Group 14: Bank Audit

30 original practice MCQs. 2 marks each. Separate practice and test sets.

Original practice, not ICAI questions, official suggested answers or an official examiner scheme. Equivalent correct work is credited within the stated caps. Public practice availability is not full official question-bank completion.

Future ECL/EIR rules effective April 1, 2027 are not substituted. Source holds on module software stress-testing, NOC equivalence and illustrative large-advance thresholds remain.

Not scored yet.

AUD-G14-P001 · 2 marks

A branch limits report is prepared by a skilled officer but never reviewed or used to act on breaches. Which audit focus is appropriate?

A. Examine actual exception reporting, approval and resolution, not preparation alone. B. Report preparation automatically proves every breach resolved. C. Officer skill removes the need for evidence. D. Every breach necessarily proves criminal fraud.

Explanation

Correct answer A: Examine actual exception reporting, approval and resolution, not preparation alone.

Module control questions cover evidence, authority, bypass detection and exception resolution; a report alone is not effective response.

AUD-G14-P002 · 2 marks

A bank risk unit uses assumptions unchanged after a new lending product begins. Which process weakness should be examined?

A. A new product automatically means adverse opinion. B. Models never need review once approved. C. Monitoring and updating risk models, methods and assumptions. D. Only dashboard colour is relevant.

Explanation

Correct answer C: Monitoring and updating risk models, methods and assumptions.

Module risk-management process includes regular assessment/update; investigate actual effects and audit response.

AUD-G14-P003 · 2 marks

An internal inspection identifies a problem advance omitted from the routine sample. Which is best?

A. Assess risk-directed detailed work rather than treat random selection as an absolute bar. B. Internal reports automatically prove the final audit conclusion. C. A random sample legally prohibits any targeted testing. D. Only sampled balances can ever be misstated.

Explanation

Correct answer A: Assess risk-directed detailed work rather than treat random selection as an absolute bar.

Module advances guidance distinguishes problem-account work and control-dependent selection; reports are leads, not final proof.

AUD-G14-P004 · 2 marks

A borrower retains possession of stock under a signed hypothecation agreement. What should the team avoid assuming?

A. That the bank physically possesses the stock merely because it has a charge. B. Hypothecation and a physical pledge are always identical. C. A charge means stock can never be fictitious. D. Every hypothecation necessarily transfers physical possession.

Explanation

Correct answer A: That the bank physically possesses the stock merely because it has a charge.

Module distinguishes hypothecation from pledge; verify records/security and actual existence separately.

AUD-G14-P005 · 2 marks

Under the supplied bank policy, paid-stockDP is Rs 120 lakh and eligible-debtorDP Rs 90 lakh; sanction is Rs 250 lakh, outstanding Rs 230 lakh. What is correct?

A. DP is Rs 120 lakh because debtors never count under the supplied policy. B. DP must equal Rs 250 lakh whenever sanctioned. C. DP is Rs 210 lakh and outstanding exceeds it by Rs 20 lakh, despite being below sanction. D. Being below sanction proves no DP irregularity.

Explanation

Correct answer C: DP is Rs 210 lakh and outstanding exceeds it by Rs 20 lakh, despite being below sanction.

Use the expressly supplied policy components: 120+90=210;230-210=20. Duration/classification is a separate question.

AUD-G14-P006 · 2 marks

Loan disbursement records include an advance not in the ledger. Which assertion-focused response is best?

A. The discrepancy necessarily proves borrower fraud. B. Trace for completeness and correct recording, not just confirm recorded balances. C. Only existence of recorded advances can matter. D. Ignore it because the ledger balances.

Explanation

Correct answer B: Trace for completeness and correct recording, not just confirm recorded balances.

Module advances-evidence objectives include no unrecorded advances and supported amounts/rights/valuation.

AUD-G14-P007 · 2 marks

An eligible commercial bank excludes temporary overdrafts from automated classification because balances are small. Which 36(1) rule matters?

A. All borrowal accounts including temporary overdrafts are covered irrespective of size. B. Small overdrafts are universally outside automation. C. Only term loans can be classified automatically. D. A low balance removes every prudential norm.

Explanation

Correct answer A: All borrowal accounts including temporary overdrafts are covered irrespective of size.

Current RBI 36(1) covers all borrowal accounts and investments; an arbitrary size exclusion is unsupported.

AUD-G14-P008 · 2 marks

A separate NPA engine has valid rules but no automatic return of account status to CBS where applicable. What should be checked?

