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

The Reserve Bank issues a direction to the auditors of NBFCs generally about the disclosure of certain liabilities in the balance sheet. The auditor of Chambal Finance Ltd, an NBFC, believes the direction conflicts with his preferred presentation. What is the correct course of action?

The auditor should comply. Section 45MA(1A) lets the Reserve Bank issue directions to NBFCs or their auditors on the balance sheet, profit and loss account and disclosure of liabilities when necessary in the public or depositors' interest. It needs no Board approval and is not limited to deposit-takers.

  1. AComply with the direction, since the Bank may issue such directions to auditors of NBFCs relating to balance sheet, profit and loss account and disclosure of liabilities when it is necessary in public or depositors' interestCorrect
  2. BIgnore it, because only the Companies Act can prescribe disclosures
  3. CComply only if the Board of Directors passes a resolution accepting it
  4. DComply only for deposit-taking NBFCs, never for others

Explanation

Section 45MA(1A) empowers the Bank, when satisfied it is necessary in the public interest, depositors' interest or for proper assessment of books, to issue directions to NBFCs, classes of NBFCs or their auditors on the balance sheet, profit and loss account and disclosure of liabilities. It applies to NBFCs generally, not just deposit-takers. No Board resolution is required.

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