2006 – 07 and 2007 – 08, rbi purchased us dollars 26. 8 and 78. 2 billion respectively. the direct ( fiscal ) cost of sterilisation operations to contain the expansionary impacts of rbi ’ s interventions was significant, at about rs. 8, 000 crore during 2007 – 08, which goes to show, even with the benefit of hindsight, that intervening in the market to buy foreign exchange in the face of surge in inflows is not necessarily an easy decision. 6. the volatility of the exchange rate, particularly episodes of large unidirectional movement either way, calls for an effective set of policy tools to deal with it. i do not intend to go into the larger questions of whether the exchange rate movements need to be dealt with at all and if so, what constitutes an optimal policy choice. for the purpose of the present discussion, suffice to say that some form and extent of capital account management is an option to deal with episodic or structural vulnerabilities, which has gained wide acceptability amongst academics and policy makers. this brings us to the core of our discussion today : the nature and implementation of the regulatory regime for foreign exchange management in india. 7. regulation of foreign exchange transactions has a long history. for a newly independent nation trying to unshackle itself from foreign political and economic domination, the first legislation, the foreign exchange regulation act, 1947, was primarily concerned with regulation of inflow of foreign capital into india, increase in non - resident interest and deployment of imported capital. india faced an acute foreign exchange crisis in the 1960 ’ s. it may be recalled that perhaps the most critical use of foreign exchange at that time was for import of food grains ; during most of 1960 ’ s over seven per cent of food grain requirement had to be imported. in this backdrop, fera, 1947 was replaced by foreign exchange regulation act, 1974. given the importance of foreign exchange, it is no wonder that the purpose of the new legislation as stated in the preamble to act was “ …. for the conservation of the foreign exchange resources of the country and the proper utilisation thereof …. ” and mandated that any contravention of the provision of the act was treated as a criminal offence punishable with imprisonment. however, by the late 1970 ’ s green revolution had addressed our dependence on imported food grains and buoyant remittances from diaspora indians had blunted the urgency of foreign exchange scar

supervision ( september 2012 ) states that “ the supervisor determines that banks and banking groups maintain adequate and reliable records, prepare financial statements in accordance with accounting policies and practices that are widely accepted internationally and annually publish information that fairly reflects their financial condition and performance and bears an independent external auditor ’ s opinion ”. 20. over the years, we have observed several accounting scandals unfold, latest in line being the one at toshiba. it is understood that toshiba would have to revise its pre - tax profit figures by ¥152bn ( $ 1. 2bn ) over a seven - year period dating back to 2008. the amount involved accounts for nearly 30 per cent of the total pre - tax profit during the period. the initial findings have showed top executives ’ involvement in accounting malpractices where the inflated figures were made possible by delaying the reporting of losses and underestimating project costs. a sustained failure of this kind most definitely points to gaps in the audit process. 21. another piece of accounting manipulation was observed in case of rosneft, the russian state controlled energy group, which, in a bid to mitigate the effects of the rouble ’ s fall on its results, changed the way it accounted for foreign currency swings. the company shifted to recording the impact of such fluctuations when they materialized, rather than calculating the temporary effect every quarter. i am not sure how the audit community views this but analysts would definitely find it intriguing and not presenting a true and fair picture of the company ’ s financials. 22. auditors are expected to maintain highest standards of professional ethics and ensure that the financial statements of the enterprises they audit, present a true and fair picture of the prevailing state of affairs on an ongoing basis. as professionals, you must remain rather vigilant when auditing areas that : ( a ) involve significant management estimates and judgments, especially those measurements involving a wide range of measurement uncertainty ; ( b ) involve significant non - recurring or unusual transactions ; or ( c ) are more susceptible to fraud and errors being perpetuated due to weak internal controls 1. 23. as i said earlier, the lending business and the loan appraisals depend almost entirely on the balance sheets submitted by the borrowers and hence, fabricated account statements can lead to erroneous conclusions and unwarranted financing of enterprises. banks increasingly lean on the auditors for undertaking stock and asset audit, concurrent audit and forensic audit. while looking at corporate balance sheet