LFAR by Concurrent Auditors

Submission of Long Form Audit Report (LFAR) by Concurrent Auditors

RBI/2014-15/626 DBS.CO.ARS.BC.8/08.91.001/2014-15 June 4, 2015 CMD of Nationalized Banks Chairman SBI MD of Associate Banks of SBI Madam/Dear Sir, Submission of Long Form Audit Report (LFAR) by Concurrent Auditors In terms of enclosure 1 of RBI circular DBS.CO.PP.BC.11/11.01.005/2001-2002 dated April 17, 2002 all the banks were advised, inter alia, as under: LFAR in respect of branch should be addressed by the branch auditors to the Chairman of the bank, concerned with a copy thereof to the Central Statutory Auditors. 2. The above matter has been examined in light of Para B (1) (ii) of Guidelines for Appointment of Statutory Auditors in Public Sector Banks hosted on RBI web site (at link http://www.rbi.org.in/scripts/bs_viewcontent.aspx?Id=946#AN2) which is reproduced below: In respect of branches below the cut-off point, which are subject to concurrent audit by chartered accountants, henceforth, LFARs and other certifications done earlier by SBAs will now be submitted by the concurrent auditors and such branches may not generally be subject to statutory audit. 3. You are advised that henceforth Concurrent Auditors, who are chartered accountants, of branches below the cut-off point will submit LFAR only to the Chairman of the bank. The banks in turn will consolidate/compile all such LFARs submitted by the Concurrent Auditors and submit to Statutory Central Auditor as an internal document of the bank. 4. Please acknowledge receipt. Yours faithfully, (Prabhakar Jha) General Manager

BANK AUDIT 2015

The following procedure will be followed for appointment statutory branch auditors (SBAs) in public sector banks (PSBs):

(i) The list of eligible auditors/audit firms will be prepared by the Institute of Chartered Accountants of India (ICAI) as per the norms prescribed by RBI.( LIST prepared and ready to shoot to RBI)

(ii) The above list will be subjected to scrutiny by RBI for identifying the continuing and rested firms and excluding audit firms against whom adverse remarks/disciplinary proceedings are pending or who have been denied audit.

(iii) RBI will, thereafter, forward the final list of all eligible auditors/audit firms to PSBs for selection.

(iv) The PSBs will select the required number of branch auditors/audit firms. Banks will be required to clearly advise the audit firms selected for consideration of appointment that each audit firm can take up audit assignment (branch audit) in one PSB only. The audit firm should give their consent in writing for consideration of appointment in the bank concerned for the particular year and the subsequent continuing years.( the firms whose four year term has not completed shall be on the panel of sam bank.no fresh consent shall be require)

(v) The consent given by an audit firm will be treated as irrevocable and request, if any, from audit firms for changing the bank, after giving its consent to the bank concerned will not be entertained.( some of the banks takes consent from auditor and dont carry their names to list.auditors ignore the other bank offer being consent given .Attention is required for such exercise)

(vi) After the selection of branch auditors, PSBs will be required to recommend the names of both continuing and selected branch auditors to RBI for seeking its prior approval before their actual appointment, as per statutory requirement.

3. SBAs will have a maximum tenure of four years. The appointment of SBAs will be made on an annual basis, subject to their fulfilling the eligibility norms prescribed by RBI from time to time and also subject to their suitability.

4. The number of eligible auditors / audit firms is more than the number of branches to be audited at the following 33 centres (viz. Mumbai, Kolhapur, Pune, Solapur, Thane, Kolkata, Chennai, Coimbatore, Delhi/ New Delhi, Ajmer, Bikaner, Jaipur, Kota, Udaipur, Ahmedabad, Vadodara, Surat, Hyderabad, Chandigarh, Raipur, Faridabad, Gurgaon, Panchkula, Panipat, Sonipat, Bangalore, Ernakulam, Indore, Nagpur, Ludhiana, Jodhpur, Bhilwara, and Ghaziabad). In such centres, the auditors/ audit firms will be put to a period of compulsory rest for two years after completion of four years of continuous branch audit. In other centres, where the number of eligible auditors / audit firms is less than the number of branches to be audited, the branch auditors on completion of four years of continuous branch audit will be subjected to the policy of rotation.(as per policy the other places are out of rotation but the same is being misused)

5. While allotting branches, banks are required to select auditors/audit firms which are in close proximity to their offices/branches. Banks are also required to have a suitable mix of various categories of auditors / audit firms while selecting the branch auditors keeping in view the size of the branches to be audited.( Though banks have nothing to do with the cooling of firms other than 33 places but the same is being implemented from last four years as CAs are in surplus .Though this year PDC has prescribed a list with gap)

6. As regards statutory branch audit to be carried out by SCAs, banks will allot the top 20 branches(to be selected strictly in order of the level of outstanding advances) in such a manner as to cover a minimum of 15% of total gross advances of the bank by SCAs.

