Political economy affects the quality of the audit

Shaktikanta Das is right to stress the need for auditors to improve the quality and depth of audits in order to prevent misconduct. Eagle-eyed accountants are expected to report irregularities in audit reports and maintain the integrity and independence of the audit process, while fulfilling their fiduciary role. However, the Reserve Bank of India (RBI) has uncovered numerous instances of related party transactions between group companies not being valued at arm’s length, resulting in embezzlement and shifting of profits to non-arm’s length companies. related parties, including NBFCs and some banks. Bank loans are opaque. There will be more transparency if there is a secondary market for bank loans and if the projects are financed by publicly traded bonds.

In April of this year, the RBI updated the guidelines for the appointment of auditors in banks and NBFCs, putting in place neutral ownership audit regulations to ensure the independence of auditors. and avoid conflicts of interest in the appointments of statutory auditors. Rightly so, with the increasing complexity of the financial system, auditors need to upgrade their skills. Taking advantage of modern information technologies capable of identifying patterns suggesting criminal act from the analysis of all transactions between financial and non-financial corporations taken together makes perfect sense.

The incentive to inflate project costs and set aside some padding to generate informal profits would diminish if businesses could operate without having to grease their hands. Transparent political funding will remove the pressure on the industry to build war treasures with funds stolen from loans. This means simultaneous auditing of policy spending at disaggregated and macro levels, and accounting for funding.

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