Regulators in India have put banks in the country on notice. Auditors are going to look a lot closer at the balance sheets of various banks. In the past, auditors seemingly took the word of those running the banks and accepted presented evidence without excessive scrutiny. The assets and securities banks utilize for the issuance of loans now will be scrutinized closer.
The reason behind the additional scrutiny isn’t too difficult to figure out. Indian regulators do not want financial institutions to default. India does not want to see its economy suffer a massive recession. Making sure the banking system runs on the proverbial “up and up” would decrease the chances of a financial meltdown.
The entire banking system does not need to collapse in order to create serious economic problems. One major bank failure could lead to a ripple effect. Better auditing practices might prevent problems from occurring.
Increased and more careful auditing cannot guarantee banks won’t falter. The auditor can only do so much. Doing something, of course, is better than doing nothing when worries about default loom.
The process simply tries to pull covers way from any attempts to hide inaccuracies. If the auditor does discover discrepancies, banks would be required to correct the mistakes and/or overvalued assets. A bank’s profits would need to be revised as well. Likely, a decrease in reported profits result. Troubles in the economy may occur in such instances. News about banks suffering decreased profits or outright losses mean bad financial news. Economies take downturns due to bad news.
Currently, several companies in India are suffering from insolvency. Clearly, there is enough concern to try and slow down the problem and keep things from spiraling into very troubled waters. Again, auditing has its limitations but does reflect a workable means of keeping a financial disaster from surprising India without warning.