
Atul Kumar Gupta
Subject: Matter
of General Interest for July 2013 Meeting
Dear Sir,
Please include
the following matter in matter of General Interest in the upcoming Council
Meeting in July 2013
1. Develop the Mechanism to Control the
Tendering System for CA Services leading to quality Deterioration in
Profession.
In
Recent time, majority of the Organisation opting for tendering process to
appoint Chartered Accountants, which not only leads to unhealthy competition
but also deteriorating quality. The following points my be considered:
a. How
can we bring out the services of chartered accountants from tendering system.
Whether any legal dimension can be deployed, like CA services are not goods and
so on? Details research I will try to bring on table of council.
b. In
case legal support is not available, how we can educate the
Auditee/Organisation that tendering and specifically L1 process only based on
financial term is harmful for health. Financial Quote can finalized by
organization itself and only technical tendering will be there.
c. If
that also fails then firms going below a standard say less than 70 % on minimum
recommended fee, then there will be peer review by special auditor and in case
professional misconduct found like lack of working papers etc, then
disciplinary case will be lodged as information case.
2. Appointment of Three Senior Level
Official may be Secretary/Sr. Director Level for Legal, HR & Admin and
Professional Development (Research and Prospective) with Succession Plan.
Based
on Experience from last few months, it is somewhere found that the above
function in present scenario are being personally handled by Secretary
ICAI, which due to peculiarity of the situation can not concentrate of all
aspects at a same time. there are various issues which require immediate
attention by everyone, like:
a. In HR and Admin Aspect
i. Whether all the correspondence by each
department/committee are properly documented in various files maintained
serially.
ii. Whether there is any mechanism to vouch
these files by third person. As there is audit wing even in Income tax to vouch
selected files for all procedural compliances.
iii. Whether we have any organization chart,
human resource requirement, skill sets required, regular training, succession
plan, growth chart/policy for performer, pay scale policy, Aptitude test,
attitude test before recruitment, training division
iv. Monitoring System for performance
appraisal.
v. Gap Analysis.
b. Professional Development (Research
and Prospective Planning)
Our
Profession core competence is research. Not only we have to develop the
research at Marco level but also at Micro level for dissemination at each Member
and Branch level. We need to develop a 10 Years down the line plan that how we
at ICAI level do the research for best International Practices, implement then
at ICAI, become role model for country and then educate the same to students
and Members. How different committee have to contribute in Annual Plan. For all
these purpose, one may be Secretary/Sr. Director (Research) should be appointed
whose role will be to inculcate the Research in organization and come with
various studies and practices.
Warm Regards
Atul Gupta
Member-Central
Council
(2013-16)
Annexure C
Mail dated 8th
July, 2013 of CA. Atul Kumar Gupta
Subject: RE: Advance Intimation - 325th
Meeting of the Council - 15th to 17th May, 2013 at New Delhi
Dear Sir
In the proposed Council meeting on 1st to
3rd June, I wish to add the following agenda as "Matter of General
Interest" to discuss
Matter 1
"To Recommend the Authorities for
Distribution of audit in MGNAREGA at Block Level rather on District Level"
Matter 2
"To Introduce limit of 2 Concurrent
Audit by a CA Firm"
Note on MGNAREGA Audit Opportunities
1. In NAREGA, as per the scheme launched,
Audit of all Gram Panchayat for NAREGA to initiate from the year 2013-14
2. For
the same as a pilot project 10% of Gram Panchayat will be audited in 2011-12
3. There are total 238054 Gram Panchayat
in a Country where fee per audit will be around 6000/- per Gram Panchayat
(approx estimate)
4. If
we calculate the fee totally it comes to Rs. 142 Crores.
5. It is generally propose that Audit will
be allocated to a CA firm for entire district. (we may view present tender of
MP)
6. In
our country we have around 600 districts.
7. Meaning thereby the entire fee will be
shared by 600 firms i.e. 25 Lakh to each firm.
8. These
Gram Panchayat are controlled by Block Officers.
9. These
entire Gram Panchayat are controlled by around 7000 blocks in Country
10. If the audit are restricted through
Council decision or otherwise to one block one ca firm, then this money can be
shared by around 7000 firms in a three year term (as restriction for that
in scheme is also there)
11. Then 7000 firm will get around 2 lakh
each as fee and will support them substantially.
12. This may also support new CAs coming into
practice and ease the pressure on Industry placement.
Note on Concurrent Audit
Dear Sir, I reviewed the various source to
assess how many Public Sector Bank Branches are there in Country. The same is
attached below and are around 60000 in Numbers. We may easily perceive that
more than 50% of Branches will have coverage in Concurrent Audit i.e. around
20000 Branches.though exact number will be arranged by the Next Council
Meeting.
Since, by virtue of 20 Crores Limits and
otherwise also our fresh CAs coming in Practice are facing difficulty in
entering into practice, if we can propose certain changes like One Firm One/Two
concurrent Audit (Since as per Verbal discussion with PDC around 27000 firms
are there eligible for these audits), that may support our smaller Firms/ fresh
CA looking for opportunity. We all know that concurrent audit fee is going to
increase around 20K-25K per Month and that can not only provide support but
also compensate some losses due to escalated limit in Statutory Audit.
Solution could be, alike Tax Audit Limit of
45 fixed by ICAI through Council Decision rather than any legal Provision under
Income Tax Act, we may fix the bank Audit/Concurrent Audit Limit Maximum to 1-2
(we may propose that Member firm will give a declaration to bank and ICAI for
the same before accepting the assignment) and every member firm will get the
equal opportunity. This will also support in transparent allocation from banks
as well.
It may be question that banks will not be
able to handle so many auditors. For that as far my knowledge is concerned, in
present also one bank is not allotting more than one branch to one firm. Hence
that question may not arise.
Sl No. Name of Bank Branches
1 Allahabad Bank 2516
2 Andhra bank 1712
3 BOB 3959
4 BOI 4000
5 BOM 1589
6 Canara 3600
7 CBI 4011
8 Corp Bank 1500
9 Dena 1342
10 Indian Bank 1955
11 IOB 2629
12 OBC 1772
13 P&SB 1028
14 SBBJ 950
15 SBI 14097
16 SBT 879
17 Syndicate 2709
18 UCO 2390
19 Union Bank 3201
20 United Bank 1680
21 Vijaya 1300
Total 58819
Warm
Regards..Atul Gupta
Annexure D
Bombay High Court Order
on Writ Petition no. 1112 of 2006
ANNEXURE E
Guidelines for Appointment of Statutory Auditors in Public Sector
Banks
Based
on the recommendations of a Working Group (WG) to review the norms for
empanelment of statutory auditors for public sector banks and other related
issues and after seeking the approval of GoI, it has been decided to revise the
guidelines on appointment of statutory auditors in public sector banks with
effect from the year 2013-14. The revised eligibility norms for empanelment of
SCAs as prescribed by RBI in consultation with the WG have been indicated in Annex
1. The categorization/eligibility norms for empanelment
of branch auditors which have been kept unchanged are indicated in Annex
2.
The
guidelines/instructions relating to the selection procedure to be followed for
appointment of statutory auditors in PSBs and details thereof are furnished in Annex 3
Annex
1
Norms
of Empanelment for Statutory Central Auditors
of Public Sector Banks applicable from the year 2013-14
of Public Sector Banks applicable from the year 2013-14
As on 1 January of the
relative year the firm should have
(i)
minimum 7 full time chartered
accountants, of which at least 5 should be full time partners exclusively associated*
with the firm. These partners should have minimum continuous association with
the firm i.e. one each should have continuous association with the firm at
least for 15 years and 10 years , two with a minimum of 5 years each and one
with a minimum of one year. The remaining 2 full-time
chartered accountants or partners, as the case may be, should also have a
continuous association with the firm for a period of one year*. Four of
the partners should be FCAs. Also at least two of the partners should have
minimum 15 and 10 years experience in practice. In case the paid Chartered
Accountant available with the firm without any break was admitted as a partner
of the said firm at a future date, his association with the firm as a partner
will be counted from the date of his joining the firm as a paid Chartered
Accountant.
