The Institute of Chartered Accountant of India (ICAI) dispensed a directive mandating the Chartered Accountants working on joint audit in the banks that allocation of work should be done with the agreement of the respective management of the banks.

The reason behind the issuance of the directive is that the Reserve Bank of India has informed the ICAI that certain issues are exploded up amid the banks management and joint auditors pertinent to the allocation of the work.

The directive, even though not directly related, comes at the time; the role of auditors in scam of the Punjab National Bank (the biggest fraud in the Indian Banking Sector History) is under the scanner.

Standard on Auditing (SA) 299

‘Standard on Auditing (SA) 299 (Standard)’ is provision that deals with ‘Responsibility of Joint Auditors’. Under the Standard, auditors are obligated to divide the work and share the responsibilities among themselves as agreed by all the auditors. The Standard covers the division of work, co-ordination and responsibility of the auditors in a joint audit.

Division of work: The Joint auditors will divide the work based on the factors (time, functional area, components of financial statements and geographic location). The division of the work should be properly documented and communicated to the entity.

Co-ordination: It is very important to communicate the information known by an auditor to the others auditors to avoid confusion and any disparities in the audit process and report.

Responsibility: The auditors are jointly responsible and accountable for the work executed collectively, decisions taken and implemented as a team, disclosure requirements in financial statements and to put in order the audit report in compliance with the statutory requirements.

It is evident that in a joint audit of the banks the right coordination is the key and the need of the hour between the joint auditors and management of the banks in relation to proper allocation of work to avoid disparities and build a robust mechanism in place leaving no latitude for any fraudulent acts.

It is high time for the auditors and bank management to work together more diligently and responsibly in conducting the audit of the bank accounts to detect the fraudulent aspects of any transaction at the earliest possible stage to reduce the consequences and damages of such fraud – in order to salvage the banking system from the ongoing crisis in the form of frauds and non-performing assets – to repose the lost confidence of common man in banking and auditing system.

Research and inputs by Paruchuri Baswanth Mohan

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About the Author:

Bhumesh Verma is a lawyer with over 2 decades of experience in advising domestic and international clients on corporate transactions (M&A, Venture Capital, Private Equity, Startups, corporate advisory, etc.) and features in “The A-List – India’s Top 100 Lawyers” by India Business Law Journal. He keeps writing frequently on FDI, M&A and other corporate matters and is a guest faculty as well. He can be reached at [email protected]