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AFF & Co.

Loans and advances F

Client______________________ Period:___/___/_____to___/___/_____
Location ______________

Objective-To ensure: (i) Completeness, Existence, Accuracy, Valuation, Ownership and


Presentation of reported balances; and (ii) Whether the internal controls are in operation.

Sr. Audit steps W.P.


No. ref./*
Lists of loans and advances
1. Obtain lists of loans and advances under the principal categories. The
lists should state the following information alongwith names of the
parties:
i) Balances considered good in respect of which the company is fully
secured.
ii) Amount and nature of security.
iii) Balances considered good for which the company holds no other
security other than the parties' personal security.
iv) Balances considered doubtful or bad.
Note: In addition to the above details, it may be necessary to obtain an
age-wise break-up of the outstanding balances and also balances for
which legal action have been initiated, etc. It may also be necessary
to obtain a break-up of the outstanding balances with reference to
individual amounts.
2 Cast the lists obtained in step 1 above. Extent of check:

Individual balances
3. Reconcile the control accounts in general ledger with the lists of individual
balances obtained in step 1 above.
4. Trace items on the lists with the detailed records and vice-versa. Extent of
check:
5. Trace the entries in the control accounts in general ledger with the detailed
records and vice-versa, and inquire into any unusual entries in the control
accounts. Extent of check:
(6)

* alternatively confirm with a tick mark ‘’ for audit steps where the preparation of a separate W.P. is
not relevant or state ‘NA’ if not applicable
Prepared by: Reviewed by:
A

Date: Date:
AFF & Co. Loans and advances F

Client______________________ Period:___/___/_____to___/___/_____
Location ______________

Sr. Audit steps W.P.


No. ref./*
Individual balances (contd.)
6. Verify items on the lists with supporting documentation and records. In
particular, include items for selection which are :
i) sufficiently material to the accounts to require further
validation;
ii) outstanding for a longer period than usual;
iii) disputed;
iv) arising from significant contracts; and
v) exceptional in nature.
Extent of check:
7. Check realisation or adjustment of balances subsequent to the year end.
Extent of check:
8. Confirmations
8a. Select the principal categories for which direct confirmations
are considered necessary and determine the method of confirmation
(positive, negative or a combination). The selection should include,
debit balance with suppliers, loans and advances to subsidiaries, loans
and advances to partnership firms in which the company or any
of its subsidiaries is a partner, balances with customs, port trusts,
etc., and bills of exchange. Extent of check:

8b. Send confirmation requests.


8c. Send reminders, where necessary.
8d. Complete the standard circularisation programme.
8e. Summarise confirmation results in standard format.
8f. Investigate discrepancies, if any.
(8g)

Confirmations (contd.)
* alternatively confirm with a tick mark ‘’ for audit steps where the preparation of a separate W.P. is
not relevant or state ‘NA’ if not applicable
Prepared by: Reviewed by:
A

Date: Date:
AFF & Co. Loans and advances F

Client______________________ Period:___/___/_____to___/___/_____
Location ______________

Sr. Audit steps W.P.


No. ref./*
8g. Consider whether the review of the results of circularisation indicate any
need to modify the validation procedure, herein contained. If so, list out
the additional steps which are to be carried out.

Doubtful accounts
9. Determine whether the list of doubtful accounts obtained in step 1
above, is complete and has been prepared after giving due consideration
to:
i) large balances;
ii) old balances;
iii) cash collections subsequent to the year end;
iv) accounts that appear to be disputed;
v) unusual variation in balances;
vi) any evidence of party’s inability to comply with credit terms; and
vii) any security given.
10. Where provisions have been made according to some formula, determine
whether the formula used is :
i) consistent with past years; and
ii) appropriate to the circumstances of the business.
11. Reconcile the current year’s list of doubtful accounts with that of the
previous year and inquire into items omitted.
(12)

Doubtful accounts (contd.)

* alternatively confirm with a tick mark ‘’ for audit steps where the preparation of a separate W.P. is
not relevant or state ‘NA’ if not applicable
Prepared by: Reviewed by:
A

Date: Date:
AFF & Co. Loans and advances F

Client______________________ Period:___/___/_____to___/___/_____
Location ______________

Sr. Audit steps W.P.


No. ref./*
12. Determine whether there are any doubtful accounts against which no
provision has been made.
13. Ensure that the provision for bad or doubtful advances has been shown as
a deduction from loans and advances.
14. Ensure that provision should not exceed the amount stated to be
considered doubtful or bad and if so, such surplus provision has been
shown under "reserves and surplus".
Accounts written off
15. Obtain a list of loans and advances written off and examine with the
supporting documentation and determine whether the write-offs were
properly authorised. Extent of check:
Bills of exchange
16. Inspect the bills held by the client as at the year end and determine
whether they appear, prima facie, to be in order. Where bills were held by
banks or other agents for collection or other purposes as at the year end,
obtain appropriate confirmations. Extent of check:

17. In respect of bills which have matured subsequent to the year end, ensure
that they were settled on due dates along with the interest thereon, by
checking the items in the bank book and the bank statement. Extent of
check:
18. In respect of bills which have not matured at the time of completion of the
audit:
18a. Inquire whether there is any reason to doubt their settlement in full on
due dates. Extent of check:
18b. Check the creditworthiness of the relevant party by reference to
correspondence, inspection of securities given or other evidence. Extent
of check:
(18c)

Bills of exchange (contd.)

* alternatively confirm with a tick mark ‘’ for audit steps where the preparation of a separate W.P. is
not relevant or state ‘NA’ if not applicable
Prepared by: Reviewed by:
A

Date: Date:
AFF & Co. Loans and advances F

Client______________________ Period:___/___/_____to___/___/_____
Location ______________

Sr. Audit steps W.P.


No. ref./*
18c. Inquire into bills which have been renewed on due dates. Extent of
check:
19. Determine the extent to which these bills are discounted or endorsed but
not due as at the year end. Ascertain the amount of contingent liability and
consider the possibility of an actual liability arising. Extent of check:

Loans (including inter - company deposits)


20. Obtain a list of loans and advances in the nature of loans.
21. Scrutinise the lists obtained in step 1 above in order to ensure
the completeness of the list of loans and advances in the nature of
loans.
22. Identify by scrutiny of the lists of sundry debtors and loans and
advances and the ledger balances whether any advances have been
given for a figure which is far in excess of the value of the orders or
for a period which is far in excess of the normal trade practice or any
other debit balances which could tantamount to loans, or advances in
the nature of loans. Ensure that such balances are included in the
list obtained in step 20 above. Extent of check:

23. Ensure that the loans made are within the powers of the company as laid
down in its memorandum and articles of association.
Secured loans and advances
24. Inspect the securities, collaterals and other documents of title and
ensure that the security in respect of secured loans and advances
is adequate and title is clear. Extent of check:

(24)

Secured loans and advances (contd.)

* alternatively confirm with a tick mark ‘’ for audit steps where the preparation of a separate W.P. is
not relevant or state ‘NA’ if not applicable
Prepared by: Reviewed by:
A

Date: Date:
AFF & Co. Loans and advances F

Client______________________ Period:___/___/_____to___/___/_____
Location ______________

Sr. Audit steps W.P.


No. ref./*
24. Notes i) A loan or an advance should be treated as secured only if assets,
whether or not belonging to the borrower, are charged in favour
of the company.
ii)Where a guarantee has been furnished in respect of a loan or
advance without the backing of a tangible security, it should be
ensured that it is classified as unsecured.
Balances on current account with directors and manager
25. Obtain balance confirmations in respect of balances on current accounts
with directors and manager.
26. Ensure that current accounts with directors and manager, whether
they are in debit or credit have been shown separately in the accounts.
Advances to staff
27. Obtain balance confirmations in respect of balances due by officers and
employees of the company. Extent of check:

Capital advances
28. Scrutinise the lists obtained in step 1 above and identify capital advances.
Ensure that such advances have been shown separately in the accounts.
Extent of check:
Agreement with the accounts
29. Agree the figures in the lists obtained in step 1 above with the accounts.
30. Ensure that the comparative figures in the accounts agree with the previous
year’s accounts.
31. Ensure that the inter-divisional balances are netted off and do not appear in
the accounts.
32. Ensure that the credit balances have been reclassified as creditors.
(33)

Special inquiries under Section 227 (1A)

* alternatively confirm with a tick mark ‘’ for audit steps where the preparation of a separate W.P. is
not relevant or state ‘NA’ if not applicable
Prepared by: Reviewed by:
A

Date: Date:
AFF & Co. Loans and advances F

Client______________________ Period:___/___/_____to___/___/_____
Location ______________

Sr. Audit steps W.P.


