IGI Logo

Reserve Bank of India (RBI) Deputy Governor M Rajeshwar Rao has flagged concerns over quality of disclosures made by some NBFCs and urged the auditing community to ensure that entities provide appropriate qualitative information to depositors as well as other stakeholders. The statutory auditors play a significant role in maintaining stakeholder confidence in audited financial statements and this is particularly important in the case of banking industry where the entire edifice is built on ‘trust’ and the biggest external stakeholders, i.e., depositors, are fragmented and unorganised.

He emphasised that the RBI has a strong interest in promoting sound and high-quality accounting and disclosure standards for the banking and financial industry as well as in having transparent and comparable financial statements that strengthen market discipline. He said the RBI, for some time now, has been supplementing rule-based regulations with principle-based regulations to give regulated entities (REs) a degree of flexibility in their business decision making. The principle-based approach to regulations is founded on the belief that financial reporting reflects the economic reality of a transaction. However, application of principle-based standards requires significant use of management judgement.

He said disclosures are the cornerstone of transparency as these bridge the gap between what management knows and what external users can infer from financial statements. Striking a balance between comprehensive disclosure and conciseness is a tightrope walk. When disclosures are clear and comprehensive, they foster trust in the market.