close solutoin list

Internal controls for bank lending Pacific Bank provides loans to businesses in the community through its Commercial Lending Department. Small loans (less than $100,000) may be approved by an individual loan officer, while larger loans (greater than $100,000) must be approved by a board of loan officers. Once a loan is approved, the funds are made available to the loan applicant under agreed-upon terms. Pacific Bank has instituted a policy whereby its president has the individual authority to approve loans up to $5,000,000. The president believes that this policy will allow flexibility to approve loans to valued clients much quicker than under the previous policy. As an internal auditor of Pacific Bank, how would you respond to this change in policy?

BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 8, Problem 8.4EX
Textbook Problem

Internal controls for bank lending

Pacific Bank provides loans to businesses in the community through its Commercial Lending Department. Small loans (less than $100,000) may be approved by an individual loan officer, while larger loans (greater than $100,000) must be approved by a board of loan officers. Once a loan is approved, the funds are made available to the loan applicant under agreed-upon terms. Pacific Bank has instituted a policy whereby its president has the individual authority to approve loans up to $5,000,000. The president believes that this policy will allow flexibility to approve loans to valued clients much quicker than under the previous policy.

As an internal auditor of Pacific Bank, how would you respond to this change in policy?

Expert Solution
To determine

Internal Control: Internal control refers to the policies, and plans of the business organization along with other measures with a view to safeguard its assets, encourage the employees to adhere to the plans, to improve on the operational efficiency, and to ensure correct and reliable accounting information. Internal control is a process which ensures continuous reliability of accomplishment of a company’s objectives, related to operations, financial reporting, and in conformity with laws and regulations.

The following are the some of the internal control procedures:

  • Competent personnel, rotating duties, and mandatory vacations
  • Separating responsibilities for related operations
  • Separating operations, custody of assets, and accounting
  • Proofs and security measures

To state: the response to the change in policy

Explanation of Solution

The bank faces some normal business risk when there is default in the bank loans. This can be reduced by making a proper evaluation of the loan applications. When larger loans are compared with the smaller loans, former causes greater risks. Thus, only one person must be involved while deciding granting of a large loan...

Want to see this answer and more?

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

See solution

Chapter 8 Solutions

Accounting
Show all chapter solutions
Ch. 8 - Internal control elements Identify each of the...Ch. 8 - Internal control elements Identify each of the...Ch. 8 - Items on companys bank statement The following...Ch. 8 - Items on companys bank statement The following...Ch. 8 - Bank reconciliation The following data were...Ch. 8 - Bank reconciliation The following data were...Ch. 8 - Petty cash fund Prepare journal entries for each...Ch. 8 - Petty cash fund Prepare journal entries for each...Ch. 8 - Ratio of cash to monthly cash expenses Financial...Ch. 8 - Ratio of cash to monthly cash expenses Financial...Ch. 8 - Sarbanes-Oxley internal control report Using...Ch. 8 - Internal controls Jimmy Pace has recently been...Ch. 8 - Internal controls Ramonas Clod1ing is a retail...Ch. 8 - Internal controls for bank lending Pacific Bank...Ch. 8 - Internal controls One of the largest losses in...Ch. 8 - Internal controls An employee of JHT Holdings,...Ch. 8 - Internal controls All-Around Sound Co. discovered...Ch. 8 - Financial statement fraud A former chairman, CFO,...Ch. 8 - Internal control of cash receipts The procedures...Ch. 8 - Internal control of cash receipts Sergio Flores...Ch. 8 - Internal control of cash receipts The mailroom...Ch. 8 - Entry for cash sales; cash short The actual cash...Ch. 8 - Entry for cash sales; cash over The actual cash...Ch. 8 - Internal control of cash payments Abbe Co. is a...Ch. 8 - Internal control of cash payments Paragon Tech...Ch. 8 - Bank reconciliation Identify each of the following...Ch. 8 - Entries based on bank reconciliation Which of the...Ch. 8 - Bank reconciliation The following data were...Ch. 8 - Entries for bank reconciliation Using the data...Ch. 8 - Entries for note collected by bank Accompanying a...Ch. 8 - Bank reconciliation An accounting clerk for...Ch. 8 - Bank reconciliation The following June 30 bank...Ch. 8 - Using bank reconciliation to determine cash...Ch. 8 - Petty cash fund entries Journalize the entries to...Ch. 8 - Variation in cash flows Mattel, Inc., designs,...Ch. 8 - Cash to monthly cash expenses ratio El Dorado Inc....Ch. 8 - Cash to monthly cash expenses ratio Capstone...Ch. 8 - Cash to monthly cash expenses ratio Amicus...Ch. 8 - Evaluating internal control of cash The following...Ch. 8 - Transactions for petty cash, cash short and over...Ch. 8 - Bank reconciliation and entries The cash account...Ch. 8 - Bank reconciliation and entries The cash account...Ch. 8 - Bank reconciliation and entries Beeler Furniture...Ch. 8 - Evaluating internal control of cash The following...Ch. 8 - Transactions for petty cash, cash short and over...Ch. 8 - Bank reconciliation and entries The cash account...Ch. 8 - Bank reconciliation and entries The cash account...Ch. 8 - Bank reconciliation and entries Sunshine Interiors...Ch. 8 - Ethics in Action Tehra Dactyl is an accountant for...Ch. 8 - Ethics in Action During the preparation of the...Ch. 8 - Communication Wholesome and Happy Foods is a...Ch. 8 - Internal controls The following is an excerpt from...Ch. 8 - Internal controls The following is an excerpt from...Ch. 8 - Bank reconciliation and internal control The...Ch. 8 - Cash to monthly cash expenses ratio TearLab Corp....

Additional Business Textbook Solutions

Find more solutions based on key concepts
Show solutions
What are the two main causes of market failure? Give an example of each.

Principles of Microeconomics (MindTap Course List)

How does a sole proprietorship differ from partnership?

Foundations of Business (MindTap Course List)

Why is productivity important?

Essentials of Economics (MindTap Course List)

LO4 Working capital is the difference between current assets and current liabilities.

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)

INTEREST RATE PARITY Assume that interest rate parity holds. In both the spot market and the 90-day forward mar...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

Diagrammatically represent pure economic rent.

Economics (MindTap Course List)