Revised Bank Branch Auditors' Panel for the year 2014-15

Please find placed below revised Bank Branch Auditors' Panel for the year 2014-15. To view the category, please click on the relevant interval:
 

• MEF00001-05000
• MEF05001-10000
• MEF10001-15000
• MEF15001-20000
• MEF20001-25000
• MEF25001-30000
• MEF30001-35000
• MEF35001-40000
• MEF40001-45000
• MEF45001-50000
• MEF50001-55000
• MEF55001-60000
• MEF60001 onwards

Thanks,

Bank branch audit panel

Draft Bank Branch Auditors’ Panel for the year 2014-15 has been hosted at http://www.meficai.org/DraftBankBranchAuditorsPanel_2014_15.html. 

Multipurpose Empanelment Form (MEF)

Multipurpose Empanelment Form (MEF) for the year 2014-15 has been hosted on www.meficai.org.
Last date for online submission of MEF/ Bank Audit form is 4th August, 2014.

Dena Bank concurrent Audit

Applications for concurrent audit of Dena Bank for 2014-15
http://www.denabank.co.in/viewdetail.jsp?lang=0&did=139972780868505EA0AEA3057FD38A5D83AFAEE96DB32&id=0,47

Concurrent Audit P & bank

FYI - APPLICATION FOR ASSIGNMENT OF CONCURRENT AUDIT FOR CHARTERED ACCOUNTANT FIRM IN PUNJAB & SIND BANK

for online application
https://www.psbindia.com/OnLine_Application_CCA.php

opening date : 12-05-2014
last date :26-05-2014

Bank Audit: Minimise bank audit risk by maintaining documentation

Bank Audit: Minimise bank audit risk by maintaining documentation: Train ur staffs to Identify NPAs: By CA Nitesh More

1) Our audit risk is minimized If:

a)    We are able to identify & recognize the NPAs properly,

b)    We maintain proper documentation of our audit.

Otherwise if subsequently, RBI inspector detect additional NPAs & on that basis , if RBI complain to ICAI, one may be in trouble.

2) TRAIN YOUR STAFFS TO IDENTIFY NPAs: Identification of the NPAs is one of the major Task in Bank Branch audit. If your article clerks & other staffs are able to identify the NPAs than you will be able to implement proper income recognition & provisioning norms as per RBI guidelines. So train your article clerk to indentify the NPAs.  

3) Non performing Assets : An asset, including a leased asset, becomes non performing when it ceases to generate income for the bank. A non performing asset (NPA) is a loan or an advance where;

i. Interest and/ or instalment of principal remain overdue for a period of more than 90 days in respect of a term loan,

ii. The account remains ‘out of order’ as indicated at paragraph 5 below, in respect of an Overdraft/Cash Credit (OD/CC),

iii. The bill remains “overdue” at paragraph 6 below for a period of more than 90 days in the case of bills purchased and discounted,

iv. The instalment of principal or interest thereon remains overdue for two crop seasons for short duration crops,

v. The instalment of principal or interest thereon remains overdue for one crop season for long duration crops,

vi. The amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitization transaction undertaken in terms of guidelines onsecuritization dated February 1, 2006.

vii. In respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment.

4) In case of interest payments, banks should, classify an account as NPA only if the interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter. In addition, an account may also be classified as NPA in terms of paragraph 4.2.4 of this Master Circular.

5) ‘Out of Order’ status:An account should be treated as 'out of order' if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but there are no credits continuously for 90 days as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period, these accounts should be treated as 'out of order'.

6)  ‘Overdue’ :Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the due date fixed by the bank.

7)  INCOME RECOGNITION

7.1 Income Recognition Policy

7.1.1 The policy of income recognition has to be objective and based on the record of recovery. Internationally income from non-performing assets (NPA) is not recognised on accrual basis but is booked as income only when it is actually received. Therefore, the banks should not charge and take to income account interest on any NPA. This will apply to Government guaranteed accounts also.

7.1.3 Fees and commissions earned by the banks as a result of renegotiations or rescheduling of outstanding debts should be recognised on an accrual basis over the period of time covered by the renegotiated or rescheduled extension of credit.

7.2 Reversal of income

7.2.1 If any advance, including bills purchased and discounted, becomes NPA, the entire interest accrued and credited to income account in the past periods, should be reversed if the same is not realised. This will apply to Government guaranteed accounts also.

7.2.2 In respect of NPAs, fees, commission and similar income that have accrued should cease to accrue in the current period and should be reversed with respect to past periods, if uncollected.

 CA NITESH MORE

 Depreciation on Fixed Assets in Banks 

After reading Accounting policy of different banks it has been noted that they refer to "Guidelines of RBI" as regard to Depreciation on computers, but no such guidelines available. The Expert panel for Bank Audit of ICAI also failed to furnish any such guidelines so far.

