RBI group to steer bank audit issues

Reserve Bank of India will soon form a small group comprising representatives from the Institute of Chartered Accountants of India (ICAI) and the central bank to sort out matters relating to audit and accounting standards.

The group would meet at periodic intervals to discuss issues relating to standardisation of audit formats, concurrent audit of banks, empanelment of auditors and implementation of certain accounting standards, RBI governor Y V Reddy said in his address at a seminar on economic growth organised by the ICAI here today.

Reddy said the role of auditors in a liberalised financial environment is much wider than the just primary responsibility towards shareholders of the entity.

"They owe greater responsibility to the varied stakeholders of banks including depositors, regulators and banking community, both within and outside the country," he said.

The audit of a banking entity is special relative to the audit of a corporate since banks are universally considered to be special.

In the case of a corporate audit, the stakeholders are primarily the shareholders and in case of a crisis, the fall-out would be by and large localised to the corporate entity concerned, Reddy said.

However, in the case of a banking entity, the impact of any crisis may not remain localised to the banking entity but could under certain circumstances translate into a systemic issue with far greater consequences, he pointed out.

A critical link in the successful implementation of the financial reform process lies with the auditors of banks when they ensure that the financial statements of banks reflect the highest level of integrity, he added.