The Institute of Chartered Accountants of India (ICAI), which frames accounting standards, has opposed a proposal by the Reserve Bank of India (RBI) to relax the provisioning norms for non-performing assets (NPA).
As per the proposal, commercial banks need not classify a non serviced loan under NPAs if the borrower has submitted an application for restructuring package before March 31, 2009.
"By such treatment no NPAs would be reflecting on the balance sheet of banks till December 31,2009," said Uttam Prakash Agarwal, president of ICAI. This would have implications for the auditing standards to be followed by the auditors while giving their opinion of the quality of assets shown in the banks' balance sheet, added Agarwal.
On February 4, the RBI had sent out a circular, which said that since a large number of accounts are required to be restructured, it would not be possible to take up all such accounts for restructuring by January 31, 2009 and thus it extended the date to March 31.
By simple receipt of application for proposal for restructuring package, RBI has said that restructuring package will be put in place within 120 days and all such accounts will be treated as standard assets.
ICAI has already aired its concern to the RBI, Comptroller and Auditor General of India and finance ministry. And this issue would be deliberated on March 24 in the Auditing and Assurance Standards Board meeting.
The ICAI has also expressed its opposition to managerial autonomy of public sector banks in appointment of auditor and has said that these appointments should be done by the RBI. "The present system has the potential to undermine audit independence," said Agarwal and called for going back to the earlier system of centralised appointment of auditors.
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For more than two decades, the RBI had been doing the allocation of bank audits and this procedure had been working quite satisfactorily but now, granting managerial autonomy to banks had a direct impact on the independence of auditors, according to Agarwal.
Stressing the need for strengthening the mechanism for promoting such independence, he said the government and the RBI should take notice of this and not experiment with a tried and tested method in the name of liberalisation.
The ICAI has also called for giving ample time and practical deadlines to auditors for conducting bank branch statutory audit assignment. The banks put pressure on auditors complete the audit at the earliest by 7th or 8th April, every year, informed Agarwal.
This year, this will practically give four-and-a-half working days to auditors to complete the audit assignment of three branches. An auditor is generally assigned three branches of a bank for audit.