Essay about New Century Case

2096 WordsMar 3, 20129 Pages
1.1) Brief of the New Century Financial Corporation Case Over the past two decades, nearly half of the homeowners obtained their loans through subprime mortgage lending. Subprime mortgages were becoming increasingly ordinary in daily life of business for homeowners over the past two decades. However, numerous lending institutions provided home loans to borrowers who have high credit risks and are not be able to payback the loans. New Century, which is the second largest subprime lender in the country, prospered over the last decade. However, its sudden collapse following the restatement of company’s financial statements, contributed significantly to the subsequent events that eventually lead to the plunge of global financial systems in…show more content…
The partner in charge of this engagement acquiesced over their client and replaced another audit manager in the engagement team. E&Y was concerned with their audit engagement fees and therefore were not able to retain an independent metal attitude with its client. The partner in charge did everything he could to please his client. Although E&Y found many advances in their test for searching unrecorded liabilities, they still replied upon explanation provided by the client as opposed to exercise professional care and skepticism. Similar to New Century’s case, the partner in charge tried to maintain a good relationship with their clients after the embarrassing incidents and was feared of losing the client. Another important factor discussed in New Century’s case was whether audit engagement team was able to obtain a sufficient understanding of the underlying business activities, and analyze the effectiveness of internal control system. KPMG’s auditors does not understand the subprime mortgage sector of the lending industry and did not try to point out inadequate accounting procedures or resolve the internal control deficiencies in New Century’s accounting system that eventually lead to a significant understatements of company’s loan loss reserve account. In Jack Greenberg Inc, Fred refused to upgrade to computerized accounting system and the company’s

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