# Audit of Borrowings

## Audit Procedures by Assertion

### Existence

Review board minutes for approval of new lending agreements.
Agree details of loans recorded to loan agreement.
Roll out and obtain independent balance confirmations from lender.
Agree details of leases and hire purchase to agreements.
In case of Debentures, examine trust deed for terms and dates of redemption.
When debt is retired, ensure that discharge is received on assets securing debt.
Obtain Written Representation that all liabilities recorded represent valid claims by lenders.

### Completeness (Direct Confirmation Procedures)

Roll out independent balance confirmations in respect of all borrowings from lender.
Ensure confirmation asks for all info for tests of debt.
Send reminders for non-replies.
Compare balances as per confirmations obtained to Books of Accounts.
Ask for reconciliations for any differences.

### Valuation

Determine that accounting policies for recording debt are appropriate and applied consistently.
Agree loan balance and loan payables to loan agreement.
Recompute interest and premium on redemption.
Check computation of amortization of premium.
For foreign currency loans, check closing exchange rate used.

## Disclosure Requirements

### 1. Short Term Borrowings - Classification

Loans repayable on demand - from banks and from other parties
Loans and advances from related parties
Deposits
Other loans and advances

### 2. Secured vs Unsecured

Borrowings shall be further sub-classified as secured and unsecured.

### 3. Loans Guaranteed by Directors or Others

Aggregate amount of such loans under each head shall be disclosed.

### 4. Default Disclosure

Period and amount of default as on Balance Sheet date in repayment of loans and interest shall be specified.

### 5. Current Maturities

Current maturities of long-term borrowings shall be disclosed separately.

### 6. Utilisation Disclosure

Where company has NOT used borrowings for the specific purpose for which taken, company shall disclose details of where they have been used.

### 7. Security of Current Assets

Where company has borrowings from banks on the basis of security of current assets:

Disclose whether quarterly returns of current assets filed are in agreement with BoA.
If not, summary of reconciliation and reasons of material discrepancies to be disclosed.

### 8. Wilful Defaulter

Where company is declared Wilful Defaulter by any lender, following details shall be given:

Date of declaration as wilful defaulter
Details of defaults (amount and nature of defaults)

Worked example

### Example 1

Example - Confirmation reconciliation: ABC Ltd's books show loan balance from PNB Bank of Rs. 5 crore at year-end. Confirmation received from PNB shows Rs. 5.05 crore. Auditor requests reconciliation - difference of Rs. 5 lakhs is interest accrued but not provided. Auditor reports this as audit adjustment.

### Example 2

Example - Quarterly returns vs BoA: XYZ Ltd has cash credit facility from SBI secured against inventory and debtors. Quarterly stock statement filed with bank shows inventory of Rs. 8 crore. BoA shows inventory of Rs. 6.5 crore. Disclosure must include this Rs. 1.5 crore discrepancy with reasons (e.g., goods sent to job worker reported in bank statement but reduced in books).

### Example 3

Example - Wilful defaulter: ABC Ltd was declared a wilful defaulter by HDFC Bank on 15 January 2026 for non-payment of Rs. 10 crore loan. Disclosure must include: Date of declaration (15 Jan 2026), Amount of default (Rs. 10 crore), Nature (Loan principal + interest).

⚠️ Common exam mistakes

Sending confirmations only for large balances - all borrowings should ideally be confirmed
Not separately disclosing current maturities of long-term borrowings - this is mandatory
Forgetting to verify foreign exchange rate used for foreign currency loans at year-end
Not reconciling discrepancies between quarterly returns filed with banks and books of accounts
Skipping the wilful defaulter disclosure - this is a relatively new but critical disclosure requirement

Reference: Schedule III - Disclosure for Borrowings — Companies Act, 2013

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