Question: Northwest Bank (NWB) has banking operations in
Northwest Bank (NWB) has banking operations in 35 communities in the states of Washington, Oregon, and Idaho. Headquarters for the bank are in Walla Walla, Washington. NWB’s loan portfolio consists primarily of agricultural loans, commercial loans, real estate loans, and loans to individuals. Credit-granting authority is primarily centralized in Walla Walla; however, certain seasoned loan officers have decision authority for small loans in their local area. Loan portfolio performance, monitoring, and ongoing credit quality assessments are performed in Walla Walla for all loans. NWB has been an audit client for three years. Because of NWB’s strong controls over bank loans, the audit team places high reliance on controls (i.e., control risk is assessed as low). The audit approach calls for the audit team to gain assurance on the fairness of loan interest income primarily through the performance of substantive analytical procedures. Additional detailed testing will only be performed if analytical procedures suggest interest income is materially misstated. Total reported interest income for 2018 is $35,337,204, and reported net income for the bank is $12,484,000. A misstatement of $525,000 is considered material. Last year, in addition to comparing the 2017 interest income to 2016 interest income, the audit team also developed an expectation for loan interest income using the average loan volume multiplied by the weighted average interest rate. Last year’s audit file indicates that the average loan volume agrees to numbers tested elsewhere in the audit file and that the interest rates used to compute the weighted average rate were comparable to rates published in a Washington State Banking Commission publication. PART A The following computation was performed last year. ![Northwest Bank (NWB) has banking operations in 35 communities in the states of Washington, Oregon, and Idaho. Headquarters for the bank are in Walla Walla, Washington. NWB’s loan portfolio consists primarily of agricultural loans, commercial loans, real estate loans, and loans to individuals. Credit-granting authority is primarily centralized in Walla Walla; however, certain seasoned loan officers have decision authority for small loans in their local area. Loan portfolio performance, monitoring, and ongoing credit quality assessments are performed in Walla Walla for all loans.
NWB has been an audit client for three years. Because of NWB’s strong controls over bank loans, the audit team places high reliance on controls (i.e., control risk is assessed as low). The audit approach calls for the audit team to gain assurance on the fairness of loan interest income primarily through the performance of substantive analytical procedures. Additional detailed testing will only be performed if analytical procedures suggest interest income is materially misstated. Total reported interest income for 2018 is $35,337,204, and reported net income for the bank is $12,484,000. A misstatement of $525,000 is considered material.
Last year, in addition to comparing the 2017 interest income to 2016 interest income, the audit team also developed an expectation for loan interest income using the average loan volume multiplied by the weighted average interest rate. Last year’s audit file indicates that the average loan volume agrees to numbers tested elsewhere in the audit file and that the interest rates used to compute the weighted average rate were comparable to rates published in a Washington State Banking Commission publication.
PART A
The following computation was performed last year.
The following information was available for an analysis of the current audit year.
REQUIRED – PART A
[1]As part of the year-end audit and using the analytical-procedure approach similar to last year’s audit (average loan volume multiplied by weighted-average interest rate), determine if Northwest Bank’s interest income from loans reported at December 31, 2018 appears fairly stated. Do the results of the analytical procedure indicate that you accept 2018 interest income as reported?
Yes No Please briefly explain your answer.
[2] Based on the results of the analytical procedure, how likely is it that 2018 interest income is materially misstated?
[3] Please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by the interest income analytical procedure:
PART B Do NOT begin this part of the case until instructed to do so
In an effort to develop a more precise (i.e., higher quality) expectation, you asked an associate to collect more detailed information, which is provided below. The quarterly rates are comparable to those reported in a Washington State Bank Commission publication. The quarterly loan volumes have been tied to audit work in other areas of the audit file. You decided not to have the associate track down detailed information for the “Individual and Other Loans” category because it is relatively small and is made up of heterogeneous loans. However, for the loans in the Individual and Other Loans category you do have the loan volume and weighted average interest rate as of December 31, 2017 and December 31, 2018. Recall that materiality for this area is $525,000.
REQUIRED – PART B
[1] Given the additional information provided in Part B (i.e., quarterly information by loan type), please determine if Northwest Bank’s interest income from loans reported at December 31, 2018 appears fairly stated. Can you accept 2018 interest income as reported?
Yes No Please briefly explain your answer.
[2] Based on the results of the analytical procedure preformed in Part B, how likely do you think it is that 2018 interest income is materially misstated?
[3] Please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by the interest income analytical procedure:
[4] Now reevaluate the first analytical procedure you performed (i.e., based only on average aggregate loan and interest averages). Using hindsight, please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by that high-level interest income analytical procedure:
[5] Most auditors and students who complete Part A and Part B have a lower assessment in Part B question 4 than they do for Part A question 3.
[a] Considering common judgment tendencies and traps, what might explain the difference?
[b] Assuming the difference is evidence of judgment bias(es), what steps may help to mitigate the bias(es)?](../images/northwest-bank-nwb-has-banking-operations-in-35-communities-in-273873-1.jpg)
The following information was available for an analysis of the current audit year. ![Northwest Bank (NWB) has banking operations in 35 communities in the states of Washington, Oregon, and Idaho. Headquarters for the bank are in Walla Walla, Washington. NWB’s loan portfolio consists primarily of agricultural loans, commercial loans, real estate loans, and loans to individuals. Credit-granting authority is primarily centralized in Walla Walla; however, certain seasoned loan officers have decision authority for small loans in their local area. Loan portfolio performance, monitoring, and ongoing credit quality assessments are performed in Walla Walla for all loans.
NWB has been an audit client for three years. Because of NWB’s strong controls over bank loans, the audit team places high reliance on controls (i.e., control risk is assessed as low). The audit approach calls for the audit team to gain assurance on the fairness of loan interest income primarily through the performance of substantive analytical procedures. Additional detailed testing will only be performed if analytical procedures suggest interest income is materially misstated. Total reported interest income for 2018 is $35,337,204, and reported net income for the bank is $12,484,000. A misstatement of $525,000 is considered material.
Last year, in addition to comparing the 2017 interest income to 2016 interest income, the audit team also developed an expectation for loan interest income using the average loan volume multiplied by the weighted average interest rate. Last year’s audit file indicates that the average loan volume agrees to numbers tested elsewhere in the audit file and that the interest rates used to compute the weighted average rate were comparable to rates published in a Washington State Banking Commission publication.
PART A
The following computation was performed last year.
The following information was available for an analysis of the current audit year.
REQUIRED – PART A
[1]As part of the year-end audit and using the analytical-procedure approach similar to last year’s audit (average loan volume multiplied by weighted-average interest rate), determine if Northwest Bank’s interest income from loans reported at December 31, 2018 appears fairly stated. Do the results of the analytical procedure indicate that you accept 2018 interest income as reported?
Yes No Please briefly explain your answer.
[2] Based on the results of the analytical procedure, how likely is it that 2018 interest income is materially misstated?
[3] Please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by the interest income analytical procedure:
PART B Do NOT begin this part of the case until instructed to do so
In an effort to develop a more precise (i.e., higher quality) expectation, you asked an associate to collect more detailed information, which is provided below. The quarterly rates are comparable to those reported in a Washington State Bank Commission publication. The quarterly loan volumes have been tied to audit work in other areas of the audit file. You decided not to have the associate track down detailed information for the “Individual and Other Loans” category because it is relatively small and is made up of heterogeneous loans. However, for the loans in the Individual and Other Loans category you do have the loan volume and weighted average interest rate as of December 31, 2017 and December 31, 2018. Recall that materiality for this area is $525,000.
REQUIRED – PART B
[1] Given the additional information provided in Part B (i.e., quarterly information by loan type), please determine if Northwest Bank’s interest income from loans reported at December 31, 2018 appears fairly stated. Can you accept 2018 interest income as reported?
Yes No Please briefly explain your answer.
[2] Based on the results of the analytical procedure preformed in Part B, how likely do you think it is that 2018 interest income is materially misstated?
[3] Please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by the interest income analytical procedure:
[4] Now reevaluate the first analytical procedure you performed (i.e., based only on average aggregate loan and interest averages). Using hindsight, please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by that high-level interest income analytical procedure:
[5] Most auditors and students who complete Part A and Part B have a lower assessment in Part B question 4 than they do for Part A question 3.
[a] Considering common judgment tendencies and traps, what might explain the difference?
[b] Assuming the difference is evidence of judgment bias(es), what steps may help to mitigate the bias(es)?](../images/northwest-bank-nwb-has-banking-operations-in-35-communities-in-273873-2.jpg)
REQUIRED – PART A [1]As part of the year-end audit and using the analytical-procedure approach similar to last year’s audit (average loan volume multiplied by weighted-average interest rate), determine if Northwest Bank’s interest income from loans reported at December 31, 2018 appears fairly stated. Do the results of the analytical procedure indicate that you accept 2018 interest income as reported? Yes No Please briefly explain your answer. [2] Based on the results of the analytical procedure, how likely is it that 2018 interest income is materially misstated? ![Northwest Bank (NWB) has banking operations in 35 communities in the states of Washington, Oregon, and Idaho. Headquarters for the bank are in Walla Walla, Washington. NWB’s loan portfolio consists primarily of agricultural loans, commercial loans, real estate loans, and loans to individuals. Credit-granting authority is primarily centralized in Walla Walla; however, certain seasoned loan officers have decision authority for small loans in their local area. Loan portfolio performance, monitoring, and ongoing credit quality assessments are performed in Walla Walla for all loans.
NWB has been an audit client for three years. Because of NWB’s strong controls over bank loans, the audit team places high reliance on controls (i.e., control risk is assessed as low). The audit approach calls for the audit team to gain assurance on the fairness of loan interest income primarily through the performance of substantive analytical procedures. Additional detailed testing will only be performed if analytical procedures suggest interest income is materially misstated. Total reported interest income for 2018 is $35,337,204, and reported net income for the bank is $12,484,000. A misstatement of $525,000 is considered material.
Last year, in addition to comparing the 2017 interest income to 2016 interest income, the audit team also developed an expectation for loan interest income using the average loan volume multiplied by the weighted average interest rate. Last year’s audit file indicates that the average loan volume agrees to numbers tested elsewhere in the audit file and that the interest rates used to compute the weighted average rate were comparable to rates published in a Washington State Banking Commission publication.
PART A
The following computation was performed last year.
The following information was available for an analysis of the current audit year.
REQUIRED – PART A
[1]As part of the year-end audit and using the analytical-procedure approach similar to last year’s audit (average loan volume multiplied by weighted-average interest rate), determine if Northwest Bank’s interest income from loans reported at December 31, 2018 appears fairly stated. Do the results of the analytical procedure indicate that you accept 2018 interest income as reported?
Yes No Please briefly explain your answer.
[2] Based on the results of the analytical procedure, how likely is it that 2018 interest income is materially misstated?
