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Audit and Accounting Guide Depository and Lending Institutions: Banks and Savings Institutions, Credit Unions, Finance Companies, and Mortgage Companies

Audit and Accounting Guide Depository and Lending Institutions: Banks and Savings Institutions, Credit Unions, Finance Companies, and Mortgage Companies

AICPA

ISBN: 978-1-119-47340-4 September 2017 864 Pages

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Description

The 2017 edition of this industry standard resource offers clear and practical guidance of audit and accounting issues such as transfers and servicing, troubled debt restructurings, financing receivables and the allowance for loan losses, and fair value accounting. It also provides direction for institutions assessing their operations and internal controls for regulatory considerations as well as discussions on existing regulatory reporting matters. Updates include:

  • SAS No. 132, The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern
  • SSAE No. 18, Attestation Standards: Clarification and Recodification
  • Note: FASB ASU No. 2016-13 will have a significant impact on the guide; however, incorporation of guidance will not occur until the 2018 or 2019 edition of the guide.

1 Industry Overview—Banks and Savings Institutions 01-112

Description of Business 01-07

Regulation and Oversight 08-63

Regulatory Background 15-23

Deposit Insurance Fund 24-30

The Dodd-Frank Act 31-63

Regulatory Capital Matters 64-85

Capital Adequacy 66-74

Prompt Corrective Action 75-85

Annual Independent Audits and Reporting Requirements 86-111

Additional Regulatory Requirements Concerning the Sarbanes-Oxley Act, Corporate Governance, and Services Outsourced to External Auditors 99-111

Other Reporting Considerations 112

2 Industry Overview—Credit Unions 01-62

Description of Business 01-10

The Board of Directors 07

The Supervisory Committee 08-09

The Credit Committee 10

Charters, Bylaws, and Minutes 11-17

Financial Structure 12-13

Credit Union System 14-16

Corporate Credit Unions 17

Regulation and Oversight 18-23

Government Supervision 18-20

NCUA 21-23

Regulatory Capital Matters 24-54

Natural Person Credit Unions 24-44

Corporate Credit Unions 45-54

Annual Audits 55-62

Other Reporting Considerations 62

3 Industry Overview—Finance Companies 01-20

Description of Business 01-11

Debt Financing 08-11

Regulation and Oversight 12-20

4 Industry Overview—Mortgage Companies 01-41

Description of Business 01-20

Regulation and Oversight 21-36

Reporting Considerations 37-41

HUD Programs 37-39

Asset Servicing for Investors 40-41

5 Audit Considerations and Certain Financial Reporting Matters 01-257

Overview 01-09

An Audit of Financial Statements 04-05

Audit Risk 06-09

Terms of Engagement 10-13

Audit Planning 14-15

Materiality 16-20

Performance Materiality 19-20

Use of Assertions in Assessment of Risks of Material Misstatement 21-22

Risk Assessment Procedures 23-75

Risk Assessment Procedures and Related Activities 25-32

Understanding the Entity and Its Environment, Including the Entity’s Internal Control 33-75

Risk Assessment and the Design of Further Audit Procedures 76-98

Identifying and Assessing the Risks of Material Misstatement 77-81

Designing and Performing Further Audit Procedures 82-98

Evaluation of Misstatements Identified During the Audit 99-101

Audit Documentation 102-109

Timely Preparation of Audit Documentation 105

Documentation of the Audit Procedures Performed and Audit Evidence Obtained 106-108

Assembly and Retention of the Final Audit File 109

Using the Work of an Auditor’s Specialist 110-115

Using the Work of a Management’s Specialist 116-119

Processing of Transactions by Service Organizations 120-122

Consideration of Fraud in a Financial Statement Audit 123-151

Professional Skepticism 126-128

Discussion Among the Engagement Team 129-132

Risk Assessment Procedures and Related Activities 133-136

Identification and Assessment of the Risks of Material Misstatement Due to Fraud 137-139

