……… financial statements are considered to be the backbone of lending decisions. In most of the cases, the analysis generally depends on the figures / numbers, available in the financial statements. If the quality of these numbers is not up to the mark or reliable, then the entire exercise may go in vain and the lending decision may not be based on the sound foundation…….

The interpretation and analysis of Audited Financials, especially the Auditors’ Report has a paramount role in the credit process. There could be many, but one of the major reasons for burgeoning bad / stressed loans may be the lacunae in the financial statements or in analysis thereof, which were not identified at the appropriate time, say, before granting of a loan. Identification and analysis of such lacunae become easy once the loan account has turned bad but such postmortem being of no avail. The question remains how these could be revealed (brought into the light) well in advance to avert the possibility of slippage in asset quality of the lenders. Another moot question is about the responsibility for the accuracy of financial statements and the role of Auditors’, and audit opinions furnished in their reports.

The Company’s Board of Directors is responsible for the preparation of financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards. This responsibility also includes the maintenance of adequate accounting records for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Audit Report is a communication to the stakeholders by which an auditor independently expresses his opinion on the financial statements of the Company, audited by him. The auditor collects evidence underlying the financial statements for conducting the audit by different methods. Audit evidence and materiality of statements are the core concepts in Audit. The Companies Act, 2013 lays down the requirement of the audit report.

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