Academic journal article Journal of Accountancy

Financial Institution Audit Exposure

Academic journal article Journal of Accountancy

Financial Institution Audit Exposure

Article excerpt

FINANCIAL INSTITUTION AUDIT EXPOSURE

In what has traditionally been a high exposure area for auditors, an Illinois appellate court further expanded an auditor's duty for detecting and disclosing improper loans. The accounting firm, Brumleve and Dabbs, was engaged to perform an audit of the First National Bank of Sullivan for the fiscal year ended September 30, 1985. In 1986, the Office of the Comptroller of the Currency (OCC) advised the bank to charge off approximately $2 million in bad loans. Subsequently, the bank brought suit against the auditors, alleging they failed to detect and disclose loans in excess of OCC guidelines to bank officers. It also was alleged the loans were renewed without requiring adequate collateral from the debtors and the accountants failed to disclose that the allowance for doubtful loans was insufficient.

The trial court dismissed the bank's complaint. This dismissal was based on evidence that bank officers knew of the inadequacy of the doubtful loan reserves and insider transactions. …

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