Page 299 - CA Final PARAM Digital Book.

➢ Verify the lease agreement entered into with the lessee in respect of the equipment given on
lease.
(Insurance)
➢ Ascertain whether the NBFC has an adequate system for monitoring whether the assets have been
adequately insured against and regular maintenance of the leased assets is being carried out by
the lessee.

(Installation & Valuation Report)
➢ The auditor should verify whether there is an adequate system in place for ensuring installation of
assets and their periodical physical verification. In respect of some major transactions, an auditor
should arrange for physical verification of the leased assets so as to dispel any doubts that
equipment leasing finance was not extended without the corresponding assets being created.
(Accounting)
➢ An auditor should verify whether the AS issued by the Institute of Chartered Accountants of India
in respect of “Accounting for Lease” has been compulsorily followed.

QNO NBFC-Investment & Credit Company- Old Course – (N19R, N19M, SM21)
520.050 TITANIUM CNO—NBFC.240 New Course – (SM23)
Shivam & Co LLP are the auditors of NBFC (Investment and Credit Company). Some of the team members
of the audit team who audited this NBFC have left the firm and the new team members are in discussion
with the previous team members who are still continuing with the firm regarding the verification
procedures to be performed. In this context, please explain what verification procedures should be
performed in relation to audit of NBFC - Investment and Credit Company (NBFC-ICC).
Answer Investment Business Related Points
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
➢ 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.

Dividend & Interest
➢ Verify that dividend income wherever declared by a company, has been duly received by an
NBFC and interest wherever due [except in case of NPAs] has been duly accounted for.
➢ NBFC Prudential Norms directions require dividend income on shares of companies and units of
mutual funds to be recognised on cash basis.
➢ However, the NBFC has an option to account for dividend income on accrual basis, if the same has
been declared by the body corporate in its Annual General Meeting and its right to receive the
payment has been established.
➢ Income from bonds/debentures of corporate bodies is to be accounted on accrual basis only if
the interest rate on these instruments is predetermined and interest is serviced regularly and
not in arrears.

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,

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