Page 295 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori
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.
• After the giving advances / investment
o Income recognition (Advances);

Auditor should ensure that unrealized income from non-performing assets has not been
taken to Statement of Profit and Loss.
o Income from investments;
NBFC prudential norms directions require dividend income on shares of companies and

units of mutual funds to be recognized on cash basis.
o Asset classification
- The auditor should verify the classification of advances and loans as standard/
substandard/doubtful/loss and that proper provision has been made in accordance
with the directions.

- The auditor should check all NPAs of the previous years to verify whether during
the current year any payments have been received or still they continue to be NPA
during the current year also.

o Provision for bad and doubtful debts;
o Capital adequacy norm;
o Investment Valuation
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.
Core Investment Company
Board Resolution regarding Investment
In the case of Group Holding Investment Companies, check whether the NBFC has passed a board resolution
to the effect that the company has invested or would invest/hold its investments in share and securities of
group companies specifying the names of the companies. In addition to the above, group holding investment
companies are required to give a further undertaking that it would not trade in such shares/securities and that
it has neither accepted, nor would it accept any public deposits during the year.

(CNO—NBFC.220) CLASSIFICATION OF FRAUDS (NBFC)
Classification of Frauds by NBFC (RBI Circular July 2015)
In order to have uniformity in reporting, frauds have been classified as under based mainly on the provisions
of the Indian Penal Code:
(a) Misappropriation and criminal breach of trust.
(b) Negligence and cash shortages.
(c) Fraudulent encashment through forged instruments, manipulation of books of account or through
fictitious accounts and conversion of property.
(d) Unauthorized credit facilities extended for reward or for illegal gratification.
(e) Cheating and forgery.
(f) Irregularities in foreign exchange transactions.
(g) Any other type of fraud not coming under the specific heads as above.

Cases of ‘negligence and cash shortages’ and ‘irregularities in foreign exchange transactions’ referred to in items
(b) and (f) above are to be reported as fraud if the intention to cheat/ defraud is suspected/ proved.
However, the following cases where fraudulent intention is not suspected/ proved, at the time of detection, will

www.auditguru.in 14.39