Page 321 - CA Inter Audit PARAM

CA Ravi Taori
Answer Accounts regularized near the Balance Sheet Date: The asset classification of borrower accounts where a
solitary or a few credits are recorded before the balance sheet date should be handled with care and
without scope for subjectivity. Where the account indicates inherent weakness on the basis of the data
available, the account should be deemed as NPA.

The auditor should check for sample transactions immediately before the closing of the financial year and
immediately after the closing of the financial year to get a knowledge of the objective behind the
transactions if they have any relation to each other in the borrower accounts or if any/some transactions
are being reversed during the first few days after closing which might show an arrangement to prevent the
Borrower account(s) from slipping into the NPA category.

In the given case of Sidharth Industries, a payment of ₹ 10,00,000 was made on March 29, 2024 reducing
the outstanding loan balance to ₹ 40,00,000. and subsequently reversed by ₹ 8,00,000 on April 4, 2024.
Thus, Mahavir and Associates should carefully assess the classification of Sidharth Industries’ Account, and
determine if the payment and reversal transactions indicate an attempt to prevent the account from
slipping into the NPA category. If yes, the account should be classified as an NPA in compliance with
regulatory guidelines.

QNO Difference in provisioning of NPA- Secured/Unsecured Old Course-- (N19E/N21M/M22R)
BA.09 #Unique New Course – (J25R)
Agrim, a CA student, is part of an engagement team conducting audit of Madurai branch of ARB Bank. CA
Bhuvan, engagement partner, has asked him to verify provision made by branch as on March 31st, 2024
in respect of the following non-performing assets: -

Name of Account NPA classification Outstanding amount as Amount of provision
on March 31 2024 (In ₹ made (In ₹ lakhs)
st
Lakhs
AK Industries Doubtful (D1) 10.00 5.00
Jupiter Traders Substandard asset 50.00 7.50
VT & Co. Doubtful (D2) 30.00 30.00
ASD & Sons Loss 1.00 1.00

The engagement partner has already verified NPA classification. Outstanding amounts as on March 31st,
2024, relating to each NPA account listed above (except ASD & Sons) are fully secured. However, only
personal guarantee of proprietor (Net worth of proprietor ₹ 50 lakhs) is available in account of ASD & Sons.
Comment on the correctness of the above provisions.

Agrim is in dilemma regarding classification of above accounts as NPA although these are fully secured or
guaranteed. Guide him.
OR

"There is no difference in provisioning of NPA as regards to categories of NPA, whether the debt is secured
or unsecured." Critically evaluate the statement on the basis of provisioning norms of NPA of nationalised
bank.
The auditor is required to ensure that provision for NPA is made as per its classification in different categories
which are given as under:

Categories of Non-Performing Assets: Provision Required

 Substandard Assets:
Would be one, which has remained NPA for a 15%
period less than or equal to 12 months.

 Doubtful Assets:

www.auditguru.in 10.8