CARO Reporting, help needed?

 Short term loans are usually designated for a purpose / hypothecated against a specific piece of equipment, in that case you assurity regarding the purpose for which the demand loan is used. For example if it's been used to buy say a specific equipment or machinery.

Basically go through the loan agreement or any agreement pertaining to the loan and understand where it's been utilized.

Any other opinions are welcome.

Dear Sir,

I think Dhruv has suggested a correct approach and I am just trying to give steps to that -

Step 1 - Try to know the purpose for which Short Term Loan was obtained - from "Board's Resolution, etc"

 It may for "Temporary/Permanent Working Capital" forced by temporary "liquidity crunch" or may be for any specific short term purpose like "Funds needed to buy Plant & machinery pending disbusement of Specific Loan {i:e Bridge loan}"

{I have specifically mentioned this case becos I thot Druv Bhai is in little bit confusion between "Long Term Assets" and "Long Term Purposes"  - since in above example funds utilized for P&M would also be treated as" Short Term Purpose"}

Step 2 -  Pick up the entire statement of Loan (which I believe there should be a separate Account)and try to see whether there was any payment from that account for any LONG TERM PURPOSE...Try to establisg Audit trail of payments.... 

Now this involves the auditor's judgment as to what could be said as "Long term Purpose" so will vary from case to case - One thing is to obatin clarification on each & every payment which was made for any purpose other than for which Loan was obtained...

Now things can be little bit difficult where payments have been made in "Cash" after withdrawing it from the BANK A/c- in that case "Verfication of Imperest statements, etc" can serve the purpose.

Step 3 - Though "Management representation" is not a substitute for an "audit evidence" but definately advisable to obtain in cases where auditor fails to see transparency, be it because of any limitation on his scope or for any other reason despite of applying "due diligence"

Amir Bhai, that's exactly what I was saying, incase the loans is say a short term loan hypothecated against an asset, then you can be sure the loan has been applied for a short term purpose.

But incase the loan is a working capital demand loan or bridge finance as you suggested in that case the audit trail of payments have to be established to verify usage for short term purpose.

Hi Amir,

can you explain me "Verfication of Imperest statements" means ? and example of such situations ?

HI Ameet,

"Verification of Imperest Statements" -  Where payments have been made in cash after drawing a consolidated sum from Bank A/c then you cannot establish the trail from the Bank Statement since you will find a "single entry" saying "cash withdrawan".

So in this case the "Break-up" of payments will be available with the person disbursing these payments (or maintaing imperest)..Now  this person must be maintaing "cash register" or "imperest statements" or whatever...Now periodically these amount must be posted in the accounts upon settlement of Imperest (say monthly or fortnightly basis)

So If you want to determine that for what purpose these payments were made then you have to see that cash register or imperest statements cos the deatails will not be available in Bank Statement.

So this is what I meant, if still you have anything to ask then pls feel free...........:)