Page 297 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori
interest or any other rights or benefit accruing thereon.)

(CNO—NBFC.260) 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.

(CNO—NBFC.280) AUDIT CHECK-LIST FOR HIRE PURCHASE FINANCE COMPANY
Internal Control System: Ascertain whether the NBFC has an adequate appraisal system for extending hire
purchase finance. The system of appraisal is basically concerned with obtaining information regarding the
credit worthiness of the hirer, his experience in the field, assets owned, his past track record and future
projections of his income.
Acquisition of Asset: Verify that the payment for acquiring an asset should be made directly to the
supplier/dealer and that the original invoice has been drawn out in the name of the NBFC.
Registration Certificate: If the hire purchase finance is against vehicles, check whether the registration
certificate contains an endorsement in favour of the hire purchase company.
Insurance: Verify that the assets given on hire purchase have been adequately insured against.
Installation & Valuation Report: In the case of high value hire purchase items relating to
machinery/equipment, an auditor should ascertain whether the valuation reports and installation reports are
called for. In case of some high value items, he should also physically verify the asset in possession of the hirers,
particularly in a situation where he has any doubts as regards the genuineness of the transaction.
Instalments: Check whether hire purchase instalments are being received regularly as and when they fall due.
Check whether adequate provision has been made for overdue hire purchase instalments as required by the

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