Page 300 - CA Final PARAM Digital Book.

have been made there against, as required by the Directions.
➢ An auditor will have to ascertain whether the requirements of AS 13 “Accounting for
Investments” (to the extent they are not inconsistent with the Directions) have been duly
complied with by the NBFC.

Securities Lending / Borrowing
➢ Verify charges received or paid in respect of securities lend/borrowed.
➢ Obtain a confirmation from the approved intermediary regarding securities deposited with/
borrowed from it as at they earned.
➢ 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.)

Loan Company Related Points
(Own Shares)
➢ Check whether the NBFC has not advanced any loans against the security of its own share.
(Internal Control System)
➢ An auditor should verify whether the NBFC has an adequate system of proper appraisal and
follow up of loans and advances. In addition, he may analyse the trend of its recovery
performance to ascertain that the NBFC does not have an unduly high level of NPAs.
(Sanction & Conditions Attached)
➢ An auditor should examine whether each loan or advance has been properly sanctioned. He
should verify the conditions attached to the sanction of each loan or advance i.e. limit on
borrowings, nature of security, interest, terms of repayment, etc.

➢ Check whether the NBFC has not lent/invested in excess of the specified limits to any single
borrower or group of borrowers as per NBFC Prudential Norms Directions.

(Security & Agreement)
➢ An auditor should verify the security obtained and the agreements entered into, if any, with the
concerned parties in respect of the advances given. He must ascertain the nature and value of
security and the net worth of the borrower / guarantor to determine the extent to which an
advance could be considered realisable.

(Classification)
➢ Check the classification of loans and advances (including bills purchased and discounted) made by
a NBFC into Standard Assets, Sub-Standard Assets, doubtful assets and loss assets and the
adequacy of provision for bad and doubtful debts as required by NBFC Prudential Norms
Directions

(Confirmation)
➢ Obtain balance confirmations from the concerned parties. (2 Special Lending)
(Bill Discounting)
➢ As regards bill discounting, verify that proper records/documents have been maintained for every
bill discounted/rediscounted by the NBFC. Test check some transactions with reference to the
documents maintained and ascertain whether the discounting charges, wherever, due, have been
duly accounted for by the NBFC.

Author’s Note:-
In this answer the points are simply combination of QNO 517.000 and 520.000.

QNO Report to BOD- Old Course – (N07E, M16E, PM17, M17E, SM21)
522.000 TITANIUM CNO—NBFC.320
List the matters to be included in the ‘Auditor’s report’ in the case of Non-Banking Financial Companies
(NBFCs).
OR
What are the specific matters to be included in auditor's report in an audit of Non -Banking Financial
Company (NBFC) not accepting public deposits?
OR
Karma Pvt Ltd is a Non-Deposit Taking Non-Systemically Important NBFC registered with Reserve Bank of

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