[3] Please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by the interest income analytical procedure:
PART B Do NOT begin this part of the case until instructed to do so
In an effort to develop a more precise (i.e., higher quality) expectation, you asked an associate to collect more detailed information, which is provided below. The quarterly rates are comparable to those reported in a Washington State Bank Commission publication. The quarterly loan volumes have been tied to audit work in other areas of the audit file. You decided not to have the associate track down detailed information for the “Individual and Other Loans” category because it is relatively small and is made up of heterogeneous loans. However, for the loans in the Individual and Other Loans category you do have the loan volume and weighted average interest rate as of December 31, 2017 and December 31, 2018. Recall that materiality for this area is $525,000.
REQUIRED – PART B
[1] Given the additional information provided in Part B (i.e., quarterly information by loan type), please determine if Northwest Bank’s interest income from loans reported at December 31, 2018 appears fairly stated. Can you accept 2018 interest income as reported?
Yes No Please briefly explain your answer.
[2] Based on the results of the analytical procedure preformed in Part B, how likely do you think it is that 2018 interest income is materially misstated?
[3] Please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by the interest income analytical procedure:
[4] Now reevaluate the first analytical procedure you performed (i.e., based only on average aggregate loan and interest averages). Using hindsight, please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by that high-level interest income analytical procedure:
[5] Most auditors and students who complete Part A and Part B have a lower assessment in Part B question 4 than they do for Part A question 3.
[a] Considering common judgment tendencies and traps, what might explain the difference?
[b] Assuming the difference is evidence of judgment bias(es), what steps may help to mitigate the bias(es)?](../images/northwest-bank-nwb-has-banking-operations-in-35-communities-in-273873-3.jpg)
[3] Please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by the interest income analytical procedure: ![Northwest Bank (NWB) has banking operations in 35 communities in the states of Washington, Oregon, and Idaho. Headquarters for the bank are in Walla Walla, Washington. NWB’s loan portfolio consists primarily of agricultural loans, commercial loans, real estate loans, and loans to individuals. Credit-granting authority is primarily centralized in Walla Walla; however, certain seasoned loan officers have decision authority for small loans in their local area. Loan portfolio performance, monitoring, and ongoing credit quality assessments are performed in Walla Walla for all loans.
NWB has been an audit client for three years. Because of NWB’s strong controls over bank loans, the audit team places high reliance on controls (i.e., control risk is assessed as low). The audit approach calls for the audit team to gain assurance on the fairness of loan interest income primarily through the performance of substantive analytical procedures. Additional detailed testing will only be performed if analytical procedures suggest interest income is materially misstated. Total reported interest income for 2018 is $35,337,204, and reported net income for the bank is $12,484,000. A misstatement of $525,000 is considered material.
Last year, in addition to comparing the 2017 interest income to 2016 interest income, the audit team also developed an expectation for loan interest income using the average loan volume multiplied by the weighted average interest rate. Last year’s audit file indicates that the average loan volume agrees to numbers tested elsewhere in the audit file and that the interest rates used to compute the weighted average rate were comparable to rates published in a Washington State Banking Commission publication.
PART A
The following computation was performed last year.
The following information was available for an analysis of the current audit year.
REQUIRED – PART A
[1]As part of the year-end audit and using the analytical-procedure approach similar to last year’s audit (average loan volume multiplied by weighted-average interest rate), determine if Northwest Bank’s interest income from loans reported at December 31, 2018 appears fairly stated. Do the results of the analytical procedure indicate that you accept 2018 interest income as reported?
Yes No Please briefly explain your answer.
[2] Based on the results of the analytical procedure, how likely is it that 2018 interest income is materially misstated?
[3] Please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by the interest income analytical procedure:
PART B Do NOT begin this part of the case until instructed to do so
In an effort to develop a more precise (i.e., higher quality) expectation, you asked an associate to collect more detailed information, which is provided below. The quarterly rates are comparable to those reported in a Washington State Bank Commission publication. The quarterly loan volumes have been tied to audit work in other areas of the audit file. You decided not to have the associate track down detailed information for the “Individual and Other Loans” category because it is relatively small and is made up of heterogeneous loans. However, for the loans in the Individual and Other Loans category you do have the loan volume and weighted average interest rate as of December 31, 2017 and December 31, 2018. Recall that materiality for this area is $525,000.
REQUIRED – PART B
[1] Given the additional information provided in Part B (i.e., quarterly information by loan type), please determine if Northwest Bank’s interest income from loans reported at December 31, 2018 appears fairly stated. Can you accept 2018 interest income as reported?
Yes No Please briefly explain your answer.
[2] Based on the results of the analytical procedure preformed in Part B, how likely do you think it is that 2018 interest income is materially misstated?
[3] Please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by the interest income analytical procedure:
[4] Now reevaluate the first analytical procedure you performed (i.e., based only on average aggregate loan and interest averages). Using hindsight, please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by that high-level interest income analytical procedure:
[5] Most auditors and students who complete Part A and Part B have a lower assessment in Part B question 4 than they do for Part A question 3.
[a] Considering common judgment tendencies and traps, what might explain the difference?
