acc562 week 10 discussion 2

acc562 week 10 discussion 2 -...

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Case 10A - New Century Financial Corporation  Based on your analysis of the “New Century Financial Corporation” case, respond to each of the discussion points: One of New Century’s most important accounts was its loan repurchase loss reserve. Each accounting period, New Century was required to estimate the ending balance of that account. What general principles or procedures should auditors follow when auditing important “accounting estimates”? Mortgage-backed securities (MBS) produced by New Century and other major subprime lenders have been a focal point of attention during the recent financial crisis. Many parties have maintained that the mark-to-market rule for securities rule should be modified, suspended or even eliminated. Discuss the principal arguments of those opposed to the mark-to-market rule. Discuss whether or not these arguments are legitimate What general principles or procedures should auditors follow when auditing important “accounting estimates”? According to AU Section 342 , the auditor should adopt one or a combination of the following approaches in the audit of an accounting estimate. a. Review and test the process used by management to develop the estimate. b. Use an independent expectation of estimate for comparison with that prepared by management. c. Review subsequent events which confirm the estimate made. 1. Reviewing and testing the process used by management. In many situations, the auditor assesses the reasonableness of an accounting estimate by performing procedures to test the process used by management to make the estimate. The following are procedures the auditor may consider performing when using this approach:
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This note was uploaded on 02/01/2012 for the course ACCT ACC562 taught by Professor Williamguy during the Fall '10 term at Strayer.

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acc562 week 10 discussion 2 -...

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