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The RBI’s stricter rules for auditors could pose many challenges if implemented from the current financial year 2021-22, said Grant Thornton Bharat CEO Vishesh Chandiok.
“Many challenges here if implemented from FY22. Some bank auditors have already finished three years - they will only have weeks to make a new selection. The pool available to choose from will be limited for FY22 and many potential suitors would be conflicted under the new one-year cooling-off period having done such non-audit services in FY21,” Chandiok told ETCFO. Edited excerpts:
Q: What is your initial impression of the RBI’s new rules? Is more regulation the need of the hour?
Vishesh Chandiok: Regulatory action post a series of frauds is usual - remember Sarbanes Oxley Act of 2002 after Enron/ WorldCom and Companies Act 2013 after Satyam. IL&FS and other large NBFCs failing obviously forced the regulator to act.
I would maintain that it’s best to focus on enhancing monitoring and enforcement, and introduce changes gradually- for example, only joint audit versus joint audit, a cap and a reduced tenure all together. (Meaning that joint audit regulation alone was enough for now, as against regulator coming out with 4-5 rules overall including joint audit, a capping of the audits and reduced audit tenure.)
Q: What opportunities does the joint audit open up for your audit affiliate Walker Chandiok? Are you expecting more audits from especially private banks like HDFC and Axis Bank, etc?
Vishesh Chandiok: Joint audit is something I have been a supporter of – it helps build capability in the market and two firms increase their collective power behind an auditor’s position on matters of judgement.
"From a commercial standpoint, our audit affiliate is already a leader in banks and NBFCs and will have to give up many clients, which I’m sure it will as we respect the mandate of the regulator." - Vishesh C. Chandiok, CEO
Q: The regulator has reduced the tenure for bank auditors to three years from four. Do you see any implementation challenges?
Vishesh Chandiok: Many challenges here if implemented from FY22. Some bank auditors have already finished three years - they will only have weeks to make a new selection. The pool available to choose from will be limited for FY22 and many potential suitors would be conflicted under the new one-year cooling-off period having done such non-audit services in FY21.
Q: How according to you will the capping of audits for a firm play out? What will be its impact on audit quality and pricing?
Vishesh Chandiok: We are expecting a significant price increase anyway with the changes in both regulations and the regulatory environment. That's not limited to BFSI. The cap won't drive pricing but will certainly reduce discounts, which is a good thing.
Q: Now, auditors’ appointments would require RBI's approval. How should the RBI go about selecting the right candidate?
Vishesh Chandiok: They have suggested some size thresholds but these are geared to the minimums and can be significantly enhanced over time.
The article was first published on ET CFO.com