Reserve Bank Governor Shaktikanta Das said on Monday that accurate and analytical audit reports are essential for financial stability and growth because they instill confidence in the public.
In the case of the public sector, auditing is a cornerstone of good governance, he said, speaking to officials at the National Academy of Audit and Accounts (NAAA). “By providing impartial and objective assessments of the responsible and effective management of public resources to achieve expected results, a fair and impartial audit inspires confidence in citizens and stakeholders,” he said.
Observing that a fair and impartial audit in a globally integrated economy is not only a national concern, he said, it is also an instrument to strengthen the reputation and credibility of the country on the world stage.
With the increasing complexity of financial markets and higher public expectations for efficient allocation of resources, the role of auditing has become even more important. “As India strives for faster growth, the expertise and independence of auditors will need to be harnessed to provide more assurance on financial performance to all stakeholders. We need a solid audit for a vibrant and resilient economy, ”he said.
Noting that economic decisions are increasingly made on the basis of available evidence and information, he said, inaccurate data can lead to sub-optimal decisions or over-allocation of resources, which will neither be in the public interest when public authorities are involved, nor in the interest of individuals. stakeholders.
Citing an example from the banking industry, the governor said that if a bank sanctions a loan on the basis of inaccurate and misleading financial statements, the borrowing company is ultimately unable to repay it.
Besides the loss suffered, he said, it could make the bank risk averse and deprive other qualifying companies of bank financing.
Alternatively, he said, the bank can try to recoup this loss by charging an interest rate to other borrowers, thus sowing seeds of unsustainability among those borrowers. This would create a situation of higher interest cost for the overall economy and society.
” Informative, accurate, reliable and analytical audit reports are a sine qua non (an essential condition) for both financial stability and growth … Thus, the independence of the auditor and the role of the ‘ethics in the auditing profession are two of the most important aspects that should grab our attention,’ ‘he said.
With audit being the first external line of defense, he said, its failure in supervised entities will have a negative impact on the timely identification of key issues and risks in the financial sector.
“With globalization and the increasing complexity of the financial system, auditing as a public good has become vital for a healthy, stable and vibrant financial system,” he said.
He urged the listening community to update and improve their skills continuously and perform their task in the most efficient way possible.
The profile of the auditor of tomorrow will be that of a critical but constructive challenger, clearly focused on the public interest and the quality of audits. Basically, you have to be even more professional, qualified, impartial, values-oriented, ethical and also show awareness and foresight, ”he said.
Observing that there is a need to improve the quality and depth of the audit, he said that the Reserve Bank has taken a series of measures in consultation with the Institute of Chartered Accountants of India (ICAI) to improve the audit of banks and financial institutions.
Listing some of the recent measures, he said, the risk-based internal audit system for commercial banks was strengthened in January this year and also updated the guidelines for the appointment of auditors. in banks and NBFCs in April.
Regarding the importance of corporate governance, Das said, the RBI has repeatedly stressed the importance of a strong governance framework in banks and NBFCs.
Such a framework must be built on principles of transparency, prudent business strategy, effective risk management and a strong culture of compliance, he said.
Financial sector entities, the audit community, and financial sector regulators and supervisors must work together and take proactive steps to ensure good governance and ethical practices to build a strong and resilient financial sector, he said. -he adds.
(This story was not edited by Devdiscourse staff and is auto-generated from a syndicated feed.)