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Depository and Lending Institutions: Banks and Savings Institutions, Credit Unions, Finance Companies, and Mortgage Companies

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Description

This Audit and Accounting Guide provides the latest information on accounting and auditing issues affecting depository and lending institutions. Updated with conforming changes as of May 1, 2008, it includes guidance in planning and performing audits under the risk assessment standards (SAS Nos. 104-111). This edition of the guide has also been conformed to reflect the Defining Professional Requirements standards (SAS No. 102 and SSAE No. 13). Furthermore, it provides additional guidance on the auditor’s responsibilities as set forth in SAS Nos. 112-114, including identifying and reporting internal control deficiencies, understanding the link between the auditor’s consideration of fraud and the auditor’s assessment of risk, dating of the management representation letter, and the auditor’s communications with those charged with governance.

The guide summarizes applicable requirements and practices, and delivers "how-to" advice for handling audit and accounting issues common to depository and lending institutions. It includes a discussion of the relevant financial statement considerations for depository and lending institutions. Included in the appendices is a listing of FDI Act Reporting Requirements. The guide covers the following new accounting pronouncements:

  • FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115
  • FASB Statement No. 157, Fair Value Measurements
  • An introduction to the newly issued FASB Statement Nos. 160, Noncontrolling Interests in Consolidated Financial Statements- an amendment to ARB No. 51, and FASB Statement No. 141(r), Business Combinations.

For a topical listing of subject matter by chapter, click on the Table of Contents tab.

