Financial Auditing and Reporting Flashcards
7 cards from real CBA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Auditing and Reporting flashcards as text
When auditing a bank's allowance for loan and lease losses (ALLL), which methodology is most consistent with GAAP?
Answer: Incurred loss model based on historical loss rates and qualitative factors
Under legacy GAAP (pre-CECL), the ALLL is estimated using the incurred loss model, incorporating historical loss experience and qualitative adjustments.
A bank's auditor identifies that management consistently records loan loss provisions at the low end of an acceptable range. This pattern most likely indicates:
Answer: Potential earnings management through manipulation of the provision
Consistently recording provisions at the low end of an acceptable range is a red flag for earnings management, as it inflates reported income.
Which financial statement disclosure is required for banks under ASC 310-20 regarding loan origination fees and costs?
Answer: Deferral and amortization over the loan's life using the effective interest method
ASC 310-20 requires that net loan origination fees and costs be deferred and amortized as a yield adjustment over the life of the loan using the effective interest method.
During an audit of investment securities, an auditor finds that a bank reclassified securities from available-for-sale (AFS) to held-to-maturity (HTM). What is the primary audit concern?
Answer: Whether the bank has the positive intent and ability to hold the securities to maturity
Reclassification to HTM requires management to demonstrate genuine positive intent and ability to hold securities to maturity, which the auditor must evaluate.
Which audit procedure is most effective for detecting unrecorded deposit liabilities at a bank?
Answer: Reviewing interest expense recorded for reasonableness relative to average deposits
Analytical review of interest expense relative to average deposit balances can reveal if deposits are understated because understated liabilities produce lower-than-expected interest expense.
Under FASB ASC 825, a bank elects the fair value option for certain financial instruments. Which statement is correct regarding audit implications?
Answer: The auditor must evaluate the bank's valuation techniques and key assumptions
When the fair value option is elected, the auditor must assess the appropriateness of valuation methodologies, inputs, and assumptions used to determine fair value.
A bank's external auditor issues a qualified opinion due to a scope limitation. What does this mean for bank examiners reviewing the audit report?
Answer: The auditor was unable to obtain sufficient evidence about a specific area of the financial statements
A qualified opinion due to scope limitation means the auditor could not gather enough evidence to opine on a specific matter, leaving uncertainty about that area.