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

Under Section 45MA(1A), the RBI has issued a direction to NBFCs and their auditors on disclosure of liabilities in the books of accounts. The statutory auditor of Narmada Credit Ltd believes the company's own accounting policy gives a fairer presentation than the RBI direction. Which conclusion is correct?

The auditor should verify compliance with the RBI direction and report any non-compliance. Section 45MA(1A) empowers the Bank to issue directions to NBFCs or their auditors on financial statements and liability disclosures, so they are binding regardless of the auditor's view of a preferable policy.

  1. AThe auditor may set the direction aside if the company's policy is also reasonable
  2. BThe direction binds only the management, so the auditor has no responsibility under it
  3. CThe direction applies only if the Board has formally adopted it by resolution
  4. DThe direction is addressed to NBFCs or their auditors, so the auditor should check compliance and report any non-complianceCorrect

Explanation

Section 45MA(1A) allows the Bank to issue directions to NBFCs or to their auditors on balance sheet, profit and loss account and disclosure of liabilities. Such directions are binding, so the auditor must evaluate compliance and report deviations. Personal preference for another policy cannot override it, and Board adoption is not required.

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