{"id":33215,"date":"2021-07-21T11:43:38","date_gmt":"2021-07-21T06:13:38","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=33215"},"modified":"2021-10-19T16:27:33","modified_gmt":"2021-10-19T10:57:33","slug":"analysis-of-rbis-norms-for-appointment-of-statutory-central-auditors","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/analysis-of-rbis-norms-for-appointment-of-statutory-central-auditors\/","title":{"rendered":"Analysis of RBI&#8217;s Norms for Appointment of Statutory Central Auditors"},"content":{"rendered":"\n<p class=\"has-drop-cap\">In the recent past, the Reserve Bank of India came up with extensive guidelines for the appointment of Statutory Central Auditors (SCAs).&nbsp; These norms cover NBFCs, commercial banks, and UCBs, but do not encompass ND-NBFCs with an asset size of Rs 1000 crores. These guidelines render vital instructions related to the appointment of Statutory Central Auditors, no. of auditors, eligibility criteria, rotation, tenure, etc. Further, these guidelines ensure the independence of auditors. These norms shall become applicable from the financial year 2021-22 and onwards. While disclosing these guidelines, RBI recommends <a href=\"https:\/\/corpbiz.io\/nbfc-registration\"><strong>NBFCs<\/strong><\/a> and UFCs to take relevant pre-deployment measures to avert any possibility of disruption. <\/p>\n\n\n\n<p><strong><em>Reserve Bank prepared these guidelines in view of the following\nsections<\/em><\/strong><\/p>\n\n\n\n<ul><li>Chapter IIIB of the RBI Act, 1934 for NBFCs<\/li><li>Section 10(1) of Banking Companies (Acquisition &amp;Transfer of Undertakings) Act, 1970\/1980<\/li><li>Section 41(1) of SBI Act, 1955<\/li><li>Section 30(1A) of Banking Regulation Act, 1949<\/li><\/ul>\n\n\n\n<p>In view of Reserve Bank Circular, auditors ought to be rotated every three years with a six months cooling-off period before the subsequent appointment. The institution also mandates the joint audit by more than one audit firm for NBFCs having an asset size of Rs 15000 crores or more. Apart from that, the new norms also place a cap on the number of NBFCs clients served by the auditors. Now the auditors can only serve the maximum of 8 NBFC clients simultaneously. <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/procedure-of-nbfc-registration-in-india\/\">NBFC Registration \u2013 Know the Entire Incorporation Procedure <\/a><\/mark><\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/analysis-of-rbis-norms-for-appointment-of-statutory-central-auditors\/#Eligibility_Criteria_for_Appointment_of_Statutory_Central_Auditors\" >Eligibility\nCriteria for Appointment of Statutory Central Auditors<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/analysis-of-rbis-norms-for-appointment-of-statutory-central-auditors\/#Independence_of_Auditors\" >Independence\nof Auditors<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/analysis-of-rbis-norms-for-appointment-of-statutory-central-auditors\/#Rotation_and_Tenure\" >Rotation\nand Tenure<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/analysis-of-rbis-norms-for-appointment-of-statutory-central-auditors\/#Cooling_Period\" >Cooling\nPeriod<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/analysis-of-rbis-norms-for-appointment-of-statutory-central-auditors\/#One_Audit_firm_can_render_its_services_to_a_maximum_of\" >One Audit firm can render its services to a maximum of;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/analysis-of-rbis-norms-for-appointment-of-statutory-central-auditors\/#Guidelines_related_to_Audit_Fees_Expenses\" >Guidelines\nrelated to Audit Fees &amp; Expenses<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/corpbiz.io\/learning\/analysis-of-rbis-norms-for-appointment-of-statutory-central-auditors\/#Bottom-line\" >Bottom-line<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Eligibility_Criteria_for_Appointment_of_Statutory_Central_Auditors\"><\/span>Eligibility\nCriteria for Appointment of Statutory Central Auditors<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>Not applicable to NBFC\/UCBs having assets size of up to Rs 1000 crores<\/em><\/strong><\/p>\n\n\n\n<table class=\"table table-bordered\"><tbody><tr><td>\n  <strong>&nbsp;<\/strong>\n  <strong>&nbsp;<\/strong>\n  <strong>Entity\u2019s\n  asset size as on March 31<sup>st<\/sup> of preceding year<\/strong>\n  <strong>&nbsp;<\/strong>\n  <strong>&nbsp;<\/strong>\n  <strong>&nbsp;<\/strong>\n  <strong>Assets\n  Size of Entity as on 31<sup>st<\/sup>&nbsp;March of Previous Year<\/strong>\n  <\/td><td>\n  <strong>Above\n  INR 15000 crores <\/strong>\n  <\/td><td>\n  <strong>Above\n  INR 1000 crores but up to INR 15000 crores<\/strong>\n  <\/td><td>\n  <strong>Upto\n  INR 1000 crores<\/strong>\n  <\/td><\/tr><tr><td>\n  Mini.\n  No. of Full Time Partners(aka FTPs) linked with the entity for at least three\n  (3) years\n  <\/td><td>\n  5\n  <\/td><td>\n  3\n  <\/td><td>\n  2\n  <\/td><\/tr><tr><td>\n  Out\n  of total FTPs, Mini. No. of Fellow Chartered Accountant(FCA) partners linked\n  with the entity for at least 3 years\n  <\/td><td>\n  4\n  <\/td><td>\n  2\n  <\/td><td>\n  1\n  <\/td><\/tr><tr><td>\n  Minimum\n  No. of Paid CAs\/ Full Time Partners with CISA\/ISA Qualification\n  <\/td><td>\n  2\n  <\/td><td>\n  1\n  <\/td><td>\n  1*\n  <\/td><\/tr><tr><td>\n  Mini.\n  No. of Year of Audit Experience of the entity\n  <\/td><td>\n  15\n  <\/td><td>\n  8\n  <\/td><td>\n  6\n  <\/td><\/tr><tr><td>\n  Mini.