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CA Ravi Taori
NBFC Prudential Norms directions.
Method of Accounting: Examine the method of accounting followed by the hire purchase finance company
for appropriation of finance charges over the period of the hire purchase contract. Ascertain that there is no
change in the method of accounting as compared to the immediately preceding previous year.
Verification: The auditor should verify whether the NBFC has a system in place for verifying the hire purchase
assets periodically to ensure that the hirers have not sold the assets or otherwise encumbered them.
(CNO—NBFC.300) AUDIT CHECK-LIST FOR EQUIPMENT LEASING FINANCE COMPANY
Internal Control System: Ascertain whether the NBFC has an adequate appraisal system for extending
equipment leasing finance.
Agreement: 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.
(CNO—NBFC.320) AUDIT REPORT To BOD
Reporting to BOD / RBI: The recent RBI regulations have considerably increased the responsibility of
auditors of NBFCs. A very onerous task of reporting to the Board of Directors on certain specified matters and
to the RBI on an exception basis has been imposed upon him. This reporting requirement is in addition to the
normal reporting requirements to the shareholders under section 143 of the Companies Act, 2013. Auditors
will thus have to be very careful whilst carrying out audits of NBFCs to ensure that all matters which they are
required to take into consideration for the purposes of reporting to the RBI have been taken due care of.
RBI issued NBFC AR Directions 2016: The Reserve Bank of India (RBI) has issued Non-Banking Financial
Companies Auditor's Report (Reserve Bank) Directions, 2016 (the Directions) to auditor of every nonbanking
financial companies.
Duty of Auditor: The Directions shall apply to every auditor of a non-banking financial company as defined
in section 45 I(f) of the Reserve Bank of India Act, 1934. Auditors to submit additional Report to the Board of
Directors: In addition to the Report made by the auditor under Section 143 of the Companies Act, 2013
examined for every financial year ending on any day on or after the commencement of these Directions, the
auditor shall also make a separate report to the Board of Directors of the Company on the matters specified in
paragraphs 3 and 4 below.
Matters to be Included:
Material to be included in the Auditor's report to the Board of Directors: The auditor's report on the accounts
of a non-banking financial company shall include a statement on the following matters, namely –
1. All NBFCs:
In the case of all Non-Banking Financial Companies
Principal Business Test: In case of a company holding CoR issued by the Bank, whether that company is
entitled to continue to hold such COR in terms of its Principal Business Criteria (Financial asset/income
pattern) as on March 31 of the applicable year.
COR: Conducting Non-Banking Financial Activity without a valid Certificate of Registration (COR) granted
by the Bank is an offence under chapter V of the RBI Act, 1934. Therefore, if the company is engaged in the
business of non-banking financial institution as defined in section 45-I (a) of the RBI Act and meeting the
Principal Business Criteria (Financial asset/income pattern) as laid down vide the Bank's press release dated
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