RBI to come with clarifications on new audit norms soon, CFO News, ETCFO

Reserve Bank of India will soon come with clarifications on the new regulations for the appointment of auditor for banks and NBFCS, said Deputy Governor MK Jain at the press conference followed by the Monetary Policy Meeting on Friday. This comes at the backdrop of various representations sent by various industry bodies seeking clarifications.

“We have received certain representation from various stakeholders to seek clarifications, which are being examined and shortly we will come out with those clarification,” said Jain.

“But the larger objective of these guidelines is to put in place ownership neutral regulation and ensure the independence of the auditor and avoiding conflict of interest and improving the quality of audit. We should also see these measures to strengthen the assurance function,” he added.

The RBI, through a circular dated April 27, introduced new norms for statutory auditors of the financial sector entities. This has created a conundrum in the industry and the auditor community, while many representations have been sent to the RBI by industry bodies like CII, FIDC seeking clarification or asking to pull back the norms.

The proposed norms include auditor rotation after every three years, making joint audits mandatory for certain lenders, and capping the number of audits in a year, which has not been much welcomed by big firms auditors, banks and non-bank financiers. They have sent representations to the regulator seeking review and deferment of these new rules with strong arguments that the new regulation could impact audit quality and disrupt the industry.

These requirements are significantly more stringent than the requirements of the Companies Act, which otherwise governs many of these entities. Covered entities are required to comply with the guidelines for the current year itself.

Considering the new guidelines, and its mandates, FIDC feels that RBI is virtually not giving any room to the Board and Audit Committee to select auditors while making the Board responsible for ensuring quality, performance and independence of auditors.

The new RBI guidelines mandate rotation of auditors from this year itself, but many firms would have to start scouting for new audit firms, says Keki Mistry, HDFC Ltd Keki Mistry. Experts say the pool available to choose from will be limited for FY22.

The new guidelines would encourage Indian firms to invest long-term in their IT infrastructure as well as in their talent, writes Keyur Dave, Partner, ASA & Associates.

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