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Table of Contents

  • Chapter 1 - Industry Overview—Banks and Savings Institutions
    • Description of Business
    • Regulation and Oversight
    • Regulatory Capital Matters
    • Capital Adequacy
    • Prompt Corrective Action
    • Regulatory Requirements for Independent Reporting Under FDI Act
    • Other Reporting Considerations
    • Additional Regulatory Requirements Concerning the Sarbanes-Oxley Act, Corporate Governance, and Services Outsourced to External Auditors
    • Regulatory Requirements For Internationally Active Banks
  • Chapter 2 - Industry Overview—Credit Unions
    • Description of Business
      • The Board of Directors
      • The Supervisory Committee
      • The Credit Committee
    • Chapter, Bylaws, and Minutes
      • Financial Structure
      • Deregulation
      • Credit Union System
      • Corporate Credit Union Network
    • Regulation and Oversight
      • Government Supervision
      • National Credit Union Administration
    • Regulatory Capital Matters
      • Natural Person Credit Unions
      • Corporate Credit Unions
    • Annual Audits
      • Other Reporting Considerations
  • Chapter 3 - Industry Overview—Finance Companies
    • Description of Business
      • Debt Financing
    • Regulation and Oversight
  • Chapter 4 - Industry Overview—Mortgage Companies
    • Description of Business
    • Reporting Considerations
      • HUD Programs
      • Residential Loan Servicing for Investors
  • Chapter 5 - Audit Considerations and Certain Financial Reporting Matters
    • Overview
    • Planning and Other Auditing Considerations
      • Audit Planning
    • Scope of Services
    • Using the Work of a Specialist
      • Audit Risk
      • Planning Materiality
    • Use of Assertions in Obtaining Audit Evidence
    • Understanding the Entity and Its Environment, Including Its Internal Control
      • Risk Assessment Procedures
    • Analytical Procedures
      • Discussion Among the Audit Team
      • Understanding the Entity and Its Environment
    • Understanding of the Client’s Business
    • Industry Risk Factors
    • Interest Rate Risk
    • Liquidity Risk
    • Asset-Quality Risk
    • Fiduciary Risk
    • Processing Risk
    • Understanding Internal Control
    • Risk Assessment and the Design of Further Audit Procedures
      • Assessing the Risks of Material Misstatement
      • Designing and Performing Further Audit Procedures
    • Evaluating Misstatements
    • Audit Documentation—Audits Conducted in Accordance With GAAS
    • Audit Documentation—Audits Conducted in Accordance With PCAOB Standards
    • Processing of Transactions by Service Organizations
    • Consideration of Fraud in a Financial Statement Audit
    • Compliance With Laws and Regulations
    • Going-Concern Considerations
    • Client Representations
    • Certain Financial Reporting Matters
      • Disclosures of Certain Significant Risks and Uncertainties
      • Certain Significant Estimates
      • Current Vulnerability Due to Certain Concentrations
      • Segment Reporting
    • Regulation and Supervision of Depository Institutions
      • Introduction
      • Rule Making
      • Examinations
      • Enforcement
      • Planning
      • Detection of Errors and Fraud
      • Evaluation of Contingent Liabilities and Related Disclosures
      • Going-Concern Considerations
      • Regulatory Accounting Practices and RAP-GAAP Differences
      • Independent Accountant and Examiner Relationship
  • Chapter 6 - Cash and Cash Equivalents
    • Introduction
      • Cash Items in the Process of Collection and Cash Equivalents
      • Deposits With Other Depository Institutions
      • Balances With Federal Reserve Banks and Federal Home Loan Banks
      • Cash on Hand
      • Federal Funds and Repurchase Agreements
    • Accounting and Financial Reporting
      • Classification of Cash Flows
    • Auditing
      • Objectives
      • Planning
      • Internal Control Over Financial Reporting and Possible Tests of Controls
      • Substantive Tests
  • Chapter 7 - Investments in Debt and Equity Securities
    • Introduction
    • U.S. Government and Agency Obligations
    • Municipal Obligations
    • Asset-Backed Securities
    • Issues of International Organizations and Foreign Governments
    • Other Securities
    • Corporate Credit Union Shares and Certificates
    • Transfers of Securitiess
    • Regulatory Matters
    • Accounting and Financial Reporting
      • Premiums and Discounts
      • Special Areas
      • Transfers and Servicing of Securities
      • Troubled Debt Restructurings
      • Amortization of Discounts on Certain Debt Securities
      • Financial Statement Presentation and Disclosure
    • Auditing
      • Objectives
      • Planning
      • Internal Control Over Financial Reporting and Possible Tests of Controls
      • Substantive Tests
  • Chapter 8 - Loans
    • Introduction
      • The Lending Process
      • Credit Strategy
      • Credit Risk
      • Lending Policies and Procedures
      • Types of Lending
      • Commercial, Industrial, and Agricultural Loans
      • Consumer Loans
      • Residential Real Estate Loans
      • Lease Financing
      • Trade Financing
      • Commercial Real Estate and Construction Loans
      • Foreign Loans
    • Regulatory Matters
      • Real Estate Lending Standards
      • Retail Credit Loans and Residential Mortgage Loans
      • Credit Card Lending
      • Nontraditional Mortgage Products
      • Income Recognition on Problem Loans
      • Credit Union Lending Restrictions
      • Lending Statutes
