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ICAI proposes joint audit for private banks

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The Institute of Chartered Accounts of India (ICAI), the regulatory body governing auditors, has proposed to the Ministry of Finance and Reserve Bank of India introduction of the concept of joint audit in private banks to enhance the quality of audit.This follows questions over role of auditors in estimation of non-performing assets (NPAs) of some private sector banks.

Recently three private sector banks—Yes Bank, Axis Bank and ICICI Bank—had reported gross NPA figures in FY 2015-16 that were in variance of the RBI´s estimates.“As such we understand that there is no difference in the approach by ICAI members and RBI” when it comes to evaluation of NPAs, the institute said in an email response to Business Standard.

It however added that there could be divergence in the loans identified as NPA by the management (ofabank), and agreed to by auditor, as against NPAs as per RBI inspectors.According to ICAI, these could crop up due to variety of reasons, including difference in interpretation of some clauses of RBI circulars, availability of additional information with RBI inspectors at the time of their inspection as compared to the information available at the time of finalisation of accounts by the bank, which is much earlier to RBI inspection, test check of accounts, incomplete information available to the auditor of a bank in consortium from the leader in consortium, among others.

Certain events subsequent to the date of balance sheet being considered by the auditors and other acceptable reasons could cause variance in NPA numbers, the spokes person added.“Any divergence without adequate explanations needs to be examined,” spokes person said.The institute´s Financial Reporting Review Board (FRRB) is the oversight body looking at instances of non-compliance in reporting requirements.The FRRB is reportedly reviewing the financial statements of some of the private sector banks that are alleged to have under reported NPA figures.

For FY 2015-16, Yes Bank reported gross NPAs worth Rs 749 crore, while RBI´s estimates pegged the figure at Rs 4,176 crore.Similarly, Axis Bank´s gross NPAs for FY16 were reported to be Rs 6,088 crore as against RBI´s figure of Rs 15,566 crore.In case of ICICI Bank, the RBI´s estimate of gross NPAs is at Rs 31,326 crore, while the annual report pegs it at Rs 26,221 crore.

There has been pressure on ICAI to check if there has been any non-compliance on part of auditors while arriving at the NPA figures.A senior auditor noted that public sector banks already have in place a system of joint auditors.“However that has not lessened the burden of NPAs on these banks,” he added.

Business Standard New Delhi, 03rd June 2017

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