Countrywide Home Loan Audit: Importance Of Audit Report In Lending

Financial analysis to analyze the credit quality of the borrower (Capital – from the 5Cs of Credit) is an important part of the credit decision-making process. We frequently place greater emphasis on ratios, balance sheets, and profit and loss accounts when performing financial analysis, but it is equally crucial to properly analyze and comprehend the audit report.

The audit reports listed below can be analyzed depending on the type of borrower:

1. We can request a statutory audit report if the borrower is a corporation (Mandatory for every company).
2. A tax audit report is necessary for individuals, LLPs, corporations, and partnerships (If applicable).

• If the borrower is a limited liability partnership (LLP), we can request an audit report under the LLP Act (If applicable).

Below are some key topics to look into in a statutory audit report or a tax audit report that might offer us a quick overview of the borrower.

Auditors Opinion: The most essential section of any audit report is the auditor’s opinion, which helps determine whether the auditor has raised any red flags regarding the company and its financial results.

Qualified Opinion: If the auditor discovers any significant flaws, he or she will explain their findings and provide a qualified opinion in the audit report. The management discussion and analysis report, as well as the notes to the financial statement, contain explanations of the issue of qualified opinion. The implications of these difficulties on the company’s long-term financial prospects should be discussed with management.

Statutory Audit Report

Report on additional legal and regulatory requirements: The auditor discloses the details of any director disqualification under the Companies Act under clause B (sub-clause 5). On MCA, we should double-check the list of current directors.

CARO: Read each and every point carefully, since it demonstrates how the organization keeps track of its records. It also includes information on any material discrepancies that may have an impact on the company’s profitability or ability to continue as a going concern.

Statutory Dues (clause vii): The auditor reports on any pending litigation and any statutory dues that have been outstanding for more than 6 months as of the balance sheet date. It will provide the lender an indication of the likely tax obligation and the discipline with which a company pays its taxes to the government.

Condition (viii) Repayment of financial obligations: Under this clause, the auditor reports on whether the corporation has delayed or defaulted in repaying its lenders. We can search CIBIL and other references for loan-related information. We can also check the borrower’s loan account statement for all of the lending facilities he or she has.

Clause (ix) End-use of funds: The auditor reports on whether the money raised by the company was used for the intended purpose.

Clause (x) Fraud: It reveals whether the company, its officers, or its employees have reported any fraud.

Going concerned: If there is any influence on the company’s going concern status, it is important to talk to the management about the company’s future prospects.

Observations in general: We should check the company’s name on the MCA website and submit the most recent financials to the ROC. We should request that the borrower share ROC forms such as MGT 7 and AOC 4 with us, or we can get them from the MCA website.

Report on a Tax Audit

Parts 269SS & 269T: These are two of the most essential sections since they state that a person cannot take or repay a loan or deposit more money in cash than is allowed (exceptions apply). A penalty equal to the amount accepted or refunded will be imposed if the law is broken. If the amount is significant, it will have an influence on the borrower’s cash flow.

Section 43B: Even if the borrower uses the mercantile basis of accounting, certain payments will be allowed on a payment basis. These payments will be accepted if they are made on or before the return’s due date. As a lender, we should concentrate on the amount not paid beyond the due date for the previous year and the current year. (It’ll generate DTL/DTA)

Violation of the law & TDS resulted in a penalty, fine, and interest is paid. Information about how to file: The tax audit report includes information on penalties and interest paid as a result of late payment of statutory dues, as well as TDS filing information if any was filed during the year. This will offer us a quick overview of the borrower’s corporate governance.

Observations in general: Details of applicable indirect taxes, partners’ information and revisions, nature of the business activity and changes if any, contingent obligation, payments made to linked parties, stock information, gross profit, net profit, and sales. (These are the fundamentals, which may be verified using the borrower’s basic information.)

We should examine and analyze at least the previous three years’ audit report to gain a better knowledge of the borrower’s and its business’s trends and patterns.

A better understanding of an audit report will lead to better economic decisions; it provides readers with the benefit of an independent opinion on a company’s financial statements, assists us in better understanding financials, and material issues should be reported in an information memorandum so that their impact on the company’s net worth can be quantified.

CERTIFIED MORTGAGE AUDIT REPORT

This study includes a thorough examination of loan paperwork and disclosures. An auditor conducts the audit in order to detect lender overcharges that are the result of miscalculations of interest charges and monthly payments on the loans.

The certified loan audit examines the terms and agreements of a loan in order to determine if any federal laws have been broken. The results of the audit may be used by homeowners to get refunds from lenders for overcharges and miscalculations.

The mortgage loan audit is also important in ensuring that the mortgage was given legally. This ensures that the client will not have any difficulties repaying the loan. The purpose of the report is to ensure that the client knows the various conditions contained in the mortgage agreement so that future problems can be avoided.