Industry Overview—Banks and Savings Institutions .01-.118
Description of Business .01-.07
Regulation and Oversight .08-.69
Regulatory Background .15-.23
Deposit Insurance Fund .24-.30
The Dodd-Frank Act .31-.69
Regulatory Capital Matters .70-.91
Capital Adequacy .72-.80
Prompt Corrective Action .81-.91
Annual Independent Audits and Reporting Requirements .92-.117
Additional Regulatory Requirements Concerning the Sarbanes-Oxley Act, Corporate Governance, and Services Outsourced to External Auditors .105-.117
Other Reporting Considerations .118
2 Industry Overview—Credit Unions .01-.62
Description of Business .01-.10
The Board of Directors .07
The Supervisory Committee .08-.09
The Credit Committee .10
Charters, Bylaws, and Minutes .11-.17
Financial Structure .12-.13
Credit Union System .14-.16
Corporate Credit Unions .17
Regulation and Oversight .18-.23
Government Supervision .18-.20
NCUA .21-.23
Regulatory Capital Matters .24-.54
Natural Person Credit Unions .24-.44
Corporate Credit Unions .45-.54
Annual Audits .55-.62
Other Reporting Considerations .62
3 Industry Overview—Finance Companies .01-.14
Description of Business .01-.11
Debt Financing .08-.11
Regulation and Oversight .12-.14
Chapter Paragraph
4 Industry Overview—Mortgage Companies .01-.37
Description of Business .01-.20
Regulation and Oversight .21-.32
Reporting Considerations .33-.37
HUD Programs .33-.35
Asset Servicing for Investors .36-.37
5 Audit Considerations and Certain Financial Reporting Matters .01-.257
Overview .01-.09
An Audit of Financial Statements .04-.05
Audit Risk .06-.09
Terms of Engagement .10-.13
Audit Planning .14-.15
Materiality .16-.20
Performance Materiality .19-.20
Use of Assertions in Assessment of Risks of Material Misstatement .21-.22
Risk Assessment Procedures .23-.75
Risk Assessment Procedures and Related Activities .25-.32
Understanding the Entity and Its Environment, Including the Entity’s Internal Control .33-.75
Risk Assessment and the Design of Further Audit Procedures .76-.98
Identifying and Assessing the Risks of Material Misstatement .77-.81
Designing and Performing Further Audit Procedures .82-.98
Evaluation of Misstatements Identified During the Audit .99-.101
Audit Documentation .102-.109
Timely Preparation of Audit Documentation .105
Documentation of the Audit Procedures Performed and Audit Evidence Obtained .106-.108
Assembly and Retention of the Final Audit File .109
Using the Work of an Auditor’s Specialist .110-.115
Using the Work of a Management’s Specialist .116-.119
Processing of Transactions by Service Organizations .120-.122
Consideration of Fraud in a Financial Statement Audit .123-.151
Professional Skepticism .126-.128
Discussion Among the Engagement Team .129-.132
Risk Assessment Procedures and Related Activities .133-.136
Identification and Assessment of the Risks of Material Misstatement Due to Fraud .137-.139
Responses to the Assessed Risks of Material Misstatement Due to Fraud .140-.143
Evaluation of Audit Evidence .144-.147
Auditor Unable to Continue the Engagement .148
Chapter Paragraph
5 Audit Considerations and Certain Financial Reporting Matters—continued Communications to Management and With Those Charged With Governance .149
Communications to Regulatory and Enforcement Authorities .150
Documentation .151
Compliance With Laws and Regulations .152-.162
Responsibility for Compliance With Laws and Regulations .153-.156
The Auditor’s Consideration of Compliance With Laws and Regulations .157-.162
Going-Concern Considerations .163-.179
Evaluating Whether Substantial Doubt Exists .165-.174
Written Representations .175
Consideration of the Effects on the Auditor’s Report .176-.178
Documentation .179
