Page 120 - Quick Insights Book 2022

Ann. 2.1 – Policy of Empanelment of CA Firms/LLPs and Selection of Auditors

should also be explicitly factored in while assessing the SCAs/SAs would be liable to be dealt with suitably
independence of the auditor. under the relevant statutory/regulatory framework.

6.4 The time gap between any non-audit works (services 8. Tenure and Rotation
mentioned at Section 144 of Companies Act, 2013,
Internal assignments, special assignments, etc.) by 8.1. In order to protect the independence of the auditors/
the SCAs/SAs for the Entities or any audit/non-audit audit firms, Entities will have to appoint the SCAs/SAs
works for its group entities should be at least one year, for a continuous period of three years , subject to the
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before or after its appointment as SCAs/SAs. However, firms satisfying the eligibility norms each year. Further,
during the tenure as SCA/SA, an audit firm may provide Commercial Banks (excluding RRBs) and UCBs can
such services to the concerned Entities which may not remove the audit firms during the above period only
normally result in a conflict of interest , and Entities may with the prior approval of the concerned office of RBI
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take their own decision in this regard, in consultation (Department of Supervision), as applicable for prior
with the Board/ACB/LMC. approval for appointment, as mentioned at Para 3.2
of this circular. NBFCs removing the SCAs/SAs before
6.5 The restrictions as detailed in para 6.3 and 6.4 above, completion of three years tenure shall inform concerned
should also apply to an audit firm under the same SSM/RO at RBI about it, along with reasons/justification
network of audit firms or any other audit firm having for the same, within a month of such a decision being
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common partners.
taken.
7. Professional Standards of SCAs/SAs 8.2 An audit firm would not be eligible for reappointment
in the same Entity for six years (two tenures) after
7.1 The SCAs/SAs shall be strictly guided by the relevant completion of full or part of one term of the audit
professional standards in discharge of their audit tenure . However, audit firms can continue to undertake
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responsibilities with highest diligence.
statutory audit of other Entities.
7.2 The Board /ACB/LMC of Entities shall review the 8.3. One audit firm can concurrently take up statutory audit
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performance of SCAs/SAs on an annual basis. Any of a maximum of four Commercial Banks [including not
serious lapses/negligence in audit responsibilities or more than one PSB or one All India Financial Institution
conduct issues on part of the SCAs/SAs or any other (NABARD, SIDBI, NHB, EXIM Bank) or RBI], eight
matter considered as relevant shall be reported to UCBs and eight NBFCs during a particular year, subject
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RBI within two months from completion of the annual to compliance with required eligibility criteria and other
audit. Such reports should be sent with the approval/ conditions for each Entity and within overall ceiling
recommendation of the Board/ACB/LMC, with the full prescribed by any other statutes or rules. For clarity,
details of the audit firm.
the limits prescribed for UCBs exclude audit of other
7.3 In the event of lapses in carrying out audit assignments co-operative societies by the same audit firm. For the
resulting in misstatement of an Entity’s financial purpose of this circular, a group of audit firms having
statements, and any violations/lapses vis-à-vis the common partners and/or under the same network, will be
RBI’s directions/guidelines regarding the role and considered as one entity and they will be considered for
responsibilities of the SCAs/SAs in relation to Entities, allotment of SCA/SA accordingly. Shared/Sub-contracted

7 A conflict would not normally be created in the case of the following special assignments (indicative list):
(i) Tax audit, tax representation and advice on taxation maters, (ii) Audit of interim financial statements.
(iii) Certificates required to be issued by the statutory auditor in compliance with statutory or regulatory requirements. (iv) reporting on
financial information or segments thereof
8 As defined in Rule 6(3) of the Companies (Audit & Auditors) Rules, 2014
9 Board shall review the performance of SCAs/SAs in case ACB is non-existent in the Entity.
10 Circular dated March 26, 2004 on ‘Assessment of Performance of Statutory Auditors’ addressed to the PSBs has been superseded by this
circular.
11 Office of C&AG will continue to appoint Statutory Auditors of the Government Companies and Government Controlled Other Companies
under Section 139 (5) and 139 (7) of the Companies Act, 2013. Such Companies are also subject to supplementary/test audit by the Office
of C&AG under Section 143 (6) and (7) of the said Act. Such Entities will be guided by the C&AG Guidelines regarding tenure and rotation
policy. However, such appointments for Jammu & Kashmir Bank Ltd. and India Post Payments Bank Ltd. will be done by the Office of C&AG
with RBI’s concurrence. Further, the audit firms which have already completed tenure of 1 year or 2 years with any Entity may be permitted
to complete the balance tenure only, i.e. 2 years and 1 year respectively, if they fulfill the eligibility norms on an annual basis.
12 In case an audit firm has conducted audit of any Entity for part-tenure (1 year or 2 years) and then not appointed for remainder tenure, they
also would not be eligible for reappointment in the same Entity for six years from completion of part-tenure.

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