Audit Checklist for Bank Advances: Loan Classification & Audit

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Advances are banks’ primary income source and are usually the largest item on their balance sheets. Therefore, the audit of advances is a critical aspect of bank audits and falls under the responsibility of Statutory Branch Auditors (SBA). To effectively carry out this task, auditors must possess sufficient knowledge about the banking industry and its regulations. SBAs should also understand the different functional areas, processes, procedures, systems, and internal controls related to advances in banks and branches. His audit report includes an examination of advances and identifies any discrepancies in the classification of assets and recognition of income. An audit checklist can help ensure that the audit covers all necessary areas. In this regard, the checklist has been prepared to aid in the audit of bank advances.

I. Whether the auditor reviewed and compared the date of NPA for loan accounts mentioned in the current year’s statements with those of the previous year and ascertain the reasons for any changes observed.

II. Has the auditor verified whether the bank has a system in place for the ongoing identification and classification of advances through CBS without manual intervention and whether this system accurately crystallizes the date of NPA.

III. Whether the auditor ensured that the drawing power is calculated in accordance with the extant guidelines as per the credit policy of the bank formulated by the Board of Directors and agreed upon by the concerned statutory auditors, as reflected in the respective sanction letters

IV. Has the auditor checked whether the NPA norms have been applied to all direct agricultural advances listed in the Master Circular on lending to the priority sector

V. Whether the auditor checked if accounts that have been regularized before the balance sheet date by payment of overdue amount through genuine sources have been treated as NPA or not

VI. Whether the auditor verified if the banks have furnished satisfactory evidence to the Statutory Auditors about the manner of regularisation of the account to eliminate doubts on their performing status.

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