AUDIT PROGRAM

CLIENT: ___________________________________________________________ J/AP/1

PERIOD: ___________________________________________________________

SUBJECT: LONG-TERM LOANS AND ADVANCES

Est. Phase/ W/P

Procedures By Comments/Explanations
Hrs. Level Ref.
AUDIT OBJECTIVES

To determine whether :

A. Loans and advances represent all amounts that can

reasonably be expected to be realized through future
operations or otherwise and are properly recorded.
B. Interest on loans and advances, if any, has been
properly calculated and recorded.
C. Loans and advances are properly described and
classified, and adequate disclosure with respect to
these amounts have been made.
D. Allowances for doubtful debts are adequate.

SUBSTANTIVE PROCEDURES

1. Overall Analytical Review

1.1 Obtain a detailed schedule of loans and advances.

1.2 Compare current year balance with prior year and
investigate major fluctuations.

2. Circularization

2.1 Select a sample of loans receivable from the detailed

trial balances for confirmation. Particularly include
any identified related party without exemption.
2.2 Have the client prepare confirmation requests. Obtain
requests and prepare confirmation control. Send first
requests. Retain copies.
2.3 Follow-up on confirmation requests and send second
and third requests as required.
2.4 Upon receiving confirmation replies, update the
confirmation control and file the replies as clean;
clean, with gratuitous comments; and exceptions.
2.5 Prepare confirmation summary.
2.6 Have client reconcile exceptions (consider using
Standard Reconciliation Form. Verify the clerical
accuracy of the reconciliations and review for
completeness. Examine support for reconciling items,
(Scope/Sample:________).
2.7 Consider covering in covering letter if the significant
amounts are not confirmed.

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 AUDIT PROGRAM
CLIENT: ___________________________________________________________ J/AP/1

PERIOD: ___________________________________________________________

SUBJECT: LONG-TERM LOANS AND ADVANCES

Est. Phase/ W/P

Procedures By Comments/Explanations
Hrs. Level Ref.
3. Subsequent realisation and other tests

3.1 For non-replies, RPOs (returned by post office)

perform procedures in lieu of circularization.
3.2 Have the client list subsequent cash collections for all
loans over Rs.____. Trace subsequent collections to
the cash receipts records. (Scope/Sample:_______).
Ensure that receipts are not against subsequent
advances.
3.3 Verify closing balances and movements during the
period by examining critical forms and documents and
ensure that all transactions are properly supported.
Obtain confirmations of all significant outstanding
balances.
3.4 Scan general ledger for any unusual transactions and
loans granted and recovered during the period. Select
a sample of transaction from the general ledger
(Scope/Sample:_____) to ensure proper compliance of
the Companies policies and laws and regulations.
3.5 Ensure employees are valid employees of the
company by ensuring they are included on the latest
available payroll listing.
3.6 In respect of the `advance for expenses’ review the
listing for unusual items, and investigate as
appropriate. Ensure that expense advances of are
supported by authorized subsequent invoices and that
the services obtained relate to the period.
3.7 In respect of the employee loans, vouch balances to
the loan agreement. For each balance ensure, by
review of personnel records, cash books and loan
agreements, that the employee is making repayment in
accordance with the loan agreement.
3.8 Review for concentration of loans with one borrower.
Consider the possibility that additional loans made to
borrower are not adequately secured or loan is
obtained for identifiable business purpose.

4. Terms and Conditions

4.1 For all loans and advances, obtain loan agreements

and review the adequacy of the documentation and
make extracts, and ensure that they are in accordance
with the Company’s policies.

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 AUDIT PROGRAM
CLIENT: ___________________________________________________________ J/AP/1

PERIOD: ___________________________________________________________

SUBJECT: LONG-TERM LOANS AND ADVANCES

Est. Phase/ W/P

Procedures By Comments/Explanations
Hrs. Level Ref.
4.2 Check whether the terms and conditions of the loans
are softer than those generally prevalent in the trade.
If so, then inquire the reasons from the management
and obtain a written representation from the
management specifying the reasons for the softer
terms of the loans and ensure that proper disclosure in
the financial statement is made as per the
requirements of the Companies Ordinance,
1984,Banking Companies Ordinance and/or other
laws and regulations and relevant IAS.
4.3 For loans/advances to directors, chief executives,
managing agents and employees of the Company
ensure that the loan and the terms and conditions are
in agreement with the rules and regulations of the
Company. Ensure that proper disclosures are made.
4.4 Ensure compliance of section 208 and 195 of the
Companies Ordinance, 1984,Banking Companies
Ordinance and/or other laws and regulations and
relevant IAS.
4.5 For loans to subsidiaries, Directors and Executives
scan general ledger to determine the maximum
amount outstanding at any month end.
4.6 Determine whether the amounts are of a long-term
nature and are properly classified in the financial
statements.
5. Bank Loans