Besides this some banks are providing depreciation on computers for full year irrespective of date of addition. For other assets some are applying rates of companies act, some are using Income Tax 1961 rates. Some are using 182 days, some are using 180 days and some are using 30th Sep as the period for providing half depreciation. When Each and every bank is having different set of policy as regard to Depreciation how it can be said that they are providing depreciation as per RBI Guidelines or their results are comparable.

Following are extracted from Accounting Policy (schedule-17) of the banks:

Central Bank of India 

·  Fixed Assets (other than computers which are depreciated on Straight Line Method) are depreciated under 'Written Down Value Method’ 

·  Depreciation on additions to assets, made upto 30^th September is provided for the full year and on additions made thereafter, is provided for the half year. No depreciation is provided on assets sold before 30^th  September and depreciation is provided for the half year for assets sold after 30^th  September.

State Bank of India

·        In respect of assets acquired during the year for domestic operations, depreciation is charged for half a year in respect of assets used for upto 180 days and for the full year in respect of assets used for more than 180 days, except depreciation on computers and software, which is charged for the full year irrespective of the period for which the asset was put to use.

Punjab & Sind Bank

·        Depreciation is provided for on Computers at 33.33%, on straight-line method; additions are depreciated for the full year irrespective of the date of addition as per RBI guidelines. 

·        Other Fixed assets on written down value method at the rates prescribed by the Income Tax Act 1961; additions effected before 30th September are depreciated for full year and additions effected thereafter are depreciated for half year. 

·        No depreciation is provided on assets sold/disposed of during the year.

State Bank of Hyderabad

·        In respect of assets acquired during the year, depreciation is charged for half year in respect of assets used for up to 182 days and for the full year in respectof assets used for more than 182 days, except depreciation on computers/ATMs and software, which is charged for the full year irrespective of the period for which the asset was put to use

·        The rates of depreciation and method of charging depreciation are as under : 

·        Computers/ATMs                              SLM                                         33.33% every year 

·        Computer software forming an integral part of hardware                     WDV                                        60%

·        Computer Software which does not form an integral part of hardware                                           100%, in the year of acquisition

Oriental Bank of commerce

·        Depreciation on assets (including revalued assets), is charged on the Written Down Value at the rates prescribed by the Income Tax Rules, 1962; except in respect of computers on which depreciation is provided on Straight Line Method @ 33.33% as per RBI guidelines

·        Depreciation is not provided in the year of sale/disposal of asset;

Bank of Baroda

·        Depreciation on Fixed Assets, other than on computers, is provided under the written down value basis at the rates prescribed in Schedule XIV to the Companies Act, 1956. 

·        Depreciation on computers is provided on Straight Line Method at the rate of 33.33% in line with theguidelines of Reserve Bank of India 

·        While depreciation on additions is provided for full year, no depreciation is provided in the year of sale/disposal.

Dena Bank

·        Depreciation is charged on Written Down Value (W.D.V.) method at the rates prescribed under the Income Tax Rules, 1962 except Computer hardware purchased before 01.04.2000 are depreciated @ 25% p.a. on W.D.V. method and purchased on or after 01.04.2000 are depreciated @ 33.33% on Straight Line Method.

United Bank of India

·        Software are capitalized with computers

·        Depreciation on assets other than computers, ATMs and Software is provided for under written down value method, in the manner and as per the rates prescribed under Schedule XIV to the Companies Act, 1956. The rate is rounded off to next absolute number. Depreciation on the revalued portion of the assets is adjusted from Revaluation Reserve. 

·        Depreciation on computers, Automatic Teller Mahchine (ATM) and software are provided on straight-line method @ 33.33% on pro-rata basis from the date of acquisition as per RBI guidelines.

Canara Bank

·        Fixed Assets excluding Computers are depreciated under Written Down Value Method at the rates determined by the management on the basis of estimated useful life of the respective assets. As per theguidelines of Reserve Bank of India, depreciation on Computers is charged at 33.33% on Straight-Line Method. 

·        Depreciation on additions to fixed/leased assets is charged for the full year irrespective of the date of acquisition.  No depreciation is provided in the year of sale/disposal.

Bank audit allotment

FYI - Till date as per  info following banks allotment finalised: Please update this list by your  comments:
PNB
UCO
BOI
BOB.
Dena Bank
Allahabad Bank
IOB
SBI
CBI

2014 Guidance Note on Audit of Banks released by Auditing and Assurance Standards Board.

The Auditing and Assurance Standards Board of the Institute of Chartered Accountants of India has today issued Guidance Note on Audit of Banks 2014 edition. For the benefit of members, complete text of the Guidance Note along with the accompanying appendices etc. can be downloaded at:

Guidance Note on Audit of Banks (2014 Edition)

Contents of accompanying CD

Please note that the soft copy of the accompanying CD as uploaded on the website contains only list and link of Master and other relevant Circulars of RBI. However, the CD that will come with the book will contain complete text of Master Circulars as well as General Circulars.