[b] Assuming the difference is evidence of judgment bias(es), what steps may help to mitigate the bias(es)?](../images/northwest-bank-nwb-has-banking-operations-in-35-communities-in-273873-4.jpg)
PART B Do NOT begin this part of the case until instructed to do so In an effort to develop a more precise (i.e., higher quality) expectation, you asked an associate to collect more detailed information, which is provided below. The quarterly rates are comparable to those reported in a Washington State Bank Commission publication. The quarterly loan volumes have been tied to audit work in other areas of the audit file. You decided not to have the associate track down detailed information for the “Individual and Other Loans†category because it is relatively small and is made up of heterogeneous loans. However, for the loans in the Individual and Other Loans category you do have the loan volume and weighted average interest rate as of December 31, 2017 and December 31, 2018. Recall that materiality for this area is $525,000. ![Northwest Bank (NWB) has banking operations in 35 communities in the states of Washington, Oregon, and Idaho. Headquarters for the bank are in Walla Walla, Washington. NWB’s loan portfolio consists primarily of agricultural loans, commercial loans, real estate loans, and loans to individuals. Credit-granting authority is primarily centralized in Walla Walla; however, certain seasoned loan officers have decision authority for small loans in their local area. Loan portfolio performance, monitoring, and ongoing credit quality assessments are performed in Walla Walla for all loans.
NWB has been an audit client for three years. Because of NWB’s strong controls over bank loans, the audit team places high reliance on controls (i.e., control risk is assessed as low). The audit approach calls for the audit team to gain assurance on the fairness of loan interest income primarily through the performance of substantive analytical procedures. Additional detailed testing will only be performed if analytical procedures suggest interest income is materially misstated. Total reported interest income for 2018 is $35,337,204, and reported net income for the bank is $12,484,000. A misstatement of $525,000 is considered material.
Last year, in addition to comparing the 2017 interest income to 2016 interest income, the audit team also developed an expectation for loan interest income using the average loan volume multiplied by the weighted average interest rate. Last year’s audit file indicates that the average loan volume agrees to numbers tested elsewhere in the audit file and that the interest rates used to compute the weighted average rate were comparable to rates published in a Washington State Banking Commission publication.
PART A
The following computation was performed last year.
The following information was available for an analysis of the current audit year.
REQUIRED – PART A
[1]As part of the year-end audit and using the analytical-procedure approach similar to last year’s audit (average loan volume multiplied by weighted-average interest rate), determine if Northwest Bank’s interest income from loans reported at December 31, 2018 appears fairly stated. Do the results of the analytical procedure indicate that you accept 2018 interest income as reported?
Yes No Please briefly explain your answer.
[2] Based on the results of the analytical procedure, how likely is it that 2018 interest income is materially misstated?
[3] Please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by the interest income analytical procedure:
PART B Do NOT begin this part of the case until instructed to do so
In an effort to develop a more precise (i.e., higher quality) expectation, you asked an associate to collect more detailed information, which is provided below. The quarterly rates are comparable to those reported in a Washington State Bank Commission publication. The quarterly loan volumes have been tied to audit work in other areas of the audit file. You decided not to have the associate track down detailed information for the “Individual and Other Loans” category because it is relatively small and is made up of heterogeneous loans. However, for the loans in the Individual and Other Loans category you do have the loan volume and weighted average interest rate as of December 31, 2017 and December 31, 2018. Recall that materiality for this area is $525,000.
REQUIRED – PART B
[1] Given the additional information provided in Part B (i.e., quarterly information by loan type), please determine if Northwest Bank’s interest income from loans reported at December 31, 2018 appears fairly stated. Can you accept 2018 interest income as reported?
Yes No Please briefly explain your answer.
[2] Based on the results of the analytical procedure preformed in Part B, how likely do you think it is that 2018 interest income is materially misstated?
[3] Please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by the interest income analytical procedure:
[4] Now reevaluate the first analytical procedure you performed (i.e., based only on average aggregate loan and interest averages). Using hindsight, please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by that high-level interest income analytical procedure:
[5] Most auditors and students who complete Part A and Part B have a lower assessment in Part B question 4 than they do for Part A question 3.
[a] Considering common judgment tendencies and traps, what might explain the difference?
[b] Assuming the difference is evidence of judgment bias(es), what steps may help to mitigate the bias(es)?](../images/northwest-bank-nwb-has-banking-operations-in-35-communities-in-273873-5.jpg)
![Northwest Bank (NWB) has banking operations in 35 communities in the states of Washington, Oregon, and Idaho. Headquarters for the bank are in Walla Walla, Washington. NWB’s loan portfolio consists primarily of agricultural loans, commercial loans, real estate loans, and loans to individuals. Credit-granting authority is primarily centralized in Walla Walla; however, certain seasoned loan officers have decision authority for small loans in their local area. Loan portfolio performance, monitoring, and ongoing credit quality assessments are performed in Walla Walla for all loans.
NWB has been an audit client for three years. Because of NWB’s strong controls over bank loans, the audit team places high reliance on controls (i.e., control risk is assessed as low). The audit approach calls for the audit team to gain assurance on the fairness of loan interest income primarily through the performance of substantive analytical procedures. Additional detailed testing will only be performed if analytical procedures suggest interest income is materially misstated. Total reported interest income for 2018 is $35,337,204, and reported net income for the bank is $12,484,000. A misstatement of $525,000 is considered material.
Last year, in addition to comparing the 2017 interest income to 2016 interest income, the audit team also developed an expectation for loan interest income using the average loan volume multiplied by the weighted average interest rate. Last year’s audit file indicates that the average loan volume agrees to numbers tested elsewhere in the audit file and that the interest rates used to compute the weighted average rate were comparable to rates published in a Washington State Banking Commission publication.
PART A
The following computation was performed last year.
The following information was available for an analysis of the current audit year.
