Determine source of new lendable funds

Assignment Help Accounting Basics

Reference no: EM131760995

Question: Dag Nilsson, Auktoriserad Revisor (AR), considers the audit risk at the financial statement level in the planning of the audit of the financial statements of Lycksele Lappmark Bank (LLB) in Storuman, Sweden, for the year ended December 31, 20X5. Audit risk at the financial statement level is influenced by the risk of material misstatements, which may be indicated by a combination of factors related to management, the industry, and the entity. In assessing such factors, Nilsson has gathered the following information concerning LLB's environment.

LLB is a nationally insured bank and has been consistently more profitable than the industry average by making mortgages on properties in a prosperous rural area, which has experienced considerable growth in recent years. LLB packages its mortgages and sells them to large mortgage investment trusts. Despite recent volatility of interest rates, LLB has been able to continue selling its mortgages as a source of new lendable funds.

LLB's board of directors is controlled by Kjell Stensaker, the majority stockholder, who is also the chief executive officer (CEO). Management at the bank's branch offices has authority for directing and controlling LLB's operations and is compensated based on branch profitability. The internal auditor reports directly to Hakon Helvik, a minority stockholder, who is chairman of the board's audit committee.

The accounting department has experienced little turnover in personnel during the five years Nilsson has audited LLB. LLB's formula consistently underestimates the allowance for loan losses, but its controller has always been receptive to Nilsson's suggestions to increase the allowance during each engagement.

During 20X5, LLB opened a branch office in Ostersund, 300km from its principal place of business. Although this branch is not yet profitable due to competition from several wellestablished regional banks, management believes that the branch will be profitable by 20X7.

Also during 20X5 LLB increased the efficiency of its accounting operations by installing a new computer system.

Reference no: EM131760995

Questions Cloud

What are the ethical and legal foundations of journalism : What are the ethical and legal foundations of journalism? Explain why you are studying journalism. What will be of journalism in 10-20 years?

Forced to continue their learning process : Do you feel that every employee should be forced to continue their learning process?

Organizational resources as far as they could : Do you feel that during the most recent economic times organizations stretched their organizational resources as far as they could?

Overcoming barriers to job enrichment : Do you think that organizational culture plays a huge role in overcoming barriers to job enrichment? For instance, can an organizational such as Facebook

Determine source of new lendable funds : LLB is a nationally insured bank and has been consistently more profitable than the industry average by making mortgages on properties in a prosperous.

Different from other kinds of property : Discuss the Fair Use Doctrine - what are the four factors used to determine if a use is fair?

Violation of the digital millennium copyright act : If you are allowing file sharing on this game, does this open you up to liability for violation of the digital Millennium Copyright Act?

What is the pros and cons of public sector workers : What is the pros and cons of a public sector workers to collective bargaining and the right of non essential employees to strike?

What are some of the common data security threats : What are some of the common data security threats? Describe one in greater detail and provide an example.

User Account

All Pages