Skip to content

CMA Intermediate · Corporate Accounting and Auditing · Auditing of Different Types of Undertakings

In the audit of a bank's advances, which procedure gives the auditor the most direct evidence that a loan is properly secured and correctly classified?

The most direct evidence comes from examining the security documents and valuation reports and testing the recorded overdue status of the loans, because this verifies both the existence of security and correct NPA classification, unlike representations or general analytical comparisons.

  1. AExamining the security documents and valuation reports, and testing the recorded days overdueCorrect
  2. BObtaining a management representation that all loans are good
  3. CComparing interest income with the previous year
  4. DReviewing the bank's advertising of loan products

Explanation

Inspecting security documents, valuations and overdue ageing is direct, reliable evidence of existence of security and correct asset classification. Management representations alone are weaker, and year-on-year comparison or advertisement review does not verify classification.

Did you get it right without looking?

One question tells you little. A timed set on Auditing of Different Types of Undertakings shows your real accuracy, how long you take and where you lose marks.

Practise Auditing of Different Types of UndertakingsFree diagnostic mock

More Auditing of Different Types of Undertakings questions