Page 273 - CA Final PARAM Digital Book.

10th April 2020 and the renewal letter was issued immediately. Your assistant is insisting that the
account must be classified as NPA since the limit was not renewed as on 31/3/2020. What is your
opinion?
➢ As per Guidelines of Reserve Bank of India the account should be classified as NPA if renewal is not
done in 180 days.
➢ However, in the present case, operations in the account are excellent.
➢ The bank has shown a letter from that company that due to certain reasons the audited financial
statements are delayed. Further, the limit has been renewed before signing the audit report.
➢ Thus, even if the sanction was issued after the balance sheet date, it relates to the position as on the
balance sheet date.
➢ Therefore, it is an adjusting event under AS 4, Contingencies and Events Occurring After the Balance
Sheet Date. It is also a matter of substance over form.
➢ The auditor would consider classifying the account as a standard asset.

NPA (regularization before balance sheet date)- Old Course – (N20E)
449.080
TITANIUM CNO—BA.400
In the course of statutory Branch audit of KS Bank Ltd, you observe that some borrower accounts have
been regularized before Balance sheet date by payment of overdue amount. Narrate the audit

procedures to be carried out with special focus on the Classification of advances and Provisioning for
Non-Performing assets of the Branch.
The Audit procedures that need to be carried out with special focus on classification of advances and
provisioning for NPAs of KS Bank Ltd, in which the auditor has observed that some borrower accounts
have been regularized before balance sheet date by payment of overdue amount shall be carried out as
under :
(i) As per the Reserve Bank guidelines, if an account has been regularised before the balance sheet date
by payment of overdue amount through genuine sources, the account need not be treated as NPA.
(ii) Where subsequent to repayment by the borrower (which makes the account regular), the branch has
provided further funds to the borrower (including by way of subscription to its debentures or in other
accounts of the borrower), the auditor should carefully assess whether the repayment was out of
genuine sources or not.
(iii) Where the account indicates inherent weakness based in the data available, the account shall be
deemed as a NPA.

Classification and Provision
a. Examine whether the classification made by the branch is appropriate. Particularly, examine the
classification of advances where there are threats to recovery.
b. Examine whether the secured and the unsecured portions of advances have been segregated
correctly and provisions have been calculated properly.
c. It is to be ensured that the classification is made as per the position as on date and hence
classification of all standard accounts be reviewed as on balance sheet date.
d. The date of NPA is significant to determine the classification and hence specific care be taken in this
regard.
e. NPA should be recognized only based on concept of Past Due/ Overdue concept, and not based on
the Balance Sheet date.

QNO (Consortium)NPA Old Course – (N11R, N12M, M13R, PM17, N17R, M18M, SM21,)
451.000 TITANIUM CNO—BA.400 New Course – (SM23)
Your firm has been appointed as Central Statutory Auditors of a Nationalised Bank. The Bank follows
financial year as accounting year. The bank is a consortium member of Cash Credit Facilities of Rs 50
crores to X Ltd Bank's own share is Rs 10 crores only. During the last two quarters against a debit of Rs
1.75 crores towards interest the credits in X Ltd's account are to the tune of Rs 1.25 crores only. Based on
the certificate of lead bank, the bank has classified the account of X Ltd as performing. Advise your views

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