*Note:
1.
The definition of ‘exclusive association’
will be based on the following criteria:
(a) The full time partner should not be a
partner in other firm/s.
(b) He should not be employed full time /
part time elsewhere.
(c)
He should not be practicing in his
own name or engaged in practice otherwise or engaged in other activity which
would be deemed to be in practice under Section 2(2) of the Chartered
Accountants Act, 1949.
(d)
The total compensation@ of
the partner from the firm should not be below the following limit:
In
case the Head office of the firms located in
(i) Delhi, Mumbai,
Chennai, Kolkata, Bangalore and Hyderabad
ACA partner Rs. 1.80 lakh in a year (Rs.
15000/- per month)
FCA partner Rs. 3.00 lakh in a year (Rs.
25000/- per month)
(ii)
Other places:
ACA partner Rs. 1.20 lakh in a year (Rs.
10000/- per month)
FCA partner Rs. 1.80 lakh in a year (Rs.
15000/- per month)
(e) A partner whose total compensation@ from
the firm is less than the following will not be treated as exclusively
associated with the firm:
Firms having more than 14 partners 1%
Firms having 10 to 14 partners 3%
Firms having 5 to 9 partners 5%
Firms having less than 5 partners 8%
@Total compensation =Sum total of
share of profit, remuneration and interest on capital.
2.
Out of the 7 full-time chartered
accountants, the remaining two chartered accountants/partners (besides the 5
exclusively associated partners) will be treated to be exclusively associated
with the firm only if they are continuously associated with the firm for a
period of one year as on January 1 of the relevant year. These norms will be
made applicable from the financial year 2014-15 i.e. the chartered
accountants/partners will have to comply with the norms as on January 1, 2014.
(ii)
the number of professional staff
(excluding typists, stenographers, computer operators, secretary/ies and
sub-ordinate staff etc.), consisting of audit and articled clerks with the
knowledge in book-keeping and accountancy and are engaged in outdoor audit
should be 18.
(iii)
the standing of the firm should be
of at least 15 years which would be reckoned from the date of availability of
one full time FCA continuously with the firm.
(iv)
the firm should have minimum
statutory central audit experience of 15 years of public sector banks (before
or after nationalisation) and/or by way of statutory branch audit thereof or
that of statutory audit experience of a private sector bank. In case any of the
partner of an audit firm is nominated / elected for a period of at least 3
years or more on the Board of any public sector bank then his / her such
experience for a maximum period of three years will be considered as bank audit
experience, provided such experience has not been earned by him/her
concurrently i.e. when his / her firm was assigned statutory audit of any PSB,
select all India financial Institutions or RBI.
(v)
the firm should have statutory
audit experience of 5 years of the public sector undertakings (either Central
or State Government undertaking). While calculating such experience, more than
one assignment given to a firm during a particular year or more than one year’s
statutory audit (audits in arrears) assigned to the firm will be reckoned, as
one year experience only, for the purpose of counting such experience.
(vi) at
least two partners of the firm or its paid Chartered Accountants must possess
DISA/CISA or any other equivalent qualification.
Annex
2
Norms for the
empanelment of audit firms to be appointed as statutory branch auditors for
public sector banks (2013-14)
Category
|
No. of CAs exclusively associated with the firm
(full-time)
|
No. of partners exclusively associated with the firm
(full time)
(Out of 2)
|
Professional staff
|
Bank audit experience
|
Standing of the audit firm
|
(1)
|
(2)
|
(3)
|
(4)
|
(5)
|
(6)
|
I.
|
5
|
3
|
8
|
The firm or at least one of the
partners should have a minimu-m of 8 years experience of branch audit of a
nationalized bank and /or of a private sector bank with dep-osits of not less
than Rs. 500 crore.
|
8 years
|
II.
|
3
|
2
|
6
|
The firm or at least one of the
partners should have preferably conducted bran-ch audit of nati-onalized bank
or of a private sector bank with deposits not less than Rs. 500 crore for at
least 5 years.
|
6 years (for the firm or at least
one partner)
|
III.
|
2
|
1
|
4
|
The firm or at least one of the CAs
should have preferably conducted branch audit of a nationalized bank or of a
private sector bank with dep-osits not less than Rs. 500 crore for at least 3
years.
|
5 years (for the firm or at least
one partner)
|
IV.
|
2 2
Even proprietorship concern without bank audit experience may be considered as hitherto. (The proprietary concerns of Chartered Accountants with 1 paid CA, 2 professional staff and not having any statutory branch audit experience of a nationalized bank or of a private sector bank with deposits not less than Rs. 500 crore will be treated at par with the partnership firm after deducting their 3 years seniority from the date of their establishment). |
2
|
Not necessary
|
||
Annex
3
PROCEDURE
FOR APPOINTMENT OF
STATUTORY AUDITORS IN PUBLIC SECTOR BANKS
STATUTORY AUDITORS IN PUBLIC SECTOR BANKS
A. Statutory Central Auditors (SCAs)
1.
For the year 2013-14 and onwards,
GoI have approved the revision in the norms on the number of SCAs to be
appointed in PSB as under:
i)
Category “A” Banks (Large Banks viz.
Bank of Baroda, Bank of India, Canara Bank, Punjab National Bank, Central Bank
of India and Union Bank of India) shall not have more than 6 SCAs. However, in case of SBI the number
of SCAs shall not be more than 14.
ii)
Category “B” Banks (Medium Banks viz.
Allahabad Bank, Corporation Bank, Indian Bank, Indian Overseas Bank, Oriental
Bank of Commerce, Syndicate Bank and UCO Bank) shall not have more than 5 SCAs, and;
iii)
Category “C” Banks (Small Banks viz.
Andhra Bank, Bank of Maharashtra, Dena Bank, Punjab & Sind Bank, United
Bank of India, Vijaya Bank, State Bank of Bikaner & Jaipur, State Bank of
Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of
Travancore) shall not have more than 4 SCAs.
Actual numbers of SCAs
to be appointed can be decided by respective boards subject to the above limit.
2.
As per the existing practice, SCAs
appointed will have a tenure of three years after which they will be rested for
a period of two years. The appointment of SCAs will be made on an annual basis,
subject to their fulfilling the eligibility norms prescribed by RBI from time
to time and also subject to their suitability.
3.
From the financial year 2013-14,
selection of SCAs will be done by the Selection Committee constituted by GoI
and the procedure that will be followed by RBI for forwarding the list of
eligible audit firms for selection of SCAs by the Selection Committee
constituted by GoI is as under :
·
After receipt of the
list of eligible auditors / audit firms, based on the eligibility norms for
empanelment of auditors / audit firms prescribed by RBI from the Office of the
Comptroller and Auditor General of India (C&AG), verification of eligibility
of audit firms by RBI with respect to their bank audit experience available
with RBI will be done by RBI.
·
List of eligible firms
after excluding the firms which are to be continued, rested and denied audit
during the relevant year will be prepared by RBI and forwarded to GoI for
selection by the Selection Committee.
·
After selection, GoI
will advise bank-wise names of the selected firms to the respective banks. As
per the statutory requirement, banks, in turn, are required to forward the
names of the selected SCAS to RBI for its prior approval before their actual
appointment.
