CBA Financial and Lending Audits Questions and Answers

Question 1

An auditor is reviewing a bank's Allowance for Credit Losses (ACL) methodology under the Current Expected Credit Losses (CECL) standard.
The auditor discovers that the historical loss data used in the model excludes loans from a recently acquired portfolio with a historically higher loss rate.
Which of the following audit conclusions is most appropriate?

Accepted Answer

The exclusion of relevant historical data may lead to an understatement of the required ACL.

Answer

The ACL model is acceptable as long as it incorporates reasonable and supportable forecasts.

Answer

The acquired portfolio can be excluded until three years of performance data have been accumulated.

Answer

The bank's qualitative adjustments are sufficient to compensate for any data omissions.

Question 2

During an audit of the lending function, a review of loan files reveals several instances where commercial loan officers used their override authority to approve loans that did not meet the bank's established underwriting criteria. What is the auditor's most effective course of action?

Accepted Answer

Select a sample of the overridden loans to assess the documented justifications and determine if mitigating controls were in place.

Answer

Recommend that loan officer override authority be eliminated entirely.

Answer

Conclude that this is an acceptable practice as long as the overrides are within the officers' lending limits.

Answer

Report the issue to the compliance department for a full investigation into potential fair lending violations.

Question 3

Which of the following is the primary objective of an independent loan review function within a financial institution?

Accepted Answer

To provide the board and management with an objective assessment of the overall quality of the loan portfolio and credit administration.

Answer

To re-underwrite all new loans originated during the period.

Answer

To ensure all required loan documentation is present in the file before funding.

Answer

To set the interest rates and terms for complex commercial credit facilities.

Question 4

An auditor is examining the collateral documentation for a portfolio of commercial real estate (CRE) loans. The auditor notes that for several large loans, the most recent property appraisals are over three years old. This finding represents a significant weakness in which area?

Accepted Answer

Collateral risk management.

Answer

Fair lending compliance.

Answer

Interest rate risk management.

Answer

Liquidity risk monitoring.

Question 5

When auditing a bank's loan participation portfolio where the bank is a participant (i.e., it purchased a portion of a loan originated by another institution), which of the following is the GREATEST concern for the auditor?

Accepted Answer

The participant bank did not perform its own independent credit analysis before purchasing the loan.

Answer

The lead lender is charging an excessive servicing fee.

Answer

The loan documents were executed using an electronic signature platform.

Answer

The participant bank's share of the loan is less than 50% of the total credit.

Question 6

A bank has identified and classified several large commercial loans as Troubled Debt Restructurings (TDRs). When auditing these loans, the auditor's primary focus should be to ensure that:

Accepted Answer

the concession granted to the borrower has been properly identified and the loan's impairment has been measured and recognized in accordance with accounting principles.

Answer

the bank has initiated foreclosure proceedings against the borrowers.

Answer

the original loan officer has been placed on a performance improvement plan.

Answer

the loans are segregated from the main portfolio for regulatory reporting.