New Century Financial Corporation Essay

Summary the mortgage mess happened in 2008 when there was a decreased homing set. 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 oer their houses. Subprime lender like New Century became the bankrupt because of the high lost associate with the mortgage cancelation. To nurture earning, the management modify the estimate of its reserve. However, KPGM, the tender of the New Century is question of their fit. KPMG lost its independence cod to its afraid of lost business.1.The advantages include better arrangement of the labor, lower cost because of the reduced amount of work on evaluate the indus look for, gain great profit when the industry is going up, and early recognition of the industry trend because of the sh bed instruction from different companies. The disadvantages include risk of loss profit when the industry go down, c reate 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 unused 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 go forth non be reduced.3.Significant deficiency A significant deficiency is a control deficiency, or faction of control deficiencies, that adversely affects the entitys ability to initiate, authorize, record, process, or subject area financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likeliness that a misstatement of the entitys financial statements that is more than inconsequential will not be prevented or detected. solid weakness A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected. SAS 112 requires the auditor to communicate control deficiencies that are significant deficiencies or material weaknesses in intrinsic control.Significant deficiencies or material weaknesses must be communicated in writing to management and those in shoot of governancefor example, to the audit committee of the boardno later than 60 days following the report release date. Unqualified Opinion can be issued when essential control over financial account is effective no material weaknesses in internal control over financial reporting embody as of the fiscal year-end assessment date. 4.The procedures to audit important accounting estimates include considering the relevance, reliability, and sufficiency of the data and factors used by management, evaluating the reasonableness and c onsistency of the assumptions, and re-performing the calculations made by management. 5.The GAAS require an auditor to exercise collect professional care, to adequately plan its audit, to sufficiently understand a businesss internal structure, and to attain sufficient evidence to reach reasonable conclusions.KPMG allegedly failed to adhere to the GAAS by having an inexperienced audit team, failed to take exception New Century management for unreasonable estimates failed to test the repurchase reserve despite evidence of internal control weaknesses and apparently inaccurate estimates of outstanding repurchase requests and failed to raise deficiencies and inaccuracies in New Centurys accounting practices or internal controls. 6. Although the sendors are complaining that they should be liable for the lost because they did not actively participate in the mortgage market. It is true that they did nothing wrong, but they need to identify this risk when they invest.Investor does not ha ve enough information about the market trend that should be provided. As a result, they invest the money base on the outdated information. There is no way for them to identify the threat of their investment. 7.1) auditor need to maintain independence from their work, lose of independence can claim to a bias conclusion, which cannot be trusted upon. KPMGs afraid to lost New Century as a client lead them to issue a report in favor of the management. 2) do not employ inexperience auditor, in particular when the company is in its hard time. Inexperience auditor will cause mistake of their work. Company in hard time have a incentive to make fraudulent statement, and inexperience auditor are not able to detect them. 3) be aware when the company going down. The management may try to management the earning in order to meet estimates.