B. Statutory Branch Auditors (SBAs)
1.
The norms for selection of
branches of PSBs for statutory audit from the year 2012-13 and onwards will
be based on the following :
i.
For the year 2012-13,
statutory branch audit of PSBs may be carried out for all branches with
advances of ` 20 crore & above and 1/5th of the remaining branches covering
a representative cross section of rural/semi-urban/urban and metropolitan
branches, predominantly including branches which are not subjected to
concurrent audit, so as to cover 90% of advances of a bank. CPUs/LPUs/and other
centralized hubs by whatever nomenclature called would be included in the one
fifth of the remaining branches every year.
ii.
In respect of branches
below the cut-off point, which are subject to concurrent audit by chartered
accountants, henceforth, LFARs and other certifications done earlier by SBAs
will now be submitted by the concurrent auditors and such branches may not
generally be subject to statutory audit.
iii.
Going forward, in
mutual discussions with GoI and SCAs, based, inter alia, on the operational
efficiency and robustness of CBS, system driven identification of NPAs, and
integrity of MIS, managements of individual PSBs may decide on the threshold
level of advances for the purpose of selecting branches for statutory audit.
iv.
Progressively, the
threshold level of advances may be increased so that the number of branches to
be taken up for statutory audit is phased down over a period of time.
2.
The following procedure will be
followed for appointment statutory branch auditors (SBAs) in public sector
banks (PSBs):
(i)
The list of eligible
auditors/audit firms will be prepared by the Institute of Chartered Accountants
of India (ICAI) as per the norms prescribed by RBI.
(ii)
The above list will be subjected to
scrutiny by RBI for identifying the continuing and rested firms and excluding
audit firms against whom adverse remarks/disciplinary proceedings are pending
or who have been denied audit.
(iii)
RBI will, thereafter, forward the
final list of all eligible auditors/audit firms to PSBs for selection.
(iv)
The PSBs will select the required
number of branch auditors/audit firms. Banks will be required to clearly advise
the audit firms selected for consideration of appointment that each audit firm
can take up audit assignment (branch audit) in one PSB only. The audit firm
should give their consent in writing for consideration of appointment in the
bank concerned for the particular year and the subsequent continuing years.
(v)
The consent given by an audit firm
will be treated as irrevocable and request, if any, from audit firms for
changing the bank, after giving its consent to the bank concerned will not be
entertained.
(vi)
After the selection of branch
auditors, PSBs will be required to recommend the names of both continuing and
selected branch auditors to RBI for seeking its prior approval before their
actual appointment, as per statutory requirement.
3.
SBAs will have a maximum tenure of
four years. The appointment of SBAs will be made on an annual basis, subject to
their fulfilling the eligibility norms prescribed by RBI from time to time and
also subject to their suitability.
4.
The number of eligible auditors /
audit firms is more than the number of branches to be audited at the following
33 centres (viz. Mumbai, Kolhapur, Pune, Solapur, Thane, Kolkata, Chennai,
Coimbatore, Delhi/ New Delhi, Ajmer, Bikaner, Jaipur, Kota, Udaipur, Ahmedabad,
Vadodara, Surat, Hyderabad, Chandigarh, Raipur, Faridabad, Gurgaon, Panchkula,
Panipat, Sonipat, Bangalore, Ernakulam, Indore, Nagpur, Ludhiana, Jodhpur,
Bhilwara, and Ghaziabad). In such centres, the auditors/ audit firms will be
put to a period of compulsory rest for two years after completion of four years
of continuous branch audit. In other centres, where the number of eligible
auditors / audit firms is less than the number of branches to be audited, the
branch auditors on completion of four years of continuous branch audit will be subjected
to the policy of rotation.
5.
While allotting branches, banks
are required to select auditors/audit firms which are in close proximity to
their offices/branches. Banks are also required to have a suitable mix of
various categories of auditors / audit firms while selecting the branch
auditors keeping in view the size of the branches to be audited.
6. As
regards statutory branch audit to be carried out by SCAs, banks will allot the
top 20 branches(to be selected strictly in order of the level of outstanding
advances) in such a manner as to cover a minimum of 15% of total gross advances
of the bank by SCAs.
C.
General Guidelines applicable to
both SCAs and SBAs
(i)
All PSBs are required to have a
Board approved policy for appointment of statutory auditors and the same may be
hosted on the bank’s web-site. Banks are also required to ensure that the
policy framed by the Board in the matter of selection of auditors/audit firms
for appointment of auditors is strictly adhered to. Further, the list of firms
selected for appointment as statutory branch auditors may be placed before the
ACB/Board of bank before for its concurrence before it is forwarded to RBI for
final approval.
(ii)
The policy of one audit firm for
one PSB will be continued. Accordingly an audit firm will be eligible to be
appointed as a central/branch auditor of only one PSB during a particular year.
(iii)
Further, an audit firm which takes
up statutory central audit assignment in a PSB will not be eligible to be
appointed as a statutory central auditor in a private sector/foreign bank
during that particular year and vice versa. The policy has been made applicable
from the year 2012-13 onwards.
(iv) In order to protect the independence of the auditors/audit
firms, banks will have to make the appointments of SCA/branch auditors for a
continuous period of three and four years respectively subject to the firms
satisfying the eligibility norms each year. Banks cannot remove the audit firms
during the above period without the prior approval of the Reserve Bank of
India.
Annexure F
Policy of Empanelment of CA Firms
and Selection of Auditors of PSUs
Empanelment of CA firms
Chartered
Accountant firms in India with at least one full time [1] FCA (Partner/Sole Proprietor) can apply for
empanelment with this office for allotment of audit of Public Sector
Undertakings.
The
criteria for empanelment and selection of statutory auditors have been arrived
at after due consultation with the Institute of Chartered Accountants of India.
Selection of CA firms
for appointment as statutory auditors of PSUs whose audit fees are up to Rs
1.50 lakh
The
selection is made by correlating the point score earned by each firm of
Chartered Accountants towards empanelment with the size of the audit fee. The
point score[2] is based upon the experience of the firm,
number of partners and their association [3] with the firm, number of Chartered
Accountant employees, as detailed below:
Experience
of the firm
|
0.5
point for every calendar year -Maximum 15.
(Counted from the date of constitution of the firm
with one full time FCA or date of joining of the firm by the existing partner
having the longest association with the firm whichever is later.)
|
Full
Time FCA Partners
|
5 points each for first 5 partners and 2.5 points
each from 6th partner onwards.
|
Full
Time ACA Partners
|
3 points each for first 5 partners (including FCA
partners) and 1.5 points each from 6th partner onwards.
|
Points
for long association with the same firm
|
5 points for each partner above 25 years.
|
4 points for each partner above 20 years.
|
|
3 points for each partner above 15 years.
|
|
2
points for each partner above 10 years.
|
|
1 point for each partner below 10 Years but above
5 Years.
|
|
Full
Time CA Employees
|
1 point each for first 20 C.A Employees-Maximum 20
points
|
CISA/ISA
Qualified Partners
|
2 points each for three partners. -maximum 6
points
|
CISA/ISA
Qualified Employees
|
1 point each – Maximum 3 points for 3 employees.
|
Selection of CA firms
for appointment as statutory auditors of PSUs where audit fee is
above Rs 1.50 lakh ( Major Audits)
(a) Criteria
for short-listing eligible firms of CAs for allotment of Major Audits are as
under:
(i) The firm should have
at least 6 CAs (out of which 5 should be full time partners and one could be a
full time paid CA employee), which is indicative of capacity to handle big
audits .
(ii) At least one partner
should have an association of 10 years or more with the firm and at least 3
partners of the firm should have an association of 5 years or more with the
firm and the remaining two should have an association of one year or more with
the firm, to demonstrate stability over time.
