How Does An Auditor Examine The Loans Advanced By A Business Organization?

Almost all the financial institutions allow loans for an individual as well as for firms and thereby, extend their financial support for the procurement of any property or goods. Further, it is the duty of the auditor to see whether all these loans are properly used for the desired target.

General Duty of an Auditor

  • He has to verify whether the subject clause of the memorandum specifies granting of such loan types and if there exists a proper loan ledger that is updated till date.
  • Further, he has to proceed to check for the details of the security that is lodged against each applied loan. All the corresponding agreements need verification regarding the rate of interest along with the installment procedure, penalty and so on.
  • In addition to this, if any loan recovery seems to be difficult for the borrower, the associated auditor must ensure that the business organization makes the right provision for the expected loss.
  • It also comes in the duty of the auditor to examine whether the loan taken by the business firm is strictly connected with the business purpose or not. Forever, he has to ensure if the parties to whom the loan is advanced by the banking institution are in their regular payment mode in terms of principal and interest.

Loans against the security of land property or buildings

  • An auditor must thoroughly analyze the mortgage deed and must ensure if the property is registered in favor of the corresponding client.
  • He also needs to clarify the truthiness of the title deeds deposited with the mortgage deed.
  • If required, the auditor must step towards valuing the client’s certificates to ascertain if they are adequate in value and sufficiency of the security.
  • Apart from this, he has to confirm whether the property is properly insured and all the insurance premiums have been funded in time. Along with this, the detailed examination of the borrower’s title associated with the property can also be tested.
  • If in case, the mortgage seems to be the second type, then the auditor needs to clarify whether the same was purchased with the knowledge of the primary mortgagee or not. If so, the auditor must take the acknowledge of the ownership title deeds and other documentation needed from the primary mortgagee. Doing so can avoid any sort of clashes to be occurring in the future regarding the property.