During the statutory audit of Surat branch of Worthy bank, the auditor observes that the Surat branch has created a single uniform provision of…

CA Final · Advanced Auditing, Assurance and Professional Ethics · MTP · January 2026
During the statutory audit of Surat branch of Worthy bank, the auditor observes that the Surat branch has created a single uniform provision of 0.40% on all standard advances, without classifying them sector-wise. On inquiry, the branch manager explains that since all accounts are standard, there is no need to apply different provisioning rates Which of the following would be the most appropriate response by the auditor in this situation?
(A) Accept the provision as adequate since it covers all standard assets uniformly.
(B) Provision for standard assets is required to be made at variable rates in respect of different sectors for the funded outstanding in accordance with RBI norms as a matter of prudence.
(C) Ignore the issue as it is a minor classification matter not affecting total advances.
(D) Accept management's judgment and only verify that total provision has been made.

Suggested Answer and Working Notes:

Correct Answer: Option (B)

Provision for standard assets is required to be made at variable rates in respect of different sectors for the funded outstanding in accordance with RBI norms as a matter of prudence.

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

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