Written Representations .180-.189
Written Representations as Audit Evidence .181
Management From Whom Written Representations Are Requested .182-.183
Written Representations About Management’s Responsibilities and Other Written Representations .184-.186
Date of, and Period(s) Covered by, Written Representations .187
Form of Written Representations .188
Doubt About the Reliability of Written Representations and Requested Written Representations Not Provided .189
Information Other Than Financial Statements .190-.192
Certain Financial Reporting Matters .193-.211
Disclosures of Certain Significant Risks and Uncertainties .193-.209
Segment Reporting .210-.211
Regulation and Supervision of Depository Institutions .212-.257
Introduction .212-.220
Rule Making .221-.222
Examinations .223-.228
Enforcement .229-.236
Planning .237
Detection of Errors and Fraud .238-.239
Evaluation of Contingent Liabilities and Related Disclosures .240
Going-Concern Considerations .241-.242
Regulatory Reporting Matters—Interpretation and Reporting Related to GAAP .243-.247
Auditor and Examiner Relationship .248-.257
Chapter Paragraph
6 Cash and Cash Equivalents .01-.42
Introduction .01-.08
CIPC and Cash Equivalents .02
Deposits With Other Depository Institutions .03-.05
Balances With Federal Reserve Banks and FHLBs .06
Federal Funds Sold .07
Cash on Hand .08
Accounting and Financial Reporting .09-.33
Definition of Cash and Cash Equivalents .09-.11
Classification of Cash Flows .12-.22
Acquisition and Sales of Certain Securities and Loans .23-.24
Gross and Net Cash Flows .25-.28
Cash Receipts and Payments Related to Hedging Activities .29
Financial Statement Presentation and Disclosure .30-.33
Auditing .34-.42
Objectives .34
Planning .35
Internal Control Over Financial Reporting and Possible Tests of Controls .36-.40
Substantive Tests .41-.42
7 Investments in Debt and Equity Securities .01-.163
Introduction .01-.65
U.SGovernment and Agency Obligations .05-.07
Municipal Obligations .08-.11
Asset-Backed Securities .12-.49
Other Structured Credit Products .50-.59
Issues of International Organizations and Foreign Governments .60
Other Securities .61
Transfers of Securities .62-.65
Regulatory Matters .66-.82
Bank Accounting Advisory Series .82
Accounting and Financial Reporting .83-.137
Introduction .83-.91
OTTI .92-.103
Unrealized Gains and Losses .104-.106
Premiums and Discounts .107-.113
Interest Income .114
Consolidation .115
Special Areas .116-.118
Transfers and Servicing of Securities .119-.121
Troubled Debt Restructurings .122-.124
Chapter Paragraph
7 Investments in Debt and Equity Securities—continued Loans and Debt Securities Acquired With Deteriorated
Credit Quality .125
Financial Statement Presentation and Disclosure .126-.137
Auditing .138-.163
Objectives .138
Planning .139-.143
Internal Control Over Financial Reporting and Possible Tests of Control .144-.154
Substantive Tests .155-.163
8 Loans .01-.230
Introduction .01-.56
The Lending Process .02
Credit Strategy .03-.04
Credit Risk .05-.07
Lending Policies and Procedures .08-.16
Types of Lending .17-.18
Commercial, Industrial, and Agricultural Loans .19-.30
Consumer Loans .31-.39
Residential Real Estate Loans .40-.43
Lease Financing .44-.48
Trade Financing .49-.50
CRE and Construction Loans .51-.53
Foreign Loans .54
Loans Involving More Than One Lender .55-.56
Regulatory Matters .57-.89
Real Estate Lending Standards .57-.67
Retail Credit Loans and Residential Mortgage Loans .68-.70
Troubled Debt Restructurings .71-.75
Credit Card Lending .76-.77
Nontraditional Mortgage Products .78
Correspondent Concentration Risks .79
Leveraged Lending .80
Income Recognition on Problem Loans .81-.82
