Essay about New Century Case

An implicit theme of this case that I want students to recognize is the contrast between the persistent and vigorous efforts of David Sokol to “get to the bottom” of the suspicious items he uncovered in JWP’s accounting records versus what Judge William Conner referred to as the “spinelessness” of JWP’s auditors. The JWP audits were similar to most problem audits in that the auditors encountered numerous red flags and questionable entries in the client’s accounting records but, for whatever reason, apparently failed to thoroughly investigate those items. On the other hand, Sokol refused to be deterred in his investigation of the troubling accounting issues that he discovered. The relationships that existed between members of JWP’s accounting staff and the Ernst & Young audit team apparently influenced the outcome of the JWP audits. Of course, the Sarbanes-Oxley Act of 2002

It is because of Keystone’s poor management quality, overall condition, and questionable bank statements that the OCC required the bank to enter into a formal agreement that included retaining a nationally recognized independent accounting firm. When Grant Thornton was contracted in 1998 to carry out an external audit, Thornton knew that the bank had significant accounting problems and was aware that the federal regulatory authorities were skeptical of the bank. In 1999, the accounting firm gave a favorable impression of the bank’s income statements for 1997-1998 and several months later the OCC discovered that the bank committed fraud and was insolvent. This resulted in the closure of the bank.

As indicated by PCAOB, the written representation cannot be a substitute for substantive procedures. Thus, auditors did not perform adequate procedures to test the management’s estimates. What’s more, inquires were heavily relied on the management’s integrity. Auditors ignored the professional skepticism. Finally, the 30 years and 15 years useful lives, which were adopted previously by Little Drummer, were not appropriately audited. Since the engagement team did not contact the predecessor auditors, the team did not get any audit documents from predecessor auditors regarding the assumptions of 30 years and 15 years. There was no evidence to show the reasonableness of these two assumptions.

Since mid 1990s, the subprime mortgage market has grown rapidly experiencing a phenomenal 23% compound annual growth rate to 2006. The total subprime loan originations increased from $65 billion in 1995 to $613 billion in 2006. The subprime sector has become a significant sub-sector of the total residential market accounting for 21% of all residential mortgage originations in 2006. Similarly, by year-end 2006, total outstanding balance of subprime loans grew to $1.2 trillion, approximately 12.6% of all outstanding mortgage debt.

The financial crisis emerged because of an excessive deregulation of business operation of financial institutions and of abusing the securitization mechanism in the absence of clearly defined rules to regulate this area in the American mortgage market (Krstić, Jemović, & Radojičić, 2013). Deregulation gives larger banks the opportunity to loosen underwriting lender guidelines and generate increase opportunity for homeownership (Kroszner & Strahan, 2013). After deregulation, banks utilized many versions of mortgage loans. Mortgage loans such as subprime and Alternative-A paper loans became available for borrowers challenged to find mortgage lenders before deregulation (Elbarouki, 2016; Palmer, 2015). The housing market has been severely affected by fluctuating interest rates and the requirement of large down payment (Follain, & Giertz, 2013). The subprime lending crisis has taken a toll on the nation’s economy since 2007. Individuals who lacked sufficient credit ratings or down payments resorted to subprime mortgages to finance their homes Defaults on subprime and other mortgages precipitated the foreclosure crisis, which contributed to the recent recession and national financial crisis (Odetunde, 2015). Subprime mortgages were appropriate for borrowers with substandard credit and Alternate-A paper loans were

The most commonly known sub-prime finance crisis came into illumination when a sudden rise in home foreclosures in 2006 twirled seemingly out of control in 2007, triggering a nationwide economic crisis that went worldwide within the year. The greatest responsibility is pointed at the lenders who created such problems. It was the lenders who, at the end of the day, lend finances to citizens with poor credit and a high risk of failure to pay. When the Feds inundated the markets with growing capital

6. This article was written before the accounting laws were changed because of problems encountered by ex-auditors working at the client, and having connections with the new auditors. This caused many problems exemplified by Enron and WorldCom. That is why it is no longer allowed to take a job with the client. I agree with the law at present, based on the fact that before the law was present, major fraud occurred that could’ve been prevented had hiring their old auditors been illegal and of course many

The ‘sub-prime’ crisis triggered by the meltdown of the US mortgage backed-securities market in 2007 was a precursor to the global financial crisis. It would drastically change the competitive landscape for all firms in the financial services sector, including Campbell and Bailyn (C&B), one of the world’s five largest investment banks.

The U.S. subprime mortgage crisis was a set of events that led to the 2008 financial crisis, characterized by a rise in subprime mortgage defaults and foreclosures. This paper seeks to explain the causes of the U.S. subprime mortgage crisis and how this has led to a generalized credit crisis in other financial sectors that ultimately affects the real economy. In recent decades, financial industry has developed quickly and various financial innovation techniques have been abused widely, which is the main cause of this international financial crisis. In addition, deregulation, loose monetary policies of the Federal Reserve, shadow banking system also play

One of the first indications of the late 2000 financial crisis that led to downward spiral known as the “Recession” was the subprime mortgages; known as the “mortgage mess”. A few years earlier the substantial boom of the housing market led to the uprising of mortgage loans. Because interest rates were low, investors took advantage of the low rates to buy homes that they could in return ‘flip’ (reselling) and homeowners bought homes that they typically wouldn’t have been able to afford. High interest rates usually keep people from borrowing money because it limits the amount available to use for an investment. But the creation of the subprime mortgage

Due to such events as the subprime mortgage crisis, the auto market and Wall Street’s failure, the United States suffered a severe economic blow. Looking at the situation from an economic view, supply is supposed to equal demand. Due to the mortgage crisis and the careless attempts of some to make money, there is a superfluous amount of empty homes throughout the United States. In the subprime mortgage crisis, the nature of the failure was the inability to account for money given to individuals, who lack the appropriate requirements. In order to obtain a loan, collateral is needed. References were not being checked and poor credit history went ignored. People were obtaining loans and not paying attention to the interests rates associated. “This time around, the slack standards allowed millions of high-risk borrowers to get easy home mortgages. When this so-called subprime market collapsed beginning about a year ago, ordinary working people bore the brunt” (Gallagher, 2008). Companies were so anxious to place people in homes, that it cost them billions of dollars and

On the contrary, a firm belief existed in the company that external auditors showed their unmistakable disdain for New Century Financial even when loan quality issues were revealed. As audit examiner stated ³Senior Management may have abdicated its responsibility to manage the day-to-day affairs´ particularly with respect to its failure to address kick-outs.

There are several distinctive moments for which a strong argument can be made as the start of the 2008 financial crisis. Some experts argue that the pivotal moment was the failure of Lehman Brothers, which resulted in a run on financial institutions, while others blame the crisis on the housing bubble that burst in 2007, following years of skyrocketing prices in that market. Digging deeper than the macro issue of the housing bubble, the true cause of the financial crisis can be traced to banks’ incredibly risky policies regarding how and to whom they made large real estate loans and the insatiable greed that drove them to adopt these practices. In this analysis of the perfect storm that facilitated the financial meltdown, I

Group’s member:Nguyễn Như Nam (C)Phan Thu AnNguyễn Thùy DungHoàng Bá SơnNgô Thị Ánh TuyếtDate: 28/11/2014

The goal is to study, analyze and report findings of the recent "Financial crisis”, and since the Collapse of Lehman Brothers is one of such is, it suits this context. At the same time, it is one of the enlisted topics that the professor asked the class to consider in handling this assignment,