5.1 Select a sample of loans extended or renewed, with

below market interest rates or otherwise restructured,
and determine whether management has carried out a
credit evaluation.
5.2 Compare current period loan balances of portfolio to
prior period balances in total and/or by subcategories
(e.g., by type of loan). Note any significant changes
and obtain explanations.
5.3 Trace loan disbursements from CLR to customers
account selected.

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 AUDIT PROGRAM
CLIENT: ___________________________________________________________ J/AP/1

PERIOD: ___________________________________________________________

SUBJECT: LONG-TERM LOANS AND ADVANCES

Est. Phase/ W/P

Procedures By Comments/Explanations
Hrs. Level Ref.
5.4 Identify loans that have more than normal elements of
risk and make detailed review thereof. The usual
characteristics of such loans are:
a) Excessive loan renewals and extensions.
b) Absence of current financial data.
c) Loans applicable to industries having a
record of economic instability.
d) Loan declared as OAEM, sub-standard,
doubtful, loss etc. by the branch, Head Office or
State Bank of Pakistan.
e) Customer having operating losses.
f) Customer facing legal action, cash flow
problems etc.
g) Difficulty in determining the 4ealized4t
value of security or security not readily
marketable.

Loan Evaluation

5.5 Evaluate the quality of the advances identified above

and other advances selected for detailed review by the
use of evaluation forms. Ensure that the evaluation
forms are comprehensively and appropriately
completed to the maximum extent. Any exceptions
should be explained (e.g. not required by C.R.) Test
and document key 4ealized4tion procedures. Prepare a
summary of the results of our evaluation and review
of quality of credit.
5.6 Ensure that loan evaluation forms should include –

 Outstanding balance as of examination date (in

local currency and US Dollars or other foreign
currency).
 Brief history of the borrower.
 Independent credit rating of customers.
 The financial strength of the borrower and a review
of appropriate ratios.
 Repayment position.
 Economic environment and future prospects of the
borrower.
 Our familiarity with/knowledge of the borrower’s
business.

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 AUDIT PROGRAM
CLIENT: ___________________________________________________________ J/AP/1

PERIOD: ___________________________________________________________

SUBJECT: LONG-TERM LOANS AND ADVANCES

Est. Phase/ W/P

Procedures By Comments/Explanations
Hrs. Level Ref.
 Whether the loan is secured or unsecured and if
secured adequacy (nature, value and liquidity) of
collateral values and nature of charge in respect of
collateral i.e. –
 Hypothecation
 Pledge
 Mortgage
 Particulars of collateral insurance coverage etc.
Ensure that insurance policies are current and cover
all appropriate hazards.
 The borrower’s relationship to the company (e.g.
related party).
 Length of time the loan has been performing.
 Comments made in regulatory reports.
 Exceptions noted, if any.
 Bank credit personnel’s opinion in respect of
exceptions, if any, noted.
 Our opinion as to the quality of the advance.
5.7 Obtain loan file of the borrower and examine the
advance is in line with the sanction approved locally
or from the head office with particular reference to the
financial data the limit on borrowing, nature of
security, margin to be kept, interest, terms of
repayment, insurance of goods and property,
documents to be obtained, guarantees, submission of
special reports such as monthly stock reports, audited
accounts etc.
5.8 Review whether the file is being actively monitored
and reviewed on periodic basis by client’s
management and any exceptions are appropriately
dealt with.
5.9 Discuss with bank’s credit personnel any exceptions
noted in respect of customers’ credit file or quality of
credit and note their opinion.
Other Tests
5.10 Test that drawings are within limits, outstanding
amounts (including mark-up) are within sanctioned
limits, approval / authority for credit risk has not
expired, nature and margin collateral requirements are
being duly complied with, rate of interest is as agreed
etc. Prepare list of exceptions.

