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Role of Chartered Accountant in creation of Black Money and in rise of NPA in banks


Danendra Jain  [ ]


The Institute of Chartered Accountants of India (ICAI), the apex body of accounting professionals, wants the Reserve Bank of India (RBI) to appoint statutory auditors in state-run banks. The accountants’ body has sought the government intervention on this. Till 2005, RBI was directly involved in the appointment of auditors, but now the boards of public sector banks (PSBs) appoints auditors in consultation with the central bank. Until 2005, the appointment of auditors in state-run banks was overseen by an appointments committee with representation from RBI, ICAI and the Comptroller and Auditor General of India.

“If appointments are left to bank managements, there may be a tendency to take short-cuts in these regards with possible ultimate deleterious effects on the financial health of the PSBs,”

“This process compromises the independence of auditors and gives an incentive for promotion of vested interest in the appointment of auditors.”

Bankers, experts and consultants criticized ICAI’s move, saying this is unlikely to make any major difference in the quality of auditing. Also, any changes in these aspects should equally apply to private and foreign banks as well, as they also deal with public money.

“In many cases, auditors do not see eye-to-eye with bank managements (on issues such as) like NPA (non-performing assets) provisioning, implementation of prudential norms, etc., and this is the reason auditors are at all appointed. There must always be somebody who will not look at the business from the point of view of the management, and who will look and act at it from the point of view of good governance,”

“The real issue is not independence, but the quality of auditing, which has seen deterioration in many cases in the recent past,”


I submit my views on above mentioned opinion of ICAI

I fully agree that
RBI should appoint auditors for conducting statutory audit of various banks and CA should be held responsible, accountable and punishable if they fail to point out the fraudulent and illegal behavior of bank management. Auditors least bother of faults or fraud committed by banks because it is ultimately banks who will appoint them and pay them charges and extend comforts as per their desire.

Similarly in case of audit of private businessmen and service class people, auditors prepare good balance sheet ignoring all bad points so that they may be paid attractive fees. The more fees they charge, the more auditors will guide ways of tax evasion, concealment of facts related of violation of laws, avoidance of statutory provisions etc.


In brief I can say that auditors are best blackmailers and they can go to any extent against the interest of the government if they are adequately compensated for their advices.
It is seen that some auditors prepare balance sheet as per need of the businessmen who are inclined to avail higher amount of loans from banks. These CAs almost works as agent of businessmen and it is they who motivate bank officials for inflated lending in return of attractive bribe money.

As of now none is held responsible for the act of omission and commission. Banks blame auditors and auditor's blame banks for ongoing and perpetual fraudulent activities undertaken by bank management. Auditors are paid huge amount for auditing but they seldom check into records of banks and try to complete statutory audit even at big branches in a day or two even though they claim the bill for three or four days..

It is only when Branch Manager of a branch fails to give best quality of hospitability to auditors or fail to give precious gifts to some corrupt and greedy auditors that auditors try to teach lesson to bank officials and mention even non-mentionable irregularities in their audit report. Similarly at regional or zonal or corporate level various officers of the bank are entrusted the duties of entertaining, hotelling, visiting picnic spots and gifting the team of auditors to get best rating and best reports ignoring all vital information. I have seen many auditors even calling branch officials in hotel with money and gifts and signing financial reports blindly.

Unfortunately RBI officials also do not want to have headache of process of appointment and then controlling of auditors. Banks are violating important rules and laws in concurrence with RBI officials. Assets are not classified as per RBI norms of assets classification and income is booked against income recognition norms set by RBI and for this purpose auditors, bankers and regulating agencies dance as puppet of businessmen who spend money for getting illegal benefits from bank, from government and from RBI.  As such even if duty of appointment of auditors is restored to RBI, corruption is not going to end.
As long as actions are not taken against evil doers, there will not be any fear in the mind of neither bankers nor auditors.

Million dollar question is who will bell the cat? All are birds of the same feather. Money and only money play the role. The more the bribe is offered, the shorter becomes the eyes and ears of auditors, and also that of all regulating and investigating agencies.

Auditors do not perform auditing to safeguard rule of law and ensure following of accounting principles or for tax compliance in true spirit but play the role of mediating between borrowers and bankers, between tax officials and tax evaders and between law makers and law breakers.


It is auditors who prepares financial statement suitable for sanction of certain amount of loan and who motivates bankers for sanction of the same. It is auditors who teaches businessmen how to avoid payment of taxes and who motivate tax assessing authority to put their signature on assessment orders.


Bankers similarly do not care for safety of their bank but work for self interest. Tax officials do not work for collecting maximum revenue in line with prevalent laws but to help tax evaders so that he or she can get his share through backdoor.

It will not be an exaggeration to say that it is auditors who help in creation of black money in the country in nexus with tax officials and it is again auditors who in nexus with bankers and businessmen help in creation and accumulation of more and more bad assets in bank’s loan portfolio.


All individuals, firms and companies who have parked their ill earned money or black money in domestic or foreign banks, private or public sector banks or who have concealed money in lockers or invested in real estate have got success in obtaining the signature of tax officials on assessment order related to their financial statement and profit and loss accounts.  All borrowers who defaulted in repayment of bank loan or all bankers who are worried of rising Non Performing Assets know very well that accounts of borrowers were duly certified by Chartered Accountants assessed by top ranked bank officials and Internal auditors before the decision on sanction of credit was taken in favour of any loan seeker.


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