(iii) The firm itself should
have been in existence for 10 years or more, to prove that it is a well established
firm.
(b) Allotment of major audits is based not
only on the size of the firm considering the number of partners, and their
association with the firm, number of Chartered Accountant employees, and the
Zone in which the firms’ head office is located but also on the basis of
factors such as sectoral experience, service tax paid by the firm on assurance
services, capability of handling big audits, past performance, eligibility of
the firm to conduct a particular audit, location of the firm’s branch offices
etc.
A
person who is
(a)
a partner in other firms
(b)
Employed full time/part time
elsewhere, practicing in their own name or engaged in practice otherwise or
engaged in other activity which would be deemed to be in practice under Section
2(2) of the Chartered Accountants Act, 1949.
(c)
i) Partners whose total compensation@
from the firm is below the following limit:
Head office of
the firms located in Delhi, Mumbai, Chennai, Kolkata, Bangalore and Hyderabad:
ACA partner Rs. 1.80 lakh in a year (Rs. 15000/- per month)
FCA partner Rs. 3.00 lakh in a year (Rs. 25000/- per month)
Head
office of the firms located other Places:
ACA partner Rs. 1.20 lakh in a year (Rs. 10000/- per month)
FCA
partner Rs. 1.80 lakh in a
year (Rs. 15000/- per month)
(c)
ii) A partner whose total compensation@
from the firm is less than:
Firms having more than
14 partners 1%
Firms having 10 to 14
partners 3%
Firms having 5 to 9
partners 5%
Firms having less than
5 partners 8%
@Total compensation
= Sum total of share of profit, remuneration and interest on capital.
[2]
All members (sole
proprietors/partners/ CA employees) will get points if they were exclusively
associated with the firm throughout the calendar year immediately preceding the
year of empanelment.
[3]
In case of merger, the partners of
the merging firms will be assigned points after one year of merger and points
for partner’s association to be given after five years from the date of merger.
Annexure G
Annexure H
Annexure I
Item for inclusion in the agenda of the forthcoming meeting of
Executive Committee
Sub: Prescribing norms for evaluating the technical and financial bids
as model for various regulators and persuading them to adopt those norms so
that the similar criteria for evaluation is used by all Agencies: To consider
A mail dated 27th June, 2011 received
from CA. Naveen N.D. Gupta inviting attention of the Council towards the
evaluation of the tenders being called for by the government bodies, PSU and
regulatory bodies or allotment of accounting and auditing work to PSUs.
As mentioned therein, the conditions prescribed for technical evaluation are not
the standards ones and are also biased against Small & Medium
Practitioners. Further, there is no standard evaluation method and
assignment is invariably awarded to the lowest bidder. Such conditions
are leading to situation where works are awarded at below cost levels which are
generally accepted by the firm simply to build relations in the
organization. According to him, this practice is spoiling the reputation
of the profession both amongst the regulators and the public at large and
demoralises the young chartered accountants desirous of joining the
practice. A request has been forwarded by CA. Naveen N.D. Gupta to look
into the matter and consider prescribing norms for evaluating the technical and
financial bids as model for various regulators and persuading them to adopt
those norms so that the similar criteria for evaluation is used by all
agencies.
In this regard, please find enclosed following documents:
The series of correspondence on the issue of responding to tenders, advertisements and circulars by chartered accountants and firms thereof so as to frame guidelines on the subject matter to streamline the prevalent practices while responding to tenders wherein the Professional Development Committee had decided that where there is a huge (abnormal) difference between the lowest quote received for a tender (on which the tender is ultimately allotted) and the next lowest quote, then peer review of the said assignment and/or concerned chartered accountants/firms thereof can be ordered. A copy of the same is enclosed as Annexure I1.
Further, the Committee may note that the
evaluation guidelines are intended to be organization and work specific. It may
also be noted that many organizations follow combination of technical
evaluation followed by financial bids. Because, in this regard, the circular
issued by Central Vigilance Commission lay down several guidelines in respect
of tendering process to be followed in the public sector and the government
departments (enclosed as Annexure I2).
The Executive Committee may consider.
DEVELOPMENTS
The
Executive Committee at its 502nd meeting held 8th July,
2011 considered the question of prescribing a model tender document and the
model norms for evaluating the technical and financial bids for reference etc.
by various regulator and government department/ agencies with reference to
quotation received for professional work. The need for such a model tender
document and model norms for evaluation of bids was felt with a view that
evaluation was undertaken on a uniform basis and the assigned was not awarded
purely on the basis of lowest fees. For the purpose, the Committee requested
its members, CA. Ravindra Holani, CA. Naveen N.D. Gupta and CA. Pankaj Tyagee
to consider the nitty gritty of the matter and to give their suggestions.
CURRENT STATUS
The
Professional Development Committee at its 202nd meeting held on 10th
October, 2013 was apprised that since then, there has been change of guard in
the Institute and further that the Council at its 326th meeting held
in July, 2013, while considering an issue raised by CA. Tarun J. Ghia vide his
e-mail dated 23rd March , 2013 and two issues raised by CA.
Atul Kumar Gupta vide his e-mails dated 5th June, 2013 and 8th
July, 2013 under `Matters of General Interest to the Profession’, decided to
form a group to consider issues relating to equitable audit allotments,
development of a mechanism to control tendering system and introduction of
ceiling on number of concurrent audit of banks per firm under the convenorship
of CA. Tarun J Ghia.
The Committee considered and decided to send the issue
relating to prescribe norms for evaluating the technical and financial bids as
model for various regulators and persuade them to adopt those norms so that the
similar criteria for evaluation are used by all agencies to the said group for
its consideration.
Annexure J
Annexure K
Draft letter which may be sent to the members across the
country requesting them to maintain cost sheet in the given format while
submitting any tender/bid.
Dear
Sir/Madam,
It
has been observed that members are quoting abnormally low cost while responding
to tenders floated from time to time, resulting in rising of doubts on the
seriousness and quality of the work of the professionals. In this regard, we
would like to reiterate the decision taken by the Council at its 301st
meeting held in December, 2010, wherein it was decided that a Cost sheet be
maintained by members of the Institute responding to tenders and accepting the
professional work based thereupon, incorporating details of the costs being
incurred therein having regard to number of persons involved, hours to be
spent, etc., so that the same may be called for by the Institute for
perusal.
We
would request you to kindly maintain the cost sheet, in the enclosed format, while
responding to tenders and accepting the professional work thereupon.
Further,
we would also like to bring to your kind attention the decision of the
Professional Development Committee taken at its 190th Meeting held
in 16th April, 2010, If in the opinion of Professional Development
Committee, there is a huge (abnormal) difference between the lowest quote
received for a tender (on which the tender is ultimately allotted) and the next
lowest quote, then peer review of the said assignment and/or concerned
chartered accountants/firm thereof can be ordered.
Moreover,
we would like to mention that if any case comes to your notice wherein low cost
has been quoted while responding to tender or the work has been allotted at a
price less than the cost, you are requested to bring the same to the knowledge
of the Institute with documentary evidence of the same at the Email pdc.tender@icai.in. We may also inform that anonymous information
would not be entertained in this regard.
