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Implementation of revised empanelment norms for appointment of statutory auditors of public sector banks select all India financial institutions and RBI - (8-12-2003)
The Reserve Bank of India has accepted the recommendations of the Working Group constituted by RBI for revision of norms for empanelment of audit firms for being considered for appointment as statutory auditors of public sector banks/select all India Financial Institutions and RBI with certain minor changes. The contents of letter No. DBS.ARS.No.393/08.91.008/2003-04 dated 8th December, 2003 received from Shri R.M. Thakkar, General Manger, Reserve Bank of India, regarding implementation of revised empanelment norms for appointment of statutory auditors (both central and branch) of public sector banks, select all India Financial Institutions and RBI is reproduced hereunder :
Implementation of revised empanelment norms for appointment of statutory auditors of public sector banks, select all India financial institutions and RBI.
1. As you are aware, the recommendations of the Working Group constituted by RBI with members from RBI, MOF, C&AG, IBA, ICAI and select public sector banks for revision of norms for empanelment of audit firms for being considered for appointment as statutory auditors of public sector banks/select all India Financial Institutions and RBI have been accepted by the RBI with certain minor changes.
2. It has been decided to implement these recommendations with effect from the year 2004-05. Details of revised empanelment norms for being considered for appointment of statutory central auditors in public sector banks/select all India Financial Institutions and RBI, are given in Annexure I. Revised norms for categorization of audit firms for their empanelment as statutory branch auditors and nature of branches of 27 Public Sector Banks for which they are eligible are also furnished in the said Annexure.
3. With a view to ensuring continuity in statutory central audit of PSBs, select all India Financial Institutions and RBI, without any hindrance, it has been decided that the audit firms which have not completed their four years' term as statutory central auditor by 2003-04 will be required to comply with the existing empanelment norms. In other words they will be exempted from complying with the revised norms till they complete their prescribed term of 4 years. Other important recommendations which will be implemented from 2004-05 are given in the Annexure II.
4. As indicated at item No. 7 in Annexure II it has been decided that branch auditors panel (Part A and B) for PSBs will now be prepared once in two years from the year 2004-05 and onwards. It will be the base panel which will be continued for 2005-06 also. The audit firms would require to advise public sector banks about change in the constitution of the firm, if any, on yearly basis.
5. We shall be glad if you will please arrange to take necessary steps so as to inform your members about the above changes that are being effected from 2004-05.
6. The branch audit panel for the year 2004-05 prepared in accordance with the revised norms may be forwarded to us well on time.
7. Please acknowledge receipt.
Annexure I
I.  Revised empanelment norms for appointment of statutory central auditors of PSBs, select all India Financial Institutions and RBI.
 
  1. For the purpose of empanelment of statutory central auditors for 27 PSBs, select all India Financial Institutions and RBI following norms will come in force from the year 2004-05 (existing norms will continue to apply to those audit firms which have not completed their four year terms with the respective PSBs, select all India Financial Institutions or RBI).
    As on 1 January of the relative year
    1. the firm should have 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. 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.
    2. 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.
    3. the standing of the firm should be of at least 15 years which would be reckoned from the date of its constitution and availability of one full time FCA continuously with the firm.
    4. the firm should have minimum statutory central audit experience of 15 years of a public sector bank (before or after nationalization) and/or by way of statutory branch audit thereof or that of statutory audit experience of a private sector bank with deposits resources of not less than Rs.500 crore. In case any of the partner of an audit firm is nominated/elected for a period of atleast 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 PSBs, select all India Financial Institutions or RBI.
    5. 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.
    6. atleast one partner of the firm or its paid Chartered Accountant must possess CISA/ISA or any other equivalent qualification
II (a). Revised norms for categorization of audit firms for their empanelment as branch auditors for public sector banks and branch allocation to different categories of audit firms.
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 minimum of 8 years experience of branch audit of a nationalized bank and/or of a private sector bank with deposits 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 branch audit of nationalized 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 deposits 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 3 years
II (b). Criteria fixed for allocation of branches of PSBs for the purpose of statutory branch audit among different categories of audit firms.
Category Branches, to the extent possible, to be allotted
Part 'C' Branches with an outstanding advances of Rs.50 crore and above.
I Branches with an outstanding advances of Rs.10 crore and above.
II Branches with an outstanding advances of more than Rs.150 lakh but less than Rs.10 crore and not located at rural centres.
III & IV Branches with an outstanding advances of less than Rs.150 lakh or those located at rural centres irrespective of the quantum of advances.
Annexure II
Other important recommendation of the working group which will be implemented from RBI from the year 2004-05.
1. For determining inter-se seniority of experienced as well as new audit firms a detailed marking system has been introduced.
2. Experience of statutory central audit of Jammu & Kashmir Bank Ltd. will be reckoned as public sector bank audit experience (and not that of public sector undertaking as has been reckoned presently) with effect from the year 2003-04 subject to certain conditions.
3. For each public sector bank a team of 4, 5 or 6 audit firms will be appointed as Statutory Central Auditors (SCAs) depending on their assets and liabilities of previous year (audited figures) i.e. upto Rs.50,000 crore, above Rs.50,000 crore and upto Rs.1 lakh crore and above Rs.1 lakh crore respectively. In case of SBI the present practice of appointing one audit firm for each of its 14 circles will continue. There will be no change in the number of audit firms that are presently allotted to IDBI, NABARD, EXIM Bank, NHB, SIDBI and RBI.
4. With a view to help preparing second line of defense as also infusing young blood in bank audit with effect from 2004-05 and onwards, the available vacancies of SCAs will be filled in, in the ratio of 8:2 instead of 9:1 as is being done presently. This ratio will be subject to revision after 3 years by RBI in the light of experience gained.
5. The system of giving preference to experienced unallotted audit firms carried over from the previous year will be discontinued effective from the year 2004-05 and they will now be ranked along with the other experienced firms becoming eligible during the year subject to usual norms.
6. The policy of rotation and resting for statutory branch auditors which is presently applicable to 17 centres viz., Mumbai, Kolapur, Pune, Solapur, Thane, Kolkata, Chennai, Coimbatore, Delhi/New Delhi, Ajmer, Bikaner, Jaipur, Kota, Udaipur, Ahmedabad, Vadodara, and Surat has been continued and other 16 centres viz. Hyderabad, Chandigarh, Raipur, Faridabad, Gurgaon, Panchkula, Panipat, Sonipat, Bangalore, Ernakulam, Indore, Nagpur, Ludhiana, Jodhpur, Bhilwara and Ghaziabad have been included in the list of resting centres thereby raising the total of such centres to 33 effective from 2004-05.
7. Effective from 2004-05, a panel of statutory branch auditors (Part A and B) will be prepared by the ICAI and RBI once in two years, instead of annually, as is being done now.
     
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