Page 227 - DCOM509_ADVANCED_AUDITING

Advanced Auditing

Notes and have minimum net owned funds of 25 lakhs for commencing/carrying on its
business. An auditor should obtain a copy of the certificate of registration granted by the
RBI or in case the certificate of registration has not been granted, a copy of the application
form filed with the RBI for registration. It may particularly be noted that NBFCs incorporated
after 9th January, 1997 are not entitled to commence business without first obtaining a
registration certificate from the RBI. An auditor should therefore verify whether the dual
conditions relating to registration with the RBI and maintenance of minimum net owned
funds have been duly complied with by the concerned NBFC.
4. NBFC Public Deposit Directions: The auditors must ascertain whether the company is a
loan company or an investment company or a hire purchase finance company or an
equipment leasing company as per the classification, if any, assigned to the NBFC by the
RBI. In case, the NBFC has not been classified by the RBI, the classification of a company
will have to be determined after a careful consideration of various factors such as particulars
of earlier registration granted, if any, particulars furnished in the application form for
registration, company’s Memorandum of Association and its financial results.

5. NBFC Prudential Norms Directions:
 Check compliance with prudential norms encompassing income recognition, income
from investments, accounting standards, accounting for investments, asset
classification, provisioning for bad and doubtful debts, capital adequacy norms,
prohibition on granting of loans by a NBFC against its own shares, prohibition on
loans and investments for failure to repay public deposits and norms for
concentration of credit/investments.

 An auditor should ensure that the Board of Directors of every NDFC granting/
intending to grant demand/call loans shall frame a policy for the company and
shall implement too.
 An auditor should assess on the basis of examinations conducted by him whether
the NBFC has complied with the prudential norms. In particular, he should verify
that advances and other credit facilities have been properly classified as standard/
sub standard/doubtful/loss and that proper provision has been made in accordance
with the Directions.
 In respect of Non-Performing Assets, an auditor should check whether the unrealised
income in respect of such assets has not been taken to the Profit & Loss Account on
an accrual basis. Income from NPAs should be accounted for on realisation basis
only.
 Check whether all accounts which have been classified as NPAs in the previous year
also continue to be shown as such in the current year also. If the same is not treated
as a NPA in the current year, the auditor should specifically examine such accounts
to ascertain whether the account has become regular and the same can be treated as
performing as per the Directions.

Self Assessment

Fill in the blanks:
7. The large PSBs having balance sheet size (assets + liabilities) of above ....................................
can exercise managerial autonomy in regard to appointment of SBAs from the year 2008-
09 onwards.

8. The consent given by an audit firm will be treated as………………………. .

222 LOVELY PROFESSIONAL UNIVERSITY