RBI issues audit norms for NBFCs, UCBs
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The Reserve Bank of India (RBI) on Wednesday issued guidelines on a risk-based internal audit system for non-banking financial companies (NBFCs) and urban cooperative banks (UCBs).
The central bank said all deposit-taking NBFCs with assets of ₹5,000 crore or more and all primary UCBs with assets of ₹500 crore or more will have to migrate to the new system.
“The circular intends, inter alia, to provide the essential requirements for a robust internal audit function, which include sufficient authority, stature, independence, resources, and professional competence, so as to align these requirements in larger NBFCs and UCBs with those stipulated for scheduled commercial banks," it said.
A risk-based internal audit (RBIA) is a method of linking an organisation’s overall risk management framework, which would provide assurance to the board of directors and the senior management on the quality and effectiveness of the organization’s internal controls, risk management, and governance-related systems and processes, according to RBI.
The new guidelines will help address risks and inconsistencies faced by systemically important NBFCs and UCBs, considering that so far these institutions adopted different audit systems.
The boards of NBFCs and UCBs are primarily responsible for overseeing their internal audit functions, according to the new guidelines.
“The RBIA policy shall be formulated with the approval of the board and disseminated widely within the organisation. The policy shall clearly document the purpose, authority and responsibility of the internal audit activity, with a clear demarcation of the role and expectations from risk management functions and risk-based internal audit function," RBI said.
The senior management will be responsible for ensuring adherence to the internal audit policy guidelines that are approved by the board and develop an effective internal control function that identifies, measures, monitors and reports all risks faced, the central bank said.
“It shall ensure that appropriate action is taken on the internal audit findings within given timelines and status on the closure of audit reports is placed before the ACB (Audit Committee of the Board) or the board," RBI said. The senior management will also be responsible for establishing a comprehensive and independent internal audit function that should promote accountability and transparency, it said.
The central bank said all deposit-taking NBFCs with assets of ₹5,000 crore or more and all primary UCBs with assets of ₹500 crore or more will have to migrate to the new system.
“The circular intends, inter alia, to provide the essential requirements for a robust internal audit function, which include sufficient authority, stature, independence, resources, and professional competence, so as to align these requirements in larger NBFCs and UCBs with those stipulated for scheduled commercial banks," it said.
A risk-based internal audit (RBIA) is a method of linking an organisation’s overall risk management framework, which would provide assurance to the board of directors and the senior management on the quality and effectiveness of the organization’s internal controls, risk management, and governance-related systems and processes, according to RBI.
The new guidelines will help address risks and inconsistencies faced by systemically important NBFCs and UCBs, considering that so far these institutions adopted different audit systems.
The boards of NBFCs and UCBs are primarily responsible for overseeing their internal audit functions, according to the new guidelines.
“The RBIA policy shall be formulated with the approval of the board and disseminated widely within the organisation. The policy shall clearly document the purpose, authority and responsibility of the internal audit activity, with a clear demarcation of the role and expectations from risk management functions and risk-based internal audit function," RBI said.
The senior management will be responsible for ensuring adherence to the internal audit policy guidelines that are approved by the board and develop an effective internal control function that identifies, measures, monitors and reports all risks faced, the central bank said.
“It shall ensure that appropriate action is taken on the internal audit findings within given timelines and status on the closure of audit reports is placed before the ACB (Audit Committee of the Board) or the board," RBI said. The senior management will also be responsible for establishing a comprehensive and independent internal audit function that should promote accountability and transparency, it said.
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