Responses to the Assessed Risks of Material Misstatement Due to Fraud 140-143

Evaluation of Audit Evidence 144-147

Auditor Unable to Continue the Engagement 148

Communications to Management and With Those Charged With Governance 149

Communications to Regulatory and Enforcement Authorities 150

Documentation 151

Compliance With Laws and Regulations 152-162

Responsibility for Compliance With Laws and Regulations 153-156

The Auditor’s Consideration of Compliance With Laws and Regulations 157-162

Going-Concern Considerations 163-179

Evaluating Whether Substantial Doubt Exists 165-174

Written Representations 175

Consideration of the Effects on the Auditor’s Report 176-178

Documentation 179

Written Representations 180-189

Written Representations as Audit Evidence 181

Management From Whom Written Representations Are Requested 182-183

Written Representations About Management’s Responsibilities and Other Written Representations 184-186

Date of, and Period(s) Covered by, Written Representations 187

Form of Written Representations 188

Doubt About the Reliability of Written Representations and Requested Written Representations Not Provided 189

Information Other Than Financial Statements 190-192

Certain Financial Reporting Matters 193-211

Disclosures of Certain Significant Risks and Uncertainties 193-209

Segment Reporting 210-211

Regulation and Supervision of Depository Institutions 212-257

Introduction 212-220

Rule Making 221-222

Examinations 223-228

Enforcement 229-236

Planning 237

Detection of Errors and Fraud 238-239

Evaluation of Contingent Liabilities and Related Disclosures 240

Going-Concern Considerations 241-242

Regulatory Reporting Matters—Interpretation and Reporting Related to GAAP 243-247

