Summary: the mortgage mess happened in 2008 when there was a decreased homing price. However, their mortgage payment by homeowners were soon greater than the price of house. As a result, they forced the repurchase policy of many mortgage agreements, and let the subprime lenders to take over their houses. Subprime lender like New Century became the bankrupt because of the high lost associate with the mortgage cancelation. To maintain earning, the management modify the estimate of its reserve. However, KPGM, the auditor of the New Century is question of their work. KPMG lost its independence due to its afraid of lost business. 1.
The advantages include better understanding of the industry, lower cost because of the reduced amount of work on evaluate the industry, gain great profit when the industry is going up, and early recognition of the industry trend because of the shared information from different companies. The disadvantages include risk of loss profit when the industry go down, create a mind set of doing audit that can be bias, 2.
They need to ensure the information gathered by the prior team is properly communicated and understand by the take over team. As a result, it results in the saving of the time and effort of the take over team to spend. It also gave the new team a different point of view as well as better understanding of the company. on the other hand, they also need to ensure the work quality of the taker over team will not be reduced. 3.
Significant deficiency: A significant deficiency is "a control deficiency, or combination of control deficiencies, that adversely affects the entity’s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity’s financial statements that is more than inconsequential will not be prevented or detected." Material weakness: A material weakness is "a...
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