Statutory Audit Policy of the Bank

THE UDAIPUR MAHILA URBAN CO-OPERATIVE BANK LTD.

Regd. Office: 21-22, Hiran Magri sector-3,  Udaipur – 313 001

POLICY FOR APPOINTMENT OF STATUTORY AUDITOR

 The  Policy  for  Appointment  of  Statutory  Auditors  as  detailed  below  has  been  prepared  as per the guidelines issued by the RBI vide Circular No RBI/2021-22/ 25 Ref. No. DoS.CO.ARG/ SEC.01/ 08.91.001/2021-22 dated April 27, 2021.

1. Applicability:

1.1 These  guidelines  will  be  applicable  to  the  bank  for  Financial  Year  2021-  22  and onwards in respect of appointment/reappointment of SAs of the bank.

1.2 As RBI guidelines for appointment of SAs shall be implemented for the first time for UCBs from FY 2021-22, they shall have the flexibility to adopt these guidelines from H2 (second half) of FY 2021-22 in order to ensure that there is no disruption.

2. Prior Approval of RBI:

2.1  Bank will be required to take prior approval of RBI (Department of  Supervision) for  appointment/reappointment  of  SAs,  on  an  annual  basis  from  RBI  before  31st July of the reference year.

2.2  Bank  shall  approach  the  Regional  Office  of  RBI  (Department  of  Supervision),at Jaipur.

3. Eligibility Criteria of Auditors:

Each  Entity  is  required  to  appoint  audit  firm(s)  as  its  SA(s) fulfilling  the  eligibility norms as prescribed in Annex I.

4. Independence of Auditors:

4.1  The Board of Directors shall monitor and assess the independence of the auditors. Any  concerns  in  this  regard  may  be  flagged  by  the  Board  to  the  concerned SSM/RO of RBI.

4.2  In case of any concern with the Management of the Bank such as non- availability of information/non-cooperation by the Management, which may hamper the audit process, the SAs shall approach the Board/ACB/LMC of the Bank, under intimation to the concerned SSM/RO of RBI.

4.3  Concurrent auditors of the Bank should not be considered for appointment as SAs of  the  Bank.  The  audit  of  the  Bank  and  any  entity  with  large  exposure  to  the Entity  for  the  same  reference  year  should  also  be  explicitly  factored  in  while assessing independence of the auditor.

4.4  The time gap between any non-audit works (services mentioned at Section 144 of Companies Act, 2013, Internal assignments,  special assignments, etc.) by the SAs for  the  Bank  or  any  audit/non-audit  works  for  its  group  companies  should  be  at least one year, before or after its appointment SAs. However, during the tenure as SA, an audit firm may provide such services to the Bank / group companies which may not normally result in a conflict of interest, and Bank / group companies may take their own decision in this regard, in consultation with the Board/ACB/LMC.

4.5 The restrictions as detailed in para 4.3 and 4.4 above, should also apply to an audit firm  under  the  same  network  of  audit  firms  or  any  other   audit  firm  having common partners.  

5. Professional Standards of SCAs/SAs:

5.1  The SAs shall be strictly guided by the relevant professional standards in discharge of their audit responsibilities with highest diligence.

5.2  The  Board/ACB/LMC  of  Entities  shall  review  the  performance  of  SAs  on  an annual  basis.  Any  serious  lapses/negligence  in  audit responsibilities  or  conduct issues  on  part  of  the  SAs  or  any  other  matter  considered  as  relevant  shall  be reported  to  RBI  within  two  months  from  completion  of  the  annual  audit.  Such reports should be sent with the approval/recommendation of the Board/ACB/LMC, with the full details of the audit firm.

5.3  In the event of lapses in carrying out audit assignments resulting in misstatement of  an  Entity’s financial statements, and any violations/ lapses vis-à-vis the RBI’s directions/guidelines regarding the role and responsibilities of the SAs in relation to  Entities,  the    SAs  would  be  liable  to  be  dealt  with  suitably  under  the  relevant statutory/regulatory framework.

6. Tenure and Rotation:

6.1  In  order  to  protect  the  independence  of  the  auditors/audit  firms,  Bank  /  group companies  will  have  to  appoint  the  SAs  for  a  continuous  period  of  three  years, subject  to  the  firms  satisfying  the  eligibility  norms  each  year.  Further,  Bank  can remove the audit firms during the above period only with the prior approval of the concerned  office  of  RBI  (Department  of  Supervision),  as  applicable  for  prior approval for appointment, as mentioned at Para 2.2 of this circular.

6.2  An  audit  firm  would  not  be  eligible  for  reappointment  in  the  same  Entity  for  six years (two tenures) after completion of full or part of one term of the audit tenure. However, audit firms can continue to undertake statutory audit of other Entities.

6.3 One  audit  firm  can  concurrently  take  up  statutory  audit  of  a  maximum  of  four Commercial Banks [including not more than one PSB or one  All India Financial Institution    (NABARD,SIDBI,  NHB,  EXIM  Bank)  or  RBI],  eight  UCBs  and eight NBFCs during a particular year, subject  to  compliance  with  required eligibility  criteria  and  other  conditions  for  each  Entity  and  within  overall  ceiling prescribed  by  any  other  statutes    or  rules.  For  clarity,  the  limits  prescribed  for UCBs exclude audit of other co-operative societies by the same audit firm. For the purpose  of  this  circular,  a  group  of  audit  firms  having  common  partners  and/or under  the  same  network,  will  be  considered  as  one  entity  and  they  will  be considered  for  allotment  of  SA  accordingly.  Shared/Sub-contracted audit by any other/associate audit firm under the same network of audit firms is not permissible.  The  incoming  audit  firm  shall  not  be  eligible  if  such  audit  firm  is associated with the outgoing auditor or audit firm under the same network of audit firms.

Note:

Further, the audit firms, which have already completed tenure of 1 year or 2 years with any entity, may be permitted to complete the balance tenure only, i.e. 2 years and 1 year respectively, if they fulfill the eligibility norms on an annual basis.

7. Audit Fees and Expenses

7.1 The  audit  fees  for  SAs  of  the  Bank  shall  be  decided  in  terms  of the  relevant statutory/regulatory provisions.

7.2 The  audit  fees  for  SAs  of  the  Bank  shall  be  reasonable  and  commensurate  with the  scope  and  coverage  of  audit,  size  and  spread  of  assets,  accounting  and administrative units, complexity of transactions, level of computerization, identified risks in financial reporting, etc.

7.3 The  Board/ACB/LMC  of  Entities  shall  make  recommendation  to  the  competent authority as per the relevant statutory/regulatory instructions for fixing audit fees of SAs.

8. Statutory Audit Policy and Appointment Procedure

8.1 The  Bank  shall  approved  Policy  shall  be  hosted  on  its  official   website/public domain and formulate necessary procedure thereunder to be followed for appointment  of  SAs.  Apart  from  conforming  to  all  relevant  statutory/regulatory requirements in addition to these instructions, this should afford necessary transparency  and  objectivity  for  most  key  aspects  of  this  important  assurance function.

8.2 Guidelines on minimum procedural requirements are given at Annex II

Approved by the Board of Directors

Chief Executive Office

ANNEX – I
Eligibility Criteria for Appointment as SCA/SA
A. Basic Eligibility:

Asset  Size  of  Entity as  on  31st  March  of Previous Year	Minimum No. of  Full Time partners  (FTPs) associated with the firm for a period of at least three (3) years Note 1	Out of total FTPs,Minimum No. of Fellow CharteredAccountant(FCA) Partners associated with the firm for a period of at least three (3) years	Minimum No. of Full Time Partners/ Paid CAs with CISA/ISA Qualification Note 2	Minimum No. of years of Audit Experience of the firm Note 3	Minimum No. of Professional staff Note 4
Above `15,000 crore	5	4	2	15	18
Above ` 1,000crore and Up to `15,000 crore	3	2	1	8	12
Upto `1,000 crore	2	1	1*	6	8

* Not mandatory for UCBs/NBFCs with asset size of upto ` 1,000 crore.

Note 1: There should be at least one-year continuous association of partners with the firm as on the date of empanelment (for PSBs) / shortlisting (for other Entities) for considering them as full time partners. Further, for appointment as SCAs / SAs of all Commercial Banks (excluding RRBs) and other Entities with asset size above ` 1,000 crore, at least two partners of the firm shall have continuous association with the firm for at least 10 years.

For all Commercial Banks (excluding RRBs), and UCBs/NBFCs with asset size
above ` 1,000 crore, the full-time partner’s association with the firm would mean exclusive association. The definition of ‘exclusive association’ will be based on the following criteria:

(a) The full-time partner should not be a partner in other firm/s.
(b)  She / He should not be employed full time / part time elsewhere.
(c)  She / He should not be practicing in her/his own name or engaged in
practice otherwise or engaged in other activity which would be deemed to be
in practice under Section 2(2) of the Chartered Accountants Act, 1949.
(d) In case of PSBs, the income of the partner from the firm/LLP should not be below the threshold limits prescribed by the Office of C&AG for the purpose of consideration as full-time partners for appointment as auditors of Public Sector Undertakings. For other Entities, the Board/ACB/LMC shall
examine and ensure that the income of the partner from the firm/LLP is
adequate for considering them as full-time exclusively associated partners,
which will ensure the capability of the firm for the purpose.

Note 2: CISA/ISA Qualification:

For UCBs and NBFCs with asset size upto ` 1,000 crore, there is no minimum
requirement in this regard. However, such Entities may give priority to firms with full time partners or full time CAs having CISA/ISA qualification. There should be at least one-year continuous association of Paid CAs with CISA/ISA qualification with the firm as on the date of empanelment (for PSBs)/ shortlisting (for other Entities) for considering them as Paid CAs with CISA/ISA qualification for the purpose.

Note 3: Audit Experience:

Urban Co-operative Banks audit experience shall mean experience of the audit firm as Statutory Central/Branch Auditor of Commercial Banks (excluding RRBs)/ UCBs/NBFCs/ AIFIs. In case of merger and demerger of audit firms, merger effect will be given after 2 years of merger while demerger will be affected immediately for

this purpose.

Note 4: Professional Staff

Professional staff includes audit and article clerks with knowledge of book-keeping and accountancy and who are engaged in on-site audits but excludes
typists/stenos/computer operators/ secretaries/subordinate staff, etc. There should be at least one-year continuous association of professional staff with the firm as on the date of empanelment (for PSBs)/ shortlisting (for other Entities) for considering them as professional staff for the purpose.

B.  Additional Consideration :

• The audit firm, proposed to be appointed as SCAs/SAs for Entities, should be duly qualified for appointment as auditor of a company in terms of Section 141 of the Companies Act, 2013.
• (ii) The audit firm should not be under debarment by any Government Agency, National Financial Reporting Authority (NFRA), the Institute of Chartered Accountants of India (ICAI), RBI or Other Financial Regulators.
• The Entities shall ensure that appointment of SCAs/SAs is in line with the ICAI’s Code of Ethics/any other such standards adopted and does not give rise to any conflict of interest.
• If any partner of a Chartered Accountant firm is a director in any Public Sector Bank (PSB), the said firm shall not be appointed as SCA/SA of any PSB. Further, if any partner of a Chartered Accountant firm is a director in any Entity, the said firm shall not be appointed as SCA/SA of any of the group entities of that Entity.
• The auditors for Entities with asset size above `1,000 crore should preferably have capability and experience in deploying Computer Assisted Audit Tools and Techniques (CAATTs) and Generalized Audit Software (GAS), commensurate with the degree/ complexity of computer environment of the Entities where the accounting and business data reside in order to achieve audit objectives.
• For audit of UCBs, the SA of the firm should have a fair knowledge of the functioning of the cooperative sector and shall preferably have working knowledge of the language of the state in which the UCB/branch of the UCB is located.

C).  Continued Compliance with basic eligibility criteria: 

In case any audit firm (after appointment) does not comply with any of the eligibility norms (on account of resignation, death etc. of any of the partners, employees, action by Government Agencies, NFRA, ICAI, RBI, other Financial Regulators, etc.), it may promptly approach the Entity with full details. Further, the audit firm shall take all necessary steps to become eligible within a reasonable time and in any case, the audit firm should be complying with the above norms before commencement of Annual Statutory Audit for Financial Year ending 31st March and till the completion of annual audit. In case of any extraordinary circumstance after the commencement of audit, like death of one or more partners, employees, etc., which makes the firm ineligible with respect to any of the eligibility norms, RBI will have the discretion to allow the concerned audit firm to complete the audit, as a special case.

ANNEX – II
Procedure for Appointment of SAs:

• The Bank shall shortlist minimum of 2 audit firms for every vacancy of SAs so that even if firm at first preference is found to be ineligible/refuses appointment, the firm at second preference can be appointed and the process of appointment of SAs does not get delayed. However, in case of reappointment of SAs by banks/UCBs till completion of tenure of continuous term of 3 years, there would not be any requirement of shortlisting and sending names of multiple audit firms to RBI while seeking approval to appointment.
• The bank shall continue to follow the existing procedure followed for selection of SAs. It shall place the name of shortlisted audit firms, in order of preference, before their ACB/LMC for selection as SAs. Upon selection of SAs by the bank in consultation with their ACB/LMC and verifying their compliance with the eligibility norms prescribed by RBI, the bank shall seek RBI’s prior approval for appointment of SAs.
• The Bank shall place the name of shortlisted audit firms, in order of preference, before their Board for selection as SA. Upon selection of SAs by the Bank in consultation with their Board and verifying their compliance with the eligibility norms prescribed by RBI, the Bank shall seek RBI’s prior approval for appointment of SAs.
• The Entities shall obtain a certificate, along with relevant information as per Form B, from the audit firm(s) proposed to be appointed as SAs by the Entity to the effect that the audit firm(s) complies with all the eligibility norms prescribed by RBI for the purpose. Such certificate should be signed by the main partner/s of the audit firm proposed for appointment of SAs of the Entities, under the seal of the said audit firm.
• The Banks shall verify the compliance of audit firm(s) to the eligibility norms prescribed by RBI for the purpose and after being satisfied of their eligibility, recommend the names along with a certificate, in the format as per Form C, stating that the audit firm(s)
  proposed to be appointed as SA by them comply with all eligibility norms prescribed by RBI for the purpose.
• While approaching the RBI for its prior approval for appointment of SAs, the Bank :

