Audit and Accounting Guide - Depository and Lending Institutions

Table of contents

1. 1. 1Industry Overview — Banks and Savings Institutions
      1. Description of Business
      2. Regulation and Oversight
         1. Regulatory Background
         2. Deposit Insurance Fund
         3. The Dodd-Frank Act
      3. Regulatory Capital Matters
         1. Capital Adequacy
         2. Prompt Corrective Action
      4. Annual Independent Audits and Reporting Requirements
         1. Additional Regulatory Requirements Concerning the Sarbanes-Oxley Act, Corporate Governance, and Services Outsourced to External Auditors
      5. Other Reporting Considerations
   2. 2Industry Overview — Credit Unions
      1. Description of Business
         1. The Board of Directors
         2. The Supervisory Committee
         3. The Credit Committee
      2. Charters, Bylaws, and Minutes
         1. Financial Structure
         2. Credit Union System
         3. Corporate Credit Unions
      3. Regulation and Oversight
         1. Government Supervision
         2. NCUA
      4. Regulatory Capital Matters
         1. Natural Person Credit Unions
         2. Corporate Credit Unions
      5. Annual Audits
         1. Other Reporting Considerations
   3. 3Industry Overview — Finance Companies
      1. Description of Business
         1. Debt Financing
      2. Regulation and Oversight
   4. 4Industry Overview — Mortgage Companies
      1. Description of Business
      2. Regulation and Oversight
      3. Reporting Considerations
         1. HUD Programs
         2. Asset Servicing for Investors
   5. 5Audit Considerations and Certain Financial Reporting Matters
      1. Overview
         1. An Audit of Financial Statements
         2. Audit Risk
      2. Terms of Engagement
      3. Audit Planning
      4. Materiality
         1. Performance Materiality
      5. Use of Assertions in Assessment of Risks of Material Misstatement
      6. Risk Assessment Procedures
         1. Risk Assessment Procedures and Related Activities
         2. Understanding the Entity and Its Environment, Including the Entity’s Internal Control
      7. Risk Assessment and the Design of Further Audit Procedures
         1. Identifying and Assessing the Risks of Material Misstatement
         2. Designing and Performing Further Audit Procedures
      8. Evaluation of Misstatements Identified During the Audit
      9. Audit Documentation
         1. Timely Preparation of Audit Documentation
         2. Documentation of the Audit Procedures Performed and Audit Evidence Obtained
         3. Assembly and Retention of the Final Audit File
      10. Using the Work of an Auditor’s Specialist
      11. Using the Work of a Management’s Specialist
      12. Processing of Transactions by Service Organizations
      13. Consideration of Fraud in a Financial Statement Audit
          1. Professional Skepticism
          2. Discussion Among the Engagement Team
          3. Risk Assessment Procedures and Related Activities
          4. Identification and Assessment of the Risks of Material Misstatement Due to Fraud
          5. Responses to the Assessed Risks of Material Misstatement Due to Fraud
          6. Evaluation of Audit Evidence
          7. Auditor Unable to Continue the Engagement
          8. Communications to Management and With Those Charged With Governance
          9. Communications to Regulatory and Enforcement Authorities
          10. Documentation
      14. Compliance With Laws and Regulations
          1. Responsibility for Compliance With Laws and Regulations
          2. The Auditor’s Consideration of Compliance With Laws and Regulations
      15. Going-Concern Considerations
          1. Risk Assessment Procedures and Related Activities
          2. Management’s Evaluation and Supporting Analysis, and the Auditor’s Evaluation
          3. Period Beyond Management’s Evaluation
          4. Additional Audit Procedures When Events or Conditions Are Identified
          5. Written Representations
          6. Auditor Conclusions
          7. Implications for the Auditor’s Report
          8. Documentation
      16. Written Representations
          1. Written Representations as Audit Evidence
          2. Management From Whom Written Representations Are Requested
          3. Written Representations About Management’s Responsibilities and Other Written Representations
          4. Date of, and Period(s) Covered by, Written Representations
          5. Form of Written Representations
          6. Doubt About the Reliability of Written Representations and Requested Written Representations Not Provided
      17. Information Other Than Financial Statements
      18. Certain Financial Reporting Matters
          1. Disclosures of Certain Significant Risks and Uncertainties
          2. Segment Reporting
      19. Regulation and Supervision of Depository Institutions
          1. Introduction
          2. Rule Making
          3. Examinations