Thanks and Regards
Yours
sincerely,
Encl : as above
FORMAT OF COST SHEET
Particulars
|
No.
|
Visits per month
|
Hours devoted
|
Cost per hour
|
Total cost per month
|
Total cost per annum
|
|
Salary to :
|
|||||||
Chartered Accountant
|
0
|
0
|
|||||
Paid Assistant
|
0
|
0
|
|||||
Other staff
|
0
|
0
|
|||||
TOTAL-A
|
0
|
||||||
Stipend to :
|
|||||||
Articles
|
0
|
||||||
TOTAL-B
|
|||||||
Other Expenses :
|
|||||||
Travelling
|
|||||||
Lodging & Boarding
|
|||||||
Local conveyance
|
|||||||
Stationery
|
|||||||
Office Overheads
|
|||||||
TOTAL- C
|
0
|
||||||
Grand Total (A+B+C)
|
0
|
||||||
Annexure L
Draft letter which may be sent to the
authorities/companies floating tenders for CA services.
Dear
Sir/Madam,
This
has reference to the subject tender/invitation/RFP by which bids have been
invited from chartered accountants/firms for utilization of their services.
We
appreciate your believe in chartered accountants and utilizing their services
for the said assignment. In this regard,
please find attached Minimum Recommended Scale of Fees as approved by the
Council of the Institute for your ready reference.
Sir,
you will also appreciate that in the given economic scenario, though cost (of
services) is definitely a matter of concern, however, you will appreciate that
the quality should not be sacrificed in the process. Being a person in the thick of things, you
must also be aware of the efforts required, time and manpower to be put in to
complete the said assignment. Therefore,
it is our earnest request that before opening the bids for the said assignment,
you may please carry out an internal working and estimate the value of the
resources, skill & expertise required to be put in for quality completion
of the given assignment. You will also
appreciate that the mutually concern lies in ensuring quality deliverables at
your end and job satisfaction at the end of the professional concern. In this regard, you are requested to make a
note of the following decision of the Professional Development Committee of the
Institute:
“Where there is a huge (abnormal) difference between
the lowest quote received for a tender (on which the tender is ultimately
allotted) and the next lowest quote, then peer review of the said assignment
and/or concerned chartered accountants/firm thereof can be ordered”.
In
case a bids invited by your end fall in the above decision, you are requested
to please forward the said details to us for necessary action at our end.
With
kind regards,
Annexure M
Draft
Guidelines for procurement of Chartered Accountant Services and Competitive
bidding
Introduction:
The
objective of these guidelines is to provide an equal opportunity to all Chartered
Accountants for required work or services. These guidelines do not apply to exclusive areas of
practice of Chartered Accountants i.e. assignments which
can be performed by Chartered Accountants only like annual statutory
audit,
tax audit, etc.
1.
Procuring entity have to think
smarter about procurement so that it can add’s value to the entity’s service
delivery. To do this, procuring entity must have a detailed understanding of
what they are procuring, the value and risk of the procurement, and how
important the procurement is to achieving their overall goals and business
strategy. In every case of procurement the procuring entity shall first
determine the need for the subject matter of procurement. While assessing the
need, the procuring entity shall take into account the estimated cost of the
procurement and also decide on the following matters, namely:-
(a) The
scope or quantity of procurement, if determined;
(b) The
method of procurement to be followed with justification thereof;
(c) Need
for pre-qualification, if any;
(d)
Limitation on participation of bidders, if any applicable, and justification
thereof; and
(e) Any
other matter as may be prescribed.
The
procuring entity shall maintain documents relating to the determination of the
need for procurement.
2.
A procurement plan is to be
prepared by every procuring entity for each of the item of goods, works or
services to be procured during the year, based on the sanctions and allocation
of budget. This is to ensure timely execution and monitoring of bid processes.
The Procurement plan shall specify the following:
(a) Nature
of Procurement –Services.
(b) Major
Specifications – Quality.
(c)
Estimated Value
(d)
Procurement Method likely to be followed.
3.
Procuring entities need to be
clear about the overall objective of the procurement and select procurement
method that will give them the best value for money. It is necessary that every
procuring entity shall have responsibility and accountability to ensure
efficiency, economy and transparency in matters relating to procurement and for
fair and equitable treatment to bidders and mechanisms to prevent corrupt
practices.
4.
A procuring entity may use an
agent to act on its behalf in procurement activities. This does not change the basic obligation of
the entity to ensure that the procurement done on its behalf follows good
practice. The entity remains accountable
for the outcome of the procurement and any liability that attaches to it. The agent must meet the same standards of
good procurement practice.
5.
While selecting a firm of
chartered accountants, procuring entity should kept in mind the followings:
·
Capability of Chartered
Accountant or firm so that they maintain a set quality standards of work.
·
Minimum quotation price should
not be the selection criteria.
·
Proper Information reporting
requirement and set of standard should be communicated by procuring entity at
the time of appointment of CA firms to remove confusion and ambiguity in scope
of work at later stages.
Pre-Qualification:
1.
Pre-Qualification is usually necessary for large or complex
works in which high cost of projects involved. Pre-qualification shall be based
entirely upon the capability and resources of prospective eligible bidders to
perform the particular contract satisfactorily, taking into account objective
and measurable factors.
2.
Any bidder participating in procurement process shall posses
the necessary professional, financial and managerial resources and competence
required under the bidding document, pre-qualification document or bidder
registration document.
3.
Also, it would not be proper for the Chartered Accountant to
make roving enquiries by applying to any such organization for having his name
included in any such panel/tender/bid.
Code
of Integrity:
1.
No Chartered Accountant shall act in contravention of Section
22 “Professional And Other Misconduct” of The Chartered Accountant Act, 1949.
2.
If procuring entity or ICAI comes to the conclusion that
prospective Chartered Accountant bidder, has violated the Code of Ethics, the
procuring entity or ICAI may take appropriate measures including,
i.
Exclusion of bidder from procurement process.
ii.
Cancellation of relevant contract and recovery of
compensation for loss incurred by procuring entity.
iii.
Forfeiture or encashment of any security/bond.
iv.
Disciplinary action under the Chartered Accountant Act,
1949.
Use
of Brand Name:
Specification
shall be based on relevant characteristics and/or performance requirement.
References to brand names of firms of Chartered
Accountants, position held by partner/proprietor of applicant firm in any
central/state government or public elective offices such as MP, MLA & MLC
is prohibited or avoided.
Rules
concerning documentary evidence:
1.
Every prospective Chartered Accountant bidder shall have
documentary evidence to demonstrate their qualification and the basis for
quotation price of bid as decided in 301st meeting of the Council
of Institute. (Annexure-I).
2.
Also, procuring entity shall maintain attendance record
(with signature and entry & exit time) of article/paid assistant/partner of
the auditor/CA firm at the work-site.
3.
Also, procuring entity shall obtain the knowledge of Name,
designation, signature of the professionals, who will perform the assigned work,
at the time of appointment of the CA firm.
Quotation
Price:
1.
No need to quote consultancy fee if price/fee is fixed by
the procuring entity earlier.
2.
Quotation fee/tender price should be exclusive of all taxes
but inclusive of all expenses say transportation/travelling, boarding/lodging
etc. or if expenses are being reimbursed on actuals, then quotation be prepared
accordingly.
3.
Bidding document shall state that (a) bid prices will be
fixed be or (b) that price adjustment will be made to reflect any changes
(upward or down words).
4.
Also, no procuring entity shall demand any security
money/earnest money deposit by any name from any prospective Chartered
Accountant bidder, as at the end of the day, Chartered Accountant will be
rendering services only and their won’t be any delivery of goods.
Standard/Principle:
1.
A procuring entity shall treat all communication with
bidders related to procurement process in such manner as to avoid their
disclosure to competing bidders or to any other person not authorized to have
access to such information.
2.
The procuring entity may impose on bidders, any term and
conditions mandating non-disclosure of any information.