REQUIRED – PART A
[1]As part of the year-end audit and using the analytical-procedure approach similar to last year’s audit (average loan volume multiplied by weighted-average interest rate), determine if Northwest Bank’s interest income from loans reported at December 31, 2018 appears fairly stated. Do the results of the analytical procedure indicate that you accept 2018 interest income as reported?
Yes No Please briefly explain your answer.
[2] Based on the results of the analytical procedure, how likely is it that 2018 interest income is materially misstated?
[3] Please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by the interest income analytical procedure:
PART B Do NOT begin this part of the case until instructed to do so
In an effort to develop a more precise (i.e., higher quality) expectation, you asked an associate to collect more detailed information, which is provided below. The quarterly rates are comparable to those reported in a Washington State Bank Commission publication. The quarterly loan volumes have been tied to audit work in other areas of the audit file. You decided not to have the associate track down detailed information for the “Individual and Other Loans” category because it is relatively small and is made up of heterogeneous loans. However, for the loans in the Individual and Other Loans category you do have the loan volume and weighted average interest rate as of December 31, 2017 and December 31, 2018. Recall that materiality for this area is $525,000.
REQUIRED – PART B
[1] Given the additional information provided in Part B (i.e., quarterly information by loan type), please determine if Northwest Bank’s interest income from loans reported at December 31, 2018 appears fairly stated. Can you accept 2018 interest income as reported?
Yes No Please briefly explain your answer.
[2] Based on the results of the analytical procedure preformed in Part B, how likely do you think it is that 2018 interest income is materially misstated?
[3] Please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by the interest income analytical procedure:
[4] Now reevaluate the first analytical procedure you performed (i.e., based only on average aggregate loan and interest averages). Using hindsight, please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by that high-level interest income analytical procedure:
[5] Most auditors and students who complete Part A and Part B have a lower assessment in Part B question 4 than they do for Part A question 3.
[a] Considering common judgment tendencies and traps, what might explain the difference?
[b] Assuming the difference is evidence of judgment bias(es), what steps may help to mitigate the bias(es)?](../images/northwest-bank-nwb-has-banking-operations-in-35-communities-in-273873-6.jpg)
![Northwest Bank (NWB) has banking operations in 35 communities in the states of Washington, Oregon, and Idaho. Headquarters for the bank are in Walla Walla, Washington. NWB’s loan portfolio consists primarily of agricultural loans, commercial loans, real estate loans, and loans to individuals. Credit-granting authority is primarily centralized in Walla Walla; however, certain seasoned loan officers have decision authority for small loans in their local area. Loan portfolio performance, monitoring, and ongoing credit quality assessments are performed in Walla Walla for all loans.
NWB has been an audit client for three years. Because of NWB’s strong controls over bank loans, the audit team places high reliance on controls (i.e., control risk is assessed as low). The audit approach calls for the audit team to gain assurance on the fairness of loan interest income primarily through the performance of substantive analytical procedures. Additional detailed testing will only be performed if analytical procedures suggest interest income is materially misstated. Total reported interest income for 2018 is $35,337,204, and reported net income for the bank is $12,484,000. A misstatement of $525,000 is considered material.
Last year, in addition to comparing the 2017 interest income to 2016 interest income, the audit team also developed an expectation for loan interest income using the average loan volume multiplied by the weighted average interest rate. Last year’s audit file indicates that the average loan volume agrees to numbers tested elsewhere in the audit file and that the interest rates used to compute the weighted average rate were comparable to rates published in a Washington State Banking Commission publication.
PART A
The following computation was performed last year.
The following information was available for an analysis of the current audit year.
REQUIRED – PART A
[1]As part of the year-end audit and using the analytical-procedure approach similar to last year’s audit (average loan volume multiplied by weighted-average interest rate), determine if Northwest Bank’s interest income from loans reported at December 31, 2018 appears fairly stated. Do the results of the analytical procedure indicate that you accept 2018 interest income as reported?
Yes No Please briefly explain your answer.
[2] Based on the results of the analytical procedure, how likely is it that 2018 interest income is materially misstated?
[3] Please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by the interest income analytical procedure:
PART B Do NOT begin this part of the case until instructed to do so
In an effort to develop a more precise (i.e., higher quality) expectation, you asked an associate to collect more detailed information, which is provided below. The quarterly rates are comparable to those reported in a Washington State Bank Commission publication. The quarterly loan volumes have been tied to audit work in other areas of the audit file. You decided not to have the associate track down detailed information for the “Individual and Other Loans” category because it is relatively small and is made up of heterogeneous loans. However, for the loans in the Individual and Other Loans category you do have the loan volume and weighted average interest rate as of December 31, 2017 and December 31, 2018. Recall that materiality for this area is $525,000.
REQUIRED – PART B
[1] Given the additional information provided in Part B (i.e., quarterly information by loan type), please determine if Northwest Bank’s interest income from loans reported at December 31, 2018 appears fairly stated. Can you accept 2018 interest income as reported?
Yes No Please briefly explain your answer.
[2] Based on the results of the analytical procedure preformed in Part B, how likely do you think it is that 2018 interest income is materially misstated?
[3] Please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by the interest income analytical procedure:
[4] Now reevaluate the first analytical procedure you performed (i.e., based only on average aggregate loan and interest averages). Using hindsight, please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by that high-level interest income analytical procedure:
[5] Most auditors and students who complete Part A and Part B have a lower assessment in Part B question 4 than they do for Part A question 3.
