Your firm ABC Associates is appointed as Central Statutory Auditors of a Nationalised Bank for the year 2023-24. The Bank follows the financial year…

CA Final · Advanced Auditing, Assurance and Professional Ethics · RTP · November 2024
Your firm ABC Associates is appointed as Central Statutory Auditors of a Nationalised Bank for the year 2023-24. The Bank follows the financial year as accounting year. During the audit, CA Aadi, the Audit Manager has noticed following issues and placed the same before the team. Particulars Consortium Cash Credit Facilities to Prime Ltd. 75 crores Bank's own Share in Cash Credit Facilities 15 crores Debits towards Interest in the Last Two Quarters 2.25 crores Credits in Prime Ltd.'s Account in the Last Two Quarters 1.75 crores Classification of Prime Ltd.'s Account (Based on Lead Bank's Certificate) Performing Account As an auditor, how will you deal with the above mentioned matter?

Suggested Answer and Working Notes:

The bank is a consortium member of cash credit facilities of 75crores to Prime Ltd. Bank's own share is 15crores only. During the last two quarters against a debit of 2.75 crores towards interest, the credits in X Ltd.'s account are to the tune of 1.75 crores only. Sometimes, several banks form a group (the 'consortium') under the leadership of a 'lead bank' to make advance to a large customer on same conditions and security with proportionate rights. In such cases, each bank may classify the advance given by it according to its own experience of recovery and other factors. Since in the last two quarters, the amount remains outstanding and, thus, interest amount should be reversed. This is despite the certificate of lead bank to classify that the account as performing. Accordingly, the amount should be shown as non-performing asset (NPA).

Topics: Special Features of Audit of Banks & Non-Banking Financial Companies

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