Annexure N
1. Guidelines on Internal Audit,
Information Systems Audit and Concurrent Audit Systems
Introduction
It
has been observed that there is a multiplicity of overlapping audits in the
Public Sector Banks (PSBs). While the audit is essential for the health of the
PSBs, it has been observed that multiple overlapping audits throughout the year
engage a lot of attention, resources and time of the PSBs. It has also been
observed that there is a need to revamp the audit system in PSBs in the wake of
increasing computerization and shifting of operations on I.T. based system. The
present audit system is lagging behind the technological advancement achieved
by PSBs.
Area of concern
In
the above background the Government of India has constituted a Committee under
the Chairmanship of Shri Basant Seth, ex-CMD of Syndicate Bank which has
submitted its report. The Committee has identified certain areas of concern in
the PSBs namely:
i. Effective
Internal Audit (IA) should work as a strong deterrent and preventive mechanism
for frauds.
ii. A
strong audit system should be well supported by the Offsite Monitoring Unit
(OMU) through System generated reports/ MIS.
iii. Multiplicity
of Audits is resulting in Audit fatigue. There is a need to stream line the
number of Audits by strengthening the Internal Audit and Concurrent Audits.
iv. Strengthening
the IA by converting it into a stronger Risk Based Internal Audit (RBIA)
function and also strengthening the Concurrent Audit by bringing Risk focus
into the CA could reduce some of the other Audits in the Branches wherein RBIA,
CA are conducted.
v. Banks
should give adequate attention to IS Audit as many of the frauds are IT related
which have shown substantial increase in the recent times.
vi. Currently
70% of business of banks is covered under Concurrent Audit System and yet the
irregularities / frauds could not be controlled. The basic reason for the poor
quality of work done by the Concurrent Auditors is on account of low fees
structures and lopsided empanelment and appointment procedure followed by
Banks. The Committee feels that there is urgent need to rectify the position in
order to make the Concurrent Audit System effective.
vii. Statutory Branch Audit has become
routine and not much effective post implementation of CBS in PSBs.
viii. In many Banks all the Inspection
Reports are put to ACB directly, which is diluting the focus of ACB on High
Risk Areas / Branches.
In
the light of the above areas of concern identified by the committee, it is felt
that the following guiding principles on Internal, I.S., Concurrent and Branch
Statutory Audit should be followed by all the PSBs after suitably adapting them
to the need of their organization.
I.
General Guiding Principles
1. Need
to stream line the number of Audits by strengthening the Internal Audit and
Concurrent Audits and making them risk based.
2. The
model policies contained in the draft manual attached may be adapted by the
PSBs.
3. All
the PSBs should form Audit Committee of Executives (ACE) headed by the Head of
Audit (IA&A), GM (Risk) and other two GMs as Members. Zonal Audit Committee
of Executives (ZACE) with similar composition at lower level be constituted by
large banks.
4. ACE/
ZACE should meet minimum six times in a year. The ACE & ZACE will work
under the guidance of ACB and all the minutes of ACE & ZACE should be put
up to ACB
5. High
Risk Audit Reports should be put up to ACB and in case of large banks Very High
Risk Audit Reports- Critical Findings (Below 40% marks) may be put up to ACB.
(Banks having Local Board may consider forming local ACB for reviewing High
Risk Audit Reports- Critical Findings at Zonal Level, the minutes be put up to
ACB at Central Level. However, closure of such reports can be done by CGM-
Inspection/ Audit Department.
6. Banks
should set-up proper off-site monitoring cell in the Audit Department or put in
place suitable similar structure. Such cell/ structure to review the MIS on
critical items and sensitise the Controlling Offices and Branches / Departments
for corrective action on a daily basis. The OSM cell should also apprise Top
Management of serious irregularities, if any, immediately
7. Banks
while selecting the branches should consider, material changes that took place
in overall risk profile/ its updation, risk involvement in new products/
processes at branch level, business growth.
8. Inspection/
Audit Department should critically analyse the high frequency low severity as
well as low frequency high severity areas.
9. The
Banks should move to Software based Audit process.
10. In order to attract good talent into
Audit function, HR policies have to be properly modified making it mandatory a
minimum two year term of working in Internal Audit Department for consideration
to promotion DGM & above.
11. Inspection & Internal Audit
department should be strengthened with adequate man power having requisite
experience. - 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
12. Bank should provide suitable
training programs to all the auditors associated with Internal Audit and
Concurrent Audit functions.
13. All the Audit team members should be
made to sign Do’s & Don’ts given in the manual attached.
II.
Guiding Principles on Risk Based
Internal Audit (RBIA):
1. RBIA
team should also carry out IS compliance audit as part of their audit routine
for small & low rated branches as well as follow up work for non compliance
issues of the branch in IS audit areas.
2. Conflict
of interest between Audit team member and Auditee should be avoided.
3. The
frequency of Audits under Risk based system should be uniformly fixed at 9-12
months for Extremely High/ High Risk Branches, 12-15 months for medium Risk
Branches and 15-18 months of low Risk Branches.
4. Risk
Assessment matrix for Branches / Departments given in the manual under the
suggested RBIA Policy may be adopted by banks.
5. Audit
team should guide the branches on spot rectification of the deficiencies to the
extent possible.
6. It
is advised that all the Audit qualifications should be rectified within 90 days
of submission of Audit Report and to be closed not later than 120 days.
III.
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.
2. Continuous
IS Audit should be introduced in critical areas in a phased manner.
3. Assessment
of Internal Audit resource involvement at appropriate levels should be done.
4. I
S Audit should become essential part of Internal Audit in the post CBS
scenario.
5. Branch
managers should submit compliance of Do’s and Don’ts regarding IS Audit Key
Areas, on monthly basis.
IV.
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. The
focus should be on substantive checking of the High Risk areas like
Credit Risk
Regulatory/Statutory Compliance Risk
Fraud Risk
Revenue Risk
2. Some
of the High Risk Branches, specialized branches viz., Agri, SME, Mid Corporate,
Infrastructure, Large Corporate, CPU, retail assets, portfolio management,
forex, back office etc. should also be covered under the Concurrent Audit
3. Banks’
Internal Audit Department should interact with the Concurrent Auditors at least
once in a quarter
4. The
Banks should make it mandatory giving feedback to Concurrent Auditors on the
frauds involving the Branch audited by them.
5. The
performance of Concurrent Auditor should be reviewed on Annual basis
6. To
avoid conflict of interest, an undertaking should be taken from the Concurrent
Auditors that they will not have any professional or commercial relationship
with the borrowers of the Branch / Department which they are auditing.
7. The
Auditor should sign on the Do’s & Don’ts statement in order to have proper
arms length relationship with the Branch / Department which they are conducting
Audit
8. Suitable
deterring provisions should be incorporated in the Concurrent Auditors
engagement for delayed submission of Reports and unsatisfactory performance
9. 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.
10. 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:
11. 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.
12. 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.
13. 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
14. Thus, going forward the existing
Branch Statutory Auditor appointment system gets phased out, in view of the
above suggested guiding principles.
*****
Circulars
on Audit Systems:
S.no.
|
Circular
/ Letter No.
|
Date
|
Subject
|
1
|
F.No.
