Auditors wary of appointment leeway

Banks allowed to appoint statutory auditors without Reserve Bank of India approval.

The government's decision to allow chairmen of public sector banks the freedom to appoint statutory auditors without approvals from the Reserve Bank of India (RBI) has led to chaos.

Statutory auditors have expressed to the RBI their unwillingness to be engaged directly by the banks and have also accordingly made a representation to the government seeking a review.

Also, some public sector banks have declined to enjoy the freedom and want to continue to avail of the services of the auditors empanelled by the the RBI.

Since this requires the RBI to continue with the practice of selecting a panel of auditors, the banking regulator has written to the finance ministry for clarifications.

The confusion has delayed finalisation of the new panel of auditors for auditing public sector banks' accounts in the current financial year. Some are of the view that the stalemate may result in PSBs being forced to get their financial statements for the half year ending September 30 audited by the old panel of auditors.

According to sources, auditors fear doing away with the practice of RBI maintaining a panel of auditors might lead to a conflict of interest. They felt that audit firms might lose their freedom in recording their qualifications if they are chosen by chairmen of PSBs themselves.

Auditing financial statements of banks has become risky following blanket ban on PricewaterhouseCoopers. The firm has been debarred from auditing banks and non-banking finance companies after the RBI found some discrepancies in the financial statements of the erstwhile Global Trust Bank. RBI had stated that the audit firm had understated the non-performing assets (NPAs) of the bank.

However, the firm later made a representation to the RBI saying the NPAs of the bank were clearly stated in the annual report.