          4. Enforcement
          5. Planning
          6. Detection of Errors and Fraud
          7. Evaluation of Contingent Liabilities and Related Disclosures
          8. Going-Concern Considerations
          9. Regulatory Reporting Matters — Interpretation and Reporting Related to GAAP
          10. Auditor and Examiner Relationship
   6. 6Cash and Cash Equivalents
      1. Introduction
         1. CIPC and Cash Equivalents
         2. Deposits With Other Financial Institutions
         3. Balances With Federal Reserve Banks and FHLBs
         4. Federal Funds Sold
         5. Cash on Hand
      2. Accounting and Financial Reporting
         1. Definition of Cash and Cash Equivalents
         2. Classification of Cash Flows
         3. Acquisition and Sales of Certain Securities and Loans
         4. Gross and Net Cash Flows
         5. Cash Receipts and Payments Related to Hedging Activities
         6. Financial Statement Presentation and Disclosure
      3. Auditing
         1. Objectives
         2. Planning
         3. Internal Control Over Financial Reporting and Possible Tests of Controls
         4. Substantive Tests
   7. 7Investments in Debt and Equity Securities
      1. Introduction
         1. U.S. Government and Agency Obligations
         2. Municipal Obligations
         3. Asset-Backed Securities
         4. Other Structured Credit Products
         5. Issues of International Organizations and Foreign Governments
         6. Other Securities
         7. Transfers of Securities
      2. Regulatory Matters
         1. Bank Accounting Advisory Series
      3. Accounting and Financial Reporting
         1. Introduction
         2. OTTI
         3. Impairment of Equity Securities without Readily Determinable Fair Values
         4. Unrealized Gains and Losses
         5. Premiums and Discounts
         6. Interest Income
         7. Consolidation
         8. Special Areas
         9. Transfers and Servicing of Securities
         10. Troubled Debt Restructurings
         11. Loans and Debt Securities Acquired With Deteriorated Credit Quality
         12. Financial Statement Presentation and Disclosure
      4. Auditing
         1. Objectives
         2. Planning
         3. Internal Control Over Financial Reporting and Possible Tests of Controls
         4. Substantive Tests
   8. 8Loans
      1. Introduction
         1. The Lending Process
         2. Credit Strategy
         3. Credit Risk
         4. Lending Policies and Procedures
         5. Types of Lending
         6. Commercial, Industrial, and Agricultural Loans
         7. Consumer Loans
         8. Residential Real Estate Loans
         9. Lease Financing
         10. Trade Financing
         11. CRE and Construction Loans
         12. Foreign Loans
         13. Loans Involving More Than One Lender
      2. Regulatory Matters
         1. Real Estate Lending Standards
         2. Retail Credit Loans and Residential Mortgage Loans
         3. Troubled Debt Restructurings
         4. Credit Card Lending
         5. Nontraditional Mortgage Products
         6. Correspondent Concentration Risks
         7. Leveraged Lending
         8. Income Recognition on Problem Loans
         9. Credit Union Lending Restrictions
         10. Lending Statutes
         11. Uniform Commercial Code
         12. Bank Accounting Advisory Series
      3. Accounting and Financial Reporting
         1. Interest Income, Delinquency Fees, Prepayment Fees, and Rebates
         2. Loan Fees, Costs, Discounts, and Premiums
         3. TDRs
         4. Real Estate Investments
         5. Lease Financing
         6. Foreign Loans
         7. Commitments
         8. Financial Statement Presentation and Disclosure
      4. Auditing
         1. Objectives
         2. Planning
         3. Internal Control Over Financial Reporting and Possible Tests of Controls
         4. Substantive Tests
   9. 9Credit Losses
      1. Introduction
         1. Management's Methodology
         2. Loan Reviews
         3. Loans Individually Evaluated for Impairment
         4. Loans Collectively Evaluated for Impairment
         5. Estimating Overall Credit Losses
      2. Regulatory Matters
         1. Credit Unions
      3. Accounting and Financial Reporting
         1. Sources of Applicable Guidance
         2. Allowance for Loan Losses
         3. Loss Contingencies
         4. Financial Statement Presentation and Disclosure of Loan Impairment and Allowance for Credit Losses
      4. Auditing
         1. Objectives
         2. Planning and Risk Assessment
         3. Internal Control Over Financial Reporting and Possible Tests of Controls
         4. Substantive Tests
   10. 10Transfers and Servicing and Variable Interest Entities
       1. Introduction
          1. Asset-Backed Securitizations
          2. Loan Participations and Loan Syndications
          3. Loan Servicing
       2. Regulatory Matters
       3. Accounting and Financial Reporting
