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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: 978-1-945-49841-1

Sep 2017

864 pages

$79.99

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.

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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

Appendix

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