Auditor and Examiner Relationship 248-257

6 Cash and Cash Equivalents 01-42

Introduction 01-08

CIPC and Cash Equivalents 02

Deposits With Other Financial Institutions 03-05

Balances With Federal Reserve Banks and FHLBs 06

Federal Funds Sold 07

Cash on Hand 08

Accounting and Financial Reporting 09-33

Definition of Cash and Cash Equivalents 09-11

Classification of Cash Flows 12-22

Acquisition and Sales of Certain Securities and Loans 23-24

Gross and Net Cash Flows 25-28

Cash Receipts and Payments Related to Hedging Activities 29

Financial Statement Presentation and Disclosure 30-33

Auditing 34-42

Objectives 34

Planning 35

Internal Control Over Financial Reporting and Possible Tests of Controls 36-40

Substantive Tests 41-42

7 Investments in Debt and Equity Securities 01-163

Introduction 01-65

U S Government and Agency Obligations 05-07

Municipal Obligations 08-11

Asset-Backed Securities 12-49

Other Structured Credit Products 50-59

Issues of International Organizations and Foreign Governments 60

Other Securities 61

Transfers of Securities 62-65

Regulatory Matters 66-82

Bank Accounting Advisory Series 82

Accounting and Financial Reporting 83-137

Introduction 83-91

OTTI 92-103

Unrealized Gains and Losses 104-106

Premiums and Discounts 107-113

Interest Income 114

Consolidation 115

Special Areas 116-118

Transfers and Servicing of Securities 119-121

Troubled Debt Restructurings 122-124

Loans and Debt Securities Acquired With Deteriorated Credit Quality 125

Financial Statement Presentation and Disclosure 126-137

Auditing 138-163

Objectives 138

Planning 139-143

Internal Control Over Financial Reporting and Possible Tests of Control 144-154

Substantive Tests 155-163

8 Loans 01-230

Introduction 01-56

The Lending Process 02

Credit Strategy 03-04

Credit Risk 05-07

Lending Policies and Procedures 08-16

Types of Lending 17-18

Commercial, Industrial, and Agricultural Loans 19-30

Consumer Loans 31-39

Residential Real Estate Loans 40-43

Lease Financing 44-48

Trade Financing 49-50

CRE and Construction Loans 51-53

Foreign Loans 54

Loans Involving More Than One Lender 55-56

Regulatory Matters 57-88

Real Estate Lending Standards 57-67

Retail Credit Loans and Residential Mortgage Loans 68-70

Troubled Debt Restructurings 71-75

Credit Card Lending 76-77

Nontraditional Mortgage Products 78

Correspondent Concentration Risks 79

Leveraged Lending 80

Income Recognition on Problem Loans 81-82

Credit Union Lending Restrictions 83

Lending Statutes 84

Uniform Commercial Code 85-87

Bank Accounting Advisory Series 88

Accounting and Financial Reporting 89-181

Interest Income, Delinquency Fees, Prepayment Fees, and Rebates 95-100

Loan Fees, Costs, Discounts, and Premiums 101-122

TDRs 123-138

Real Estate Investments 139

Lease Financing 140

Foreign Loans 141-144

Commitments 145-152

Financial Statement Presentation and Disclosure 153-181

Auditing 182-230

Objectives 182

Planning 183-184

Internal Control Over Financial Reporting and Possible Tests of Controls 185-198

Substantive Tests 199-230

9 Credit Losses 01-111

Introduction 01-22

Management’s Methodology 04-12

Loan Reviews 13-15

Loans Individually Evaluated for Impairment 16

Loans Collectively Evaluated for Impairment 17-18

Estimating Overall Credit Losses 19-22

Regulatory Matters 23-37

Credit Unions 34-37

Accounting and Financial Reporting 38-61

Sources of Applicable Guidance 38-40

Allowance for Loan Losses 41-47

Loss Contingencies 48-51

Financial Statement Presentation and Disclosure of Loan Impairment and Allowance for Credit Losses 52-61