No. ref./*
33. Ensure that where loans and advances have been made by the company on
the basis of security, they have been properly secured and that they are not
prejudicial to the interest of the company or its members.
34. Ensure that loans and advances made by the company have not been
shown as deposits in the balance sheet.
Statutory compliance
35. Obtain a list of balances due by:
i) directors ;
ii) other officers of the company;
iii) or any of (I) or (ii) jointly with any other person or persons ;
iv) firms in which any director is a partner;
v) private companies in which any director is a director or a member; and
vi) other companies under the same management within the meaning of
section 370(1B) of the Companies Act, 1956, indicating the names of
companies concerned.
Attention is invited to the note under paragraph VII of the
MAOCARO validation programme.
36. Scrutinise the lists of loans and advances obtained in step 1 above and
ensure that the balances of directors and other officers of the company
have been appropriately disclosed in the accounts alongwith maximum
balances.
37. Examine the list of balances due by firms in which any director is a partner
and balances due by private companies in which any director is a director
or a member, obtained in step 35 above, by reference to the entries made
in the registers maintained under Sections 301(3) and 303 of the
Companies Act, 1956 and scrutinise the lists of loans and advances
obtained in step 1 above and ensure that the aforementioned type of
balances have been appropriately disclosed in the accounts.
(38)
Statutory compliance (contd.)

* alternatively confirm with a tick mark ‘’ for audit steps where the preparation of a separate W.P. is
not relevant or state ‘NA’ if not applicable
Prepared by: Reviewed by:
A

Date: Date:
AFF & Co. Loans and advances F

Client______________________ Period:___/___/_____to___/___/_____
Location ______________

Sr. Audit steps W.P.


No. ref./*
38. In respect of balances due from companies under the same management
obtain a certificate from the client listing out such companies and
scrutinise the list of loans and advances obtained in step 1 above
and ensure that such balances have been appropriately disclosed in
the accounts alongwith the names of such companies and maximum
balances.
39. Ensure that the board of directors have authorized the making of loans
under Section 292 of the Companies Act, 1956. Ensure that where the
board of directors have delegated to make loans, the resolution specifies
the total amount upto which loans may be made, the purposes for which
the loans may be made, and the maximum amount of loans which may be
made for each such purpose in individual cases.
40. Ensure that the borrowing companies have the power to borrow under their
memorandum and articles of association and whether appropriate
resolutions have been passed by such companies under Sections 292 and
293 (where applicable) of the Companies Act, 1956.
41. Ensure that prior approval of the Central Government, as required by
Section 295 of the Companies Act, 1956, has been obtained in respect of
any loans made to directors, etc.
42. Ensure compliance with the provisions of Section 372A of the Companies
Act, 1956.
43. Ensure compliance of AS 11 as applicable (refer AS checklist).
44. Ensure that disclosure in the accounts is in accordance with Part I of
Schedule VI to the Companies Act, 1956.
45. Ensure compliance with MAOCARO requirements (refer MAOCARO
checklist).
(46)

Further procedures

* alternatively confirm with a tick mark ‘’ for audit steps where the preparation of a separate W.P. is
not relevant or state ‘NA’ if not applicable
Prepared by: Reviewed by:
A

Date: Date:
AFF & Co. Loans and advances F

Client______________________ Period:___/___/_____to___/___/_____
Location ______________

Sr. Audit steps W.P.


No. ref./*
46. Set out below any further validation work required to be carried out on
loans and advances to take account of special aspects of the client's
business, any weaknesses and break down noted in the internal control.

(47)

47. Exceptions/matters for attention of the reviewer:

* alternatively confirm with a tick mark ‘’ for audit steps where the preparation of a separate W.P. is
not relevant or state ‘NA’ if not applicable
Prepared by: Reviewed by:
A

Date: Date:
AFF & Co. Loans and advances F

Client______________________ Period:___/___/_____to___/___/_____
Location ______________

Sr. Audit steps W.P.


No. ref./*
Audit Particulars of the exception giving Disposal
step no. financial impact

Conclusion:

* alternatively confirm with a tick mark ‘’ for audit steps where the preparation of a separate W.P. is
not relevant or state ‘NA’ if not applicable
Prepared by: Reviewed by:
A

Date: Date: