Every Branch Should Be Audited

Review bank branch audit norms: ICAI-Hindu Business Line ( read my opinion given below)

NEW DELHI, JULY 2:  

The new Modi-led Government should review the existing bank branch audit norms, K Raghu, President of the Institute of Chartered Accountants of India, has said.

All bank branches in the country should be subjected to financial audit, Raghu suggested to the Finance Minister Arun Jaitley at an event here marking the chartered accountants’ day celebrations.

Currently, certain segments of the bank branches—those with advances less than ₹ 20 crore –are not subjected to an annual independent audit, Raghu said, adding that this position needs to be changed.

The UPA Government had from 2012-13 stipulated that all bank branches with advances of less than ₹ 20 crore in a financial year need not have an annual independent audit.

This decision--which led to nearly 85 percent of the bank branches going out of annual audit net-- had upset the audit profession regulator CA Institute, which sought a re-think on the same.

The advance limit for mandatory bank branch audit was earlier pegged at ₹ 6 crore for 2011-12.

From 2006 to 2010-11, the threshold limit for bank branch statutory audit was pegged at advances of ₹ 3 crore.

With the BJP gaining ‘absolute majority’ in the recent general elections, the CA Institute has renewed its attempts to get the bank branch audit norms changed.

The contention of the CA Institute members’ are that banks are guided by their overall aggregate exposure in branches with advances of below ₹ 20 crore and feel that it may not be material enough to warrant a statutory audit every year.

“They (banks) look at the aggregate picture and contend that such branches account for only say 15-16 percent of the bank’s total advances. But what they don’t realise is the risk factor. If there is increased NPA in such branches, the entire profit of a bank in a financial year could get wiped out”, a chartered accountant said.

Rather than only looking at “materiality” in terms of advances, the risk factor also needs to be considered by the banks and banking regulator, it was pointed out.

New overseas chapters

Meanwhile, the CA Institute has decided to open new chapters in Bangkok and Vancouver.

A decision to this effect was taken at a recent council meeting of the CA Institute, Raghu said.

Link Business Line

Read my views below:----

Team of Auditors are building pressure on Modi government to order audit of every branch of every bank. They say that if branches are not audited, risk of these branches may increase and ultimately jeopardize the existence of bank. But the bitter truth is that majority of Auditors simply sign the balance sheet as per whims of the management of banks provided they are given red carpet welcome and offered costly gifts. This is why major chunk of NPA exists in majority of branches which are regularly audited by team of not only external auditors but also internal auditors of the bank. 

We remember the case of Satyam computers and latest example of United bank of India. There are lacs of such cases where branches of banks have suffered loss  even though auditors had certified the overall health of bank's assets and also the quality of balance sheet. In every branch, many bad accounts have been certified by auditors as good assets during last decades. Now when banks have adopted CBS technology and when government is insisting for identification of NPA through System based technology, all bad debts are slowly surfacing and disturbing sleep of top officials .Banks are facing erosion of capital and crisis of capital to meet Basel III requirement only due to sudden and systematic rise in NPA of every public sector bank and resultant fall in profits.

We have seen in recent past how majority of public sector banks intentionally and willfully avoided provisioning on terminal benefits and bad debts just to inflate profit and share value of the bank. They used to conceal bad debts in nexus with team of auditors only.

When this fraudulent activity was caught by financial experts, trade union leaders and by opponent politicians during UPA rule, government permitted banks to amortize the provision in five years .All these banks used to manage certificate of good health from team of hundreds of auditors every year.

This is why I am of strong view, that auditing of all branches at the behest of team of ICAI will be a futile exercise and add burden on the balance sheet of all banks. It will add fuel to fire because banks are already facing acute and critical sickness due to high percent of NPA

 It will not be surprising however if the leaders of ICAI manage change in rules by gifting some politicians. Auditors are clever and to please politicians they compromised with quality of Chartered Accountant. It is they who managed 28 percent pass result in CA examination compared to 2 to 3 percent pass result in preceding years. Quality of CA has faced considerable deterioration in last few years and hence they can cause much more damage than natural loss going to occur to banks without audit. 

It is auditors who teach mantras to business community how to evade tax and it is they who in nexus with IT officials impose penalty to honest tax payers without any valid reason. It is CAs who manage top officials of banks and get the work of auditing for various branches allotted to them. They share the audit fee with top officials by various ways and means of modern era which I need not enlighten elaborately.But it is open secret that auditing has become a mere formality and majority of auditors are manageable as per whims and caprices of top officials of banks as also that of private business houses.