The Public Company Accounting Oversight Board has published an alert warning auditors of the risks involved when auditing loss contingencies from litigation arising from mortgages and other loans, especially in cases where mortgage servicers have been accused of “robosigning” foreclosure notices.
The PCAOB staff has issued the Staff Audit Practice Alert in light of reports that began to surface in the fall alleging that companies may have misrepresented the quality of many loans sold for securitization and that those companies could be required to repurchase the affected mortgages, creating an exposure for the banking industry of up to $52 billion. In addition, allegations have surfaced that irregularities in the foreclosure process could result in further losses.
"Auditors should be aware that the potential risks and costs associated with mortgage- and foreclosure-related activities could have implications for audits of companies involved in those activities," said PCAOB Chief Auditor and Director of Professional Standards Martin F. Baumann in a statement.
The practice alert advises auditors that these mortgage- and foreclosure-related activities or exposures could have implications for audits of financial statements or of internal control over financial reporting. The implications might include accounting for litigation or other loss contingencies and the related disclosures.
In December 2008, Staff Audit Practice Alert No. 3, Audit Considerations in the Current Economic Environment, was issued to assist auditors in identifying matters related to the current economic environment that might affect audit risk and require additional emphasis. The PCAOB noted that the audit risks that existed in December 2008 with respect to contingencies and guarantees, as well as other issues, continues to exist today.
Staff Audit Practice Alerts are issued by the PCAOB to highlight new, emerging, or otherwise noteworthy circumstances that may affect how auditors conduct audits under the existing requirements of PCAOB standards and relevant laws.
The PCAOB said that auditors should determine whether and how to respond to these circumstances based on the specific facts presented. The statements contained in Staff Audit Practice Alerts are not official rules of the board and do not reflect any board determination or judgment about the conduct of any particular firm, auditor, or any other person.
Register or login for access to this item and much more
All Accounting Today content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access