7/112/2011-BOA
|
28.06.2012
|
Guidelines
on Internal Audit, Information Systems Audit and Concurrent Audit Systems
|
F.No.7/112/2011-BOA
Government of India
Ministry of Finance
Department of Financial Services
Jeevan Deep Building, Parliament Street,
New Delhi the 28th June, 2012
To
Chairman,
State Bank of India,
Managing
Director of Associate Banks of SBI
Chairman
& Managing Director of all Public Sector Banks
Sub: - Guidelines on Audit Systems in
Public Sector Banks and Model Audit Manual on Internal Audit, Information
Systems Audit and Concurrent Audit in Public Sector Banks
Sir,
I am directed to forward
the guidelines on Audit Systems and the Model Audit Manual on Audit Systems in
Public Sector Banks (PSBs) evolved in consultation with the PSBs for
customization and adoption. The following items constitute the manual:
i)
Internal Audit Policy
ii)
Concurrent Audit Policy
iii)
Information System Audit Policy
iv)
Fraud Risk Management Policy
v)
Document Handling and Retention Policy
vi)
DO’s & Don’ts for Internal Auditors
vii)
DO’s & Don’ts for Concurrent Auditors
viii)
Guidelines on Internal Audit, Information System and Concurrent Audit
Systems
2. The
guidelines and Model Audit Manual are effective for implementation from 1st
April, 2012. You are requested to adapt these guidelines as per the needs
of your Bank without diluting the spirit and substance of the same in such a
way that they remain in consonance with the Regulatory guidelines on specific
issues, if any.
3. Further,
an Implementation and Monitoring Committee is being constituted in Department
of Financial Services, to guide and assist the PSBs for successful
customization and adoption of the said guidelines and Model Audit Manual.
Yours faithfully,
(M.M.Dawla)
Under Secretary to the Government of India
Tel: 011-23748731
Fax: 011-23742207, 011-23747018
E-mail-boa@
nic.in / usboa-dfs@nic.in
CONCURRENT AUDIT POLICY MODEL
INDEX
Sl No.
|
Particulars
|
Page No
|
1
|
Preamble
|
2
|
2
|
Regulatory Requirement
|
2
|
3
|
Concurrent Audit Coverage
|
2
|
4
|
Branch Audit
|
2
|
5
|
Selection of the Branches
and other offices for Concurrent Audit
|
3
|
6
|
Selection of the audit
firms for conducting concurrent audit
|
4
|
7
|
Appointment of Concurrent
Auditors, their fees and other conditions
|
5
|
8
|
Conduct and follow up of
concurrent audits
|
7
|
9
|
Review of Concurrent
Audit System
|
8
|
MODEL CONCURRENT AUDIT POLICY
1.
Preamble:
The Bank should put in place an
effective concurrent audit system to comply with the RBI guidelines as also to
supplement the efforts of the internal audit department to strengthen the
internal control system. The concurrent audit system will be a part of Bank's
early-warning system to detect irregularities and lapses, which helps checking
repeated / recurring violations of the internal and regulatory guidelines,
controlling risks and in preventing fraudulent transactions.
2.
Regulatory Requirement:
The RBI requirement regarding
coverage of not less than 50% of deposits as well as not less than 50% of
credit and other risk exposure of the Bank under concurrent audit to be ensured
on an on-going basis. Similarly the RBI requirement that the Department at the
Head Office dealing with Treasury functions is to be subjected to concurrent
audit will also be complied with. The RBI guidelines as indicated under
circular No.DOS.No.B.C.16/08-91/021/96 dated August 14, 1996 to be taken into
consideration while implementing the concurrent audit systems in the Bank.
3.
Concurrent Audit Coverage:
The concurrent audit shall cover
70% of deposits and 70% of advances of the Bank as against RBI’s stipulation
for coverage at minimum of 50% of deposits and 50% of advances. A large number
of activities / operations are being carried out in a centralized manner at
various units set up for that purpose and the scale of transactions /
operations undertaken at these units is large. With a view to ensuring that the
functioning of these units is as per the internal as well as regulatory
guidelines and mitigating the risk associated with large-scale operations, such
non-branch units shall also be subjected to concurrent audit.
4.
Branch Audit:
The Concurrent Auditors should certify all the
reports under Branch Statutory Audit System wherever Concurrent Audits are
conducted by external Chartered Accountants. Such Concurrent Auditors should be advised to
provide various Certifications done earlier 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. It is pertinent to note that the Concurrent
Auditors are carrying out all the verifications on a continuous basis which the
Branch Statutory Auditors are supposed to do annually for giving these
Certificates. Concurrent auditor should also undertake stock audit function for which they may be suitably
remunerated. Further, enhancing the role of Concurrent Auditors should not be a
problem as the Concurrent Auditors will, henceforth, be appointed from the RBI
panel based on the Branch Gradation System with suitable upward revision in the
remuneration.
5.
Selection of the Branches and other offices for
Concurrent Audit:
ACE/ZACE may identify the branches and
other units / offices for concurrent audit from time to time. Audit Committee
of Board should be kept informed of the developments / progress on half yearly
basis. However, while selecting the branches for concurrent audit, the risk
profile of the branches also needs to be considered. It is important for the
bank that the branches with high risk are subjected to concurrent audit
irrespective of their business size, some of the High Risk Branches, specialized branches viz., Agri, SME, Mid
Corporate, Infrastructure, Large Corporate, CPU, retail assets, portfolio
management, forex, back office etc may also be covered under the Concurrent
Audit, in case already not covered under Concurrent Audit. The concurrent audit
assignments may be undertaken internally by Bank's officers and also outsourced
to external audit firms.
In view of moving to Risk Based
Concurrent Audit, the committee has devised single check list and separate
report formats for concurrent audit and internal audit. However, committee
suggests bifurcating audit areas as High Risk, medium risk and low risk
accordingly, Individual banks, based on their risk profile may classify the
areas and coverage can be fixed under both internal and concurrent audit.
However, all areas forming part of check list to be verified under Internal
Audit by inspectors.
6.
Selection of the audit firms for conducting
concurrent audit:
The following basic criteria
should be kept in mind while selecting a firm for concurrent audit assignments:
-
a)
It should be a partnership firm of Chartered
Accountants.
b)
The firm should be selected from the RBI panel as per
gradation suggested for Branch Statutory Auditor appointment.
c) Audit firms engaged by banks for audit work
should have qualified Information System Auditor (CISA/DISA) with necessary
exposure to systems audit since all banks are fully computerized and IS audit
should form an integral part of audit of banks in the circumstance.
d)
Weightage to be given to the firms where the partners
themselves were ex-bankers or the firm has got tie-up with ex-bankers with
requisite experience and exposure.
e)
It is to be ensured that the audit firm or any sister
/ associate concern / network firm is not conducting the statutory audit of the
Bank or any of its branches.
f)
Weightage to be given to a firm having exposure in conducting
concurrent audit of the Bank branches for a few public sector / major private
sector banks.
g)
The firm should have necessary office set up and
adequate personnel to ensure proper deployment and timely completion of the
assignments.
h)
The firm should execute undertaking of fidelity and
secrecy on its letterhead in the format prescribed by the Bank.
i)
The assignment should be carried out in a
professional manner and in case of any misconduct & negligence the Bank is
free to report the matter to ICAI / RBI under the guidelines from time to time.
This will be in addition to the disengagement from the assignment.
j)
The firm should not sub-contract the audit work
assigned to any outside firm or other persons even though such persons are
qualified chartered accountants.
k)
A declaration to be furnished by the firm that credit
facilities availed by the firm or partners or firms in which they are partners
or directors including any facility availed by a third party for which the firm
or its partners are guarantor/s have not turned or are existing as non-
performing assets as per the prudential norms of RBI. In case the declaration is found incorrect,
the assignment would get terminated besides the firm being liable for any
action under ICAI / RBI guidelines.
l)
Any other terms and conditions of the assignment
would be decided by the Bank on a case-to-case basis.
7.
Appointment of Concurrent Auditors, their fees and
other conditions:
a)
The appointment of the concurrent auditors for
various concurrent audit assignments needs to be done from the RBI panel as per the gradation based on the
size of the Branch with the approval of delegated authority in Audit Department.
