macroeconomic stability helped contain india ’ s external vulnerabilities, a close monitoring of external sector is required, given the sharp movements in global crude oil prices and global financial market volatility. these are the two global shocks that have implications for our cad and financial flows. another challenge that indian companies may face pertains to developments around brexit. indian companies and policy makers need to suitably weigh all opportunities and challenges, and accordingly re - strategise to respond appropriately. 21. let me conclude by saying that at the rbi, we are committed to play our role as the monetary authority for maintaining mandated price stability objective while keeping in mind the objective of growth ; and as the regulator and supervisor of the banking sector and payment systems. we will take necessary steps to maintain financial stability and to facilitate enabling conditions for sustainable and robust growth. 22. in october 2018, when i had absolutely no clue that i would be landing up in the reserve bank in december 2018, i had tweeted, “ central banks across countries have a very critical role at the current juncture. the challenge is to try and read the situation and take decisive steps in pursuit of their multiple responsibilities. ” as governor of the reserve bank of india, it would be my endeavour to act according to these principles. thank you. 1 financial stability report, december 2018. 5 / 5 bis central bankers'speeches

as a going concern. audit being the first external line of defence, its failure in supervised entities will adversely impact timely identification of major issues and risks. 17. the responsibility of risk management primarily rests with the supervised entities themselves ; however, audit too has a critical role to play at the systemic level by examining the appropriateness of existing frameworks for plugging the control gaps and providing assurance to the board and decision makers. audit failures and their impact on the entity / system 18. without generalising, it may be said that problems usually arise when the independence of auditors itself is compromised or the auditors lack competence in performing their role. compromising the independence of auditors could lead to moral hazard. as such, auditors are subjected to greater scrutiny and regulation so as to increase the reliability of their work. 19. one of the important roles of audit is to check the so called smart accounting practices, if any, followed by management to overstate profits or understate expenses / liabilities. let me give a few examples of such smart accounting practices that we have observed. 1. ind - as has been implemented for all listed companies ( other than banks ) in india including non - banking financial companies ( nbfcs ) having net worth of more than ₹250 crore. indas is a principle - based standard as against the previous accounting standards, which were more prescriptive. within ind - as, ind - as 109 with expected credit loss approach allows the 3 / 6 bis central bankers'speeches management to exercise discretion and judgement in determining the provisioning requirement for their financial assets. such flexibility and forward - looking nature of assessment, however, poses the ‘ model risk ’, i. e., the model may rely on incorrect assumptions and may be far away from representing the real - life scenarios. this has been observed in several cases. hence, auditors are expected to test the models used by the entities, challenge the management and validate the model outputs. 2. of late, several instances of related party transactions without following ‘ arms - length ’ principle and established transfer pricing mechanism have been observed. there have been instances of diversion of funds and / or transfer of profits to connected parties through various means – intra - group loans on favourable terms, over or under invoicing of transactions, asset transfers without fair valuation, etc. auditors need to identify and thoroughly scrutinise related or connected party transactions to ensure that there is no undue transfer of income