[a] Considering common judgment tendencies and traps, what might explain the difference?
[b] Assuming the difference is evidence of judgment bias(es), what steps may help to mitigate the bias(es)?](../images/northwest-bank-nwb-has-banking-operations-in-35-communities-in-273873-7.jpg)
REQUIRED – PART B [1] Given the additional information provided in Part B (i.e., quarterly information by loan type), please determine if Northwest Bank’s interest income from loans reported at December 31, 2018 appears fairly stated. Can you accept 2018 interest income as reported? Yes No Please briefly explain your answer. [2] Based on the results of the analytical procedure preformed in Part B, how likely do you think it is that 2018 interest income is materially misstated? ![Northwest Bank (NWB) has banking operations in 35 communities in the states of Washington, Oregon, and Idaho. Headquarters for the bank are in Walla Walla, Washington. NWB’s loan portfolio consists primarily of agricultural loans, commercial loans, real estate loans, and loans to individuals. Credit-granting authority is primarily centralized in Walla Walla; however, certain seasoned loan officers have decision authority for small loans in their local area. Loan portfolio performance, monitoring, and ongoing credit quality assessments are performed in Walla Walla for all loans.
NWB has been an audit client for three years. Because of NWB’s strong controls over bank loans, the audit team places high reliance on controls (i.e., control risk is assessed as low). The audit approach calls for the audit team to gain assurance on the fairness of loan interest income primarily through the performance of substantive analytical procedures. Additional detailed testing will only be performed if analytical procedures suggest interest income is materially misstated. Total reported interest income for 2018 is $35,337,204, and reported net income for the bank is $12,484,000. A misstatement of $525,000 is considered material.
Last year, in addition to comparing the 2017 interest income to 2016 interest income, the audit team also developed an expectation for loan interest income using the average loan volume multiplied by the weighted average interest rate. Last year’s audit file indicates that the average loan volume agrees to numbers tested elsewhere in the audit file and that the interest rates used to compute the weighted average rate were comparable to rates published in a Washington State Banking Commission publication.
PART A
The following computation was performed last year.
The following information was available for an analysis of the current audit year.
REQUIRED – PART A
[1]As part of the year-end audit and using the analytical-procedure approach similar to last year’s audit (average loan volume multiplied by weighted-average interest rate), determine if Northwest Bank’s interest income from loans reported at December 31, 2018 appears fairly stated. Do the results of the analytical procedure indicate that you accept 2018 interest income as reported?
Yes No Please briefly explain your answer.
[2] Based on the results of the analytical procedure, how likely is it that 2018 interest income is materially misstated?
[3] Please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by the interest income analytical procedure:
PART B Do NOT begin this part of the case until instructed to do so
In an effort to develop a more precise (i.e., higher quality) expectation, you asked an associate to collect more detailed information, which is provided below. The quarterly rates are comparable to those reported in a Washington State Bank Commission publication. The quarterly loan volumes have been tied to audit work in other areas of the audit file. You decided not to have the associate track down detailed information for the “Individual and Other Loans” category because it is relatively small and is made up of heterogeneous loans. However, for the loans in the Individual and Other Loans category you do have the loan volume and weighted average interest rate as of December 31, 2017 and December 31, 2018. Recall that materiality for this area is $525,000.
REQUIRED – PART B
[1] Given the additional information provided in Part B (i.e., quarterly information by loan type), please determine if Northwest Bank’s interest income from loans reported at December 31, 2018 appears fairly stated. Can you accept 2018 interest income as reported?
Yes No Please briefly explain your answer.
[2] Based on the results of the analytical procedure preformed in Part B, how likely do you think it is that 2018 interest income is materially misstated?
[3] Please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by the interest income analytical procedure:
[4] Now reevaluate the first analytical procedure you performed (i.e., based only on average aggregate loan and interest averages). Using hindsight, please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by that high-level interest income analytical procedure:
[5] Most auditors and students who complete Part A and Part B have a lower assessment in Part B question 4 than they do for Part A question 3.
[a] Considering common judgment tendencies and traps, what might explain the difference?
[b] Assuming the difference is evidence of judgment bias(es), what steps may help to mitigate the bias(es)?](../images/northwest-bank-nwb-has-banking-operations-in-35-communities-in-273873-8.jpg)
[3] Please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by the interest income analytical procedure: ![Northwest Bank (NWB) has banking operations in 35 communities in the states of Washington, Oregon, and Idaho. Headquarters for the bank are in Walla Walla, Washington. NWB’s loan portfolio consists primarily of agricultural loans, commercial loans, real estate loans, and loans to individuals. Credit-granting authority is primarily centralized in Walla Walla; however, certain seasoned loan officers have decision authority for small loans in their local area. Loan portfolio performance, monitoring, and ongoing credit quality assessments are performed in Walla Walla for all loans.
NWB has been an audit client for three years. Because of NWB’s strong controls over bank loans, the audit team places high reliance on controls (i.e., control risk is assessed as low). The audit approach calls for the audit team to gain assurance on the fairness of loan interest income primarily through the performance of substantive analytical procedures. Additional detailed testing will only be performed if analytical procedures suggest interest income is materially misstated. Total reported interest income for 2018 is $35,337,204, and reported net income for the bank is $12,484,000. A misstatement of $525,000 is considered material.
Last year, in addition to comparing the 2017 interest income to 2016 interest income, the audit team also developed an expectation for loan interest income using the average loan volume multiplied by the weighted average interest rate. Last year’s audit file indicates that the average loan volume agrees to numbers tested elsewhere in the audit file and that the interest rates used to compute the weighted average rate were comparable to rates published in a Washington State Banking Commission publication.