A. Manual screenshots universally replace STP. B. Required data access and automatic STP update into CBS. C. Every interface failure proves every borrower NPA. D. No interface evidence is needed if rules are named.

Explanation

Correct answer B: Required data access and automatic STP update into CBS.

Current RBI 39(1) addresses integration/data access and automaticCBS update where applicable.

AUD-G14-P009 · 2 marks

An exceptional manual classification override is approved twice, but management says it waives prudential classification norms. What is right?

A. An automation exception is not an exemption from the underlying norms. B. Norms apply only if no computer exists. C. Two approvals always waive all income/provision rules. D. Every approved override creates a permanent legal exemption.

Explanation

Correct answer A: An automation exception is not an exemption from the underlying norms.

Current RBI 38(1) expressly distinguishes automated-classification exceptions from income/classification/provision norm exemptions.

AUD-G14-P010 · 2 marks

Manual override logs retain no reasons or user identity. Which audit evidence is missing?

A. The specified reason, user/authorisation and account details with reliable system-generated audit trail. B. Only the screen background colour matters. C. A final standard label substitutes for every log. D. User identity is prohibited in override logs.

Explanation

Correct answer A: The specified reason, user/authorisation and account details with reliable system-generated audit trail.

Current RBI 38(3)-(4) requires appropriate trails and detailed system-generated logs; a status label is not sufficient.

AUD-G14-P011 · 2 marks

For an ordinary eligible-bank borrower with no special exception, a term-loan instalment is unpaid 95 days. Does collateral worth twice the loan keep it standard?

A. Yes, any collateral eliminates the delinquency trigger. B. No, collateral can never matter to provisioning either. C. No; the recovery trigger is met and collateral alone is not a classification cure. D. Yes, guarantor wealth is equivalent to cash receipt.

Explanation

Correct answer C: No; the recovery trigger is met and collateral alone is not a classification cure.

Current RBI 42(1)/46 distinguish recovery-based classification from security-related provision assessment.

AUD-G14-P012 · 2 marks

An OD stays below limit/DP, has some credits, but they do not cover interest debited in the previous 90 days. What is the relevant ordinary-bank test?

A. Any credit automatically cures every OD criterion. B. Only excess-limitODs can ever be out of order. C. The term-loan more-than 90 day rule replaces all OD definitions. D. The separate out-of-order interest-coverage criterion.

Explanation

Correct answer D: The separate out-of-order interest-coverage criterion.

Current RBI 5(7)(iii) applies; the three out-of-order alternatives are distinct.

AUD-G14-P013 · 2 marks

A one-day temporary limit excess is the only supplied issue, with no sustained trigger or other adverse recovery fact. Which 45 principle is sound?

A. Every one-day excess is necessarilyNPA. B. A temporary label permanently preventsNPA regardless of later facts. C. Do not classify NPA merely for a temporary deficiency; evaluate actual recovery and relevant triggers. D. The account must automatically be a loss asset.

Explanation

Correct answer C: Do not classify NPA merely for a temporary deficiency; evaluate actual recovery and relevant triggers.

Current RBI 45 distinguishes temporary deficiencies from applicable sustained/otherNPA triggers; no blanket permanent exemption follows.

AUD-G14-P014 · 2 marks

A borrower ordinary loan is NPA but LC-discounted bills may meet the specific 50 exception. Which scope approach is best?

A. EveryLC bill is exempt even if the issuing bank fails payment and borrower fails to make good. B. An LC label removes every audit procedure. C. Check the LC-specific exception and 51 failure conditions rather than assert borrower-wise has no exceptions. D. Borrower-wise always forbids every stated exception.

Explanation

Correct answer C: Check the LC-specific exception and 51 failure conditions rather than assert borrower-wise has no exceptions.

Current RBI 50-51 provide the specific treatment and conditions; borrower-wise 44 is not a reason to erase those paragraphs.

AUD-G14-P015 · 2 marks

Eligible PACS/FSS on-lending has one facility meeting its crop-default criterion and another not in default. Which 54 distinction matters?

A. PACS status proves cash recovery. B. The specific on-lending facility-wise exception must be considered, not automatically applied to unrelated direct borrower loans. C. Every PACS-related loan and every direct member loan is always exempt. D. All PACS facilities must always becomeNPA regardless of 54.

