It is important in this connection that the auditors ask probing questions about the adequacy of banks’ provisions and capital. This is not to suggest that auditors currently are not focussing on these aspects at the moment. Gaps, however, remain as suggested by the findings of the Annual Financial Inspection of banks by the Reserve Bank.
There remains thus scope for more rigorous attention to the issues of adequacy of capital and provisions by auditors. Going forward Accounting standards and accounting statements were not geared to take into account the compulsions of the risk-return trade off. To some degree, the post crisis reforms to accounting standards are addressing this.