The move is all the more important considering the increased public interest in such entities, given their size and spread through the nation, ICAI said in a statement on Wednesday.
“The new norms issued by RBI…are in the right direction and will enhance audit quality, auditor independence and strengthen corporate governance,” said Nihar Jambusaria, president, ICAI.
It will also result in more transparency in the selection of auditors, Jambusaria added.
Large multinational audit firms have opposed RBI’s decision, saying it would curtail growth opportunities for multinational companies and cause complications in transitioning to the new guidelines.
Industry body CII has also said that these norms may not appreciably enhance audit quality or governance.
RBI, in a circular dated April 27, mandated that auditors must be rotated every three years, with a six-year cooling off period before the next appointment.
It also mandated joint audits for NBFCs with assets of Rs 15,000 crore or more.
A joint audit provides fresh perspective from new firms along with the advantage of pooled expertise by allowing audit partners to focus on their areas of expertise while mitigating systemic risks, ICAI said.
The reduction in the audit tenure and the limit on the number of audits that a firm can conduct in the banking and financial sector would lead to capacity building in the industry, it added.
“Presently, only 10% of the eligible CA firms are appointed as SCAs (statutory central auditors) and with the relaxed norms, the number of eligible firms is expected to increase by three times,” Jambusaria said.
According to the ICAI, the proposed restrictions on audit and non-audit services for related entities were aligned with the institute’s code of ethics and the principles of the Companies Act.
The central bank must prescribe a minimum number of auditors for public sector banks rather than the maximum limit, as these lenders usually appoint fewer auditors than the prescribed number, Jambusaria said.