Secretary, AASB

ICAI.ORG

Guidelines for Appointment of Statutory Auditors in Bank-2013-14

Guidelines for Appointment of Statutory Auditors in Public Sector Banks

Based on the recommendations of a Working Group (WG) to review the norms for empanelment of statutory auditors for public sector banks and other related issues and after seeking the approval of GoI, it has been decided to revise the guidelines on appointment of statutory auditors in public sector banks with effect from the year 2013-14. The revised eligibility norms for empanelment of SCAs as prescribed by RBI in consultation with the WG have been indicated in Annex 1. The categorization/eligibility norms for empanelment of branch auditors which have been kept unchanged are indicated in Annex 2. The guidelines/instructions relating to the selection procedure to be followed for appointment of statutory auditors in PSBs and details thereof are furnished in Annex 3

ICAI clarified regarding deferment of SCA norms

ICAI clarified regarding deferment of SCA norms (Regarding DISA Requirement) of PSB’s by one year i.e. the norms will be effective from the year 2014-15 and bank audit fees increase clarification.

Remuneration for branch audit work of the bank

Remuneration for branch audit work of the bank. Category of bank branch on the basis of quantum of advances. Rates of audit fees:-
Up to 10 crore-Rs. 40,250/-
Above 10 crore up to 20 crore- Rs. 57,500/-
Above 20 crore up to 30 crore- Rs. 79,350/-
Above 30 crore up to 50 crore- Rs. 1,20,750/-
Above 50 crore up to 75 crore- Rs. 1,38,000/-.

Guidelines for Appointment of Statutory Auditors in Public Sector Banks

Based on the recommendations of a Working Group (WG) to review the norms for empanelment of statutory auditors for public sector banks and other related issues and after seeking the approval of GoI, it has been decided to revise the guidelines on appointment of statutory auditors in public sector banks with effect from the year 2013-14. The revised eligibility norms for empanelment of SCAs as prescribed by RBI in consultation with the WG have been indicated in Annex 1. The categorization/eligibility norms for empanelment of branch auditors which have been kept unchanged are indicated in Annex 2.

The guidelines/instructions relating to the selection procedure to be followed for appointment of statutory auditors in PSBs and details thereof are furnished in Annex 3

Annex 1

Norms of Empanelment for Statutory Central Auditors
of Public Sector Banks applicable from the year 2013-14

As on 1 January of the relative year the firm should have

(i) 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. The remaining 2 full-time chartered accountants or partners, as the case may be, should also have a continuous association with the firm for a period 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.

*Note:

1. The definition of 'exclusive association' will be based on the following criteria:

(a) The full time partner should not be a partner in other firm/s.

(b) He should not be employed full time / part time elsewhere.

(c) He should not be practicing in his own name or engaged in practice otherwise or engaged in other activity which would be deemed to be in practice under Section 2(2) of the Chartered Accountants Act, 1949.

(d) The total compensation@ of the partner from the firm should not be below the following limit:

In case the Head office of the firms located in

(i) Delhi, Mumbai, Chennai, Kolkata, Bangalore and Hyderabad

ACA partner	` 1.80 lakh in a year (` 15000/- per month)
FCA partner	` 3.00 lakh in a year (` 25000/- per month)

(ii) Other places:

ACA partner	` 1.20 lakh in a year (` 10000/- per month)
FCA partner	` 1.80 lakh in a year (` 15000/- per month)

(e) A partner whose total compensation@ from the firm is less than the following will not be treated as exclusively associated with the firm :

Firms having more than 14 partners	1%
Firms having 10 to 14 partners	3%
Firms having 5 to 9 partners	5%
Firms having less than 5 partners	8%
@Total compensation =Sum total of share of profit, remuneration and interest on capital.

2. Out of the 7 full-time chartered accountants, the remaining two chartered accountants/partners (besides the 5 exclusively associated partners) will be treated to be exclusively associated with the firm only if they are continuously associated with the firm for a period of one year as on January 1 of the relevant year. These norms will be made applicable from the financial year 2014-15 i.e. the chartered accountants/partners will have to comply with the norms as on January 1, 2014.

(ii) 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.

(iii) the standing of the firm should be of at least 15 years which would be reckoned from the date of availability of one full time FCA continuously with the firm.

(iv) the firm should have minimum statutory central audit experience of 15 years of public sector banks (before or after nationalisation) and/or by way of statutory branch audit thereof or that of statutory audit experience of a private sector bank. In case any of the partner of an audit firm is nominated / elected for a period of at least 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 PSB, select all India financial Institutions or RBI.