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 AUDIT PROGRAM
CLIENT: ___________________________________________________________ J/AP/1

PERIOD: ___________________________________________________________

SUBJECT: LONG-TERM LOANS AND ADVANCES

Est. Phase/ W/P

Procedures By Comments/Explanations
Hrs. Level Ref.
5.11 Where advances are secured by hypothecation of
goods, examine letters of hypothecation, check the
periodical statements of stock reports etc. submitted
by the customer and examine whether the quantities
and values shown therein seem reasonable and ensure
that –

 Stock reports are submitted by the customers

periodically as of the agreed dates.
 Goods are physically inspected by the bank’s
personnel at regular intervals at the customers
premises.
5.12 In the case of advances against Trust Receipt ensure
that the Trust Receipt is duly signed by the customers
and that this facility is given to reputed customers.
5.13 In case of pledge, determine whether the goods are
held by the bank or are in the custody of mukkadam
(third party custodian) and charge is properly
registered where required.
5.14 Review the agreement with the Mukkadam to ensure
that bank is fully covered for any loss or negligence of
Mukkadam.
5.15 Scrip collateral should be verified by physical check
or by confirmation from outside custodians as
appropriate.
5.16 In case of mortgage of immovable property review
whether it is a registered or unregistered mortgage and
determine –

 In respect of registered mortgage, that the charge

documents are with the bank.
 In respect of unregistered mortgage that original
documents in respect of property is with the bank
and it is kept under lock and key and that Memo of
deposit has been obtained from the title holder.
 If borrower has good title, by reference to title
deeds / title search.
 That no encumbrance certificate is available.
 If independent appraisal / valuation has been
obtained in respect of property mortgaged to ensure
fair value or NRV is accurately calculated and is
adequate to cover exposures.

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 AUDIT PROGRAM
CLIENT: ___________________________________________________________ J/AP/1

PERIOD: ___________________________________________________________

SUBJECT: LONG-TERM LOANS AND ADVANCES

Est. Phase/ W/P

Procedures By Comments/Explanations
Hrs. Level Ref.
5.17 As regards advances against banks own Fixed Deposit
Receipts, inspect the certificates and see that they are
duly discharged. Also trace the FDR to the FDR
register and counter foils to ensure that these were
properly issued. Ensure lien noted on FDRs and also
in the FDR register.
5.18 Loans against packing credits –

 Select loans against packing credit for review from

respective register.
 Check the sales contract on the basis of which loan
was granted.
 Ensure that the facility enjoyed was adjusted on or
before the due date.
 Check the mark-up calculations and its recovery
according to the prescribed rate.
 In case of refinance from State Bank of Pakistan
check that loan is adjusted within stipulated period.
 Check the vouchers as to amount credited to
income account (mark-up) and share of SBP in
mark-up credited to suspense (liability) account.
 Check CD account statements of selected parties,
when loan is allowed to parties and adjusted.
 Check the applications of parties for loan against
packing credit.
 Ensure that the amount of advance was within the
limit.
5.19 Loans against foreign bills –

 Ensure that loan against foreign bills is availed by

the party within limit allowed.
 In case of re-finance from SBP, ensure that
proceeds 7ealized before due date, are deposited
with SBP within the time stipulated by the SBP.
 Check the bill or letter of credit against which the
loan is allowed.
 Ensure that loan is 7ealized on the maturity of bill
or letter of credit.
 Check the calculations of mark-up.
 Check from vouchers to ensure that mark-up is
posted correctly as to amount and head of account.
 In case of re-finance check that required mark-up
of SBP is credited to relevant SBP’s account and
then paid to SBP.
 Check the recoveries of LAFB, advanced to parties
– through vouchers.
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 AUDIT PROGRAM
CLIENT: ___________________________________________________________ J/AP/1

PERIOD: ___________________________________________________________

SUBJECT: LONG-TERM LOANS AND ADVANCES

Est. Phase/ W/P

Procedures By Comments/Explanations
Hrs. Level Ref.
 Check the account statements of the parties, when
loan is granted and adjusted.
5.20 In respect of PAD, examine bill of lading, invoice,
certificate of packing, insurance policies etc. and
compare with PAD register. Also ensure that
advances are within the sanctioned limit. Ascertain
reasons for any delay in retirement of documents.
5.21 Ensure that collateral whether, hypothecated, pledge
or mortgaged against financing are adequately insured
against fire, flood earthquake etc. as appropriate.
5.22 Where customer is a company ensure that the charges
created on company’s assets is registered with the
Registrar of Joint Stock Companies within the period
prescribed in the Companies Ordinance,
1984,Banking Companies Ordinance and/or other
laws and regulations and relevant IAS.
5.23 Where advances are guaranteed by third parties
(Borrowers Directors guarantees are not considered
valid for this purpose) examine the guarantee papers
(bonds) and ensure that these are from reputable
companies or individuals with adequate net-worth.
Review value of security, if any, offered against
guarantees.
5.24 Automobile lease documents should be consistent
with the legal opinion.
5.25 Credit Loss Reserves –

 Obtain schedule of the above.

