Auditing and EthicsQuestion 5660 of 212
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9. Whether the asset classification of account of X Limited is correct?

Options

AClassification is correctly done on the basis of certificate provided by UNC Bank Limited.
BClassification is correctly done subject to confirmation from the Central statutory auditor of the bank.
CClassification is correctly done subject to confirmation from the Central statutory auditor of the bank and also other parameters specified in the RBI guidelines have been followed.
DClassification is not in order as classification has to be done on the basis of record of recovery of the HFC Bank only. (2 Marks)
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Correct Answer

✅ Option D — Classification is not in order as classification has to be done on the basis of record of recovery of the HFC Bank only. (2 Marks)

All Options:

  • AClassification is correctly done on the basis of certificate provided by UNC Bank Limited.
  • BClassification is correctly done subject to confirmation from the Central statutory auditor of the bank.
  • CClassification is correctly done subject to confirmation from the Central statutory auditor of the bank and also other parameters specified in the RBI guidelines have been followed.
  • DClassification is not in order as classification has to be done on the basis of record of recovery of the HFC Bank only. (2 Marks) ✓

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Detailed Solution & Explanation

Under the Reserve Bank of India (RBI) guidelines on consortium advances, each bank in a consortium must classify the borrower's account based on its own record of recovery and other IRAC norms, rather than relying on the certificate or classification of the lead bank or other banks.
For X Limited, the interest debited was ₹1.75 crores\displaystyle ₹1.75\text{ crores} whereas the credits were only ₹1.25 crores\displaystyle ₹1.25\text{ crores}, meaning HFC Bank has not recovered even the interest portion, making the account out of order.
Therefore, the classification as performing asset is not in order.
Hence, **Option D** is the correct answer.

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