CPA Audit Quality:

Failures of CPA Audits to Identify and Report Significant Savings and Loan Problems

AFMD-89-45: Published: Feb 2, 1989. Publicly Released: Feb 2, 1989.

Additional Materials:


David L. Clark, Jr
(202) 275-9489


Office of Public Affairs
(202) 512-4800

Pursuant to a congressional request, GAO assessed the quality of audits of savings and loan associations in the Federal Home Loan Bank Board's (FHLBB) Dallas district.

GAO reviewed audits performed by 9 independent certified public accountant (CPA) firms and found that the CPA firms: (1) did not adequately audit 6 of the 11 savings and loan associations' financial or internal control problems; (2) improperly evaluated the institutions' loan collectibility and nonconformance with accounting standards and practices; (3) did not hire or request the institutions to hire independent appraisers to verify collateral or oral assertions made by management of loan collectibility and collateral value; (4) underreported the institutions' violations of government regulations regarding excessive loans to single borrowers and related parties and concentration of high-risk loans in limited geographic areas; and (5) lacked sufficient working papers to adequately evaluate the institutions' asset portfolios for land investments and for acquisition, development, and construction project loans. GAO believes that the nature of the CPA firms' audit and reporting problems was significant enough to warrant referring the firms to regulatory and professional bodies for review.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: AICPA issued a revised savings and loan audit guide in August 1991, which addressed GAO recommendations.

    Recommendation: The American Institute of Certified Public Accountants (AICPA) should revise the AICPA Audit and Accounting Guideline for Savings and Loan Associations to include specific steps for ensuring that those audits are performed in a quality manner. The guide should include the detailed discussion and specific requirements for, among other things: (1) identifying the nature and inherent risks of land and acquisition, development, and construction projects loans; (2) evaluating the potential effects of increases in restructured and past-due loans; (3) following up on the work of federal examiners; (4) ensuring that regulatory violations and formal regulatory actions are disclosed; and (5) properly reporting all material weaknesses in internal controls.

    Agency Affected: American Institute of Certified Public Accountants

  2. Status: Closed - Implemented

    Comments: AICPA took a number of actions to communicate the review. For example, AICPA reprinted the report in its entirety in the March 1989 Journal of Accountancy. The journal has a distribution of over 300,000.

    Recommendation: AICPA should communicate the results of the GAO review and other noted savings and loan associations (S&L) audit problems to all AICPA members, instructing them on the types of problems that may occur in auditing S&L. Such instruction should recommend that CPA firms performing savings and loan audits review the quality of those audits to help ensure that: (1) staff performing the audits have sufficient knowledge in S&L operations; (2) audit methodologies are specifically tailored to take into account changes in the operations of their individual S&L clients and the S&L industry environment; (3) evidence of all audit work is properly documented in the working papers; and (4) financial risks, regulatory violations and formal regulatory actions, and internal control weaknesses are fully disclosed in audit reports.

    Agency Affected: American Institute of Certified Public Accountants


Explore the full database of GAO's Open Recommendations »

Jul 17, 2018

Jul 16, 2018

Jun 28, 2018

May 31, 2018

May 24, 2018

May 10, 2018

Apr 17, 2018

Apr 5, 2018

Mar 30, 2018

Looking for more? Browse all our products here