Audit of Loans and Advances, GST ITC and Promoter Loans Disclosure

# Audit of Loans and Advances and Other Current Assets

## Existence — Direct Confirmation

Same procedure as Trade Receivables — send confirmation requests directly to borrowers/parties holding advances. Investigate non-replies.

## Completeness

• Obtain a list of all advances and compare with ledger balances.
• Verify loan agreements for outstanding loans.
• Confirm the loan is authorised by the Memorandum & Articles of Association (MOA & AOA).
• Inspect minutes of BOD meetings to confirm all material loans were board-approved.
• Verify the loan has been acknowledged by the borrower and is being recovered regularly.
• For related-party loans, review whether they were properly authorised and at arm's length.

## Special Procedure — GST Input Tax Credit (ITC) Refundable

• Prepare a reasonability analysis — apply the applicable GST rate to purchases and compare with ITC claimed.
• Obtain copies of statutory GST returns filed on the GST portal (GSTR-2B, GSTR-3B).
• If refund is still outstanding at year-end, verify book balance tallies with the refund claim filed.
• If refund is received subsequently, verify from the bank statement.

## Valuation

Same as Trade Receivables — assess recoverability and provide for doubtful advances.

## Disclosure — Loans to Promoters, Directors, KMPs and Related Parties

Where loans/advances in the nature of loans are granted to Promoters, Directors, KMPs, or Related Parties and are either:

• Repayable on demand, OR
• Without specifying any terms or period of repayment,

this disclosure is mandated:

## Why this Disclosure?

It exposes 'soft' related-party financing that may have been used to divert funds without formal terms — a common governance red flag.