PART A
The following computation was performed last year.
The following information was available for an analysis of the current audit year.
REQUIRED – PART A
[1]As part of the year-end audit and using the analytical-procedure approach similar to last year’s audit (average loan volume multiplied by weighted-average interest rate), determine if Northwest Bank’s interest income from loans reported at December 31, 2018 appears fairly stated. Do the results of the analytical procedure indicate that you accept 2018 interest income as reported?
Yes No Please briefly explain your answer.
[2] Based on the results of the analytical procedure, how likely is it that 2018 interest income is materially misstated?
[3] Please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by the interest income analytical procedure:
PART B Do NOT begin this part of the case until instructed to do so
In an effort to develop a more precise (i.e., higher quality) expectation, you asked an associate to collect more detailed information, which is provided below. The quarterly rates are comparable to those reported in a Washington State Bank Commission publication. The quarterly loan volumes have been tied to audit work in other areas of the audit file. You decided not to have the associate track down detailed information for the “Individual and Other Loans” category because it is relatively small and is made up of heterogeneous loans. However, for the loans in the Individual and Other Loans category you do have the loan volume and weighted average interest rate as of December 31, 2017 and December 31, 2018. Recall that materiality for this area is $525,000.
REQUIRED – PART B
[1] Given the additional information provided in Part B (i.e., quarterly information by loan type), please determine if Northwest Bank’s interest income from loans reported at December 31, 2018 appears fairly stated. Can you accept 2018 interest income as reported?
Yes No Please briefly explain your answer.
[2] Based on the results of the analytical procedure preformed in Part B, how likely do you think it is that 2018 interest income is materially misstated?
[3] Please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by the interest income analytical procedure:
[4] Now reevaluate the first analytical procedure you performed (i.e., based only on average aggregate loan and interest averages). Using hindsight, please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by that high-level interest income analytical procedure:
[5] Most auditors and students who complete Part A and Part B have a lower assessment in Part B question 4 than they do for Part A question 3.
[a] Considering common judgment tendencies and traps, what might explain the difference?
[b] Assuming the difference is evidence of judgment bias(es), what steps may help to mitigate the bias(es)?](../images/northwest-bank-nwb-has-banking-operations-in-35-communities-in-273873-9.jpg)
[4] Now reevaluate the first analytical procedure you performed (i.e., based only on average aggregate loan and interest averages). Using hindsight, please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by that high-level interest income analytical procedure: ![Northwest Bank (NWB) has banking operations in 35 communities in the states of Washington, Oregon, and Idaho. Headquarters for the bank are in Walla Walla, Washington. NWB’s loan portfolio consists primarily of agricultural loans, commercial loans, real estate loans, and loans to individuals. Credit-granting authority is primarily centralized in Walla Walla; however, certain seasoned loan officers have decision authority for small loans in their local area. Loan portfolio performance, monitoring, and ongoing credit quality assessments are performed in Walla Walla for all loans.
NWB has been an audit client for three years. Because of NWB’s strong controls over bank loans, the audit team places high reliance on controls (i.e., control risk is assessed as low). The audit approach calls for the audit team to gain assurance on the fairness of loan interest income primarily through the performance of substantive analytical procedures. Additional detailed testing will only be performed if analytical procedures suggest interest income is materially misstated. Total reported interest income for 2018 is $35,337,204, and reported net income for the bank is $12,484,000. A misstatement of $525,000 is considered material.
Last year, in addition to comparing the 2017 interest income to 2016 interest income, the audit team also developed an expectation for loan interest income using the average loan volume multiplied by the weighted average interest rate. Last year’s audit file indicates that the average loan volume agrees to numbers tested elsewhere in the audit file and that the interest rates used to compute the weighted average rate were comparable to rates published in a Washington State Banking Commission publication.
PART A
The following computation was performed last year.
The following information was available for an analysis of the current audit year.
REQUIRED – PART A
[1]As part of the year-end audit and using the analytical-procedure approach similar to last year’s audit (average loan volume multiplied by weighted-average interest rate), determine if Northwest Bank’s interest income from loans reported at December 31, 2018 appears fairly stated. Do the results of the analytical procedure indicate that you accept 2018 interest income as reported?
Yes No Please briefly explain your answer.
[2] Based on the results of the analytical procedure, how likely is it that 2018 interest income is materially misstated?
[3] Please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by the interest income analytical procedure:
PART B Do NOT begin this part of the case until instructed to do so
In an effort to develop a more precise (i.e., higher quality) expectation, you asked an associate to collect more detailed information, which is provided below. The quarterly rates are comparable to those reported in a Washington State Bank Commission publication. The quarterly loan volumes have been tied to audit work in other areas of the audit file. You decided not to have the associate track down detailed information for the “Individual and Other Loans” category because it is relatively small and is made up of heterogeneous loans. However, for the loans in the Individual and Other Loans category you do have the loan volume and weighted average interest rate as of December 31, 2017 and December 31, 2018. Recall that materiality for this area is $525,000.
REQUIRED – PART B
[1] Given the additional information provided in Part B (i.e., quarterly information by loan type), please determine if Northwest Bank’s interest income from loans reported at December 31, 2018 appears fairly stated. Can you accept 2018 interest income as reported?
Yes No Please briefly explain your answer.
[2] Based on the results of the analytical procedure preformed in Part B, how likely do you think it is that 2018 interest income is materially misstated?