Credit Union Lending Restrictions .83
Lending Statutes .84
Uniform Commercial Code .85-.87
Bank Accounting Advisory Series .88
Accounting and Financial Reporting .89-.181
Interest Income, Delinquency Fees, Prepayment Fees, and Rebates .95-.100
Loan Fees, Costs, Discounts, and Premiums .101-.122
TDRs .123-.138
Chapter Paragraph
8 Loans—continued
Real Estate Investments .139
Lease Financing .140
Foreign Loans .141-.144
Commitments .145-.152
Financial Statement Presentation and Disclosure .153-.181
Auditing .182-.230
Objectives .182
Planning .183-.184
Internal Control Over Financial Reporting and Possible Tests of Controls .185-.198
Substantive Tests .199-.230
9 Credit Losses .01-.112
Introduction .01-.22
Management’s Methodology .04-.12
Loan Reviews .13-.15
Loans Individually Evaluated for Impairment .16
Loans Collectively Evaluated for Impairment .17-.18
Estimating Overall Credit Losses .19-.22
Regulatory Matters .23-.38
Credit Unions .34-.38
Accounting and Financial Reporting .39-.62
Sources of Applicable Guidance .39-.41
Allowance for Loan Losses .42-.48
Loss Contingencies .49-.52
Financial Statement Presentation and Disclosure of Loan Impairment and Allowance for Credit Losses .53-.62
Auditing .63-.112
Objectives .63
Planning and Risk Assessment .64-.68
Internal Control Over Financial Reporting and Possible Tests of Controls .69-.75
Substantive Tests .76-.112
10 Transfers and Servicing and Variable Interest Entities .01-.127
Introduction .01-.08
Asset-Backed Securitizations .06
Loan Participations and Loan Syndications .07
Loan Servicing .08
Regulatory Matters .09-.19
VA No-Bids and Private Mortgage Agencies .16-.19
Chapter Paragraph
10 Transfers and Servicing and Variable Interest Entities—continued Accounting and Financial Reporting .20-.113
Mortgage Loans and MBSs Held for Sale .20-.29
Transfers and Servicing of Financial Assets .30-.42
Sale of Financial Assets .43-.48
Transfers of Loans With Recourse .49-.50
Servicing Assets and Liabilities .51-.69
Secured Borrowings and Collateral .70-.73
Loans Not Previously HFS .74-.78
Financial Statement Presentation .79-.85
Financial Statement Disclosure .86-.96
VIEs .97-.113
Auditing .114-.127
Objectives .114
Planning .115-.118
Internal Control Over Financial Reporting and Possible Tests of Controls .119-.125
Substantive Tests .126-.127
11 Real Estate Investments, Real Estate Owned, and Other Foreclosed Assets .01-.73
Introduction .01-.04
Foreclosed Assets .02
Real Estate Investments .03-.04
Regulatory Matters .05-.16
Accounting and Financial Reporting .17-.55
Foreclosed Assets .17-.23
Accounting and Reporting for Long-Lived Assets to Be Disposed of by Sale .24-.33
Accounting and Reporting for Long-Lived Assets to Be Held and Used .34-.40
Real Estate Investments .41-.43
Sale of Real Estate Assets .44-.45
Development Costs .46-.49
Allocation of Income and Equity Among Parties to a Joint Venture .50-.55
Auditing .56-.73
Objectives .56
Planning .57
Internal Control Over Financial Reporting and Possible Tests of Controls .58-.61
Substantive Tests .62-.73
Chapter Paragraph
12 Other Assets, Other Liabilities, and Other Investments .01-.91
Introduction .01-.10
Premises and Equipment, Net .03
FHLB or FRB Stock .04-.05
Identifiable Intangibles .06-.07
Goodwill .08
Customers’ Liabilities on Acceptances .09
Other Miscellaneous Items .10
Regulatory Matters .11-.15
Accounting and Financial Reporting .16-.76
Premises and Equipment, Net .16-.26
FHLB or FRB Stock .27-.34
Goodwill and Other Intangible Assets .35-.50
Exit or Disposal Activities .51-.52
Asset Retirement Obligations .53-.56
Customers’ Liabilities on Acceptances .57
Mortgage Servicing Advances .58
Impairment of Long-Lived Assets .59
