Skip to content

CS Professional · Internal and Forensic Audit · Special Points relating to Internal Audit in various Entities

An internal auditor of Medha Capital Ltd, an NBFC, finds that a loan overdue beyond the regulatory NPA threshold continues to be shown as a standard asset in the system because collection staff manually override the status after receiving small token payments just before month-end. What is the most appropriate audit response?

The auditor should report the practice as an override risk that understates NPAs and provisions, examine override logs for all accounts, and recommend system-driven asset classification with supervisory approval for manual changes. Token payments do not cure the default, and internal audit cannot defer to the statutory auditor.

  1. AReport it as a control override risk causing understatement of NPAs and provisions, test override logs for all accounts, and recommend system-enforced classification with approval for any manual changeCorrect
  2. BAccept the practice since some payment was received
  3. CIgnore it because asset classification is solely the statutory auditor's concern
  4. DAdvise the company to stop recording token payments

Explanation

Token payments to dodge NPA classification, termed evergreening-type window dressing, understate NPAs and provisions. The auditor should test override logs across the population and recommend automated classification with authorised exceptions. Internal audit is not excused by statutory audit, and stopping receipts would be absurd.

Did you get it right without looking?

One question tells you little. A timed set on Special Points relating to Internal Audit in various Entities shows your real accuracy, how long you take and where you lose marks.

Practise Special Points relating to Internal Audit in various EntitiesFree diagnostic mock

More Special Points relating to Internal Audit in various Entities questions