[3] Please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by the interest income analytical procedure:
[4] Now reevaluate the first analytical procedure you performed (i.e., based only on average aggregate loan and interest averages). Using hindsight, please indicate on the scale below your assessment of the strength (quality and sufficiency) of evidence provided by that high-level interest income analytical procedure:
[5] Most auditors and students who complete Part A and Part B have a lower assessment in Part B question 4 than they do for Part A question 3.
[a] Considering common judgment tendencies and traps, what might explain the difference?
[b] Assuming the difference is evidence of judgment bias(es), what steps may help to mitigate the bias(es)?](../images/northwest-bank-nwb-has-banking-operations-in-35-communities-in-273873-10.jpg)
[5] Most auditors and students who complete Part A and Part B have a lower assessment in Part B question 4 than they do for Part A question 3. [a] Considering common judgment tendencies and traps, what might explain the difference? [b] Assuming the difference is evidence of judgment bias(es), what steps may help to mitigate the bias(es)?
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> A survey of 451 men revealed that 144 men, or 3 1.9%, wait until Valentine's day or the day before to purchase flowers. Identify a statistical population and the sample.
> It was 9:30 A.M. on a Monday morning when the call came through. “Hi Dr. Mitchell, do you have a minute?” “Sure,” the professor replied. “I am one of your former students, but if you don’t mind, I would prefer to remain anonymous. I think it is best for
> Nathan recently interviewed with one of the accounting firms in the city where he wants to live. The firm agreed to cover the expense of a rental car that he used to travel from his university to the firm’s office. The rental car agency required that Nat
> Brent Dorsey graduated six months ago with a master’s degree in accounting. Immediately after graduation, Brent began working with a large accounting firm in Portland, Oregon. He is now on his second audit engagement—a company called Northwest Steel Prod
> Banking regulators announced in early 2015 a greater focus on evaluating ethical culture as part of their regulatory examination of a bank’s health. In a February 2015 speech, Thomas Baxter, Executive Vice President and General Counsel
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> Spencer and Loveland, LLP is a medium-sized, regional accounting firm based in the western part of the United States. A new client of the firm, K&K, Inc., which manufactures a variety of picture frames, recently contracted with Spencer and Loveland t
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> The information below relates to the audit of EyeMax Corporation, a client with a calendar year-end. EyeMax has debt agreements associated with publicly traded bonds that require audited financial statements. The company is currently, and historically ha
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> RedPack Beer Company is a privately-held micro brewery located in Raleigh, North Carolina. Bank loan covenants require that RedPack submit audited financial statements annually to the bank. Specifically, the bank covenants contain revenue and liquidity m
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> In what ways can leaders create ethical organizations?
> How do the contemporary theories of leadership relate to earlier foundational theories?
> What are the contingency theories of leadership?
> What are the causes and consequences of abuse of power?
> What power or influence tactics and their contingencies are identified most often?
> How is leadership different from power?
> The authors who suggested that membership in a team makes us smarter found that teams were more rational and quicker at finding solutions to difficult probability problems and reasoning tasks than were individuals. After participation in the study, team
> On the highly functioning teams in which you’ve been a member, what other characteristics might have contributed to success?
> From your experiences in teams, do you agree with the researchers’ findings on the characteristics of smart teams? Why or why not?
> Imagine you are a manager at a national corporation. You have been asked to select employees for a virtual problem-solving team. What types of employees would you include and why?
> Can you think of strategies that can help build trust among virtual team members?
> Recall a time when you felt like you could not trust members on your team. Why did you feel that way? How did that affect the team’s performance?
> What are the relevant points of intellectual and physical abilities to organizational behavior?
> In the cases discussed above, where do you think you would perform better, and why? Justify your answer by taking into account efficiency factors, reward systems, the context, and your individual perceptions.
> What type of group or team are cyclists working for a supervisor for Deliveroo? Justify your answer.
> How should the criterion of “legitimacy” be determined? Explain.
> Is there ever a case in which illegitimate tasks should be tolerated or “rightfully” given? Explain your answer.
> When is work performed by individuals preferred over work performed by teams?
> What are the major job attitudes?
> How do you think employees should respond when given illegitimate tasks? How can an organization monitor the tasks it assigns to employees and ensure that the tasks are legitimate? Explain your answer.
> Do you think it is possible for a reward program to start out rewarding the appropriate behavior at its inception but then begin to reward the wrong thing over time? Why or why not?
> Assuming you could become better at detecting the real emotions of others from facial expressions, do you think it would help your career? Why or why not?
> What are the ethical implications of reading faces for emotional content in the workplace?
> How do you overcome the potential problems of cross-cultural communication?
> What do you think are the best workplace applications for emotion reading technology?
> What type of decision-making framework would you advise the warehouse manager to adopt in order to help him reach an optimal decision? How will your suggestion help?
> Identify the stakeholders who will be influenced by the decision to accept or refuse the frozen meat shipment.
> Does the decision to accept or refuse the frozen meat shipment call for ethical or legal considerations? Why?
> How would you have acted had you been in a similar situation?
> How can organizations create team players?
> In what way could the mine management have provided support to him prior to his wrongful act?
> Does behavior always follow from attitudes?
> What should Sipho have done differently?
> Many organizations already use electronic monitoring of employees, including sifting through website visits and e-mail correspondence, often without the employees’ direct knowledge. In what ways might drone monitoring be better or worse for employees tha
> What is the difference between automatic and controlled processing of persuasive messages?
