Page 293 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori
Unsecured portions of doubtful debts 100
Loss assets 100

Presentation of Provision for NPA:
The provision towards standard assets need not be netted from gross advances but shall be shown separately as
‘Contingent Provisions against Standard Assets’ in the balance sheet.

(CNO—NBFC.200) GENERAL AUDIT PROCEDURES
Registration with the RBI
Section 45-IA inserted by the RBI Act, w.e.f. 9th January 1997, has made it incumbent on the part of all NBFCs
to comply with registration requirements and have minimum net owned funds (NOF) of Rs 2 Crore.
Ascertaining the Business of the company
From MOA / AOA
The first step in carrying out the audit of a NBFC is to scan through the Memorandum and Articles of
Association of the company, to acquaint oneself with the type of business that the company proposes to
engage itself in. The Memorandum of Association of any company would be very wide. Companies
generally lend to specialise in and focus on a few select activities.
From Business Policy
An auditor should therefore make a careful study of the business policy of the company so as to
ascertain its principal business activities.

From Minutes
An auditor may also scan through the minutes of the Board/Committee Meetings and hold discussions
with the top-level management to ascertain the corporate business plan/strategy which would give him
a clear picture as to the principal objects of the company.
Independent Corroboration
An auditor should then independently corroborate his findings with the actual business done by the
company, as reflected by the company’s financial results.
Evaluation of Internal Control System
Responsibility with Management
The responsibility of maintaining an adequate accounting system incorporating various internal
controls to the extent appropriate to the size and nature of its business vests with the management.
Sound system will prevent fraud & help in smooth decision making.
A sound internal control system would enable an organisation to plug loopholes in its workings,
particularly in the detection of frauds and would also aid in timely decision making.
Auditor should obtain understanding.
An auditor should gain an understanding of the accounting system and related internal controls
adopted by the NBFC to determine the nature, timing and extent of his audit procedures.
Determine whether ICS is working effectively.
An auditor should also ascertain whether the internal controls put in place by the NBFC are adequate
and are being effectively followed.
NBFC Public Deposit Directions
Board Resolution Regarding Deposits
In the case of NBFCs not accepting/holding public deposits, check whether a board resolution has been
passed by the NBFC to the effect that it has neither accepted any public deposits, nor would it accept
any public deposits during the year.1
Deposit Limit depends on Credit Rating
The ceiling on quantum of public deposits has been linked to its credit rating as given by an approved

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