Explanation

Correct answer B: The specific on-lending facility-wise exception must be considered, not automatically applied to unrelated direct borrower loans.

Current RBI 54(1) supplies specific treatment;54(2) separately applies borrower-wise to direct loans outside on-lending.

AUD-G14-P016 · 2 marks

A consortium member has no transferred borrower recovery and no express lead-bank consent for its share transfer. What is inappropriate?

A. Checking actual member share/transfer records. B. Applying the member recovery rule. C. Treating the lead-bank receipt alone as evidence this member was serviced. D. Seeking express transfer consent evidence.

Explanation

Correct answer C: Treating the lead-bank receipt alone as evidence this member was serviced.

Current RBI 53 bases classification on individual member recovery and addresses pooled money not passed on.

AUD-G14-P017 · 2 marks

An advance secured by gold is labelled equivalent to a term-deposit exception. What does 55(2) require?

A. Gold-backed loans have no classification rules. B. Do not extend the specified deposit/NSC/KVP/policy exception to gold. C. Gold guarantees income accrual regardless of classification. D. Every tangible security qualifies under 55(1).

Explanation

Correct answer B: Do not extend the specified deposit/NSC/KVP/policy exception to gold.

Current RBI 55(2) explicitly excludes gold/government/other securities from this exception.

AUD-G14-P018 · 2 marks

Contractual interest moratorium validly runs beyond year-end. Which overdue starting point is appropriate on that interest fact?

A. No moratorium loan can ever becomeNPA. B. The report signature date always replaces the contractual due date. C. Every accounting debit starts overdue days immediately. D. The actual payment due date after the permitted moratorium, not merely interest debit date.

Explanation

Correct answer D: The actual payment due date after the permitted moratorium, not merely interest debit date.

Current RBI 56(1) treats interest due after the permitted period; other obligations/triggers are separately evaluated.

AUD-G14-P019 · 2 marks

A Central Government-guaranteed overdue facility meets the non-repudiated-invoked-guarantee classification exception. Which income claim is wrong?

A. The classification and income treatment need distinguishing. B. The guarantee identity matters. C. Invocation/repudiation evidence should be checked. D. That the classification exemption automatically permits income accrual on overdue interest.

Explanation

Correct answer D: That the classification exemption automatically permits income accrual on overdue interest.

Current RBI 58(2) excludes income recognition from the Central Government classification exemption.

AUD-G14-P020 · 2 marks

A borrower clears arrears on one NPA facility but leaves interest arrears on another. Which 71 condition is absent?

A. Only the first facility principal payment. B. Repayment of entire principal/interest arrears across all relevant facilities. C. Only one token credit on any account. D. Only an internal standard-status override.

Explanation

Correct answer B: Repayment of entire principal/interest arrears across all relevant facilities.

Current RBI 69/71 require the full arrears cure; no restructuring-specific exception is supplied.

AUD-G14-P021 · 2 marks

Partial technical write-off removes part of an NPA balance. Can the residual become standard solely for that reason?

A. Yes, the residual automatically has no arrears. B. Yes, accounting removal changes every borrower repayment date. C. Yes, any write-off is identical to full cash recovery. D. No;72 expressly prevents that shortcut.

Explanation

Correct answer D: No;72 expressly prevents that shortcut.

Current RBI 72 separates write-off from the required standard-upgradation conditions.

AUD-G14-P022 · 2 marks

An ordinary secured substandard advance Rs 60 lakh has collateral Rs 50 lakh. No special cover/type exception applies. What ordinary 85 provision base/rate applies?

A. Zero because any collateral eliminates provision. B. 25 percent solely because collateral exists. C. 15 percent of Rs 60 lakh, or Rs 9 lakh, without subtracting collateral. D. 15 percent of Rs 10 lakh after collateral deduction.

Explanation

Correct answer C: 15 percent of Rs 60 lakh, or Rs 9 lakh, without subtracting collateral.

Current RBI 85 uses total outstanding without allowance for securities;60 x.15=9.

AUD-G14-P023 · 2 marks

An ordinary unsecured non-infrastructure substandard exposure Rs 40 lakh meets the current definition; no special exception applies. What total 86 rate/amount applies?

A. 15 percent, or Rs 6 lakh, in every unsecured case. B. 25 percent, or Rs 10 lakh. C. 10 percent total, or Rs 4 lakh. D. Zero if management calls it temporary.

Explanation

Correct answer B: 25 percent, or Rs 10 lakh.

