The Central Bank will monitor such borrowings to ensure that highly geared leasing companies do not borrow excessively from the market and terms and conditions will be imposed to mitigate risks to the investors in debt instruments issued by leasing companies. In addition to business growth and fund raising, the viability of the finance and leasing companies should also be monitored and watched, although their asset base accounts for a mere 4.8% of total financial sector assets. Also, these institutions are engaged in granting credit to the more risky sectors in the economy absorbing higher credit risks which the conventional banking sector is not willing to take on. Their contribution to the capital formation in the economy particularly through the provision of leasing and hire purchase facilities is significant. A failure of one or two big companies would have a far reaching impact from a stability point of view, given the ripple effects it could have on the whole financial sector. There are several stakeholders involved in examining the viability of businesses of finance and leasing companies. The chief among them are shareholders, regulators, auditors, investors, depositors and creditors. All these stakeholders have functions and responsibilities assigned to, or assumed by them by law or practice. It is becoming increasingly clear that some of the functions and responsibilities will not be effective if done in isolation without consulting the other stakeholders. In particular, the regulators and external auditors should closely coordinate their roles and responsibilities.
Auditors are appointed by the shareholders, but their prime responsibility should be to ensure that the company can function as a going concern and pay back the depositors’ funds as and when needed. The auditors’ opinion lends credibility to the financial statements and promotes confidence in the system. Auditors generally cover their opinion with a statement in which they certify accounts of the company as true and fair on the basis of information made available to them. While recognizing this clarification, in the interest of wider financial system stability, it is important that external auditors find out the true position of the company and alert regulators, even though it is beyond audit ethics. The audit profession should be independent and they must win confidence of the investing community and the general public by providing accurate and timely audits. In that sense, external auditor also performs the “watchdog’s” and the “whistleblowers” role in the financial system. The new Companies Act, which came into being just a month ago, is somewhat explicit in the role of the auditor in the following areas: 1. Fair judgment: An auditor shall ensure that his judgment is not impaired by reason of any relationship with, or interest in the company or any of its subsidiaries. While regularizing the company under audit, as its client, the auditors must distance themselves in judging the true financial status of the company. 2.