# Audit of Advances in Banks
## Why Advances Matter
Advances generally constitute the major part of assets of a bank. Because there are many borrowers with a variety of advances granted, this area demands the auditor's primary attention.
## What the Auditor Seeks Evidence About
In carrying out the audit of advances, the auditor is primarily concerned with obtaining evidence about:
- Amounts included in the B/S in respect of advances which are outstanding at the date of the B/S
- Advances represent amounts due to the bank
- Amounts due to the bank are appropriately supported by loan documents
- There are no unrecorded advances
- The basis of valuation of advances is appropriate and properly applied
- The advances are disclosed, classified and described as per accounting policies
- Appropriate provisions towards advances have been made as per RBI norms
## How the Auditor Obtains SAAE (Sufficient Appropriate Audit Evidence)
By studying and evaluating the IC relating to advances and by:
- Examining validity of recorded amounts
- Examining loan documentation
- Reviewing operation of accounts
- Examining existence and valuation of security
- Checking compliance with RBI norms (classification + provisioning)
- Carrying out appropriate analytical procedures (AP)
## Coverage of Review
Advances which are sanctioned during the year or which are adversely commented by RBI inspection team, concurrent auditors, or bank's internal inspection should generally be included in the auditor's review.
## Two Specific Controls
| Control | Requirement |
|---|---|
| Computation of DP (Drawing Power) | Must be calculated as per extant guidelines formulated by BOD |
| Stock Audit | Must be carried out by the bank for all accounts having funded exposure of more than 5 crores |