NCUSIF Deposit .60-.66
Other Investments .67-.72
Contributed Assets .73-.76
Auditing .77-.91
Objectives .77-.78
Planning .79
Internal Control Over Financial Reporting and Possible
Tests of Controls .80-.82
Substantive Tests .83-.91
13 Deposits .01-.70
Introduction .01-.32
Demand Deposits .04
Savings Deposits .05
Time Deposits .06-.10
Brokered Deposits .11-.13
Dormant Accounts .14
Closed Accounts .15
Other Deposit Services .16
The Payments Function and Services .17-.32
Regulatory Matters .33-.40
Limitations on Brokered Deposits .33-.38
Classification of Deposits of Credit Unions .39-.40
Accounting and Financial Reporting .41-.46
Auditing .47-.70
Objectives .47
Contents 2016, AICPA
Table of Contents xxiii
Chapter Paragraph
13 Deposits—continued
Planning .48-.49
Internal Control Over Financial Reporting and Possible
Tests of Controls .50-.55
Substantive Tests .56-.70
14 Federal Funds and Repurchase Agreements .01-.69
Introduction .01-.24
Federal Funds Purchased .02-.03
Repos .04-.25
Regulatory Matters .26
Accounting and Financial Reporting .27-.47
Auditing .48-.69
Objectives .48
Planning .49-.53
Internal Control Over Financial Reporting and Possible
Tests of Controls .54-.58
Substantive Tests .59-.69
15 Debt .01-.77
Introduction .01-.31
Long Term Debt .06-.09
Short Term Debt .10-.31
Regulatory Matters .32-.33
Accounting and Financial Reporting .34-.57
Auditing .58-.77
Objectives .58
Planning .59
Internal Control Over Financial Reporting and Possible
Tests of Controls .60-.63
Substantive Tests .64-.77
16 Income Taxes .01-.36
Introduction .01-.13
Banks and Savings Institutions .03-.09
Other .10-.12
Credit Union .13
Regulatory Matters .14-.17
Accounting and Financial Reporting .18-.30
Deferred Tax Assets and Liabilities .21-.23
Temporary Differences .24-.26
Financial Statement Presentation and Disclosure .27-.30
2016, AICPA Contents
xxiv Table of Contents
Chapter Paragraph
16 Income Taxes—continued
Auditing .31-.36
Objectives .31
Planning .32
Internal Control Over Financial Reporting and Possible
Tests of Controls .33-.34
Substantive Tests .35-.36
17 Equity and Disclosures Regarding Capital Matters .01-.115
Introduction .01
Banks and Savings Institutions .02-.46
Introduction .02
Equity .03-.10
Holding Company Equity and Regulatory Capital .11-.27
Disclosures for Banks and Savings Institutions .28-.37
Disclosure for Holding Companies .38-.40
Illustrative Disclosures for Banks and Savings Institutions (The example disclosures that follow are for
illustrative purposes only) .41-.46
Credit Unions .47-.64
Introduction .47
Members’ Equity .48-.54
New Credit Unions and Low Income Designated Credit Unions .55
Disclosures for Natural Person Credit Unions .56-.60
Illustrative Disclosures for Natural Person Credit Unions .61-.64
Corporate Credit Unions .65-.79
Introduction .65
Equity .66-.71
Disclosures for Corporate Credit Unions .72-.76
Illustrative Disclosures for Corporate Credit Unions .77-.79
Mortgage Companies and Mortgage Banking Activities .80-.84
Introduction .80
Disclosure for Mortgage Companies and Mortgage Banking Activities .81-.83
Illustrative Disclosures for Mortgage Companies and Mortgage Banking Activities .84
Regulatory Capital Matters for All Entities .85-.88
Regulatory Capital Disclosures for Branches of Foreign Institutions .85-.86
Regulatory Capital Disclosures for Trust Operations .87-.88
Auditing .89-.115
Banks, Savings Institutions, and Credit Unions .89-.105
Mortgage Companies and Activities .106-.115
Chapter Paragraph
18 Derivative Instruments: Futures, Forwards, Options, Swaps, and Other Derivative Instruments .01-.101
Introduction .01-.69
Risks Inherent in Derivatives .05-.13
Types of Derivatives .14-.52
