New Delhi (IANS) The Confederation of Indian Industry has come up with several recommendations for changes in the Reserve Bank of India's guidelines for appointment of statutory auditors by banks and NBFCs.
Commending the RBI's intent of working towards strengthening the audit quality and governance process, CII in a statement, noted that this process is critical and fundamental to trust and credibility of the capital market.
CII has suggested that the requirements related to reduction in the tenure of audit engagement, cap on number of audits and extended cooling of periods, may not specifically address any perceived concerns on audit quality.
These are inconsistent with the provisions in the Companies Act, 2013 and are not comparable with international practices and regulations as prescribed by the IESBA, PCAOB, SEC, etc., which are widely accepted and adopted globally, it said.
"Implementing these requirements is likely to create avoidable complications without any appreciable enhancement to audit quality and governance. Further, lack of harmony amongst various regulations on this subject is likely to add to complexity and confusion in the sector and also impact ease of doing business," it said.
Further, it said that it is a widely accepted principle that, to reduce uncertainty and implementation challenges, significant policy measures are not applied retrospectively and also allow for a reasonable transition period. This helps various stakeholders to better understand, plan for the change and ensure effective compliance, it said.
"A sudden change in major policies, without any reasonable transitional provisions, is bound to create several practical challenges in successful implementation. It should also be noted that Appointment of Auditors is a critical and important process for an organisation and merits the right level of attention especially from senior management, board and audit committee, and approval from RBI."
The circular has also been extended to the NBFCs for the first time, equating them with the commercial banks.
As per the industry, it may be worth evaluating whether such restrictive norms need to be applied to the NBFCs, in addition to all the principles applicable as per the Companies Act, 2013, including rotation and cool off periods.
The reduction in the tenure of audit, cap on number of audits by an audit firm and extending the applicability of the provisions to NBFCs will make it mandatory for a large number of banks and NBFCs to immediately change their auditors, including requirements of joint audits in certain cases, based on monetary thresholds.
The challenge to identity an appropriate firm is further accentuated by the supply side constraints, which are likely to be caused, due to stricter eligibility criteria and independence considerations including association with group (including those using the same brand) on providing unrestricted non-audit services, that too in the past one year, CII said.
"All these amendments will create inconsistent policies vis-a-vis the Companies Act, 2013, without adding any qualitative parameters."
It is all the more challenging in present times, severely impacted by Covid-19, to implement these requirements without any transitional provisions, it said, among other suggestions.