Sarah Is an Audit Senior with Childs, Maxwell and Weaver

question 8

Essay

Sarah is an audit senior with Childs, Maxwell and Weaver, LLP. Sarah specializes in auditing loan loss reserve for financial institution clients. This current year she has noticed that two of her financial institution clients in town have written loans off to a loan customer, Mr. T (fictional name to protect the guilty). Mr. T is well known in town as a highly successful real estate developer and businessman with many different business dealings. As Sarah is auditing her third financial institution client in town, she notices that the bank has loans of $3.5 million outstanding to Mr. T. The current loan loss reserve could not cover the losses on Mr. T's loans. Sarah has recommended a significant increase to the loan loss reserve account. The client will not discuss increasing the loan loss reserve. Ms. Childs, senior partner on the audit, wants to know how the audit firm can justify the increase loan loss reserve account. What can and should Sarah disclose about Mr. T?

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Definitions:

Sarbanes-Oxley Act

A U.S. law enacted in 2002 to protect investors by improving the accuracy and reliability of corporate disclosures.

Financial Reporting

The method of generating reports that reveal the financial condition of an organization to its management, investors, and governmental authorities.

Top Executives

are the highest-ranking employees in a company or organization, responsible for making major corporate decisions.

Autocratic Control

Refers to a management style where decision-making powers are centralized in the hands of one individual, with little to no input from subordinates.