Auditing 62-111

Objectives 62

Planning and Risk Assessment 63-67

Internal Control Over Financial Reporting and Possible Tests of Controls 68-74

Substantive Tests 75-111

10 Transfers and Servicing and Variable Interest Entities 01-123

Introduction 01-08

Asset-Backed Securitizations 06

Loan Participations and Loan Syndications 07

Loan Servicing 08

Regulatory Matters 09-15

Accounting and Financial Reporting 16-109

Mortgage Loans and MBSs Held for Sale 16-25

Transfers and Servicing of Financial Assets 26-38

Sale of Financial Assets 39-44

Transfers of Loans With Recourse 45-46

Servicing Assets and Liabilities 47-65

Secured Borrowings and Collateral 66-69

Loans Not Previously HFS 70-74

Financial Statement Presentation 75-81

Financial Statement Disclosure 82-92

VIEs 93-109

Auditing 110-123

Objectives 110

Planning 111-114

Internal Control Over Financial Reporting and Possible Tests of Controls 115-121

Substantive Tests 122-123

11 Real Estate Investments, Real Estate Owned, and Other Foreclosed Assets 01-72

Introduction 01-03

Foreclosed Assets 02

Real Estate Investments 03

Regulatory Matters 04-15

Accounting and Financial Reporting 16-54

Foreclosed Assets 16-22

Accounting and Reporting for Long-Lived Assets to Be Disposed of by Sale 23-32

Accounting and Reporting for Long-Lived Assets to Be Held and Used 33-39

Real Estate Investments 40-42

Sale of Real Estate Assets 43-44

Development Costs 45-48

Allocation of Income and Equity Among Parties to a Joint Venture 49-54

Auditing 55-72

Objectives 55

Planning 56

Internal Control Over Financial Reporting and Possible Tests of Controls 57-60

Substantive Tests 61-72

12 Other Assets, Other Liabilities, and Other Investments 01-91

Introduction 01-10

Premises and Equipment, Net 03

FHLB or FRB Stock 04-05

Identifiable Intangibles 06-07

Goodwill 08

Customers’ Liabilities on Acceptances 09

Other Miscellaneous Items 10

Regulatory Matters 11-15

Accounting and Financial Reporting 16-76

Premises and Equipment, Net 16-26

FHLB or FRB Stock 27-34

Goodwill and Other Intangible Assets 35-50

Exit or Disposal Activities 51-52

Asset Retirement Obligations 53-56

Customers’ Liabilities on Acceptances 57

Mortgage Servicing Advances 58

Impairment of Long-Lived Assets 59

NCUSIF Deposit 60-66

Other Investments 67-72

Contributed Assets 73-76

Auditing 77-91

Objectives 77-78

Planning 79

Internal Control Over Financial Reporting and Possible Tests of Controls 80-82

Substantive Tests 83-91

13 Deposits 01-70

Introduction 01-32

Demand Deposits 04

Savings Deposits 05

Time Deposits 06-10

Brokered Deposits 11-13

Dormant Accounts 14

Closed Accounts 15

Other Deposit Services 16

The Payments Function and Services 17-32

Regulatory Matters 33-40

Limitations on Brokered Deposits 33-38

Classification of Deposits of Credit Unions 39-40

Accounting and Financial Reporting 41-46

Auditing 47-70

Objectives 47

Planning 48-49

Internal Control Over Financial Reporting and Possible Tests of Controls 50-55

Substantive Tests 56-70

14 Federal Funds and Repurchase Agreements 01-69

Introduction 01-25

Federal Funds Purchased 02-03

Repos 04-25

Regulatory Matters 26

Accounting and Financial Reporting 27-47

Auditing 48-69

Objectives 48

Planning 49-53

Internal Control Over Financial Reporting and Possible Tests of Controls 54-58

Substantive Tests 59-69

15 Debt 01-77

Introduction 01-31

Long Term Debt 06-09

Short Term Debt 10-31

Regulatory Matters 32-33

Accounting and Financial Reporting 34-57

Auditing 58-77

Objectives 58

Planning 59

Internal Control Over Financial Reporting and Possible Tests of Controls 60-63

Substantive Tests 64-77

16 Income Taxes 01-36

Introduction 01-13

Banks and Savings Institutions 03-09

Other 10-12

Credit Union 13

Regulatory Matters 14-17

Accounting and Financial Reporting 18-30

Deferred-Tax Assets and Liabilities 21-23

Temporary Differences 24-26

Financial Statement Presentation and Disclosure 27-30

Auditing 31-36

Objectives 31

Planning 32

Internal Control Over Financial Reporting and Possible Tests of Controls 33-34

Substantive Tests 35-36

17 Equity and Disclosures Regarding Capital Matters 01-115

Introduction 01

Banks and Savings Institutions 02-46

Introduction 02

Equity 03-10

Holding Company Equity and Regulatory Capital 11-27

Disclosures for Banks and Savings Institutions 28-37

Disclosure for Holding Companies 38-40

Illustrative Disclosures for Banks and Savings Institutions (The example disclosures that follow are for illustrative purposes only) 41-46

Credit Unions 47-64

Introduction 47

Members’ Equity 48-54

New Credit Unions and Low Income Designated Credit Unions 55

Disclosures for Natural Person Credit Unions 56-60

Illustrative Disclosures for Natural Person Credit Unions 61-64

Corporate Credit Unions 65-79

Introduction 65

Equity 66-71

Disclosures for Corporate Credit Unions 72-76

Illustrative Disclosures for Corporate Credit Unions 77-79

Mortgage Companies and Mortgage Banking Activities 80-84

Introduction 80

Disclosure for Mortgage Companies and Mortgage Banking Activities 81-83

Illustrative Disclosures for Mortgage Companies and Mortgage Banking Activities 84

