According to the records of the Federal Supervisory Commission, in the years before the financial crisis, some of the country’s largest accounting firms failed to check the reserves held by banks and other lenders to cover losses. As regulators and plaintiff’s lawyers conduct autopsies on bankrupt banks and mortgage lenders, lack of adequate reserves has become a common problem. If the prediction of commercial loan volatility is correct, this issue may become more urgent in the coming months.
The responsibility of the auditor is to ensure that the lender has enough capital to withstand the difficult times. Among other things, they will also check the models used to predict bad debts and verify the accuracy of the data and the assessments that are the basis for it. In a $ 1 billion lawsuit filed Wednesday against accounting giant KPMG, the focus was on an accurate forecast of loan losses. In the case initiated by the Bankruptcy Trustee, it is stated that KPMG (KPMG) allowed a bankrupt New Century mortgage lender to avoid accumulating sufficient reserves to pay arrears for the redemption of debt obligations. KPMG, the fourth-largest accounting firm in the country, disputed the allegations. “Any suggestion that the collapse of the new century is linked to accounting issues ignores the reality of the global credit crunch,” KPMG said. “This is a business failure, not an accounting problem.”
The FDIC inspector general also cited inaccurate methods of accounting for loan losses in comments on Georgia’s collapse of Integrity Bank in August last year. IG has committed to addressing the reserve issue in more detail in its summary report, which includes several banking failures. Errors in loan reserves are one of the errors detailed in the reports of the Public Company Accounting Control Committee, a federally funded body that reviews major accounting firms each year and disciplines troubled auditors.
Records highlight two trends: chronic lenders’ failure to properly assess credit losses – and the auditor’s continued abandonment of the problem. According to a review of ProPublica data, between 2004 and 2007, federal inspectors discovered 36 such control errors in the six largest accounting firms and a number of other errors. For example, KPMG staff in a 2007 lender inspection report on a borrower audit “did not verify the accuracy of the data on credit defaulters.” The Board argues that the mistakes point to a broader way of mismanaging credit losses.
Resizable Zabihollah, a professor of accounting at the University of Memphis, a former member of the advisory group at the audit meeting, said: “Auditors were already not sufficiently skeptical in this regard. He asserted that his confession had been obtained through torture and that his confession had been obtained through torture. Mistakes are important because government regulations require banks and other lenders to deposit deposits to repay unpaid loans. Without a cyclone, it could collapse into a bank full of overdue loans, as has been the case since early 2008 46. Experts say that if banks were forced to build large reserves, they could have been members of their loans.
“On the other hand, as the banking sector has experienced long-term growth and enrollment in the growing sector in the first half of the decade, borrowing rates and total lending have not dropped,” he said. “He said we are well aware that the month should have changed dramatically,” said financial analyst John Dugan in a speech last month on credit losses. ProPublica’s analysis of the Board of legal inspectors was limited to only ten major firms. With the exception of KPMG, the auditing teams of Deloitte, Ernst & Young, McGladrey & Pullen, Grant Thornton, and Crowe Group are all charged with credit losses. In a report on trends that emerged during a three-year period that began in 2004, the Board of Directors chose not to make appropriate assessments for credit losses as an area with “significant or frequent deficits.” This period coincides with the aging of the real estate bubble and other risky lending methods. The board work given to everyone does not show the names of the responsible companies’ customers, so it is impossible to attribute the errors to a particular bank. Wednesday’s event is a pressure window to allow analysts to fail on the banks’ commitment to sufficient resources.
According to the lawsuit, KPMG’s internal documents show that the company knows that New Century’s credit loss estimates are problematic because the number of loan repayments more than doubled from 2004 to 2005 to $332 million. The complaint stated that despite this, KPMG failed to “expand the reserves of conventional or test companies.” New Century resells many of its loans to other financial institutions and promises that they will repay these loans in the event of early defaults and other circumstances. Attorney Steven Thomas said: “KPMG made a model of reservations that are fundamentally incorrect,” he appealed to the U.S. District Court for the Southern District of New York and the California Superior Court of Los Angeles County. “The new century is not making money, and it is actually losing money.”
New Century said in February 2007 that it needed to restructure its revenues for the first three quarters of 2006 because it failed to properly estimate the reserves that might be needed to repay its obligations under the repurchase agreement. A month later, most of its lenders announced that New Century had failed, accelerating its commitment to repurchase loans to a total of $ 8.4 billion. Without enough funds to buy off the loan, New Century went bankrupt. Matthew Anderson, a banking analyst at consulting firm Foresight Analytics, said in recent years, lenders across the country have failed to calculate enough to offset potential losses due to bad loans.
“What you see is that they took action because the banks didn’t have enough capital to cover these losses,” Anderson said, noting that almost all of the bankrupt banks didn’t have enough money left. The Board’s report on debt obligations states that it has not carried out appropriate inspections to determine whether the borrower’s compensation for credit losses is appropriate. Reviewers did not understand the lender’s approach, did not check the accuracy of the basic information, did not question the basic assumptions, or relied on old estimates. According to the report, some companies did not analyze credit loss estimates at all. If analysts had encouraged bankers to raise money when there were signs of declining housing two years ago, lenders might be reluctant to take out so many subsidies and article loans – Experts say a question for lenders at higher credit risk.
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