      • Uniform Commercial Code
    • Accounting and Financial Reporting
      • Interest Income
      • Loan Fees, Costs, Discounts, and Premiums
      • Troubled Debt Restructurings
      • Real Estate Investments
      • Lease Financing
      • Foreign Loans
      • Commitments
      • Financial Statement Presentation and Disclosure
    • Auditing
      • Objectives
      • Planning
      • Internal Control Over Financial Reporting and Possible Tests of Controls
      • Substantive Tests
  • Chapter 9 - Credit Losses
    • Introduction
      • Management’s Methodology
      • Groups of Homogeneous Loans and Leases
      • Estimating Overall Credit Losses
    • Regulatory Matters
      • Credit Unions
    • Accounting and Financial Reporting
    • Auditing
      • Objectives
      • Planning
      • Internal Control Over Financial Reporting and Possible Tests of Controls
      • Substantive Tests
    • Introduction
      • Asset-Backed Securitizations
      • Loan Servicing
    • Regulatory Matters
    • Accounting and Financial Reporting
      • Mortgage Loans and Mortgage-Backed Securities Held for Sale
      • Transfers and Servicing of Loans
      • Transfers of Loans With Recourse
      • Servicing Rights
      • VA No-Bids and Private Mortgage Agencies
      • Financial Statement Presentation and Disclosure
    • Auditing
      • Objectives
      • Planning
      • Internal Control Over Financial Reporting and Possible Tests of Controls
      • Substantive Tests
  • Chapter 11- Real Estate Investments, Real Estate Owned, and Other Foreclosed Assets
    • Introduction
    • Foreclosed Assets
    • Real Estate Investments
    • Regulatory Matters
    • Accounting and Financial Reporting
      • Foreclosed Assets
      • Accounting and Reporting for Long-Lived Assets to Be Disposed of by Sale
      • Accounting and Reporting for Long-Lived Assets to Be Held and Used
      • Real Estate Investments
      • Sale of Real Estate Assets
      • Development Costs
      • Allocation of Income and Equity Among Parties to a Joint Venture
    • Auditing
      • Objectives
      • Planning
      • Internal Control Over Financial Reporting and Possible Tests of Controls
      • Substantive Tests
  • Chapter 12 - Other Assets, Other Liabilities, and Other Investments
    • Introduction
      • Premises and Equipment
      • Federal Home Loan Bank or Federal Reserve Bank Stock
      • Identifiable Intangibles
      • Goodwill
      • Customers’ Liabilities on Acceptances
      • Other Miscellaneous Items
    • Regulatory Matters
    • Accounting and Financial Reporting
      • Premises and Equipment
      • Federal Home Loan Bank or Federal Reserve Bank Stock
      • Intangible Assets
      • Exit or Disposal Activities
      • Asset Retirement Obligations
      • Customers’ Liabilities on Acceptances
      • Impairment
      • National Credit Union Share Insurance Fund Deposit
      • Other Investments
      • Contributed Assets
    • Auditing
      • Objectives
      • Planning
      • Internal Control Over Financial Reporting and Possible Tests of Controls
      • Substantive Tests
  • Chapter 13 - Deposits
    • Introduction
      • Demand Deposits
      • Savings Deposits
      • Time Deposits
      • Dormant Accounts
      • Closed Accounts
      • Other Deposit Services
      • The Payments Function and Services
    • Regulatory Matters
      • Limitations on Brokered Deposits
      • Credit Union Confirmations
    • Accounting and Financial Reporting
    • Auditing
      • Objectives
      • Planning
      • Internal Control Over Financial Reporting and Possible Tests of Controls
      • Substantive Tests
  • Chapter 14 - Federal Funds and Repurchase Agreements
    • Introduction
      • Federal Funds Purchased
      • Repurchase Agreements
    • Regulatory Matters
    • Accounting and Financial Reporting
    • Auditing
      • Objectives
      • Planning
      • Internal Control Over Financial Reporting and Possible Tests of Controls
      • Substantive Tests
  • Chapter 15 - Debt
    • Introduction
      • Long-Term Debt
      • Short-Term Debt
    • Regulatory Matters
    • Accounting and Financial Reporting
      • Lease Financing
      • Lending of Customers’ Securities
      • Fair-Value Disclosures
    • Auditing
      • Objectives
      • Planning
      • Internal Control Over Financial Reporting and Possible Tests of Controls
      • Substantive Tests
  • Chapter 16 - Income Taxes
    • Introduction
      • Banks and Savings Institutions
      • Other
      • Credit Union
    • Accounting and Financial Reporting
      • Deferred-Tax Assets and Liabilities
      • Temporary Differences
      • Financial Statement Presentation and Disclosure
    • Auditing
      • Objectives
      • Planning
      • Internal Control Over Financial Reporting and Possible Tests of Controls
      • Substantive Tests
  • Chapter 17 - Equity and Disclosures Regarding Capital Matters
    • Introduction
    • Banks and Savings Institutions
      • Introduction
      • Equity
      • Holding Company Equity and Regulatory Capital
      • Disclosures for Banks and Savings Institutions
      • Disclosure for Holding Companies
      • Illustrative Disclosures for Banks and Savings Institutions (The Example Disclosures That Follow Are for Illustrative Purposes Only)
    • Credit Unions
      • Introduction
      • Members’ Equity
      • New Credit Unions and Low-Income Designated Credit Unions
      • Disclosures for Natural Person Credit Unions
      • Illustrative Disclosures for Natural Person Credit Unions
    • Corporate Credit Unions
