During the audit of loan accounts of Worthy Bank for the year ended 31st March 2025, you come across a borrower account of Star Limited with an…

CA Final · Advanced Auditing, Assurance and Professional Ethics · RTP · January 2026
During the audit of loan accounts of Worthy Bank for the year ended 31st March 2025, you come across a borrower account of Star Limited with an outstanding loan of 1.70 crore, which was classified as NPA in December 2024. The borrower made a partial repayment of 70 lakh in March 2025, however, remaining amount 1 crore is still overdue. Despite this, the bank has upgraded the account to Standard as of 31st March 2025 in its books. As statutory auditor of Worthy Bank, what should be your observation regarding the classification of this loan account?
(A) The account is correctly upgraded, as partial repayment of 70 lakh was received before the balance sheet date.
(B) The account can be classified as Standard based on management's judgment of the borrower's repayment capacity.
(C) The account should continue to be classified as NPA, since the entire overdue principal and interest were not settled before 31st March 2025.
(D) The classification can be adjusted retrospectively if the full repayment is received in April 2025.

Suggested Answer and Working Notes:

Correct Answer: Option (C)

The account should continue to be classified as NPA, since the entire overdue principal and interest were not settled before 31st March 2025.

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

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