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

Sunrise Finserve Ltd, a deposit-taking NBFC, appoints an internal auditor. Which area should the auditor give priority to when reviewing the company's loan portfolio for early signs of stress?

The internal auditor should prioritise ageing analysis of overdue loans and correct asset classification under RBI prudential norms. These directly show credit stress and provisioning adequacy in an NBFC, whereas stationery, trademarks or seating arrangements have no bearing on loan portfolio quality.

  1. AAgeing analysis of overdue loan accounts and timely classification of assets as per RBI prudential normsCorrect
  2. BReview of the office stationery purchase register
  3. CVerification of the company's trademark registration
  4. DChecking the seating arrangement of branch offices

Explanation

For an NBFC, credit quality is the core risk. Ageing of overdues and correct asset classification under RBI prudential norms reveal stress and under-provisioning early. The other options are peripheral and do not address portfolio risk.

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