An Internal Auditor for a Large Bank Is Reviewing the Collectability

question 190

Multiple Choice

An internal auditor for a large bank is reviewing the collectability of a loan that is secured by real property. The best evidence of the loan's collectability would be:

• A) A recent independent appraisal of the value of the real property.
• B) A document showing the loan committee's approval of the loan.
• C) The borrower's confirmation of the loan balance.
• D) A properly completed and signed loan application form.

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Definitions:

Bad Debts

Accounts receivable that a company does not expect to collect and writes off as a loss.

Credit Policy

The guidelines a company follows to determine the creditworthiness of its customers and the terms and conditions of credit it will extend to them.

Bad Debts

Amounts owed to a company that are written off as uncollectible, typically from customers who fail to pay their invoices.

Credit Policy Relaxation

The act of making a company's criteria for extending credit more lenient, aiming to boost sales at the risk of higher bad debts.