Borrowings

To verify borrowings during an audit, here are key steps categorized into existence, completeness, valuation, and disclosure requirements:

### A. Existence:

1. Board Minutes: Review minutes for approval of new lending agreements.

2. Loan Agreement: Verify details recorded with the agreement.

3. Leases and Hire Purchase: Match to underlying contracts.

4. Debentures: Examine trust deed for terms, redemption dates, and covenants compliance.

5. Discharge on Assets: Ensure a discharge is received when debt is retired.

6. Written Representation: Confirm that all recorded liabilities represent valid claims.

### B. Completeness:

1. Borrowing Schedule: Obtain a schedule showing balances and transactions for the year.

2. General Ledger: Trace closing balances to the ledger.

3. Subsequent Transactions: Review for unrecorded liabilities at year-end.

4. Confirmation Procedures:

- Send confirmation requests to lenders.

- Follow up on non-replies.

- Compare confirmation balances to books.

- Reconcile any differences.

### C. Valuation:

1. Accounting Policies: Ensure they are appropriate and consistently applied.

2. Loan Balances: Agree balances to loan agreements.

3. Interest and Redemption: Recompute interest, discounts, or premiums.

4. Amortization: Check computations.

5. Foreign Currency Loans: Verify exchange rates and restatement computations (AS 11).

6. Loan Covenants: Test compliance with covenants and provisions.

7. Loan Classification: Examine due dates for classification.

8. Instalments Disclosure: Verify amounts due within next 12 months.

9. Restrictive Covenants: Review and ensure disclosure.

10. Loan Agreement Terms: Examine and ensure statutory compliance.

11. Security Value: Check if loan is classified as secured only to the extent of market value.

12. Hire Purchase Agreements: Verify correctness and security aspects.

13. Related Party Borrowings: Ensure compliance with AS 18 or IND AS 24.

14. Bank Liabilities: Reflect correctly in financial statements.

15. Borrowing Powers: Verify within the company's powers.

16. Compliance with Companies Act: Check compliance with Sections 180, 185, and 186.

17. Purpose of Borrowing: Ensure it aligns with the company's interests.

18. Deposits Compliance: Verify compliance with RBI directives or other authorities.

### D. Disclosure Requirements:

1. Long-Term Borrowings: Classified as bonds, term loans, deferred liabilities, etc.

2. Security Classification: Specify nature of security.

3. Guaranteed Loans: Disclose aggregate amounts.

4. Bonds/Debentures: State interest rates and redemption details.

5. Redeemable Bonds/Debentures: Disclose reissue power.

6. Term Loans Repayment: State terms.

7. Default Period and Amount: Specify in the balance sheet.

8. Short-Term Borrowings: Classified as loans on demand, related party loans, etc.

9. Borrowings Usage: Disclose if not used for specific purposes.

### E. Additional Disclosure Requirements:

1. Quarterly Returns Agreement: Confirm with books of accounts.

2. Reconciliation Summary: Disclose discrepancies adequately.

By following these steps, auditors can ensure that borrowings are accurately recorded and disclosed in the financial statements.).