5.11     Query

Appointment as both the Internal Auditor and Statutory Auditor in a Bank.

            We are one of the two external auditors to a subsidiary of State Bank of India for the audit of their few branches on test basis. It is under the discretion of the bank to allot any branch to any of us for audit. However, the bank  has its own internal audit department.

            Our firm has also been acting as statutory auditors under the State Bank of India (Subsidiary Bank) act, 1959. As this Act is different from the Companies Act, 1956, we do not see any objection in this respect as Section 227(4A) (vi) & (xi) of the Manufacturing and Other Companies (Auditor’s Report) Order, 1975, does not apply to Banks.

            In view of the above, we would like to have your clarification to the effect that there should not be any objection in our accepting the assignment as Statutory Auditors because we are also carrying out internal audit of only few branches on test basis of this bank as an outside agency of auditors. Please also send your opinion whether there is any restriction or legal bar to continue as internal auditors of the bank along with other internal auditors on test basis.

Opinion                                                                                                  September 25, 1978

            The Expert Advisory Committee is of the opinion that as the bank is not governed by the Companies Act, there is no objection to your holding appointment both as statutory branch auditors and also as internal auditors of the bank. In the case of companies governed by the Companies Act, 1956, the Company Law Board has expressed the view that a statutory auditor should not act as an internal auditor.

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