Verification of Long Term Loans

Verification of Long Term Loans

Loans or Borrowings of a concern may be either secured or unsecured or may be for a short or long period.

Auditor’s Duty

The auditor while verifying loan in general has the following duties:

1. Verify Loan Agreement: The auditor should verify the loan agreement and refer to the correspondence for getting the loan.

2. Enquire Purpose of Loan: He should enquire the purpose or purposes for which loan has been raised and also confirm that the loan raised are being utilized for the specific purpose for which it is being obtained.

3. Examine Borrowing Powers: He should examine the borrowing powers of the company by referring to the Memorandum and Articles of Association of the company.

4. Disclosure in Balance Sheet: He should verify that secured loans are shown separately from unsecured loans and any interest due but not paid is treated as a current liability in the Balance Sheet.

5. Obtain Confirmation Letter: He should obtain confirmation letter from the parties who have advanced loans and should verify the balances with the books.