M/s Vishwacharya and Associates, a CA firm based in Orissa, is appointed as an auditor of CBF Bank for the financial year 2023-24. During the course…

M/s Vishwacharya and Associates, a CA firm based in Orissa, is appointed as an auditor of CBF Bank for the financial year 2023-24. During the course of audit, it came to notice that CBF Bank has sanctioned an overdraft facility of 75 lakh to Times Ltd. However, as per the stock statement furnished for the last quarter, the drawing power was calculated to be 50 lakh. It was observed that few advances were guaranteed by the: (i) Central Government as part of 'Make in India' initiative. However, the guarantee was not invoked, and the advances were overdue by 95 days. These advances were classified as standard assets and were regarded as NPA for income recognition purpose. (ii) State Government as part of power generation initiative. However, the guarantee was not invoked, and the advances were overdue by 80 days. These advances were also classified as standard assets and were regarded as NPA for income recognition purpose. Additionally, XYZ Ltd., is a borrower availing cash credit facility of 110 Lakh against security of paid stocks and debtors up to 90 days. Margin stipulated was 25% of stock as and 40% for debtors. Bank has calculated drawing power based on following information provided by XYZ Ltd. Particulars Amount (₹) Value of Stocks (as on 31.12.2023) 130 Lakh Value of Debtors (as on 31.12.2023) 75 Lakh Value of stocks (Fully damaged and included in (i) above) 7 Lakh Value of Debtors (exceeding 90 days included in (ii) above) 10 Lakh Value of creditors for goods 60 Lakh Also, the outstanding balance in one of the Loan accounts was 25 Lakh and the realisable value of the security as assessed by the bank / approved valuers was - 2.25 Lakh. Bank identified the same as erosion in the value of security. It was classified as doubtful category and provision was made for the doubtful assets. A discussion also took place among the team members regarding issuance of the audit reports after completion of the bank audit and annexure to the same such as Long Form Audit Report, Report on compliance with SLR Requirements, Report on Treasury Operations – as per RBI guidelines, Report on compliance as per Ghosh committee recommendations and Report on adverse credit - lending ratio in the rural areas, etc. Based on the above facts, answer the following: