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CA Intermediate · Auditing and Ethics · Audit of Banks

CA Meera is being considered for appointment as a statutory central auditor of Tapti Bank. She holds a fixed deposit in her own name with a branch of that bank, taken on normal commercial terms, and also has a loan from the bank. Which of the following is the correct position regarding her independence and eligibility under the Code of Ethics and RBI guidelines, assuming the loan is a housing loan sanctioned on normal terms and fully compliant with Companies Act limits?

A deposit on normal commercial terms does not automatically disqualify her, but she must evaluate threats to independence from the loan and other relationships and confirm compliance with the Companies Act, Code of Ethics and RBI norms before accepting the appointment.

  1. AShe is automatically disqualified because she holds a deposit with the bank
  2. BThe deposit on normal terms is not by itself a bar, but she must evaluate threats to independence from the loan and other relationships and ensure compliance with applicable law and RBI norms before accepting the appointmentCorrect
  3. CShe may accept the appointment without considering the loan since loans are never relevant to independence
  4. DShe is eligible only if she closes the deposit but may keep the loan

Explanation

Ordinary banking relationships on normal commercial terms, such as deposits, do not automatically impair independence, but the auditor must evaluate self-interest and familiarity threats and ensure compliance with the Companies Act and RBI eligibility norms. A loan must be assessed, not ignored. Automatic disqualification for a deposit is incorrect, and the suggestion to close only the deposit has no basis.

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