FREE CBA Financial Auditing and Reporting Questions and Answers

Question 1

An auditor is reviewing a bank's implementation of the Current Expected Credit Losses (CECL) model under ASC 326.
The bank's model incorporates historical loss data, current economic conditions, and management's reasonable and supportable forecasts.
Which audit procedure is MOST critical for assessing the reasonableness of the Allowance for Credit Losses (ACL) calculation?

Accepted Answer

Evaluating the reasonableness of management's economic forecasts by comparing them to external, independent economic data.

Answer

Verifying that all loans from the general ledger are included in the ACL model's input data.

Answer

Testing the mathematical accuracy of the model's calculations from input to output.

Answer

Reviewing the minutes from the Board of Directors meeting where the CECL accounting policy was approved.

Question 2

Under the Federal Deposit Insurance Corporation Improvement Act (FDICIA), for insured depository institutions with total assets exceeding a specified threshold, what is the external auditor required to issue an opinion on?

Accepted Answer

Management's assessment of the effectiveness of internal control over financial reporting.

Answer

The effectiveness of the bank's enterprise risk management program.

Answer

The bank's compliance with all applicable safety and soundness regulations.

Answer

The accuracy of the bank's quarterly Consolidated Reports of Condition and Income (Call Reports).

Question 3

A bank holds a large portfolio of mortgage-servicing rights (MSRs), which it values using a discounted cash flow model. This model uses significant unobservable inputs, including assumptions about future mortgage prepayment speeds and default rates. According to ASC 820, Fair Value Measurement, these MSRs would be classified in which level of the fair value hierarchy?

Accepted Answer

Level 3

Answer

Level 1

Answer

Level 4

Answer

Level 2

Question 4

For a large, publicly traded financial institution, which of the following is MOST likely to be identified by the external auditor as a Critical Audit Matter (CAM) in the auditor's report?

Accepted Answer

The valuation of the allowance for credit losses on the loan portfolio.

Answer

The testing of controls over the reconciliation of correspondent bank accounts.

Answer

The verification of interest income on U.S. Treasury securities classified as held-to-maturity.

Answer

The review of the bank's compliance with physical security controls at branch locations.

Question 5

An auditor is evaluating the internal controls over the preparation of the bank's Consolidated Report of Condition and Income (Call Report). Which of the following control activities is MOST fundamental to ensuring the accuracy of the data reported?

Accepted Answer

A formal, documented process for reconciling Call Report line items to the general ledger and supporting subsidiary systems.

Answer

A secondary review of the final report by a senior executive before submission.

Answer

An automated system that provides an alert when the regulatory filing deadline is approaching.

Answer

A checklist used by the accounting department to ensure all required schedules are included in the filing.

Question 6

During an audit of a bank's investment portfolio, an auditor is testing the valuation of U.S. Treasury bonds classified as 'Available-for-Sale' (AFS). Which audit procedure provides the MOST reliable evidence for the valuation of these securities?

Accepted Answer

Comparing the bank's recorded fair value to a quoted price from an active, independent market source.

Answer

Recalculating the amortization of the premium or discount on the bonds.

Answer

Reviewing the minutes from the Asset/Liability Committee (ALCO) meeting where the purchase was discussed.

Answer

Analyzing the bank's internal model for projecting future interest rates.