1. i) Shall indicate their total asset size as on March 31st of the previous year (audited figures).
2. ii) Forward a copy of Board/ACB Resolution (resolution not needed for foreign banks operating under branch mode) recommending names of audit firms for appointment as SAs in the order of preference.
   iii) Furnish information as per Form B and Form C as mentioned above, to facilitate expeditious approval of appointment/re-appointment of the concerned audit firm.

FORM B

Eligibility Certificate from (Name and Firm Registration Number of the firm)

1. Particulars of the firm:

Asset Size of Entity as on 31st March of Previous Year	Number of Full-Time partners (FTPs) associated* with the firm for a period of three (3) years	Out of total FTPs, Number of FCA Partners associated with the firm for a period of three (3) years	Number of  Full Time Partners/ Paid CAs withCISA/ISA Qualification	Number of Years of Audit Experience#	Number of Professional    staff

*Exclusively  associated  in  case  of  all  Commercial  Banks  (excluding  RRBs),  and UCBs/NBFCs with asset size of more than ₹ 1,000 crore #Details may be furnished separately for experience as SCAs/SAs and SBAs

1. Additional Information:

(i)  Copy of Constitution Certificate.

(ii)  Whether  the  firm  is  a  member  of  any  network  of  audit  firms  or  any  partner  of  the  firm  is  a  partner  in  any  other  audit  firm?  If  yes,  details thereof.

(iii) Whether the firm has been appointed as SCA/SA by any other Commercial Bank (excluding RRBs) and/or All India Financial Institution (AIFI)/RBI/NBFC/UCB in the present financial year? If yes, details thereof.

(iv) Whether  the  firm  has  been  debarred  from  taking  up  audit assignments by any regulator/Government agency? If yes, details thereof.

(v) Details of disciplinary proceedings etc.  against  firm  by  any Financial   Regulator/Government  agency  during  last  three  years,  both  closed  and   pending.

1. Declaration from the firm

The  firm  complies  with  all  eligibility  norms  prescribed  by  RBI  regarding appointment of SCAs/SAs of Commercial Banks (excluding RRBs)/UCBs /NBFCs  (as  applicable).  It  is  certified  that neither I nor any of our partners  /  members  of  my  /  their  families  (family  will  include besides spouse,  only  children,  parents,  brothers,  sisters  or  any  of  them  who  are wholly  or mainly  dependent  on  the  Chartered  Accountants)  or  the  firm  / company  in  which  I  am  /  they are  partners / directors  have been declared as wilful defaulter by any bank / financial institution. It is confirmed that the information provided above is true and correct.

Signature of the Partner  (Name of the Partner)                                  Date

FORM-C

Certificate to be submitted by the Bank regarding eligibility of audit firm

proposed to be appointed as SA

The bank is desirous of appointing M/s…………………………………, Chartered  Accountants  (Firm Registration  Number………………………..)  as Statutory Auditor (SA) for the financial year……….for their 1st/2nd/3rd term and therefore has sought the prior approval of RBI as per the section 30(1A) of the Banking  Regulation  Act,  1949  /  Section  10  (1)  of  the  Banking  Companies (Acquisition  and  Transfer  of  Undertakings)  Act,  1970/1980/  Section  41(1)  of SBI Act, 1955.  The  Bank  has  obtained  eligibility  certificate  (copy  enclosed)  from  (name  and Firm  Registration  Number  of  the  audit  firm)  proposed  to  be  appointed  as statutory  Auditor  of  the  bank  for  FY……..  along  with  relevant  information (copy enclosed), in the format  as prescribed.  The firm has no past association/association for…….. years with the bank as SA.  The  bank  has  verified  the  said  firm’s  compliance  with  all  eligibility  norms prescribed by RBI for appointment of SAs of Bank.

Signature (Name & Designation)  Date: