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Auditors should provide early warning signals: Subbarao

Terming auditors as the 'eyes and ears' of the central bank, Governor Duvvuri Subbarao on Friday said accounting professionals should provide early warning signals so that better supervision can be ensured in the banking system and also called for an inter-disciplinary approach to the job.

"In our view, auditors are the eyes and ears of RBI and we trust them to alert us to early warning signals to assist us in supervisory process," Subbarao told the 26th western regional council meet of the Institute of Chartered Accountants of India here this morning.

The Governor also said inter-disciplinary approach of the auditing profession should be increased to bring in more practical approach.

Citing the example of different accounting standards followed by RBI and statutory auditors, Subbarao said in certain cases, the central bank has found that the statutory auditors had underestimated the extent of non-performing assets (NPAs) and provisioning requirement for banks.

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Auditors should provide early warning signals: Subbarao

"In RBI's view, in certain cases, the statutory auditors have underestimated the extent of NPAs and the required provisioning. Since RBI, as the supervisor of the banking system, relies and leverages on the work done by auditors, the profession should effectively address this issue," he said.

Subbarao also emphasised on the value system like integrity and transparency, for preventing a Satyam like fraud in the country.

The Governor also urged the accounting professionals to increase their competence, which will suit the dynamics of a changing world.

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Auditors should provide early warning signals: Subbarao

"Some of the key challenges faced by the profession are competence of practitioners, globalisation of the world economy and spread of information technology," he said, adding that the accounting profession has to change according to the new dynamics of the world.

He also said the accounting profession should strictly regulate its professionals along with removal of instances of conflict of interests.

Referring to new opportunities, Subbarao said the auditing should identify emerging opportunities in the market place and develop the skill needed to exploit them than resisting the changes.