Page 161 - CA Inter Audit PARAM

CA Ravi Taori
Examine trust deed for terms and dates of redemption, borrowing restrictions and
compliance with covenants.
Agree overdrafts and loans recorded to bank confirmation / confirmation to lenders.
When debt is retired, ensure that a discharge is received on assets securing the debt.

QNO B/S (Borrowing)- Old Course – (SM17/SM20/SM21)
AIFS.25 Bhaskar CNO - AIFS-P1.100 New Course – (S24E)
Alfa Limited has availed bank overdraft facility from a nationalized bank. The company received balance
confirmation certificate for bank overdraft balance as on 31.03.2024 from the bank.

Particulars Amount (₹)
Bank overdraft balance as per Bank Certificate 25,66,200/-
Bank overdraft balance as per Ledger 26,45,300/-
How will you vouch/verify borrowings from Bank taken by Alfa Limited?
OR
Borrowing from Banks.
Answer Vouching /Verification of borrowings from Bank: The auditor is required to roll out and obtain independent
balance confirmations in respect of all the borrowings from the lender (banks/ financial institutions etc.) and
perform the following:

• Ascertain that the confirmation asks for all information likely to be relevant to the tests of debt and
related interest balances (e.g., applicable interest rates, due dates, collateral and security interests).

• Send reminders for non-replies.

• Compare the balances as per the confirmations obtained to the books of the accounts. Ask for
reconciliations, if there are any differences and test the supporting documents for the reconciling
items on a test check basis.

• Reconcile the balances in the overdrafts or loan accounts with that shown in the pass book(s) and
confirm the last-mentioned balance by obtaining a certificate from the bank showing the balance in
the accounts as at the end of the year.

• Obtain independent balance confirmation from the bank showing balances, particulars of securities
deposited with the bank as security for the loans or of the charge created on an asset and confirm
that the same has been correctly disclosed and duly registered with Registrar of Companies and
recorded in the Register of charges.

• Verify the authority under which the loan or draft has been raised. In the case of a company, only the
Board of Directors is authorised to raise a loan or borrow from a bank.

• Confirm, in the case of a company, that the restraint contained in Section 180 of the Companies Act,
2013 as regards the maximum amount of loan that the company can raise has not been contravened.

• Ascertain the purpose for which loan has been raised and the manner in which it has been utilised
and that this has not prejudicially affected the entity.

QNO— Disclosure Related to Borrowing New Course – (SM25/N23E)
AIFS.25.20 Bhaskar CNO - AIFS-P1.100
A company has availed cash credit facility of ₹ 2 crore (O/s balance ₹ 2 crore as at year end) from a bank
for meeting its working capital requirements against security of stocks and debtors and guaranteed by
directors of the company. Discuss, how the above cash credit facility, would be classified and disclosed
in financial statements of company.
OR
How is "Short Term Borrowings" disclosed in the Financial Statements as required under Part I of
Schedule III to the Companies Act, 2013?
Answer Presentation & Disclosures - Short Term Borrowings;
Short-term borrowings shall be classified as;

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