Suitable firms would be identified for each assignment and would be approved
taking into account their experience and
exposure, similar activity carried out for the Bank or other banks,
availability of adequate trained resources, location of the audit unit etc. The
monthly fees payable to the auditors will be approved by the delegated
authority taking into consideration the nature of assignment and within the
maximum fees approved by Audit Committee of Board.
b)
The tenure of the concurrent audit would be initially
for one year and would be extended for a further period of two years (overall
three years), based on the performance of the auditor in the first year.
c)
After completion of specific period, the firms may be
considered for audit assignment in other locations or areas. Cooling period of two years would be observed
for a firm to become eligible for appointment in the same audit unit. This will
be purely at the discretion of the Bank and no rights whatsoever accrue to the
firm for such appointment.
d)
At any one point of time, not more than one audit
assignment would be awarded to any single firm.
An audit assignment that needs to be carried out across the branches /
units at different locations would be considered as a single assignment for
this purpose.
e)
The concurrent auditor should adhere to the audit
coverage strictly as per the scope as may be decided by the Bank from time to
time.
f)
The concurrent auditors should not undertake any
other activities / assignment on behalf of the branch or unit without obtaining
the concurrence of the audit department in writing.
g)
No out of pocket expenses or traveling allowance /
halting allowance would be paid to the concurrent audit firms for carrying out
the assignment. However, the service
tax, education cess etc. would be paid as applicable from time to time in
addition to the basic fees. The
concurrent auditors may be reimbursed actual out of pocket expenses incurred in
connection with travel involved for conducting stock audits. The payment to the
concurrent auditors would be subject to deduction of tax at source at
appropriate rates.
h)
All the necessary certificates that need to be given
as a part of the concurrent audit assignment (Bills of Entry verification,
A1/A2 Forms etc.) would be given by the audit firm under its letterhead without
any additional certification fee.
i)
There is a need to transform the present concurrent
audit system to Risk based concurrent audit. Therefore, the concurrent auditors
would give rating or grade either numerical or phrased one for the audit
entity. This rating should be based on his observations about branch
functioning.
j)
A detailed checklist and other operating guidelines
will be provided to the concurrent auditors. Necessary training / consultation
required would be provided to them for enhancing the quality of the audit. They would be made aware of the guidelines and
circulars issued subsequent to commencement of assignment and having impact on
the concurrent audit, to keep them abreast of the changes in the operational
and regulatory guidelines.
k)
Necessary arrangement should be made for providing
space, workstation and access to systems (viewing rights only) to the
concurrent auditors for ensuring smooth conduct of audit assignment. This would be the responsibility of the
controller of the audit unit / Branch Head.
l)
The Bank will prescribe structured formats for the
audit reports and also stipulate the time limits for submission of the reports.
Suitable penal provisions may be prescribed for delayed submission of audit
reports.
m)
The audit formats would be reviewed on an annual
basis. The firms should strictly adhere
to the format and the time limit. Bank may prescribe different periodicity for
different reports within the same audit unit.
8.
Conduct and follow up of concurrent audits:
a)
Each branch / audit unit should identify nodal
officer/s as a single point contact for coordinating the concurrent audit work.
The audit units should ensure rectification of the deficiencies without any
loss of time so as to achieve the very purpose of concurrent audit.
b)
The bank should provide the concurrent auditor with
requisite initial induction to the branch activities and further support the
auditor with the MIS generated from the CBS system.
c)
Head-Audit to put in place necessary systems to
initiate follow up on the concurrent audit reports with the respective branches
/ units under intimation to the controllers of the functions. However the
Controllers will be responsible for further follow up with the branches / units
to ensure compliance.
d)
A formal wrap-up discussion with the branches and
non-branch segments along with the concurrent auditors will be held once in six
months for the more important branches in each region. Initially the focus
would be on those branches having significant corporate exposure including
critical non-branch segments.
e)
At present significant findings on concurrent audit
reports are reported to Audit Committee of Executives and thereafter to Audit
Committee of Board on quarterly basis.
f)
In line with RBI’s directive it is now proposed to
formally close the audit reports once a quarter.
g)
The pending issues of the previous reports need to be
mentioned as a persisting irregularity / deficiency in the subsequent reports
h)
Audit department should ensure that the deficiencies
pointed out in the concurrent audit are closed within a reasonable period.
i)
Significant observations of the concurrent audit
reports would be placed before the Audit Committee of Executives on a quarterly
basis. Any serious observation requiring attention of Audit Committee of Board
needs to be placed before them at the first available opportunity.
j)
While carrying out internal audits, the quality of
compliance with the concurrent audit report would be covered and commented upon
by the Internal Auditors.
9.
Review of the Concurrent Audit System:
The concurrent audit system
should be subjected to annual review as prescribed under RBI guidelines. Such review would be
carried out by June end every year. Similarly,
policy to be modified in tune with regulatory requirements issued from time to
time.
DO’S AND DON’TS FOR
CONCURRENT AUDITORS
(CA FIRMS)
Do’s:
- Pre concurrent audit study of the branch/ department should be done getting all relevant information and off site surveillance reports of the auditee as stated in the engagement letter.
- Prepare proper audit plan based on 1 above, covering all the areas of the scope, keeping in the view the time lines
- Have a structured introductory meeting with the auditee and seek all the information required in advance with proper time schedule. Introduce the audit team to the auditee officials.
- Audit team should accompanied by senior and experienced members as required.
- Auditors to display team spirit and avoid misunderstandings/ arguments in the presence of auditees.
- Discuss his findings with branch officials on daily basis and try to rectify the defects then and there itself.
- Give auditees a chance to express their opinion while discussing the issues. Getting proper explanation in a co-operative atmosphere will save precious time.
- In case of difference of opinion with auditee, the auditor should first discuss with the leader of his team. Further discussion on a higher level may be made, if required.
- In case, auditor comes across any information which causes him to suspect any element of fraud, gross negligence, gross incompetence or similar unfavorable actions or tendencies, he should report the matter to the leader of the team immediately.
- Auditor should keep utmost secrecy of the information/ audit observations/ issues etc. relating to the auditee.
- Be courteous, cooperative and professional.
Don'ts:
- Auditor should not have any professional or commercial relationship either direct or indirect with borrowers/ beneficiaries of the branch / department which they are auditing and also will not have in future as far as possible for a minimum period of three years.
- Auditor should not take advantage of his association as concurrent auditor with the branch/ department of the bank and canvas for any client/ business with the bank either directly or indirectly.
- Auditor should not represent on behalf of any client/ customer of the bank for a minimum period of as far as possible three years after the completion of term of the audit.
- Auditor should not share/ pass on/ discuss any audit related observations/ issues/ findings with any one other than concerned in the bank.
- Auditor need not act overly reserved or unfriendly in order to maintain his independence as an auditing officer. A forbidding attitude on his part may well cause others to adopt the same attitude towards him. This can adversely affect the work entrusted to the inspecting officer.
- Auditor should not get involved in heated argument with auditee.
- Auditor should not give orders to auditee and seek requirements from the officer assigned to assist him on a particular job. The concerned officer would issue the necessary orders to their employees if he accepts inspector’s suggestions and recommendations.
- Auditor should not delay the submission of audit report
Annexure O
Details of concurrent audit experience
as available in MEF 2013-14
Out of 35273 MEF
2013-14 applicants, 14772 applicants have got experience in concurrent audit.
In all, 36098 members associated with 16967 MEF applicants have got experience
in concurrent audit. Their classification is as under:
No. of Years
|
No. of Members
|
More
than 10
|
11501
|
8-9
|
2734
|
5-7
|
6897
|
3-4
|
5013
|
<3
|
9953
|
Source email received
No comments:
Post a Comment