Hello Readers,
Today we will discuss about “Audit Procedure for Borrowings”
ASSERTIONS
AUDIT PROCEDURE
EXISTENCE
·Review Board Minutes for Approval of New Lendings.
·Ensure Loan Agreement were Authorized.
·Ensure significant debt commitments were approved by Directors.
COMPLETENESS
·Obtain External Balance Confirmation from Banks/ Financial Institutions.
·In Case of Debentures, examine trust deed for checking of Compliance.
·When Debt retired ensure discharge received on Assets.
·Obtain Written Representation that all liabilities has a valid claim.
·Obtain Repayment Schedule for Long Term and Short Term Borrowing Distribution
VALUATION
·Determine Accounting Policies and methods for recording of debt.
·Recomputed the interest and discount or premium on redemption.
·For Foreign Currency Loan check the closing exchange rates.
·Examine Due dates for proper classifications of long term and short term borrowings.
·Check Security Valuation properly and reclassified it, if required.
·Examine Agreement properly for ensure the correctness of amount shown as borrowings.
·Carefully review the borrowings from Related Parties.
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·Also Verify whether borrowing as per AOA or not.
·Examine whether the loan used for the purpose for which it taken or not.
DISCLOSURE
·Ensure whether Disclosure of Borrowings made as per Schedule III of Companies Act, 2013 or not.
·Borrowing must be classified as Secured or Unsecured.
·Where the Loans Secured against the Guarantee by Directors or Other must be disclosed.
NOTES:-
·If Company taken loan from banks or financial institutions on the basis of Security of Current Assets, it must also require to disclose the following:-
ØWhether Quarterly return submitted to bank must be Reconcile with Books of Accounts or not.
ØIf not, Summary of Reconciliation and reason for Discrepancies require disclosing.
·Where a Company declare willful Defaulter by banks or any other financial institutions then following details shall be given:-
ØDate of Declaration as Willful Defaulter
ØAmount and Nature of Default
·Where any charges or satisfaction yet to be registered with ROC beyond the Period, details and reason must be disclosed.
·The Company must also require disclosing Utilization of Borrowed Fund must be made as per agreement or not.
·If Company does not use the fund as per agreement then Company require to disclose the details of where they have been used the amount of borrowed fund.
These are some major audit procedure for borrowings which we require to follow while doing Audit of Companies.
You are welcome to give your suggestion and experience on my views and I also like to listen your point of view.
For Suggestions: Please Comment on this post.
Sources Used in this Article: ICAI Study Material.
Thank you so much for reading this article. Have a Nice day; we will meet again with some other points.
