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CA Final · Advanced Auditing, Assurance and Professional Ethics · Special Features of Audit of Banks & Non-Banking Financial Companies

CA Isha audits Bharat Credit Ltd, an NBFC. The RBI has issued directions to NBFC auditors on disclosure of liabilities in the books of accounts. The management states that the directions conflict with its preferred presentation, and that its presentation should prevail because it has the Companies Act sanction. Which conclusion is correct?

The auditor must follow the RBI directions. Under Section 45MA(1A) the Bank may direct NBFCs or their auditors on balance sheet, profit and loss account and disclosure of liabilities when necessary in the public interest or depositors' interest, so management's contrary preference cannot override them.

  1. AThe RBI may issue such directions to the NBFC or its auditors where it is satisfied that it is necessary in the public interest, depositor interest or for proper assessment of accounts, so she must consider them in her auditCorrect
  2. BThe RBI can direct only the company, never the auditors, so she may disregard them
  3. CThe directions apply only after the members approve them at a general meeting
  4. DThe directions are advisory and the auditor may disregard them if management disagrees

Explanation

Section 45MA(1A) empowers the Bank to issue directions to NBFCs or their auditors relating to balance sheet, profit and loss account, disclosure of liabilities or related matters, when satisfied it is necessary in the public interest, depositors' interest or for proper assessment of accounts. The auditor cannot disregard them, and no member approval is required.

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