\n  No. of professional staff\n  <\/td><td>\n  18\n  <\/td><td>\n  12\n  <\/td><td>\n  8\n  <\/td><\/tr><\/tbody><\/table>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Independence_of_Auditors\"><\/span>Independence\nof Auditors <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The period between non-audit works (services cited at Sec 144 of <em><strong>companies Act, 2013<\/strong><\/em><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Companies_Act_2013\"><em><strong>[1]<\/strong><\/em><\/a><\/sup>, special assignments, internal assignments, etc.) by Statutory Central Auditors for the firms or any audit\/non-audit works for its group companies ought to be at least 1 year, before or after its appointment. <\/p>\n\n\n\n<p>During the term as Statutory Central Auditor, an audit firm\nmay facilitate services to the concerned firms, and entities are allowed to\ntake their own decision in this regard, in consultation with the board\nmembers.&nbsp; A conflict would not come to\nexistence in the event of the given special assignments (indicative list):<\/p>\n\n\n\n<ul><li>Tax audit, tax representation &amp; expertise on taxation-related matters,<\/li><li>Audit of interim financial statements<\/li><li>Certificates are required to be bestowed by the SCA in compliance with regulatory requirements.<\/li><li>Reporting&nbsp; on Financial details or parts thereof<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Rotation_and_Tenure\"><\/span>Rotation\nand Tenure<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>To safeguard the freedom of the audit firms, companies must\nappoint the Statutory Central Auditor for a continuous period of 3 years,\nsubject to the firms fulfilling the eligibility criteria each year.&nbsp; <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Cooling_Period\"><\/span>Cooling\nPeriod <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>After the completion of one term of the audit tenure, an\naudit firm shall become ineligible for reappointment in the same company for 6\nyears (two tenures)<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"One_Audit_firm_can_render_its_services_to_a_maximum_of\"><\/span>One Audit firm can render its services to a maximum of;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>4 Commercial Banks (including not more than 1 India Financial Institution, SIDBI, Exim Bank, NABARD, RBI)<\/li><li>8 NBFCs <\/li><li>8 Union cooperative banks<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Guidelines_related_to_Audit_Fees_Expenses\"><\/span>Guidelines\nrelated to Audit Fees &amp; Expenses<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>The audit fees for Statutory Central Auditors of all the firms shall figure out in terms of regulatory provisions. PSBs will be constantly guided by Reserve Bank norms in this matter. <\/li><li>The auditing fees of Statutory Central Auditors of all the firm be justifiable &amp; commensurate with the scope &amp; coverage of size, audit, and spreads of assets, administrative and accounting units, transactions&#8217; complexity, level of automation\/digitization, pinpointed risks in financial reporting, etc., <\/li><li>The board\/LMC\/ACB of entities shall advise eligible authorities as per relevant statutory instructions for fixing audit fees of Statutory Central Auditors.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Bottom-line\"><\/span>Bottom-line\n<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>NBFCs are concerned that the RBI&#8217;s new norms for the\nappointment of statutory auditors will make it hard to them to locate experts\nwho fit the bill, especially in the midst of the year. <\/p>\n\n\n\n<p>The RBI\u2019s notification (released on 27<sup>th<\/sup> of\nApril) that talks about the improvement of auditing protocol, is confronting\nresistance from private lenders, which has a free run till now. While the\nReserve Bank move is aimed at mitigating frauds, bad debts, unstable\nrelationships between firms &amp; auditors, and improving the auditing system\nafter the fiasco involving DHFL, IL&amp;FS, Yes Bank, private lenders are now\nlobbying via industry bodies for a rollback. <\/p>\n\n\n\n<p>Industry body Finance Industry Development Council (FIDC)\nhas negatively reacted to these guidelines by stating that such norms seek\nmid-year amendments in auditors for FY22, which seems less gainful for most of\nthe NBFCs and is likely to cause disruption in the later stage. <\/p>\n\n\n\n<p>The aforesaid guidelines will ensure that SCA is appointed in timely and a transparent manner. This is anticipated to strengthen the financial reporting by the above-mentioned entities &amp; also improve the audit quality.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/step-by-step-nbfc-registration-procedure\/\">NBFC Registration: Step by Step Procedure <\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In the recent past, the Reserve Bank of India came up with extensive guidelines for the appointment of Statutory Central Auditors (SCAs).&nbsp; These norms cover NBFCs, commercial banks, and UCBs, but do not encompass ND-NBFCs with an asset size of Rs 1000 crores. These guidelines render vital instructions related to the appointment of Statutory Central [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":33228,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[91],"tags":[1872],"acf":{"service_id":"8"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":3948,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/33215"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=33215"}],"version-history":[{"count":10,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/33215\/revisions"}],"predecessor-version":[{"id":33227,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/33215\/revisions\/33227"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/33228"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=33215"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=33215"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=33215"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}