Page 276 - CA Final PARAM Digital Book.

(iii) Drawing power calculation from stock statements in respect of working capital accounts.
(iv) Accounts where regular/ad hoc limits are not reviewed within 180 days from the due date/date of ad
hoc sanction. What may be your areas of concern as regards matters specified above?
Answer Area of Focus Suggested Audit Procedures
Government Guaranteed • If government guaranteed advance becomes NPA, then for the
Advances purpose of income recognition, interest on such advance should not to
be taken to income unless interest is realized. However, for purpose of
asset classification, credit facility backed by Central Government
Guarantee, though overdue, can be treated as NPA only when the
Central Government repudiates its guarantee, when invoked. This
exception is not applicable for State Government Guaranteed advances,
where advance is to be considered NPA if it remains overdue for more
than 90 days.

• In case the bank has not invoked the Central Government
Guarantee though the amount is overdue for long, the reasoning for the
same should be taken and duly reported in LFAR
Agricultural Advances • Ensure that NPA norms have been applied in accordance with the
crop season determined by the State Level Bankers’ Committee in each
State. Depending upon the duration of crops – short term/ long term -
raised by an agriculturist, the NPA norms would also be made applicable
to agricultural term loans availed of by them. Also ensure that these
norms are made applicable to all direct agricultural advances listed in
Master Circular on lending to priority sector.

• In respect of agricultural loans, other than those Specified in the
circular, ensure that identification of NPAs has been done on the same
basis as non agricultural advances
Drawing Power • Ensure that the drawing power is calculated as per the extant
Calculation guidelines (i.e. the Credit Policy of the Bank) formulated by the Board of
Directors of the respective bank and agreed upon by the concerned
statutory auditors. Special consideration should be given to proper
reporting of sundry creditors for the purposes of calculating drawing
power.

• The stock audit should be carried out by the bank for all accounts
having funded exposure of more than stipulated limit. The report
submitted by the stock auditors should be reviewed during the course
of the audit and special focus should be given to the comments made by
the stock auditors on valuation of security and calculation of drawing
power.

The drawing power needs to be calculated carefully in case of working
capital advances to companies engaged in construction business. The
valuation of work in progress should be ensured in consistent and proper
manner. It also needs to be ensured that mobilization advance being
received by the contractors is reduced while calculating drawing power.
Limits not reviewed Accounts where regular/ad hoc limits are not reviewed within 180 days
from the due date/date of ad hoc sanction, should be considered as NPA.
Auditors should also ensure that the ad hoc/short reviews are not done on
repetitive basis.

In such cases, auditor can consider the classification of account based on
other parameters and functioning of the account.

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