a) Elephant Bank Ltd. is the “A” Class Commercial Bank. As per audited financial statement of FY 2071/72 , its gross loan is Rs. 50,000 million and its gross deposit is Rs. 63,000 million. The Annual General Meeting of the bank for FY 2071/72 was conducted on 12 Aswin 2072. The auditor for FY 2072/73 has been appointed the bank with audit fees (other than other audit related expenses) of Rs. 1,100,000. Comment.
b) Is there any conflict of interest if the engagement auditor prepares financial regulation and internal control system of the same client?
c) Raman & Associates is the audit firm of registered auditor (B Class). He has carried out the audit of Prabhu Ltd. for FY 2071/72. The Total Assets or Liabilities of Prabhu Ltd. for FY 2071/72 as per Financial Statement is Rs. 650 million. Comment.
The decision of 194th Meeting of the Council of the Institute of the Chartered Accountants of Nepal (ICAN), the minimum fees for listed public financial institutions has been prescribed which is applicable for appointments made from 1 Shrawan 2072. The fees should be determined based on Gross Loan or Deposit whichever is higher of immediately preceding year as follows:
Loan or Deposit Amount (Rs.) Minimum Audit Fees (Rs.)
Exceeding 100,000 Million 25 Lakh
Exceeding 50,000 Million 20 Lakh
Exceeding 10,000 Million 10 Lakh
Exceeding 5,000 Million 05 Lakh
Exceeding 1,000 Million 03 Lakh
Minimum 01 Lakh
Further it has been mentioned that audit fee of the “A” Class Commercial Bank should not be less than Rs. 10 Lakh.
In view of the aforesaid council decision, the minimum audit fee (other than other audit related expenses) of the Elephant Bank Ltd. should be Rs. 20 Lakh since its gross deposit is exceeding Rs. 50,000 million as of 31 Asadh 2072.
Accordingly decision made AGM of Elephant Bank Ltd. for audit fees for FY 2072/73 is not consistent with decision of 194th Meeting of the Council of the Institute of the Chartered Accountants of Nepal (ICAN).
It will not be treated as conflict of interest only on the ground that financial regulation and internal control system has been prepared the Auditor. Though auditor has to assess the effectiveness of such imposed system during the course of audit. Accordingly the chances of
excusing the auditor on the lapses of implementation of those system observed during auditing process could not be ruled out which will impair the very efficiency and independence of the auditor. Hence chances of arising the situation of conflict of interest have been existed in such circumstances.
As per the Rule 53 of the Nepal Chartered Accountants Regulations 2061 (as amended); the limit (threshold) for audit of entities based on volume of total assets or total liabilities has been prescribed unlimited amount for CA member and up to Rs. 1 billion, Rs.250 million and Rs. 50 million for B, C & D class members respectively.
In view of the above amended rule of the ICAN Regulation 2061, Raman & Associates, being B class audit firm is eligible for carrying out the audit of Prabhu Ltd. for FY 2075/76, since total assets or total liabilities of the company do not exceed the prescribed limit of Rs. 1 Billion.