New Century Financial Corporation Essay

Summary the mortgage mess happened in 2008 when there was a decreased home price. However, their mortgage payment by homeowners were presently greater than the price of house. As a result, they forced the buy policy of umpteen mortgage agreements, and let the subprime lenders to tamp everywhere their houses. Subprime lender like stark naked carbon became the bankrupt because of the high scattered link up with the mortgage heapcelation. To champion earning, the instruction switch the estimate of its reserve. However, KPGM, the auditor of the New coke is question of their perish. KPMG lost its independence payable to its afraid of lost business.1.The advantages include split up understanding of the labor, lower cost because of the cut amount of work on prise the patience, gain great emolument when the industry is going up, and early recognition of the industry heading because of the sh atomic number 18d reading from several(predicate) companies. The disadvanta ges include risk of loss profit when the industry go down, create a mind set of doing audit that digest be bias, 2.They need to ensure the information gathered by the prior group is properly communicated and understand by the enlist over team. As a result, it results in the saving of the clock time and effort of the take over team to spend. It also gave the radical team a different advert of view as well as better understanding of the company. on the different hand, they also need to ensure the work quality of the taker over team get out not be reduced.3.Significant deficiency A significant deficiency is a domination deficiency, or compounding of temper deficiencies, that adversely affects the entitys ability to initiate, authorize, record, process, or fib monetary data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entitys financial statements that is more than inconsequ ential result not be prevented or detected. actual flunk A existent weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a corporal misstatement of the financial statements will not be prevented or detected. SAS 112 requires the auditor to communicate control deficiencies that are significant deficiencies or material weaknesses in cozy control.Significant deficiencies or material weaknesses must be communicated in writing to management and those in bursting charge of governancefor example, to the audit committee of the tableno later than 60 long time following the report release date. straight-out Opinion can be issued when indispensable control over financial insurance coverage is effective no material weaknesses in internal control over financial reporting exist as of the pecuniary year-end assessment date. 4.The procedures to audit big accounting estimates include considering the relevanc e, reliability, and sufficiency of the data and factors used by management, evaluating the cleanness and consent of the assumptions, and re-performing the calculations made by management. 5.The GAAS require an auditor to exercise due professional care, to adequately plan its audit, to sufficiently understand a businesss internal structure, and to find out sufficient evidence to reach reasonable conclusions.KPMG allegedly failed to adhere to the GAAS by having an untried audit team, failed to challenge New atomic number 6 management for unreasonable estimates failed to test the repurchase reserve despite evidence of internal control weaknesses and apparently inaccurate estimates of bully repurchase requests and failed to raise deficiencies and inaccuracies in New Centurys accounting practices or internal controls. 6. Although the drapeors are complaining that they should be liable for the lost because they did not actively participate in the mortgage market. It is certain tha t they did nothing wrong, but they need to come out this risk when they invest.Investor does not have adequate information about the market trend that should be provided. As a result, they invest the money base on the over-the-hill information. There is no way for them to discern the threat of their investment. 7.1) auditor need to maintain independence from their work, lose of independence can lead to a bias conclusion, which cannot be trusted upon. KPMGs afraid to lost New Century as a client lead them to issue a report in favor of the management. 2) do not employ inexperience auditor, curiously when the company is in its hard time. inexperience auditor will cause defect of their work. Company in hard time have a incentive to collapse fraudulent statement, and inexperience auditor are not able to detect them. 3) be aware when the company going down. The management may try to management the earning in order to meet estimates.