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 interest rate risk (IRR) disclosures, which document most directly addresses management's IRR measurement methodology?
Answer: The Asset/Liability Management (ALM) policy and committee minutes
The ALM policy documents the bank's IRR measurement models, risk limits, and governance, making it the primary source for auditing IRR methodology.
A bank auditor is evaluating goodwill impairment testing under ASC 350. Which triggering event would require an interim impairment test between annual testing dates?
Answer: A significant regulatory action that negatively impacts the reporting unit's operations
A significant adverse regulatory action is a qualitative triggering event that makes it more likely than not that the fair value of a reporting unit has declined below its carrying amount.
Which approach is required by U.S. GAAP under CECL (ASC 326) that differs most significantly from the prior incurred loss model?
Answer: Lifetime expected credit losses are estimated and recognized at the time of loan origination
CECL requires banks to estimate and record expected credit losses over the entire life of a financial instrument at origination, replacing the incurred loss trigger.
An auditor is assessing the completeness assertion for off-balance-sheet exposures at a bank. Which procedure is most relevant?
Answer: Reviewing unfunded commitment records and comparing to loan origination documentation
Comparing unfunded commitment records to loan agreements ensures that all off-balance-sheet credit exposures are identified and properly disclosed.
Under GAAS, when a bank auditor uses the work of an internal auditor, the external auditor must:
Answer: Evaluate the competence, objectivity, and work quality of the internal audit function
AU-C Section 610 requires external auditors to assess internal auditors' competence and objectivity and evaluate the quality of their work before placing reliance on it.
In auditing bank trading securities, which valuation level under ASC 820's fair value hierarchy typically requires the most auditor scrutiny?
Answer: Level 3 — significant unobservable inputs based on management assumptions
Level 3 fair values depend heavily on unobservable, management-derived assumptions, making them susceptible to bias and requiring the greatest auditor skepticism.
A community bank's financial statements show significant growth in brokered deposits. From an audit perspective, this is most relevant to which risk area?
Answer: Liquidity risk and concentration risk from reliance on volatile, rate-sensitive funding
Brokered deposits are considered volatile funding sources that can be withdrawn quickly when rates change, creating significant liquidity and concentration risks.