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Advanced Auditing

Notes 6. The number of eligible auditors/audit firms is more than the number of branches to be
audited at the following 33 centres (viz. Mumbai, Kolhapur, Pune, Solapur, Thane, Kolkata,
Chennai, Coimbatore, Delhi/New Delhi, Ajmer, Bikaner, Jaipur, Kota, Udaipur,
Ahmedabad, Vadodara, Surat, Hyderabad, Chandigarh, Raipur, Faridabad, Gurgaon,
Panchkula, Panipat, Sonipat, Bangalore, Ernakulam, Indore, Nagpur, Ludhiana, Jodhpur,
Bhilwara and Ghaziabad). In such centres, the auditors/audit firms will be put to a period
of compulsory rest for two years. In other centres, where the number of eligible auditors/
audit firms is less than the number of branches to be audited, the branch auditors will be
subjected to the principle of rotation.
7. After the selection of branch auditors, PSBs will be required to recommend the names of
both continuing and new branch auditors to seek the approval from RBI before their
actual appointment.

12.2.2 Audit of Accounts

Sub-section (1) of section 30 of the Act requires that the balance sheet and profit and loss account
of a banking company should be audited by a person duly qualified under any law for the time
being in force to be an auditor of companies. Similar provisions are contained in the enactments
governing nationalised banks [section 10 of the Banking Companies (Acquisition and Transfer
of Undertakings) Act of 1970/1980], State Bank of India [section 41 of the State Bank of India Act,
1955], subsidiaries of State Bank of India [section 41 of the State Bank of India (Subsidiary Banks)
Act, 1959], and regional rural banks [section 19 of the Regional Rural Banks Act, 1976]. It is
important to note that section 41 of the State Bank of India Act, 1955, specifically provides that
the affairs of the bank shall be audited by “two or more auditors”.
Qualifications of Auditor: According to section 226 of the Companies Act, 1956, a chartered
accountant, a firm of chartered accountants, or a restricted state auditor can be appointed as
auditor of a company. However, the following persons cannot be appointed as auditor of a
company:
(a) a body corporate;
(b) an officer or employee of the company;
(c) a person who is a partner, or who is in the employment, of an officer or employee of the
company;
(d) a person who is indebted to the company for an amount exceeding one thousand rupees,
or who has given any guarantee or provided any security in connection with the
indebtedness of any third person to the company for an amount exceeding one thousand
rupees;
(e) a person holding any security means an instrument which carries voting rights of the
company (this disqualification is applicable from the expiry of a period of one year from
the date of commencement of the Companies (Amendment) Act, 2000.
It may be noted that in case of indebtedness in excess of the specified limit as mentioned at (d)
above, the chartered accountant concerned (or the firm of chartered accountants) becomes
disqualified to audit any branch of the bank; the disqualification is not confined to appointment
as auditor of the particular branch to which the debt is owed.
In the context of banks, the expression indebtedness would cover, inter alia, the amounts
outstanding in respect of credit cards issued by a bank. Thus, where the credit card outstanding
exceeds the prescribed limit of 1,000, the chartered accountant in whose name the card is issued
as well as the firm of which he is a partner would be disqualified for appointment as auditor of
the issuing bank.

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