This case study puts students in the position of both the audit team and the management team of a fictional nationally chartered bank that is implementing the new methodology for estimating credit loss reserves in the uncertain economic environment at the onset of the COVID-19 pandemic. The auditors are interested in reducing their liability in the event of an accounting error and minimizing negative feedback on their next PCAOB inspection. At the same time, the audit team would like to keep the client satisfied with their service. These competing interests require balancing the accuracy of the financial statements with the burden on the client. Management is interested in maximizing profits while also avoiding shareholder lawsuits and passing the next OCC examination. The task for students is to use their judgment to balance these competing concerns, bearing in mind the regulatory and legal consequences of underestimating credit loss reserves. Contributing to this analysis is the potential regulatory response to the pandemic and the changing macroeconomic environment.
In terms of team assignments, a single team could be assigned to explore all legal issues from the perspective of both the auditors and the management team. Additional teams could evaluate the response of the auditors and the management team from the perspective of the regulators. Alternatively, one team could be assigned for each of the various perspectives—management, auditors, and regulators.
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Created by Muhammad Ikraam from the Noun Project.