Accurate audit key for growth: RBI

New Delhi: Reserve Bank of India (RBI) Governor Shaktikanta Das on Monday said that accurate and analytical audit reports are essential for financial stability and growth as they instil confidence among members of the public.

In case of the public sector, auditing is a cornerstone of good governance, he said while addressing officers at the National Academy of Audit and Accounts (NAAA). "By providing unbiased and objective assessments of whether public resources are managed responsibly and effectively to achieve the intended results, a fair and impartial audit instils confidence among citizens and stakeholders," he stated.

Observing that fair and impartial audit in a globally integrated economy is not just a domestic concern, he said, it also an instrument to enhance the country's reputation and credibility on a global stage. "With increasing complexity of financial markets and higher expectations from the public about efficient resource allocation, the role of audit has become even more important. "As India aspires to grow faster, the expertise and independence of auditors will have to be leveraged to provide more assurance on financial performance to all stakeholders. We need robust audit for a dynamic and resilient economy," he said. Noting that economic decisions are increasingly made based on available evidence and information, he said, inaccurate data may lead to sub optimal decisions or excesses in resource allocation, which will be neither in public interest where public authorities are involved, nor in the interest of individual stakeholders. Citing an example of the banking sector, the governor said if a bank sanctions loan on the basis of inaccurate and misleading financial statements, the borrower company is ultimately unable to repay it. Apart from the loss incurred, he said, this could make the bank risk averse and deprive other eligible companies from bank funding. Alternatively, he said, the bank may try to recover this loss by charging an interest rate to other borrowers, thus resulting in sowing seeds of non viability in such borrowers. This would create a situation of higher interest cost to the overall economy and the society. "Informative, accurate, reliable and analytical audit reports are sine qua non (an essential condition) for both financial stability and growth... Thus, the independence of the auditor and the role of ethics in the profession of auditing are two of the most important aspects which should draw our attention," he said. Audit being the first external line of defence, he said, its failure in supervised entities will adversely impact timely identification of major issues and risks in the financial sector.