(v) 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.

(vi) at least two partners of the firm or its paid Chartered Accountants must possess DISA/CISA or any other equivalent qualification.

Annex 2

Norms for the empanelment of audit firms to be appointed as statutory branch auditors for public sector banks (2013-14)

Cate-gory	No. of CAs exclusively associated with the firm (Full time)	No. of partners exclusively associated with the firm (full time) (Out of 2)	Profe-ssional 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 nationalised bank and/ or of a private sector bank .	8 years
II.	3	2	6	The firm or at least one of the partners should have preferably conducted branch audit of a nationalised bank or of a private sector bank.	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 nationalised bank or of a private sector bank 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 nationalised bank or of a private sector bank 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

Annex 3

PROCEDURE FOR APPOINTMENT OF
STATUTORY AUDITORS IN PUBLIC SECTOR BANKS

A. Statutory Central Auditors (SCAs)

1. For the year 2013-14 and onwards, GoI have approved the revision in the norms on the number of SCAs to be appointed in PSB as under:

i) Category "A" Banks (Large Banks viz. Bank of Baroda, Bank of India, Canara Bank, Punjab National Bank, Central Bank of India and Union Bank of India) shall not have more than 6 SCAs. However, in case of SBI the number of SCAs shall not be more than 14.

ii) Category "B" Banks (Medium Banks viz. Allahabad Bank, Corporation Bank, Indian Bank, Indian Overseas Bank, Oriental Bank of Commerce, Syndicate Bank and UCO Bank) shall not have more than 5 SCAs, and;

iii) Category "C" Banks (Small Banks viz. Andhra Bank, Bank of Maharashtra, Dena Bank, Punjab & Sind Bank, United Bank of India, Vijaya Bank, State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore) shall not have more than 4 SCAs.

Actual numbers of SCAs to be appointed can be decided by respective boards subject to the above limit.

2. As per the existing practice, SCAs appointed will have a tenure of three years after which they will be rested for a period of two years. The appointment of SCAs will be made on an annual basis, subject to their fulfilling the eligibility norms prescribed by RBI from time to time and also subject to their suitability.

3. From the financial year 2013-14, selection of SCAs will be done by the Selection Committee constituted by GoI and the procedure that will be followed by RBI for forwarding the list of eligible audit firms for selection of SCAs by the Selection Committee constituted by GoI is as under :

• After receipt of the list of eligible auditors / audit firms, based on the eligibility norms for empanelment of auditors / audit firms prescribed by RBI from the Office of the Comptroller and Auditor General of India (C&AG), verification of eligibility of audit firms by RBI with respect to their bank audit experience available with RBI will be done by RBI.
• List of eligible firms after excluding the firms which are to be continued, rested and denied audit during the relevant year will be prepared by RBI and forwarded to GoI for selection by the Selection Committee.
• After selection, GoI will advise bank-wise names of the selected firms to the respective banks. As per the statutory requirement, banks, in turn, are required to forward the names of the selected SCAS to RBI for its prior approval before their actual appointment.

B. Statutory Branch Auditors (SBAs)

1. The norms for selection of branches of PSBs for statutory audit from the year 2012-13 and onwards will be based on the following :

1. For the year 2012-13, statutory branch audit of PSBs may be carried out for all branches with advances of ` 20 crore & above and 1/5th of the remaining branches covering a representative cross section of rural/semi-urban/urban and metropolitan branches, predominantly including branches which are not subjected to concurrent audit, so as to cover 90% of advances of a bank. CPUs/LPUs/and other centralized hubs by whatever nomenclature called would be included in the one fifth of the remaining branches every year.
2. In respect of branches below the cut-off point, which are subject to concurrent audit by chartered accountants, henceforth, LFARs and other certifications done earlier by SBAs will now be submitted by the concurrent auditors and such branches may not generally be subject to statutory audit.
3. Going forward, in mutual discussions with GoI and SCAs, based, inter alia, on the operational efficiency and robustness of CBS, system driven identification of NPAs, and integrity of MIS, managements of individual PSBs may decide on the threshold level of advances for the purpose of selecting branches for statutory audit.
4. Progressively, the threshold level of advances may be increased so that the number of branches to be taken up for statutory audit is phased down over a period of time.

2. The following procedure will be followed for appointment statutory branch auditors (SBAs) in public sector banks (PSBs):

(i) The list of eligible auditors/audit firms will be prepared by the Institute of Chartered Accountants of India (ICAI) as per the norms prescribed by RBI.

(ii) The above list will be subjected to scrutiny by RBI for identifying the continuing and rested firms and excluding audit firms against whom adverse remarks/disciplinary proceedings are pending or who have been denied audit.

(iii) RBI will, thereafter, forward the final list of all eligible auditors/audit firms to PSBs for selection.

