RBI Says EY Firm SR Batliboi & Co Won’t Get Approval For Bank Audits For A Year
The Reserve Bank of India will not approve SR Batliboi & Co LLP, a local chartered accountancy firm affiliated with EY, for carrying out statutory audits of commercial banks for a year starting April 1.
The regulator found certain lapses in an audit assignment carried out by the firm, the RBI said in a statement on its website. The action stems from the special enforcement framework the regulator announced in June 2018 to take action against firms found to be lacking in their duties as statutory auditors. The regulator said it has informed the Institute of Chartered Accountants of India of this action against the audit firm.
The brief RBI statement doesn’t clarify if the central bank has barred SR Batliboi from conducting ongoing audit assignments or only from taking up fresh assignments. Here’s what it said:
In terms of the aforesaid enforcement action framework, on account of the lapses identified in a statutory audit assignment carried out by the firm, M/s S.R.Batliboi & Co. LLP, Chartered Accountants (ICAI Firm Registration Number: 301003E), it has been decided that RBI will not approve the said firm for carrying out statutory audit assignments in commercial banks for one year starting from April 1, 2019.RBI Statement
SR Batliboi, in a statement to BloombergQuint, declined to comment at this stage saying, “We have learnt of this development from the press release issued by RBI and are not aware of further details.”
According to the guidelines released last year, the regulator said it will determine the seriousness of a lapse before pronouncing punitive action. It could range from a cautionary notice if lapses are not found to be material enough, to auditors being barred from taking assignments for other banks if the violations are material. If the central bank finds evidence of a serious lapse or violation, it will issue a show-cause notice and seek a response within 15 days.
The auditor in question will be given a chance to present its case and be allowed an oral hearing, if needed. The RBI can then pronounce its order.
The RBI had noted five types of lapses that it would consider before approving any punitive action. These included lapses in auditing assignment that lead to misstatement of financial results of a bank, wrong certification, wrong information in the long-form audit report, misconduct and any other violations.
While the regulator mentioned lapses in an audit assignment of SR Batliboi, it didn’t specify whether that led to misstatement of financial results by any bank.
“This definitely sets the precedence, there is no doubt about it,” Amarjit Chopra, former president of the Institute of Chartered Accountants of India, told BloombergQuint. While he agreed that action must be taken against any firm which fails to perform, Chopra said he had mixed feelings about the development.
“I want to raise a much bigger issue... This bank has been inspected even in earlier years. Year after year after the auditors have completed their work and banks have been inspected by the RBI's inspectors,” he said. “What action will the RBI take against its own inspectors who failed to detect these deficiencies in the earlier years.”
Another issue is the lack of a single system of disciplinary mechanism for audit firms, Chopra said.
“My mixed feeling comes from how many disciplinary mechanisms the auditory firms should be facing. SEBI in one of the cases debarred PwC, now RBI is doing here, National Financial Reporting Authority is there, NCLT might also do in certain cases, etc. That's what worries me,” he said.