India cenbank deputies call for enhancing quality of financial audits

MUMBAI (Reuters) – Auditors need to assess material risks in business operations instead of just verifying financial statements as companies face growing threats from factors ranging from cybersecurity threats to climate change, two Indian central bank deputy governors said on Tuesday.

“The role of auditor must transcend from just verifying financial statements to holistically assess material risks being posed by the business operations and business model being pursued by the entity,” M Rajeshwar Rao said at a conference of auditors and chief financial officers of commercial banks in Mumbai.

The conference was part of a series of supervisory engagements that the Reserve Bank of India has been having with key stakeholders in the financial ecosystem.

Traditional, substantive tests and procedures may not provide sufficient appropriate audit evidence at a time when financial entities are exposed to risks stemming from cybersecurity and outsourcing, Rao said.

Swaminathan J, another RBI deputy governor, urged auditors to go beyond mere technical compliance and exercise prudent judgment and prioritise “substance over form.”

“Instead, they (auditors) should discern the intent of the regulations and assess its application in practice so as to enhance the credibility of audit outcomes,” Swaminathan said at the same conference.

Swaminathan asked chief financial officers of financial entities to thoroughly analyse deficiencies observed during audits or supervisory reviews and ensure compliance with regulatory norms.

CFOs must also look to bring down internal accounts to the essential minimum and exercise greater control to prevent frauds, he said.

(Reporting by Siddhi Nayak; Editing by Ravi Prakash Kumar)


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