 Check the footings and arithmetical accuracy of the
schedule.
 Agree the balance with General Ledger.
 Compare overdue advances balances with schedule
for any omission in the schedule.
 Examine basis of clients included and classified in
the schedule.
 Discuss with Loan Admin./Credit Personnel for
customers being classified (doubtful, sub-standard,
loss, split classification).
 Obtain documentation showing reasons for such
classifications.
5.26 Obtain from the bank a schedule of advances
classified according to Prudential Regulations (i.e.
OAEM, sub-standard, doubtful, or loss). Review these
and discuss the classification if we are not satisfied
with the classification.

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 AUDIT PROGRAM
CLIENT: ___________________________________________________________ J/AP/1

PERIOD: ___________________________________________________________

SUBJECT: LONG-TERM LOANS AND ADVANCES

Est. Phase/ W/P

Procedures By Comments/Explanations
Hrs. Level Ref.
 Review classified advances by use of loan
inspection/internal auditors, H.O. and SBP or other
supervisory reports.
 Review overdue/loan delinquency (or similar)
reports to ensure whether there are any clients
being reflected in the report but not included in
credit loss reserve data unless there are any other
genuine reasons.
 Review and evaluate securities held by the bank.
 In case of nil or irregular repayments, examine loan
file to see the effectiveness of collection procedures
e.g. by examining letters written to the borrowers
requesting for repayment.
 Review the allowances for possible loan losses and
evaluate its adequacy. Discuss any shortfall in
provision with management.
 Verify authority for loans and advances written-off
and also that SBP write-off requirements are met.
5.27 Review the recovery position of classified advances
and ascertain whether interest is being taken to
income or suspense account as appropriate in
accordance with the prudential regulations.
5.28 Obtain a schedule from the client classifying advances
according to the requirements of the Banking
Companies Ordinance, 1962 and test accuracy of
details thereof.
Aging & Provisioning
5.29 Bad and doubtful advances should be identified
separately and reviewed for adequate collateral and
provision in accordance with the Banking Companies
Ordinance, 1962.
5.30 Discuss any shortfall in provision with management.
5.31 Ensure that accounting treatment for legal fees related
to problem advances is appropriate.
5.32 Verify authority for loans and advances written off
and ensure that these are within the limits and
conditions specified by the State Bank of Pakistan.
5.33 Obtain a list of letters of credit and other off-balance
sheet commitments that may be related to problem
loans previously identified and determine if any
potential exposure is evident.

6. Disbursements

6.1 Check approval of appropriate level of management.

6.2 Check that all formalities necessary before
disbursement of loans have been fulfilled by the party.
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 AUDIT PROGRAM
CLIENT: ___________________________________________________________ J/AP/1

PERIOD: ___________________________________________________________

SUBJECT: LONG-TERM LOANS AND ADVANCES

Est. Phase/ W/P

Procedures By Comments/Explanations
Hrs. Level Ref.
6.3 Check disbursements of funds with disbursement
register and bank statement.

7. Repayments

7.1 Check amount of repayment from repayment schedule

or agreement.
7.2 Check receipt of funds with receipt records and bank
statement.
7.3 Trace deductions from salary with the payroll records.

8. Aging and Provisioning

8.1 Have the client prepare an age analysis. Review and

scrutinize the age analysis for outstanding balances
and investigate reasons for overdue receivables.
8.2 Consider realisibility of overdue/over aged balances
and consider provisioning there against in accordance
with SBP directives.
8.3 Have client identify any balances doubtful of recovery
and consider appropriate provisioning there against.

9. Interest Income

9.1 Verify rate of interest from agreement.

9.2 Check the number of days for which interest is to be
charged.
9.3 Recompute interest income on test basis.

10. Exercise of Powers by the Board

10.1 Ensure that the following powers are exercised by the

Board of Directors on behalf of the Company and
decisions on material transactions or significant
matters are documented by a resolution passed at a
meeting of the Board:

 determination of the nature of loans and

advances made by the company and fixing a
monetary limit thereof;
 write-off of bad debts, advances and receivables
and determination of a reasonable provision for
doubtful debts;
 write-off of other assets.

