12/2/22, 3:07 PM CHECKLIST OF STATUTORY AUDIT OF NBFC’s | CA Rajput Jain

checklist-of-statutory-audit-of-nbfcs

CHECKLIST OF STATUTORY AUDIT OF NBFC’s

Page Contents
1. OVERVIEW OF CHECKLIST OF STATUTORY AUDIT OF NBFC
1. Statutory Audit
2. CHECKLIST OF STATUTORY AUDIT FOR NBFCs
1. Hire Purchase Finance Companies Statutory Audit Checklist
2. Equipment Leasing Company Finance Company Statutory Audit Checklist

OVERVIEW OF CHECKLIST OF STATUTORY AUDIT OF NBFC

The difference between NBFC and bank has remained very little because of the dynamic growth of NBFC during past years NBFC do not
have banking license as banks but they do provide certain financial services.
NBFC are registered under companies’ act 2016 and provide financial support by giving loans and advances, acquire securities etc.
NBFCs required to obtain a Statutory Auditor certificate that they are engaged in non-banking financial institutions holding a certificate of
registration u/s 45-IA of the RBI Act, 1934,
An audit is an essential requirements for functioning of a NBFCs company. An audit is as important in an NBFC as in a company.
A licensed has to be procure by NBFC that they are engaged in business of non -banking financial institution under Section 45-IA of the RBI
Act, 1934,

Statutory Audit

It is a Mandatory Audit by law/statute. It is conducted every Financial Year and it is important audit for the finalization of NBFC balance
sheet.

CHECKLIST OF STATUTORY AUDIT FOR NBFCs 

Guidelines that auditor shall follow at the time of statutory audit of NBFCs.

1. All the shares and securities are to be physically verified by the statutory auditor. In case any security is kept with any bank or institution,
a certificate regarding the same shall be verified.
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2. Auditor also need to verify the investment made and credit facilities extended by NBFC are within limits. As per the rules & regulations of
NBFC prudential norms, the NBFC can lend money not more than 15% of its funds to single borrower and not more than 25% to a group of
single group of borrower.
3. The Statutory auditor shall also verify any loans against its own securities/ shares/assets.
4. Auditor shall also verify that contracts notes/ bills/ invoices from bankers about the prices concerning the stock market quotations on
respective point of time/dates.

Note: RBI has merge 3 kind/categories of NBFC i.e loan companies, Asset finance company, & investment companies into an NBFC – Investment
and credit company ( NBFC-ICC).

5. Auditor shall check that the investment made are as per prudential norms issued By RBI. The adequacy of applicable provision in fall in the
market value of security shall also be considered.
6. List down the group companies or subsidiaries from the NBFC management, also the investment made in group company or subsidiary.
7. Statutory auditor has to ensure that Indian Accounting standard (AS) 13 “Accounting for Investment” shall be complied with requirements
of the NBFC.
8. Auditor shall get a confirmation from the approved intermediary regarding the securities deposited with/from it, at the end of the year.
9. The auditor shall also verify the validity of loans or advances sanctioned properly or not, and the conditions attached thereto which
includes interest, terms of repayment, a limit on borrowings etc.
10. Auditor shall also check the validity of securities obtained and signed agreements if any. The auditor shall find out the net worth, nature of
borrower & value of security.
11. Auditors will also confirm the balance with concerned parties of NBFC’s .
12. Whether the NBFC has let/ invested in excess of specified limit to a single borrower or a group of borrowers as per NBFC Prudential Norms
Directions. shall be verified by the auditor
13. Proper Checking must be done by statutory auditors that NBFC shall not have advanced any loans against its own security/shares.
14. A proper appraisal system under the NBFC shall be verified by Statutory auditor. To check the undue high level of Non-Performing Assets,
Statutory auditor should also analyses the trend of its recovery performance.

Hire Purchase Finance Companies Statutory Audit Checklist

1. NBFC shall have adequate system of appraisal for extending Hire purchase Finance. The appraisal system is essential to procure
information regarding the reliability & adequate creditworthiness of the hirer, experience of the hirer and the assets owned.
2. Auditor shall also consider that the payment to buy any asset should be made directly to the supplier/ dealer/ vendor. There shall be
original invoice in the name of NBFC only.
3. Audit shall Physically verify the whole transaction when there is hire purchase of high value items like machinery and other equipment, in
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case the auditor does not find it reliable.
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4. Whether the assets given on hire purchase are insured or not shall be verified by the Statutory Auditor.

Equipment Leasing Company Finance Company Statutory Audit Checklist

1. NBFC shall consider whether it has a sufficient appraisal system for extending equipment leasing finance.
2. It has to be duly verify & confirm by an Auditor that whether or not the NBFC has adequate systems for monitoring, and whether the assets
are properly insured against. The auditor also has to make sure that the lessee is maintaining the leased assets.
3. The lease agreement that has been entered into with lessee in regard with equipment given on lease shall be verified with Statutory
Auditor of company.

In Summary

Every Financial Year NBFC has to go through audit to make sure that they have compiled with all the norms so that it can avoid any kind of
penalty. A statutory audit is compulsory, on the other hand internal audit is not. NBFC shall keep in mind the checklist that is provided by the
statutory audit in order to make sure that the accounts are correct, reliable & authentic.

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