Uses of Derivatives to Alter Risk .53-.64
Variations on Basic Derivatives .65-.69
Regulatory Matters .70-.78
Accounting and Financial Reporting .79-.100
Financial Statement Disclosures .95-.100
Auditing Considerations .101
19 Business Combinations .01-.41
Introduction .01
Regulatory Matters .02-.07
Accounting and Financial Reporting .08-.30
Purchase of a Loan or Group of Loans .18-.20
Loans and Debt Securities Acquired With Deteriorated Credit Quality .21
Special Considerations in Applying the Acquisition Method to Combinations of Mutual Entities .22-.25
Impairment and Disposal Accounting for Certain Acquired Long Term Customer Relationship Intangible Assets .26-.27
Branch Acquisitions .28-.30
Auditing Considerations .31-.41
20 Fair Value .01-.68
Introduction .01
Accounting and Financial Reporting .02-.63
Definition of Fair Value .02-.27
Valuation Techniques .28-.30
Present Value Techniques .31-.33
The Fair Value Hierarchy .34-.37
Measuring the Fair Value of Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) .38-.41
Measuring Fair Value When the Volume or Level of Activity for an Asset or a Liability Has Significantly
Decreased .42-.47
Using Quoted Prices Provided by Third Parties .48
Disclosures .49-.60
Fair Value Option .61-.63
Auditing Considerations .64-.68
Chapter Paragraph
21 Trust and Asset Management Activities .01-.30
Introduction .01-.12
Personal Trusts .08-.09
Corporate Trusts .10
Employee Benefit Trusts .11
Common or Collective Trust Funds .12
Regulatory Matters .13-.14
Accounting and Financial Reporting .15-.16
Auditing .17-.30
Objectives .17
Planning .18
Internal Control Over Financial Reporting and Possible Tests of Controls .19-.21
Financial Reporting Controls of the Trust .22
Substantive Tests Related to Financial Statement Audits .23-.24
Substantive Procedures Related to the Trust .25-.29
Audits of Unit Investment Trusts .30
22 Insurance Activities .01-.70
Introduction .01-.10
Types of Insurance Coverage .02
Credit Life .03-.05
Credit Accident and Health .06
Property and Liability .07
Writing Policies .08-.09
Commissions .10
Regulatory Matters .11
Accounting .12-.68
Premium Income .13-.17
Acquisition Costs .18-.50
Investment Portfolios .51-.54
State Laws .55
Commissions .56-.59
Consolidation Policy .60-.64
Financial Statement Presentation .65-.68
Auditing .69-.70
23 Reporting Considerations .01-.38
Introduction .01
Forming an Opinion on the Financial Statements .02-.04
Reports .05-.37
Unmodified Opinion .05-.06
Chapter Paragraph
23 Reporting Considerations—continued EOM and Other-Matter Paragraphs Added to the Independent Auditor’s Report .07-.14
Modified Opinions .15-.21
Financial Statements Prepared in Accordance With a Special Purpose Framework .22-.23
Members’ Shares Reported as Equity .24
Communication of Internal Control Related Matters .25-.27
Reports on Supervisory Committee Audits .28-.33
Example Report on the Application of Agreed-Upon Procedures Performed in Connection With a Supervisory Committee Audit .34
Example Reports on the FDIC Loss Sharing Purchase and Assumption Transactions .35-.36
Small Business Lending Fund Auditor Certification Guidance .37
Appendix A—Illustrative Unqualified PCAOB Reports .38
Appendix
A FDI Act Reporting Requirements
B Regulatory Reporting Matters—Interpretation and Reporting Related to U.SGAAP
C Information Sources
D Overview of Statements on Quality Control Standards
E The New Revenue Recognition Standard: FASB ASU No2014-09
F The New Leases Standard: FASB ASU No2016-02
G Accounting for Financial Instruments
H Schedule of Changes Made to the Text From the Previous Edition
Index of Pronouncements and Other Technical Guidance
Subject Index