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 AUDIT PROGRAM
CLIENT: ___________________________________________________________ J/AP/1

PERIOD: ___________________________________________________________

SUBJECT: LONG-TERM LOANS AND ADVANCES

Est. Phase/ W/P

Procedures By Comments/Explanations
Hrs. Level Ref.
 Investment and disinvestments of funds where
the maturity period of such investments is six
months or more, except in the case of banking
companies, trusts, mutual funds and insurance
companies.
 Determination of the terms of and the
circumstances in which a law suit may be
compromised and a claim/right in favour of the
company may be waived, released,
extinguished or relinquished.

11. Foreign currency balances

11.1 Ensure that all receivables in foreign currencies are

re-translated at the exchange rate prevailing on the
balance sheet date.
11.2 Ensure that hedge accounting practices in accordance
with IAS-39 have been followed with regard to any
balances covered under forward exchange contracts.
11.3 Have the client prepare a schedule of re-translation,
from rate at initial recognition and at balance sheet
date, of all receivables. Cross-refer exchange
differences with financial charges/other income.
11.4 Where the company uses forward exchange contracts,
such contracts should be accounted for as assets and
liabilities. Gains and losses on such financial
instruments used for hedging of foreign currency
transactions should be recognized as income and
expense on the same basis as the corresponding
hedged item. Foreign exchange contracts are
translated at exchange rates prevailing at the balance
sheet date (representing their fair value).

12. Related Party Balances

12.1 Identify receivables from officers, directors and

principal shareholders and determine whether they
arise from routine transactions, such as regularly
settled travel advances, or are related-party
transactions.
12.2 If related-party transactions, cross-reference to the
listing of such transactions obtained in the Related
Party section of the Financial Reporting work.

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 AUDIT PROGRAM
CLIENT: ___________________________________________________________ J/AP/1

PERIOD: ___________________________________________________________

SUBJECT: LONG-TERM LOANS AND ADVANCES

Est. Phase/ W/P

Procedures By Comments/Explanations
Hrs. Level Ref.
12.3 Review transactions in the accounts carefully to
determine they have been properly authorized and are
actually what they purport to be. Check credit
postings to the accounts for propriety.
12.4 Consider the need to consult legal counsel to
determine the legality of loans and advances.
12.5 Consider the collectibility of receivables from
officers, directors, principal shareholders and other
related parties during the review of the adequacy of
the allowance for doubtful accounts.
12.6 Consider the need to disclose the transactions and
balances. Propose disclosure points, as appropriate.
12.7 Obtain an understanding of the nature of the inter-
company receivables, including the following:
- How they arose.
- How they are being or are to be liquidated.
- What security exists.
- What the funds were used for.
- What the tax implications are.
12.8 If the transactions are other than routine transfers of
goods and services, inspect supporting critical
forms and documents ( ). Scope/Sample:( )
12.9 Tie amounts to the inter-company payables reflected
in the audit working papers for the affiliates. If the
inter-company accounts are not in balance, have client
personnel prepare reconciliations. Examine support
for significant or unusual reconciling items. Propose
adjustments for unrecorded transactions, if
appropriate.
12.10 Ensure that all the requirements of SRO 66 dated
January 22, 2003 have been complied with.

Other tests as deemed necessary

Management Letter

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 AUDIT PROGRAM
CLIENT: ___________________________________________________________ J/AP/1

PERIOD: ___________________________________________________________

SUBJECT: LONG-TERM LOANS AND ADVANCES

Est. Phase/ W/P

Procedures By Comments/Explanations
Hrs. Level Ref.
Prepare management letter points including:

 Internal control weaknesses;

 Business improvement opportunities;
 Legal non-compliance;
 Accounting system deficiencies; and
 Errors and irregularities not material at the
financial statements level.

Disclosure

Ensure appropriate disclosure have been made in

accordance with the reporting framework and fill
relevant portion of FSDCL.

Supervision, review and conclusion

1. Perform Senior review and supervision.

2. Resolve Senior review points.
3. Resolve Partner and Manager review points.
4. Conclude response to the audit objectives.

Audit conclusion

Based on the substantive test procedures, I/we performed as outlined above, it is my/our opinion that the audit objectives set forth at
the beginning of this audit program have been achieved, except as follows:
__________________________________________________________________________________________________

__________________________________________________________________________________________________

__________________________________________________________________________________________________

______________ ____________ ________ _______

Date:____________ Signature Job Incharge Manager Partner

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