          1. Mortgage Loans and MBSs Held for Sale
          2. Transfers and Servicing of Financial Assets
          3. Sale of Financial Assets
          4. Transfers of Loans With Recourse
          5. Servicing Assets and Liabilities
          6. Secured Borrowings and Collateral
          7. Loans Not Previously HFS
          8. Financial Statement Presentation
          9. Financial Statement Disclosure
          10. VIEs
       4. Auditing
          1. Objectives
          2. Planning
          3. Internal Control Over Financial Reporting and Possible Tests of Controls
          4. Substantive Tests
   11. 11Real Estate Investments, Real Estate Owned, and Other Foreclosed Assets
       1. Introduction
          1. Foreclosed Assets
          2. Real Estate Investments
       2. Regulatory Matters
       3. Accounting and Financial Reporting
          1. Foreclosed Assets
          2. Accounting and Reporting for Long-Lived Assets to Be Disposed of by Sale
          3. Accounting and Reporting for Long-Lived Assets to Be Held and Used
          4. Real Estate Investments
          5. Sale of Real Estate Assets
          6. Development Costs
          7. Allocation of Income and Equity Among Parties to a Joint Venture
       4. Auditing
          1. Objectives
          2. Planning
          3. Internal Control Over Financial Reporting and Possible Tests of Controls
          4. Substantive Tests
   12. 12Other Assets, Other Liabilities, and Other Investments
       1. Introduction
          1. Premises and Equipment, Net
          2. FHLB or FRB Stock
          3. Identifiable Intangibles
          4. Goodwill
          5. Customers' Liabilities on Acceptances
          6. Other Miscellaneous Items
       2. Regulatory Matters
       3. Accounting and Financial Reporting
          1. Premises and Equipment, Net
          2. FHLB or FRB Stock
          3. Goodwill and Other Intangible Assets
          4. Exit or Disposal Activities
          5. Asset Retirement Obligations
          6. Customers' Liabilities on Acceptances
          7. Mortgage Servicing Advances
          8. Impairment of Long-Lived Assets
          9. NCUSIF Deposit
          10. Other Investments
          11. Contributed Assets
       4. Auditing
          1. Objectives
          2. Planning
          3. Internal Control Over Financial Reporting and Possible Tests of Controls
          4. Substantive Tests
   13. 13Deposits
       1. Introduction
          1. Demand Deposits
          2. Savings Deposits
          3. Time Deposits
          4. Brokered Deposits
          5. Dormant Accounts
          6. Closed Accounts
          7. Other Deposit Services
          8. The Payments Function and Services
       2. Regulatory Matters
          1. Limitations on Brokered Deposits
          2. Classification of Deposits of Credit Unions
       3. Accounting and Financial Reporting
       4. Auditing
          1. Objectives
          2. Planning
          3. Internal Control Over Financial Reporting and Possible Tests of Controls
          4. Substantive Tests
   14. 14Federal Funds and Repurchase Agreements
       1. Introduction
          1. Federal Funds Purchased
          2. Repos
       2. Regulatory Matters
       3. Accounting and Financial Reporting
       4. Auditing
          1. Objectives
          2. Planning
          3. Internal Control Over Financial Reporting and Possible Tests of Controls
          4. Substantive Tests
   15. 15Debt
       1. Introduction
          1. Long Term Debt
          2. Short Term Debt
       2. Regulatory Matters
       3. Accounting and Financial Reporting
       4. Auditing
          1. Objectives
          2. Planning
          3. Internal Control Over Financial Reporting and Possible Tests of Controls
          4. Substantive Tests
   16. 16Income Taxes
       1. Introduction
          1. Banks and Savings Institutions
          2. Other
          3. Credit Union
       2. Regulatory Matters
       3. Accounting and Financial Reporting
          1. Deferred Tax Assets and Liabilities
          2. Temporary Differences
          3. Financial Statement Presentation and Disclosure
       4. Auditing
          1. Objectives
          2. Planning
          3. Internal Control Over Financial Reporting and Possible Tests of Controls
          4. Substantive Tests
   17. 17Equity and Disclosures Regarding Capital Matters
       1. Introduction
       2. Banks and Savings Institutions
          1. Introduction
          2. Equity
          3. Holding Company Equity and Regulatory Capital
          4. Disclosures for Banks and Savings Institutions
          5. Disclosure for Holding Companies
          6. Illustrative Disclosures for Banks and Savings Institutions
       3. Credit Unions
          1. Introduction
          2. Members’ Equity
          3. New Credit Unions and Low Income Designated Credit Unions
          4. Disclosures for Natural Person Credit Unions
