## Vouching / Verification of Bank Borrowings
When a company has taken loans or overdraft facilities from banks, the auditor must independently verify both the balance and the compliance aspects of those borrowings.
### Step-by-Step Audit Approach
Step 1 – Obtain Balance Confirmations
- Independently request balance confirmation certificates from all lenders (banks, FIs).
- Ensure the confirmation covers interest rates, due dates, collateral, and security details.
- Send reminders for non-replies.
Step 2 – Reconcile Balances
- Compare confirmation balances with the ledger.
- If differences exist, obtain a reconciliation and test supporting documents for reconciling items on a sample basis.
- Reconcile overdraft/loan accounts with passbooks; obtain a year-end certificate from the bank.
Step 3 – Verify Securities / Charges
- Confirm that securities pledged are correctly disclosed in the financial statements.
- Check that charges are registered with the Registrar of Companies and recorded in the Register of Charges.
Step 4 – Verify Authority
- For a company, only the Board of Directors is authorised to raise loans or borrow from a bank.
- Check that the borrowing has been authorised by a proper Board Resolution.
Step 5 – Check Section 180 Compliance
- Confirm the company has not exceeded the maximum loan limit prescribed under Section 180 of the Companies Act, 2013.
Step 6 – Purpose and Utilisation
- Ascertain the purpose for which the loan was raised and verify it has been utilised accordingly.
- Check that the loan has not prejudicially affected the entity.