      • Introduction
      • Equity
      • Disclosures for Corporate Credit Unions
      • Illustrative Disclosures for Corporate Credit Unions
    • Mortgage Companies and Mortgage Banking Activities
      • Introduction
      • Disclosure for Mortgage Companies and Mortgage Banking Activities
      • Illustrative Disclosures for Mortgage Companies and Mortgage Banking Activities
    • Regulatory Capital Matters for All Entities
      • Regulatory Capital Disclosures for Branches of Foreign Institutions
      • Regulatory Capital Disclosures for Trust Operations
      • Regulatory Capital Disclosures for Business Combinations
    • Auditing
      • Banks, Savings Institutions and Credit Unions
    • Mortgage Companies and Activities
      • Objectives
  • Chapter 18 - Futures, Forwards, Options, Swaps, and Similar Financial Instruments
    • Introduction
      • Risks Inherent in Derivatives
      • Types of Derivatives (Note That for Accounting Purposes, Derivatives Are Defined in Paragraph 6 of FASB Statement No. 133, as Amended)
      • Uses of Derivatives to Alter Risk
      • Variations on Basic Derivatives
    • Regulatory Matters
    • Accounting and Financial Reporting
    • Auditing Considerations
  • Chapter 19 - Business Combinations
    • Introduction
    • Regulatory Matters
    • Accounting and Financial Reporting
      • FASB Statement No. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions, as Amended
      • Impairment and Disposal Accounting for Certain Acquired Long Term Customer Relationship Intangible Assets
      • Branch Acquisitions
    • Auditing
      • Objectives and Planning
      • Substantive Tests
  • Chapter 20 - Trust Services and Activities
    • Introduction
      • Personal Trusts
      • Corporate Trusts
      • Employee Benefit Trusts
      • Common or Collective Trust Funds
    • Regulatory Matters
    • Accounting and Financial Reporting
    • Auditing
      • Objectives
      • Planning
      • Internal Control Over Financial Reporting and Possible Tests of Controls in a Financial Statement Audit
      • Financial Reporting Controls of the Trust
      • Substantive Tests Related to Financial Statement Audits
      • Substantive Procedures Related to the Trust
      • Audits of Unit Investment Trusts
  • Chapter 21 - Insurance Activities
    • Introduction
      • Types of Insurance Coverage
      • Credit Life
      • Credit Accident and Health
      • Property and Liability
      • Writing Policies
      • Commissions
    • Regulatory Matters
    • Accounting
      • Premium Income
      • Policy Acquisition Costs
      • Investment Portfolios
      • State Laws
      • Commissions
      • Consolidation Policy
      • Financial Statement Presentation
    • Auditing
  • Chapter 22 - Reporting Considerations
    • Introduction
    • Reports
      • Unqualified Opinion
      • Explanatory Language Added to the Auditor’s Standard Report
      • Emphasis of a Matter
      • Adverse Opinion
      • Disclaimer of Opinion
      • Financial Statements Prepared in Conformity With an Other Comprehensive Basis of Accounting
      • Members’ Shares Reported as Equity
      • Communication of Internal Control Related Matters
      • Reports on Supervisory Committee Audits
      • Example Report on the Application of Agreed-Upon Procedures Performed in Connection With a Supervisory Committee Audit
  • Appendix
    • Appendix A - FDI Act Reporting Requirements
    • Appendix B - Regulatory Accounting Practices (RAP) and RAP/GAAP Differences
    • Appendix C - Information Sources
    • Appendix D - Major Existing Differences Between AICPA Standards and PCAOB Standards
    • Appendix E - Comparison of Key Provisions of the Risk Assessment Standards to Previous Standards
    • Appendix F - Schedule of Changes Made to the Text From the Previous Edition

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Excerpts

Purpose and Applicability

This AICPA Audit and Accounting Guide has been prepared to assist financial institutions in preparing financial statements in conformity with generally accepted accounting principles (GAAP) and to assist independent accountants in reporting on financial statements (and, as discussed in appendix A, other written management assertions) of those entities.

Chapters of the guide are generally organized by financial statement line item into four sections:

  1. An Introduction that describes the general transactions and risks associated with the area. (The introduction does not address all possible transactions in each area.)
  2. Regulatory Matters that may be of relevance in the preparation and audit of financial statements. Other regulatory matters may exist that require attention in the preparation and audit of financial statements following the general guidance on regulatory matters. Further, the guide does not address regulations that are not relevant to the preparation and audit of financial statements and certain of the regulatory requirements discussed may not be applicable to uninsured institutions.
  3. Accounting and Financial Reporting guidance that addresses accounting and financial reporting issues (Statement on Auditing Standards [SAS] No. 69, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles [AICPA, Professional Standards, vol. 1, AU sec. 411], establishes the hierarchy of GAAP).1
  4. Auditing guidance that includes objectives, planning, internal control over financial reporting and possible tests of controls, and substantive tests.

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Product# 012738
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