Regulatory Capital Matters for All Entities 85-88

Regulatory Capital Disclosures for Branches of Foreign Institutions 85-86

Regulatory Capital Disclosures for Trust Operations 87-88

Auditing 89-115

Banks, Savings Institutions, and Credit Unions 89-105

Mortgage Companies and Activities 106-115

18 Derivative Instruments: Futures, Forwards, Options, Swaps, and Other Derivative Instruments 01- 101

Introduction 01-69

Risks Inherent in Derivatives 05-13

Types of Derivatives 14-52

Uses of Derivatives to Alter Risk 53-64

Variations on Basic Derivatives 65-69

Regulatory Matters 70-78

Accounting and Financial Reporting 79-100

Financial Statement Disclosures 95-100

Auditing Considerations 101

19 Business Combinations 01-41

Introduction 01

Regulatory Matters 02-07

Accounting and Financial Reporting 08-30

Purchase of a Loan or Group of Loans 18-20

Loans and Debt Securities Acquired With Deteriorated Credit Quality 21

Special Considerations in Applying the Acquisition Method to Combinations of Mutual Entities 22-25

Impairment and Disposal Accounting for Certain Acquired Long Term Customer Relationship Intangible Assets 26-27

Branch Acquisitions 28-30

Auditing Considerations 31-41

20 Fair Value 01-68

Introduction 01

Accounting and Financial Reporting 02-63

Definition of Fair Value 02-27

Valuation Techniques 28-30

Present Value Techniques 31-33

The Fair Value Hierarchy 34-37

Measuring the Fair Value of Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) 38-41

Measuring Fair Value When the Volume or Level of Activity for an Asset or a Liability Has Significantly Decreased 42-47

Using Quoted Prices Provided by Third Parties 48

Disclosures 49-60

Fair Value Option 61-63

Auditing Considerations 64-68

21 Trust and Asset Management Activities 01-30

Introduction 01-12

Personal Trusts 08-09

Corporate Trusts 10

Employee Benefit Trusts 11

Common or Collective Trust Funds 12

Regulatory Matters 13-14

Accounting and Financial Reporting 15-16

Auditing 17-30

Objectives 17

Planning 18

Internal Control Over Financial Reporting and Possible Tests of Controls 19-21

Financial Reporting Controls of the Trust 22

Substantive Tests Related to Financial Statement Audits 23-24

Substantive Procedures Related to the Trust 25-29

Audits of Unit Investment Trusts 30

22 Insurance Activities 01-70

Introduction 01-10

Types of Insurance Coverage 02

Credit Life 03-05

Credit Accident and Health 06

Property and Liability 07

Writing Policies 08-09

Commissions 10

Regulatory Matters 11

Accounting 12-68

Premium Income 13-17

Acquisition Costs 18-50

Investment Portfolios 51-54

State Laws 55

Commissions 56-59

Consolidation Policy 60-64

Financial Statement Presentation 65-68

Auditing 69-70

23 Reporting Considerations 01-38

Introduction 01

Forming an Opinion on the Financial Statements 02-04

Reports 05-37

Unmodified Opinion 05-06

EOM and Other-Matter Paragraphs Added to the Independent Auditor’s Report 07-14

Modified Opinions 15-21

Financial Statements Prepared in Accordance With a Special Purpose Framework 22-23

Members’ Shares Reported as Equity 24

Communication of Internal Control Related Matters 25-27

Reports on Supervisory Committee Audits 28-33

Example Report on the Application of Agreed-Upon Procedures Performed in Connection With a Supervisory Committee Audit 34

Example Reports on the FDIC Loss Sharing Purchase and Assumption Transactions 35-36

Small Business Lending Fund Auditor Certification Guidance 37

Appendix A—Illustrative Unqualified PCAOB Reports 38

A FDI Act Reporting Requirements

B Regulatory Reporting Matters—Interpretation and Reporting Related to U.S. GAAP

C Information Sources

D Overview of Statements on Quality Control Standards

E The New Revenue Recognition Standard: FASB ASC 606

F The New Leases Standard: FASB ASU No. 2016-02

G Accounting for Financial Instruments

H Schedule of Changes Made to the Text From the Previous Edition

Index of Pronouncements and Other Technical Guidance

Subject Index