Case Study: Agreed-Upon Procedures for a Consortium Lender’s Credit Enhancement Decision
Independently verifying five critical credit claims before a Rs 20 crore facility enhancement
Executive Mandate Summary
Key Transaction & Governance Challenges
- •The statutory audit was seven months old and did not provide the credit committee with current independently verified information.
- •Interim financials and CMA information had been prepared by management without independent verification.
- •The credit committee did not require a full re-audit. It needed specific answers to five credit questions within a 21-day decision window.
- •The committee needed to establish whether debt, liabilities and other financial exposures had been fully disclosed.
Northrop Execution Architecture & Methodology
Section 1 - The Central Issue
A consortium of three lenders had Rs 85 crore of exposure to an infrastructure borrower seeking an additional Rs 20 crore facility. The statutory audit was seven months old, while interim financial information had not been independently verified.
The credit committee wanted focused answers rather than a full re-audit.
Section 2 - Why AUP Was Used
The engagement was structured under SRE 4400. The lender agreed the procedures with Northrop before fieldwork began, specifying exactly what needed to be verified.
Northrop performed those procedures and reported factual findings without providing an overall audit opinion on the financial statements.
Section 3 - Revenue Verification
Reported revenue of Rs 92 crore was tested against GSTR-1, banking credits and direct customer confirmations.
The Rs 1.8 crore GSTR-1 variance was attributable to mobilisation advances and therefore represented a timing difference. Direct customer confirmations supported most of the major balances, with one Rs 35 lakh dispute and one non-response identified.
Section 4 - EBITDA Normalisation
Reported EBITDA of Rs 14 crore was adjusted for a Rs 1.1 crore insurance settlement, Rs 90 lakh of personal expenses and Rs 80 lakh of above-market related-party procurement.
Normalised sustainable EBITDA was therefore Rs 11.2 crore.
Verifiable Institutional Outcomes & Value Realized
- The requested Rs 20 crore enhancement was sized down to Rs 12 crore based on verified EBITDA of Rs 11.2 crore.
- Rs 3.5 crore of additional NBFC borrowing was brought into the consortium's understanding of total debt exposure.
- Rs 4 crore of additional security was required to support the combined exposure.
- Order-book assumptions were reduced from Rs 140 crore to Rs 118 crore of verified signed contracts for future cash-flow assessment.
Pratham Sharma
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