          5. Illustrative Disclosures for Natural Person Credit Unions
       4. Corporate Credit Unions
          1. Introduction
          2. Equity
          3. Disclosures for Corporate Credit Unions
          4. Illustrative Disclosures for Corporate Credit Unions
       5. Mortgage Companies and Mortgage Banking Activities
          1. Introduction
          2. Disclosure for Mortgage Companies and Mortgage Banking Activities
          3. Illustrative Disclosures for Mortgage Companies and Mortgage Banking Activities
       6. Regulatory Capital Matters for All Entities
          1. Regulatory Capital Disclosures for Branches of Foreign Institutions
          2. Regulatory Capital Disclosures for Trust Operations
       7. Auditing
          1. Banks, Savings Institutions, and Credit Unions
          2. Mortgage Companies and Activities
   18. 18Derivative Instruments: Futures, Forwards, Options, Swaps, and Other Derivative Instruments
       1. Introduction
          1. Risks Inherent in Derivatives
          2. Types of Derivatives
          3. Uses of Derivatives to Alter Risk
          4. Variations on Basic Derivatives
       2. Regulatory Matters
       3. Accounting and Financial Reporting
          1. Financial Statement Disclosures
       4. Auditing Considerations
   19. 19Business Combinations
       1. Introduction
       2. Regulatory Matters
       3. Accounting and Financial Reporting
          1. Purchase of a Loan or Group of Loans
          2. Loans and Debt Securities Acquired With Deteriorated Credit Quality
          3. Special Considerations in Applying the Acquisition Method to Combinations of Mutual Entities
          4. Impairment and Disposal Accounting for Certain Acquired Long Term Customer Relationship Intangible Assets
          5. Branch Acquisitions
       4. Auditing Considerations
   20. 20Fair Value
       1. Introduction
       2. Accounting and Financial Reporting
          1. Definition of Fair Value
          2. Valuation Techniques
          3. Present Value Techniques
          4. The Fair Value Hierarchy
          5. Measuring the Fair Value of Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)
          6. Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)
          7. Measuring Fair Value When the Volume or Level of Activity for an Asset or a Liability Has Significantly Decreased
          8. Using Quoted Prices Provided by Third Parties
          9. Disclosures
          10. Fair Value Option
       3. Auditing Considerations
   21. 21Trust and Asset Management Activities
       1. Introduction
          1. Personal Trusts
          2. Corporate Trusts
          3. Employee Benefit Trusts
          4. Common or Collective Trust Funds
       2. Regulatory Matters
       3. Accounting and Financial Reporting
       4. Auditing
          1. Objectives
          2. Planning
          3. Internal Control Over Financial Reporting and Possible Tests of Controls
          4. Financial Reporting Controls of the Trust
          5. Substantive Tests Related to Financial Statement Audits
          6. Substantive Procedures Related to the Trust
          7. Audits of Unit Investment Trusts
   22. 22Insurance Activities
       1. Introduction
          1. Types of Insurance Coverage
          2. Credit Life
          3. Credit Accident and Health
          4. Property and Liability
          5. Writing Policies
          6. Commissions
       2. Regulatory Matters
       3. Accounting
          1. Premium Income
          2. Acquisition Costs
          3. Investment Portfolios
          4. State Laws
          5. Commissions
          6. Consolidation Policy
          7. Financial Statement Presentation
       4. Auditing
   23. 23Reporting Considerations
       1. Introduction
       2. Forming an Opinion on the Financial Statements
       3. Reports
          1. Unmodified Opinion
          2. EOM and Other-Matter Paragraphs Added to the Independent Auditor's Report
          3. Modified Opinions
          4. Financial Statements Prepared in Accordance With a Special Purpose Framework
          5. Members' Shares Reported as Equity
          6. Communication of Internal Control Related Matters
          7. Reports on Supervisory Committee Audits
          8. Example Report on the Application of Agreed-Upon Procedures Performed in Connection With a Supervisory Committee Audit
          9. Example Reports on the FDIC Loss Sharing Purchase and Assumption Transactions
          10. Small Business Lending Fund Auditor Certification Guidance
       4. Appendix A — Illustrative Unqualified PCAOB Reports
2. 1. AFDI Act Reporting Requirements
   2. BRegulatory Reporting Matters — Interpretation and Reporting Related to U.S. GAAP
   3. CInformation Sources
   4. DOverview of Statements on Quality Control Standards
   5. EThe New Leases Standard: FASB ASC 842
   6. FAccounting for Financial Instruments
   7. GSchedule of Changes Made to the Text From the Previous Edition
3. EULA