CBA Financial Reporting & Analysis 2

Question 1

Under ASC 310-20, how should a bank account for loan origination fees received from borrowers?

Accepted Answer

Defer and amortize over the loan's life using the effective interest method

Answer

ASC 310-20 requires loan origination fees to be deferred and recognized as an adjustment to yield (interest income) over the loan's life using the effective interest method.

Question 2

A bank's net interest margin (NIM) declined from 3.2% to 2.8% year-over-year. Which scenario BEST explains this change?

Accepted Answer

The cost of funds rose more rapidly than loan yields

Answer

NIM compresses when the cost of funding rises faster than asset yields, squeezing the spread between earning assets and interest-bearing liabilities.

Question 3

Which financial statement line item most directly reflects a bank's credit risk exposure from off-balance-sheet commitments?

Accepted Answer

Contingent liabilities disclosed in footnotes

Answer

Unfunded loan commitments and letters of credit are off-balance-sheet exposures disclosed as contingent liabilities in the footnotes under ASC 450.

Question 4

A bank auditor notices that the efficiency ratio increased from 58% to 72%. What does this indicate?

Accepted Answer

Operating expenses are consuming a larger share of net revenue

Answer

The efficiency ratio (noninterest expense / net revenue) rising from 58% to 72% indicates that expenses are taking up more of each revenue dollar, signaling declining operational efficiency.

Question 5

Under CECL (ASC 326), the allowance for credit losses on a bank's held-to-maturity (HTM) securities portfolio is measured using:

Accepted Answer

Lifetime expected credit losses from the date of acquisition

Answer

CECL requires banks to estimate lifetime expected credit losses on HTM securities at acquisition, replacing the prior incurred-loss model.

(CBA) Certified Bank Auditor Practice Test

(CBA) Certified Bank Auditor Practice Test

CBA Financial Reporting & Analysis 2