Page 275 - CA Final PARAM Digital Book.

has to be treated as NPA even if it remains would be reversed and would be taken to
overdue for more than 90 days and in case income only when it is realized.
of NPA, for the purpose of income
recognition, interest on such advance should
not be taken to income unless interest is
realized.
2 Accounts for which an ad hoc limit has not It’s treatment in the books would be changed
been reviewed for 180 days from the date of from performing asset to a non-performing
such ad hoc sanction, should be considered asset from the date when such change in the
as NPA. treatment was required
3 In case of sale of NPA, where the sale is for a The entry for reversal of the excess provision
value higher than the NBV, the auditor is would be cancelled in the books and such
required to ensure that no profit is excess provision would be retained to meet
recognized, and the excess provision has not the shortfall/ loss that may arise because of
been reversed but retained to meet the the sale of other non-performing financial
shortfall/ loss that may arise because of the assets.
sale of other nonperforming financial assets.
4 Additional temporary limit may be The terms of additional temporary limit in
sanctioned, for a maximum of 20% of the case of such account would be revised to 20%
existing limit and 90 days maximum tenure. of the existing limit and for 90 days maximum
tenure.
5 Net position in respect of each of the foreign The net “position” of the branch in relation to
currencies should be generally squared and each foreign currency should be squared off
should not be uncovered by a substantial and get covered by a substantial amount.
amount.

QNO Deficiencies in “credit appraisal New Course – (SM23)
454.550 TITANIUM CNO -- Unique
CA. Harshit is conducting statutory audit of branch of a public sector bank. On examining 20 large
advances of the branch, he finds that in 5 examined cases, loan applications have been filled up scantily
with important details left out. In these cases, it is also noticed that cash credit limits to the borrowers
were enhanced during the year but there are no records pertaining to assessment of enhanced working
capital requirements in respective borrower files. The branch is unable to show such
assessments/workings in system either.

However, all the five accounts are operating satisfactorily. These accounts have been classified as
standard assets by branch. Would above information prompt auditor to suggest change in asset
classification of above accounts? What does depicted situation reflect?
Answer An account becomes NPA when it ceases to generate income for bank. In the given situation, all the
examined five accounts are operating satisfactorily. There is no reason for suggesting changes in their
classification.

The matter of scantily filling up loan applications and lack for record for assessment of enhanced working
capital requirements shows that internal control over advances in branch is not proper. The above said
situation shows deficiencies in “credit appraisal” at branch level. Such deficiencies need to be highlighted by
auditor in LFAR.

Audit Procedures to check Compliance of Audit norms in Old Course – (N21M)
QNO
454.600 different situations. New Course – (SM23
TITANIUM CNO—BA.400
M/s Aadi & Co., Chartered Accountants, have been allotted the branch audit of a nationalized bank for
the year ended 31st March 2021. You are part of audit team and have been instructed by your partner to
verify the following areas:
(i) Fulfilment of the criteria prescribed for NPA norms for government guaranteed advance.
(ii) Fulfilment of the criteria prescribed for NPA norms for the advances given for agricultural purposes.

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