Current RBI 86 adds 10 percentage points to 15 percent;40 x.25=10. Infrastructure 87 is separately conditional.

AUD-G14-P024 · 2 marks

Doubtful for four years, ordinary outstanding Rs 80 lakh and realisable valid security Rs 60 lakh. No special exception applies. What is required?

A. Only Rs 20 lakh because security always needs no provision. B. Rs 80 lakh total: 100 percent uncovered Rs 20 lakh plus 100 percent secured Rs 60 lakh. C. Only 15 percent because it was once substandard. D. Only 25 percent of the whole Rs 80 lakh.

Explanation

Correct answer B: Rs 80 lakh total: 100 percent uncovered Rs 20 lakh plus 100 percent secured Rs 60 lakh.

Current RBI 90-91 require 100 percent uncovered and 100 percent secured after more than three doubtful years.

AUD-G14-P025 · 2 marks

A verified loss asset Rs 25 lakh is retained in books. Which 95 treatment applies?

A. 100 percent provision Rs 25 lakh. B. 15 percent solely because the asset began as a loan. C. 40 percent for every loss asset. D. No provision until every possible salvage is impossible.

Explanation

Correct answer A: 100 percent provision Rs 25 lakh.

Current RBI 94-95 require write-off or full provision if retained; loss status can coexist with some salvage.

AUD-G14-P026 · 2 marks

An ordinaryNPA retains unrealised prior interest credited to income. Management says only new accrual stops. What 128 requirement is missing?

A. Stopping new accrual proves past interest was realised. B. All prior interest must be preserved as collected cash. C. No past accrual can ever be reversed. D. Reverse the unrealised past interest credited to income, subject to the stated specific exceptions.

Explanation

Correct answer D: Reverse the unrealised past interest credited to income, subject to the stated specific exceptions.

Current RBI 128 requires reversal; the 129 permitted-moratorium capitalised-interest exception must be checked if relevant.

AUD-G14-P027 · 2 marks

Interest afterNPA classification is tracked in memorandum records. What 134 gross-advances treatment is correct?

A. Do not include that memorandum interest in gross advances. B. Memorandum recording means interest is received cash. C. Always add every memorandum rupee to gross advances. D. Gross advances can ignore all principal too.

Explanation

Correct answer A: Do not include that memorandum interest in gross advances.

Current RBI 132-134 distinguish cessation, memorandum tracking and gross-advance exclusion.

AUD-G14-P028 · 2 marks

Fresh additional lending funds an NPA interest credit, but no independent recovery occurred. Which 135 limit matters?

A. Every credit funded by a new loan is automatically genuine interest recovery. B. The credit cannot be treated as eligible realised interest income merely on this funded basis. C. NoNPA interest can ever be income even if genuinely received. D. New lending always proves full arrears paid.

Explanation

Correct answer B: The credit cannot be treated as eligible realised interest income merely on this funded basis.

Current RBI 135 permits realised interest income subject to no fresh/additional-credit source; investigate actual receipts.

AUD-G14-P029 · 2 marks

A supported material reporting issue is mentioned in LFAR only. Management asks for the main report clean without considering its implications. What is best?

A. AnyLFAR comment automatically demands adverse opinion. B. A proposedMOC proves final figures were corrected. C. LFAR automatically cures every uncorrected statement issue. D. LFAR is not a substitute for required main-report qualification/modification; evaluate final evidence and materiality.

Explanation

Correct answer D: LFAR is not a substitute for required main-report qualification/modification; evaluate final evidence and materiality.

ICAI 2026 guide 25.35 separatesLFAR/main reporting and appropriateMOC; actual correction/evidence must be verified.

AUD-G14-P030 · 2 marks

The team sees 2026 ECL/EIR Directions effectiveApril 1,2027 and applies them as already mandatory in anOctober 2026 current-rule exercise. Which boundary matters?

A. The 2025 current IRACP text became irrelevant immediately on announcement. B. Every issued direction applies before its specified effective date. C. The date can be chosen from the newest document title only. D. Issue date is not commencement; use the current applicable framework, retaining the future-rule boundary.

Explanation

Correct answer D: Issue date is not commencement; use the current applicable framework, retaining the future-rule boundary.

The official 2026 Directions paragraph 2 statesApril 1,2027; current exercises must not substitute the future regime.

Official concept links appear with each question. The source hold is included in the review pack. Current classification/provision/income rules are distinguished from the future framework.