CA Purva is working as Credit manager in branch of ADC Bank Limited. A company has approached the branch for a request to sanction credit facilities…
CA Final · Advanced Auditing, Assurance and Professional Ethics · MTP · September 2025
CA Purva is working as Credit manager in branch of ADC Bank Limited. A company has approached the branch for a request to sanction credit facilities worth 12 crore for meeting usual business requirements. As part of the appraisal process, CA Purva undertakes a comprehensive review which includes: Examining the past history of the company and background check of its promoters and directors.Review of the shareholding structure and understanding the nature of company's business.Analysis of the company's past financial statements along with its future financial projections.SWOT analysis to evaluate the company's internal and external position.Assessing the net worth of the directors, reviewing their CIBIL scores, and verifying if their names appear in the RBI's defaulter list.Discreet inquiries from existing clients of the branch engaged in a similar line of business to assess the creditworthiness of the company its promoters and directors. What is the nature of the activity being performed by CA Purva? Discuss its nature.
Suggested Answer and Working Notes:
The activity described in the situation is Due diligence. Due diligence is a measure of prudence activity, or assiduity, as is properly to be expected from, and ordinarily exercised by, a reasonable and prudent person under the particular circumstance, not measured by any absolute standard but depending upon the relative facts of the case. It involves a careful study of financial and non-financial possibilities. Due diligence is a process of investigation, performed by investors, into the details of a potential investment such as an examination of operations and management and the verification of material facts. It entails conducting inquiries for the purpose of timely, sufficient and accurate disclosure of all material statements/information or documents, which may influence the outcome of the transaction. Due diligence involves a careful study of the financial as well as non-financial possibilities for successful implementation of restructuring plans. Due diligence involves an analysis carried out before acquiring a controlling interest in a company to determine that the conditions of the business conform with what has been presented about the target business. Also, due diligence can apply to recommendation for an investment or advancing a loan/credit.
Topics: Due Diligence, Investigation & Forensic Audit
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