Audit as a Necessary Factor of Managing Banking Risks and Improving Creditworthiness of SMEs in RA

Abstract

The analysis of financial statements, including analysis of ratios, is one the most important tools in managing banking risks and assessing creditworthiness. In Armenian banks shifting from collateral-based lending decisions to lending decisions based on analysis of the financial performance of the prospective borrower by using the audit reports provided based on International Standards on Auditing, banks will have the opportunity to significantly reduce the consumed resources for the collection of necessary information for lending decisions. On the other hand, the credit availability of SMEs will increase, as they will have the opportunity to receive loans without providing a collateral. In turn, through the audit reports banks must have assurance on the reliability of the presented financial statements. Meanwhile, the development of audit, the reliability of the audit companies and the improved quality of audit services is a multilateral process, which should be provided by audit companies, supervising bodies and audit clients.