Page 280 - CA Final PARAM Digital Book.

Answer ➢ Audit of Advances of a Bank:

The items to be covered in the current audit of advances of a bank are as follows-
• Ensure that loans and advances are sanctioned properly.
• Verify whether the sanctions are in accordance with the delegated authority.
• Check whether letters of credit issued by the branch are within the delegated power and
ensure that they are genuine trade transactions.
• Verify the instances of exceeding delegate powers have been promptly reported.
• Verify the frequency and geniuses of such exercise of authority beyond to delegated
powers of the concerned officials.
• Ensure that securities and documents have been received and properly
charged/registered.
• Ensure that post disbursement supervision and follow up is proper
• Verify whether there is any misuse of loans and advances and whether there are instances
indicative of diversion of funds.
• Verify the classifications of advances are as per RBI directions.
• Ensure proper follow up of overdue bills of exchange.
• Verify whether the submission of claims to DICGC and ECGC is in time.
• Check bank guarantees issued are properly worked and recorded.
Authors Note
Question w.r.t Audit of Advances, ICS over advances and LFAR report over advances have similar points
So we have created a combined common answer and have arranged it in a logical sequence .
However original text has also been kept. Students can also read that if they want.
For common answer see after QNO 466.000

QNO Advances (ICS) Old Course – (M18R)
465.000 TITANIUM CNO—UNIQUE
Advances generally constitute the major part of the assets of the bank. There are substantial number of
borrowers to whom variety of advances are granted. The audit of advances requires the major attention
from the auditors.

As an expert in bank audit, you are required to briefly discuss the area of focus and suggested audit
procedures regarding evaluation of internal controls over advances, substantive audit procedures and
recoverability of advances
Answer • The bank should make advances only after satisfying itself as to the creditworthiness of the
borrowers and after obtaining sanction from the proper authorities of the bank.

• All the necessary documents (e.g., agreements, demand promissory notes, letters of
hypothecation, etc.) should be executed by the parties before advances are made.

• Sufficient margin should be kept against securities taken to cover any decline in the value thereof
and to comply with Reserve Bank directives. Such margins should be determined by the proper
authorities of the bank as a general policy or after detailed scrutiny for specific accounts.

• All the securities should be received and returned by responsible officer. They should be kept in
the Joint custody of two such officers.

• All securities requiring registration should be registered in the name of the bank or otherwise
accompanied by the documents sufficient to give title of the bank.

• All accounts should be kept within both the drawing power and the sanctioned limit as per
prescribed norms. Additional temporary limit may be sanctioned, for a maximum of 20% of existing
limit and 90 days maximum tenure.

• All the accounts which exceed the sanctioned limit or drawing power or are against unapproved
securities or are otherwise irregular should be brought to the notice of the Management/Head
Office regularly.

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