The Need to Improve Auditing in the Savings and Loan Industry

T-AFMD-89-2: Published: Feb 21, 1989. Publicly Released: Feb 21, 1989.

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GAO discussed problems with independent audits of savings and loan associations (S&L) and its suggestions for improving the quality and regulatory use of such audits. GAO noted that its review of audits of 11 failed S&L found that certified public accountants (CPA) did not adequately: (1) evaluate risks associated with high-risk loans, identify collectivity problems associated with restructured loans, or verify bank statements about loan collectivity; and (2) report banks' improper accounting practices, regulatory violations, insider loans, risks associated with geographic concentration, and internal control problems. GAO also noted that the auditing profession could revise its S&L audit procedures to require: (1) more detail regarding the risks posed by land, acquisition, development, and construction loans and restructured or past-due loans; (2) followup on federal examiners' work; and (3) disclosure of regulatory violations, formal regulatory actions, and material internal control weaknesses. GAO believes that the accounting profession, which has already taken some steps in response to the GAO review of auditing quality, should reevaluate CPA staff requirements regarding knowledge of S&L and tailor audit methodologies to the S&L environment.

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