CA Inter P5 · Chapter 10 · Question 10 of 11
Just before the year-end, a bank sanctioned a fresh loan to a borrower whose existing account was overdue for more than 90 days, and used the proceeds solely to clear the overdue interest and instalments. The auditor should:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Treat the arrangement as evergreening, disregard the apparent recovery, and classify the account as NPA
Explanation
Funding overdue interest or instalments through fresh or additional loans, without genuine recovery from the borrower's own resources, is evergreening. It conceals the NPA status and inflates income. The auditor should treat the account as NPA, reverse any income recognised from such adjustments and report the matter appropriately.
More Audit of Banks MCQs
- Q1The statutory auditor of a banking company is appointed in accordance with:
- Q2Under the RBI prudential norms, a term loan becomes a non-performing asset when:
- Q3A borrowal account of a bank became a non-performing asset on 30 June 2024 and has remained NPA continuously since then, with no…
- Q4Under RBI norms, a cash credit or overdraft account is treated as 'out of order' when:
- Q5The Long Form Audit Report (LFAR) in a bank audit is: