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

The RBI, in the public interest, issues a direction under the RBI Act, 1934 to the auditors of Kaveri Capital Ltd, an NBFC, concerning disclosure of liabilities in its books of account. The management argues that the direction is merely advisory. What is the correct conclusion?

The auditor should comply. The RBI Act empowers the Bank to issue directions to NBFCs or to their auditors on the balance sheet, profit and loss account and disclosure of liabilities when necessary in the public interest or depositors' interest. Such directions are not advisory and need no board ratification.

  1. AThe direction is advisory and the auditor may follow it at discretion
  2. BThe direction applies only if the NBFC's board ratifies it
  3. CThe RBI may issue such directions to NBFCs or their auditors on balance sheet, profit and loss account and disclosure of liabilities, so the auditor should complyCorrect
  4. DThe direction can be issued only to NBFCs and never to their auditors

Explanation

Section 45MA(1A) lets the Bank, when satisfied it is necessary in the public interest, in depositors' interest or for proper assessment of accounts, issue directions to NBFCs or to their auditors on the balance sheet, profit and loss account, disclosure of liabilities and related matters. It is not advisory and needs no board ratification. Option D is wrong because auditors are expressly covered.

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