Financial analysis to analyze the credit quality of the borrower 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:
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 material flaws, they explain their findings in the audit report and provide a qualified opinion. 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.
Report on the Statutory Audit
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: Carefully read each and every detail, since it demonstrates how the organization keeps track of its records. It also includes information on any major discrepancies that may have an impact on the company’s profitability or capacity to continue as a going concern.
Clause (vii) Statutory Dues: The auditor reports on any current litigation and any statutory dues that have been overdue 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: Indicates if the corporation, its officers, or its workers 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 applicable). 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.
Payment on a Mortgage
The amount you pay toward your mortgage each month is known as your mortgage payment. Principal, interest, taxes, and insurance are the four key components of each monthly payment:
Principal. Your loan principal refers to how much money you still owe on the loan. If you borrow $200,000 to buy a house and pay down $10,000, your principal will be $190,000. A portion of your monthly mortgage payment will be automatically applied to principle reduction. You may also have the option of making extra payments toward the principal of your loan; this is a wonderful method to minimize the amount you owe and pay less interest overall on your loan.
Interest. Your monthly interest payment is determined by your interest rate and loan principal. Your mortgage provider receives the money you pay in interest. You pay less interest as your loan matures since your principal decreases.
Insurance And Taxes. Your monthly mortgage payment may include payments for property taxes and homeowners insurance if your loan has an escrow account. Your lender will keep the funds in your escrow account for those bills. Then, when it’s time to pay your taxes or insurance premiums, your lender will take care of it.
Term of the Mortgage
The amount of years it will take you to pay off your mortgage is referred to as your mortgage term. The most commonly used terms are 30 and 15 years. A longer-term usually translates to cheaper monthly payments spread out over a longer period of time. Shorter terms normally mean higher monthly payments spread out over a shorter period of time, but they can also save you a lot of money on interest.
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Mortgage Audits Online will help you eliminate the guesswork in your instances. A preliminary examination of your client’s mortgage documentation for signs of securitization fraud, title defects, and lender non-compliance. Each mortgage fraud study will include a detailed explanation of the breaches discovered as well as a recommended course of action depending on the property’s condition and the homeowner’s current situation. The pre-audit process at MAO starts with our Qualified Written Request-QWR template, which you can use exclusively to start the lender compliance process.
Trust information, SEC hyperlinks to Pooling and Servicing Agreement, Prospectus, 10-K, Title Report, investor level CUSIP Report, Robo-signing investigation, MERS role, and applicable ABSNet screenshots are included in this custom SEC Pro report that follows the chain of transfer of the note and security instrument through the securitization process. All trust discovered reports include a digitally signed auditor brief/summary of findings.
Chain of title, proof of securitization, REMIC compliance, holder in due course, CUSIP ID’s, credit support/default swaps, direct links to trust including certificates issued, assets, pooling and servicing agreement, prospectus, MERS as beneficiary – Security Instrument/ Assignment / DOT / Mortgage, governing law, transfers and parties, a trace of endorsements, Robo signature trace of forgery, flaws in the foreclosure process
If applicable, this report will also contain qualifying ratios at origination, underwriting defects, TILA and RESPA breaches, profit margin of the securitizing parties, and the length of time it took to recover the whole amount in proportion to the amortization of the initial lien. Each report includes examiner exhibits as well as an expert witness audit support affidavit from a qualified fraud examiner.
ABSNet® facilities were used to conduct a search for securitization trust. Loan-level data and up to ten screenshots are included. The results are based on the information provided about the loan in question. Regardless of whether or not there is a no-match, charges will be assessed. There is a screenshot that does not match.
This report includes current and historical information on the status of secured financial interests in a property, as well as comprehensive information on secured financial interests generated by creditor-borrower agreement.
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