Guidelines for Auditors in Verification of Loans from Banks and Subsidiary Company

Guidelines for Auditors regarding verification of Loans from Banks

An organization may enjoy a cash credit facility with a bank or avail Term loan from the bank.

In any case, the bank statement may be reconciled with the loan account and the balance at the closing of the year may be confirmed with the bank.

The details of the securities deposited with the bank may be verified by examining the Register of Charges, correspondence with the bank and the certificate obtained from the bank showing the details of security with them. In the case of companies, the auditor should ensure that the charges created on assets are duly registered with the Registrar of Companies and the particulars are disclosed in the Balance sheet.

The auditor should also verify that the amount borrowed is within the borrowing powers of the company as laid down by the Articles of Association and Memorandum of Association. He should also verify that the company has not contravened the restrictions laid down by Section 293 of the Companies Act, on the borrowings of the company.

The auditor should also examine the purpose for which the amount is borrowed and the amount is not used against the interest of the company.

Guidelines for Auditors regarding verification of Loans from Subsidiary Company

First and foremost, the auditor should examine whether the subsidiary company is authorized to lend to holding company.

The auditor should also examine the loan agreement and ensure that the terms of agreement relating to interest, repayment etc., are duly complied with.

The auditor should also verify the Balance sheet of Holding Company and its subsidiary company to ensure that the appropriate disclosure is made in them.

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