(iv) The PSBs will select the required number of branch auditors/audit firms. Banks will be required to clearly advise the audit firms selected for consideration of appointment that each audit firm can take up audit assignment (branch audit) in one PSB only. The audit firm should give their consent in writing for consideration of appointment in the bank concerned for the particular year and the subsequent continuing years.

(v) The consent given by an audit firm will be treated as irrevocable and request, if any, from audit firms for changing the bank, after giving its consent to the bank concerned will not be entertained.

(vi) After the selection of branch auditors, PSBs will be required to recommend the names of both continuing and selected branch auditors to RBI for seeking its prior approval before their actual appointment, as per statutory requirement.

3. SBAs will have a maximum tenure of four years. The appointment of SBAs will be made on an annual basis, subject to their fulfilling the eligibility norms prescribed by RBI from time to time and also subject to their suitability.

4. The number of eligible auditors / audit firms is more than the number of branches to be audited at the following 33 centres (viz. Mumbai, Kolhapur, Pune, Solapur, Thane, Kolkata, Chennai, Coimbatore, Delhi/ New Delhi, Ajmer, Bikaner, Jaipur, Kota, Udaipur, Ahmedabad, Vadodara, Surat, Hyderabad, Chandigarh, Raipur, Faridabad, Gurgaon, Panchkula, Panipat, Sonipat, Bangalore, Ernakulam, Indore, Nagpur, Ludhiana, Jodhpur, Bhilwara, and Ghaziabad). In such centres, the auditors/ audit firms will be put to a period of compulsory rest for two years after completion of four years of continuous branch audit. In other centres, where the number of eligible auditors / audit firms is less than the number of branches to be audited, the branch auditors on completion of four years of continuous branch audit will be subjected to the policy of rotation.

5. While allotting branches, banks are required to select auditors/audit firms which are in close proximity to their offices/branches. Banks are also required to have a suitable mix of various categories of auditors / audit firms while selecting the branch auditors keeping in view the size of the branches to be audited.

6. As regards statutory branch audit to be carried out by SCAs, banks will allot the top 20 branches(to be selected strictly in order of the level of outstanding advances) in such a manner as to cover a minimum of 15% of total gross advances of the bank by SCAs.

C. General Guidelines applicable to both SCAs and SBAs

(i) All PSBs are required to have a Board approved policy for appointment of statutory auditors and the same may be hosted on the bank's web-site. Banks are also required to ensure that the policy framed by the Board in the matter of selection of auditors/audit firms for appointment of auditors is strictly adhered to. Further, the list of firms selected for appointment as statutory branch auditors may be placed before the ACB/Board of bank before for its concurrence before it is forwarded to RBI for final approval.

(ii) The policy of one audit firm for one PSB will be continued. Accordingly an audit firm will be eligible to be appointed as a central/branch auditor of only one PSB during a particular year.

(iii) Further, an audit firm which takes up statutory central audit assignment in a PSB will not be eligible to be appointed as a statutory central auditor in a private sector/foreign bank during that particular year and vice versa. The policy has been made applicable from the year 2012-13 onwards.

(iv) In order to protect the independence of the auditors/audit firms, banks will have to make the appointments of SCA/branch auditors for a continuous period of three and four years respectively subject to the firms satisfying the eligibility norms each year. Banks cannot remove the audit firms during the above period without the prior approval of the Reserve Bank of India.

Guidelines for Appointment of Statutory Auditors in Public Sector Banks

Guidelines for Appointment of Statutory Auditors in Public Sector Banks

Based on the recommendations of a Working Group (WG) to review the norms for empanelment of statutory auditors for public sector banks and other related issues and after seeking the approval of GoI, it has been decided to revise the guidelines on appointment of statutory auditors in public sector banks with effect from the year 2013-14. The revised eligibility norms for empanelment of SCAs as prescribed by RBI in consultation with the WG have been indicated in Annex 1. The categorization/eligibility norms for empanelment of branch auditors which have been kept unchanged are indicated in Annex 2. The guidelines/instructions relating to the selection procedure to be followed for appointment of statutory auditors in PSBs and details thereof are furnished in Annex 3 Annex 1 Norms of Empanelment for Statutory Central Auditors of Public Sector Banks applicable from the year 2013-14 As on 1 January of the relative year the firm should have (i) 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. The remaining 2 full-time chartered accountants or partners, as the case may be, should also have a continuous association with the firm for a period 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. *Note: 1. The definition of 'exclusive association' will be based on the following criteria: (a) The full time partner should not be a partner in other firm/s. (b) He should not be employed full time / part time elsewhere. (c) He should not be practicing in his own name or engaged in practice otherwise or engaged in other activity which would be deemed to be in practice under Section 2(2) of the Chartered Accountants Act, 1949. (d) The total compensation@ of the partner from the firm should not be below the following limit: In case the Head office of the firms located in (i) Delhi, Mumbai, Chennai, Kolkata, Bangalore and Hyderabad ACA partner ` 1.80 lakh in a year (` 15000/- per month) FCA partner ` 3.00 lakh in a year (` 25000/- per month) (ii) Other places: ACA partner ` 1.20 lakh in a year (` 10000/- per month) FCA partner ` 1.80 lakh in a year (` 15000/- per month) (e) A partner whose total compensation@ from the firm is less than the following will not be treated as exclusively associated with the firm : Firms having more than 14 partners 1% Firms having 10 to 14 partners 3% Firms having 5 to 9 partners 5% Firms having less than 5 partners 8% @Total compensation =Sum total of share of profit, remuneration and interest on capital. 2. Out of the 7 full-time chartered accountants, the remaining two chartered accountants/partners (besides the 5 exclusively associated partners) will be treated to be exclusively associated with the firm only if they are continuously associated with the firm for a period of one year as on January 1 of the relevant year. These norms will be made applicable from the financial year 2014-15 i.e. the chartered accountants/partners will have to comply with the norms as on January 1, 2014. (ii) 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. (iii) the standing of the firm should be of at least 15 years which would be reckoned from the date of availability of one full time FCA continuously with the firm. (iv) the firm should have minimum statutory central audit experience of 15 years of public sector banks (before or after nationalisation) and/or by way of statutory branch audit thereof or that of statutory audit experience of a private sector bank. In case any of the partner of an audit firm is nominated / elected for a period of at least 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 PSB, select all India financial Institutions or RBI. (v) 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. (vi) at least two partners of the firm or its paid Chartered Accountants must possess DISA/CISA or any other equivalent qualification. Annex 2 Norms for the empanelment of audit firms to be appointed as statutory branch auditors for public sector banks (2013-14) Cate-gory No. of CAs exclusively associated with the firm (Full time) No. of partners exclusively associated with the firm (full time) (Out of 2) Profe-ssional 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 nationalised bank and/ or of a private sector bank . 8 years II. 3 2 6 The firm or at least one of the partners should have preferably conducted branch audit of a nationalised bank or of a private sector bank. 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 nationalised bank or of a private sector bank 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 nationalised bank or of a private sector bank 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     Annex 3 PROCEDURE FOR APPOINTMENT OF STATUTORY AUDITORS IN PUBLIC SECTOR BANKS A. Statutory Central Auditors (SCAs) 1. For the year 2013-14 and onwards, GoI have approved the revision in the norms on the number of SCAs to be appointed in PSB as under: i) Category "A" Banks (Large Banks viz. Bank of Baroda, Bank of India, Canara Bank, Punjab National Bank, Central Bank of India and Union Bank of India) shall not have more than 6 SCAs. However, in case of SBI the number of SCAs shall not be more than 14. ii) Category "B" Banks (Medium Banks viz. Allahabad Bank, Corporation Bank, Indian Bank, Indian Overseas Bank, Oriental Bank of Commerce, Syndicate Bank and UCO Bank) shall not have more than 5 SCAs, and; iii) Category "C" Banks (Small Banks viz. Andhra Bank, Bank of Maharashtra, Dena Bank, Punjab & Sind Bank, United Bank of India, Vijaya Bank, State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore) shall not have more than 4 SCAs. Actual numbers of SCAs to be appointed can be decided by respective boards subject to the above limit. 2. As per the existing practice, SCAs appointed will have a tenure of three years after which they will be rested for a period of two years. The appointment of SCAs will be made on an annual basis, subject to their fulfilling the eligibility norms prescribed by RBI from time to time and also subject to their suitability. 3. From the financial year 2013-14, selection of SCAs will be done by the Selection Committee constituted by GoI and the procedure that will be followed by RBI for forwarding the list of eligible audit firms for selection of SCAs by the Selection Committee constituted by GoI is as under : After receipt of the list of eligible auditors / audit firms, based on the eligibility norms for empanelment of auditors / audit firms prescribed by RBI from the Office of the Comptroller and Auditor General of India (C&AG), verification of eligibility of audit firms by RBI with respect to their bank audit experience available with RBI will be done by RBI. List of eligible firms after excluding the firms which are to be continued, rested and denied audit during the relevant year will be prepared by RBI and forwarded to GoI for selection by the Selection Committee. After selection, GoI will advise bank-wise names of the selected firms to the respective banks. As per the statutory requirement, banks, in turn, are required to forward the names of the selected SCAS to RBI for its prior approval before their actual appointment. B. Statutory Branch Auditors (SBAs) 1. The norms for selection of branches of PSBs for statutory audit from the year 2012-13 and onwards will be based on the following : For the year 2012-13, statutory branch audit of PSBs may be carried out for all branches with advances of ` 20 crore & above and 1/5th of the remaining branches covering a representative cross section of rural/semi-urban/urban and metropolitan branches, predominantly including branches which are not subjected to concurrent audit, so as to cover 90% of advances of a bank. CPUs/LPUs/and other centralized hubs by whatever nomenclature called would be included in the one fifth of the remaining branches every year. In respect of branches below the cut-off point, which are subject to concurrent audit by chartered accountants, henceforth, LFARs and other certifications done earlier by SBAs will now be submitted by the concurrent auditors and such branches may not generally be subject to statutory audit. Going forward, in mutual discussions with GoI and SCAs, based, inter alia, on the operational efficiency and robustness of CBS, system driven identification of NPAs, and integrity of MIS, managements of individual PSBs may decide on the threshold level of advances for the purpose of selecting branches for statutory audit. Progressively, the threshold level of advances may be increased so that the number of branches to be taken up for statutory audit is phased down over a period of time. 2. The following procedure will be followed for appointment statutory branch auditors (SBAs) in public sector banks (PSBs): (i) The list of eligible auditors/audit firms will be prepared by the Institute of Chartered Accountants of India (ICAI) as per the norms prescribed by RBI. (ii) The above list will be subjected to scrutiny by RBI for identifying the continuing and rested firms and excluding audit firms against whom adverse remarks/disciplinary proceedings are pending or who have been denied audit. (iii) RBI will, thereafter, forward the final list of all eligible auditors/audit firms to PSBs for selection. (iv) The PSBs will select the required number of branch auditors/audit firms. Banks will be required to clearly advise the audit firms selected for consideration of appointment that each audit firm can take up audit assignment (branch audit) in one PSB only. The audit firm should give their consent in writing for consideration of appointment in the bank concerned for the particular year and the subsequent continuing years. (v) The consent given by an audit firm will be treated as irrevocable and request, if any, from audit firms for changing the bank, after giving its consent to the bank concerned will not be entertained. (vi) After the selection of branch auditors, PSBs will be required to recommend the names of both continuing and selected branch auditors to RBI for seeking its prior approval before their actual appointment, as per statutory requirement. 3. SBAs will have a maximum tenure of four years. The appointment of SBAs will be made on an annual basis, subject to their fulfilling the eligibility norms prescribed by RBI from time to time and also subject to their suitability. 4. The number of eligible auditors / audit firms is more than the number of branches to be audited at the following 33 centres (viz. Mumbai, Kolhapur, Pune, Solapur, Thane, Kolkata, Chennai, Coimbatore, Delhi/ New Delhi, Ajmer, Bikaner, Jaipur, Kota, Udaipur, Ahmedabad, Vadodara, Surat, Hyderabad, Chandigarh, Raipur, Faridabad, Gurgaon, Panchkula, Panipat, Sonipat, Bangalore, Ernakulam, Indore, Nagpur, Ludhiana, Jodhpur, Bhilwara, and Ghaziabad). In such centres, the auditors/ audit firms will be put to a period of compulsory rest for two years after completion of four years of continuous branch audit. In other centres, where the number of eligible auditors / audit firms is less than the number of branches to be audited, the branch auditors on completion of four years of continuous branch audit will be subjected to the policy of rotation. 5. While allotting branches, banks are required to select auditors/audit firms which are in close proximity to their offices/branches. Banks are also required to have a suitable mix of various categories of auditors / audit firms while selecting the branch auditors keeping in view the size of the branches to be audited. 6. As regards statutory branch audit to be carried out by SCAs, banks will allot the top 20 branches(to be selected strictly in order of the level of outstanding advances) in such a manner as to cover a minimum of 15% of total gross advances of the bank by SCAs. C. General Guidelines applicable to both SCAs and SBAs (i) All PSBs are required to have a Board approved policy for appointment of statutory auditors and the same may be hosted on the bank's web-site. Banks are also required to ensure that the policy framed by the Board in the matter of selection of auditors/audit firms for appointment of auditors is strictly adhered to. Further, the list of firms selected for appointment as statutory branch auditors may be placed before the ACB/Board of bank before for its concurrence before it is forwarded to RBI for final approval. (ii) The policy of one audit firm for one PSB will be continued. Accordingly an audit firm will be eligible to be appointed as a central/branch auditor of only one PSB during a particular year. (iii) Further, an audit firm which takes up statutory central audit assignment in a PSB will not be eligible to be appointed as a statutory central auditor in a private sector/foreign bank during that particular year and vice versa. The policy has been made applicable from the year 2012-13 onwards. (iv) In order to protect the independence of the auditors/audit firms, banks will have to make the appointments of SCA/branch auditors for a continuous period of three and four years respectively subject to the firms satisfying the eligibility norms each year. Banks cannot remove the audit firms during the above period without the prior approval of the Reserve Bank of India.