Page 297 - CA Final PARAM Digital Book.

➢ The ceiling on quantum of public deposits has been linked to its credit rating as given by an
approved credit rating agency. In the event of a upgrading/downgrading of credit rating,
the auditor should bear in mind that the NBFC will have to increase/reduce its public
deposits in accordance with the revised credit rating assigned to it within a specified time
frame and should ensure that the NBFC has informed about the same to the RBI inwriting.

➢ In the event of downgrading of credit rating below the minimum specified investment grade,
a non-banking financial company, being an investment and credit company or a factor, shall
regularise the excess deposit as provided hereunder:
• With immediate effect, stop accepting fresh public deposits and renewing existing
deposits;
• all existing deposits shall run off to maturity; and
• report the position within 15 working days, to the concerned Regional Office of the RBI
where the NBFC is registered.
• No matured public deposit shall be renewed without the express and voluntary consent
of the depositor.

QNO Investment Co (Audit)- Old Course – (M08R, N15E, SM17, N18R, M19M)
517.000 TITANIUM CNO—NBFC.240
You are appointed as the auditor of a NBFC which an Investment company is registered with RBI. What

shall be the special points to be covered for the audit of NBFC in case of Investment companies?
Answer INVESTMENT COMPANIES: -
(Buying & Selling)
➢ Verify the Board Minutes for purchase and sale of investments. Ascertain from the Board
resolution or obtain a management certificate to the effect that the investments so acquired are
current investments or Long-Term Investments.
➢ Test check bills/contract notes received from brokers with reference to the prices vis-à-vis the
stock market quotations on the respective dates.

(Conditions while Purchasing)
➢ NBFC Prudential Norms stipulates that NBFCs should not lend more than 15% of its Owned funds
to any single borrower and not more than 25% to any single group of borrowers. The ceiling on
investments in shares by a NBFC in a single entity and the aggregate of investments in a single
group of entities has been fixed at 15% and 25% respectively. Moreover, a composite limit of
credit to and investments in a single entity/group of entities has been fixed at 25% and 40%
respectively of the owned fund of the concerned NBFC. Verify that the credit facilities extended,
and investments made by the concerned NBFC are in accordance with the prescribed ceiling.
➢ Obtain a list of subsidiary/group companies from the management and verify the investments
made in subsidiary/group companies during the year. Ascertain the basis for arriving at the price
paid for the acquisition of such shares.
➢ Check whether investments in unquoted debentures/bonds have not been treated as
investments but as term loans or other credit facilities for the purposes of income recognition
and asset classification.
(Income)
➢ Verify that securities of the same type or class are received back by the lender/paid by the
borrower at the end of the specified period together with all corporate benefits thereof (i.e.
dividends, rights, bonus, interest or any other rights or benefit accruing thereon.)

(Verification / Confirmation / Valuation)
➢ Physically verify all the shares and securities held by a NBFC. Where any security is lodged with
an institution or a bank, a certificate from the bank/institution to that effect must be verified.
➢ In respect of shares/securities held through a depository, obtain a confirmation from the
depository regarding the shares/securities held by it on behalf of the NBFC.
➢ Check whether the investments have been valued in accordance with the NBFC Prudential
Norms Directions and adequate provision for fall in the market value of securities, wherever
applicable, have been made there against, as required by the Directions.
➢ An auditor will have to ascertain whether the requirements of AS 13 “Accounting for

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