IL&FS, Dewan Housing Finance, HDIL — NBFCs have put up scandalous performance, creating a climate that legitimises drastic action, even makes its absence a sign of pusillanimity. So, the new norms seek three-yearly rotation of auditors, a cooling off period of six years, joint audit, a bar on one auditor taking on more than eight NBFCs.
If it were done when ’tis done, then ’twere well/ It were done quickly. RBI’s new set of rules for audit of non-banking finance companies (NBFCs), issued towards the end of April, seems to have been guided by this soliloquy by Macbeth. The central bank has mandated their implementation starting the second half of the fiscal. RBI seems to forget that the act Macbeth had in mind was murder. The norms for audit ought to be different. Such change in norms should follow a period of deliberation, public consultation and time for change-over. NBFCs and audit firms need time to adapt. RBI would do well to carry out a round of public consultations and implement new norms in a year’s time.
IL&FS,Dewan Housing FinanceNSE 4.99 %,HDILNSE 1.80 % — NBFCs have put up scandalous performance, creating a climate that legitimises drastic action, even makes its absence a sign of pusillanimity. So, the new norms seek three-yearly rotation of auditors, a cooling off period of six years, joint audit, a bar on one auditor taking on more than eight NBFCs and ineligibility to audit group companies. These sound good to someone seeking a paradigm shift to toughness, to rein in rogue behaviour. But what sounds good need not be sound at all. RBI thinks the audit norms for banks are good, but Yes Bank was very much part of the shenanigans that the impugned NBFCs carried out. And, joint audit is not the same thing as either concurrent audit or the ability to audit the interconnected set of transactions of a bunch of financial players taken together. Modern information technology is capable of identifying patterns that suggest foul play from analysis of all transactions among financial and non-financial companies taken together. It is in such areas that RBI needs to show innovation and boldness. Joint audit is as likely to choke ownership of mistakes as it is to identify mistakes.
ICAI, the chartered accountants’ body, has welcomed the new norms. This is facile, as it is guided by the additional work coming its members’ way. We need better norms; new is not equal to better.