The new empanelment guidelines for statutory auditors for banks, issued by the Reserve Bank of India, may come as a major setback for smaller chartered accountants and sole proprietorship firms, which account for almost three-fourths of all CA firms in India.
The guidelines, which will come into effect from September 2004, have classified firms eligible for statutory audits into four categories according to their size and experience.
According to the guidelines, Category IV firms, i.e., proprietorship firms without bank audit experience and consisting of one paid chartered accountant and two professional staff, will be "treated at par with the partnership firm after deducting three years seniority from the date of their establishment".
Further, firms in categories III and IV will only be permitted to audit bank branches with advances of less than Rs 150 lakh (Rs 15 million) or those located in rural centres, irrespective of the amount of advances.
Moreover, for the select panel of statutory central auditors appointed by the Comptroller and Auditor General to audit public sector banks and corporations, the new RBI norms suggest that CA firms are required to have four partners and a minimum of 15 years of experience.
Of these, one partner must have a continuous association with the firm for a minimum of 15 years, another for 10 years, and the two others a minimum of five years.
"The norms show a distinct bias against small firms despite the fact that bank audits do not require much accounting infrastructure," said Vinod Jain, a practising CA.
He added that these guidelines also go against the spirit of last year's Supreme Court order, which had directed the CAG to empanel sole proprietorship firms for the audit of public sector enterprises.
The Institute of Chartered Accountants of India has drawn the RBI's attention to the issue. ICAI Vice-President K Vikramseh said the central bank might issue a clarification.