{"id":132461,"date":"2023-09-09T05:14:22","date_gmt":"2023-09-09T05:14:22","guid":{"rendered":"https:\/\/assignmenttutors.net\/blog\/21-questions-accounting-homework-help\/"},"modified":"2023-09-09T05:14:22","modified_gmt":"2023-09-09T05:14:22","slug":"21-questions-accounting-homework-help","status":"publish","type":"post","link":"https:\/\/assignmenttutors.net\/blog\/21-questions-accounting-homework-help\/","title":{"rendered":"21 questions | Accounting homework help"},"content":{"rendered":"
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Kendallville Bank Case Questions\n<\/p>\n

1. On a scale 1 to 10, how serious of a problem exists at Kendallville Bank?\n<\/p>\n

Kendallville had a serious fraud and integrity problem that affected the bank\u2019s functions. The\n<\/p>\n

bank is concerned with financial reporting fraud prevention and detection, there I would rate the\n<\/p>\n

severity of this problem a 7.\n<\/p>\n

2. What is the main issue of the case?\n<\/p>\n

The main issue of the case is that Kendallville Bank is trying to minimize fraud. The study shows\n<\/p>\n

the financial reporting and fraud at a multidimensional level. It also explores the corporate\n<\/p>\n

governance arrangements and management controls at Kendallville Bank.\n<\/p>\n

3. What did Davis do to the Allowance for loan and lease losses (ALLL) in the second quarter?\n<\/p>\n

Kendallville was able to cutdown on some real estate business because of Davis, which enabled\n<\/p>\n

Kendallville to cutdown business in those sectors due to a slow economy. Kendallville had also\n<\/p>\n

experienced some losses, but they were minimal. Kendallville had a chance to act quickly. When\n<\/p>\n

management was able to confirm that all or a portion of a loan would not be repaid, they\n<\/p>\n

\u201ccharged-off\u201d or reduced the carrying amount of the loan, which was the amount that they did\n<\/p>\n

not expect to collect. However, a recovery occurred when the bank collected payments on a loan\n<\/p>\n

previously charged-off. At each balance sheet date, bank management estimated the ALLL\n<\/p>\n

needed based on the loan portfolio as of that date. Management then made an adjusting journal\n<\/p>\n

entry to increase or decrease the ALLL account to the needed balance; the offsetting entry was\n<\/p>\n

recognized through an account called the Provision for Loan and Lease Losses (PLLL) that\n<\/p>\n

appeared as expense on the bank\u2019s income statement.\n<\/p>\n

This study source was downloaded by 100000779431045 from CourseHero.com on 08-01-2023 20:45:34 GMT -05:00\n<\/p>\n

https:\/\/www.coursehero.com\/file\/107947927\/Kendallville-Bank-Case-Questionsdocx\/<\/p>\n<\/p><\/div>\n

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4. Was the change appropriate?\n<\/p>\n

Change was appropriate because it improves how the bank functions, it reduces loss, and it\n<\/p>\n

helps to identify where the bank needs to make changes in the areas that need improvement.\n<\/p>\n

5. How might changing the look-back period from 8 quarters to 12 quarters impact the ALLL?\n<\/p>\n

It will reduce losses, increase efficiency in the bank, and the make the day-to-day operation run\n<\/p>\n

more smoothly.\n<\/p>\n

6. How does changing the look-back period impact the financials?\n<\/p>\n

This will reduce more expenses and increase profits. The look-back period described how much\n<\/p>\n

historical data was used in the quantitative part of the ALLL. Many banks used a 12-quarter look-\n<\/p>\n

back period. Throughout most of its existence, Kendallville had also used 12-quarter look-back,\n<\/p>\n

but it had changed to an 8-quarter look-back during the economic downturn because the\n<\/p>\n

conditions were changing rapidly. Therefore, Davis decided that shortening the look-back would\n<\/p>\n

place greater weight on recent events.\n<\/p>\n

7. What may have motivated Davis to propose changing the look-back period?\n<\/p>\n

Since the discussion had already occurred, the CQC members typically agreed by consensus to\n<\/p>\n

the ALLL proposed by Davis. The CQC rarely made any adjustments, however, when Davis made\n<\/p>\n

a proposal, they did. This was partly due to the design and format of the meeting, the members\n<\/p>\n

respect for Davis, his track record and his sterling reputation at Kendallville. After the meeting,\n<\/p>\n

Davis wrote up a summarized memorandum covering what the CQC had decided, he had the\n<\/p>\n

loan officer review it, and then presented it to Kmetko for approval.\n<\/p>\n

8. Were the discussions at the Credit Quarterly Committee meetings at the appropriate level of\n<\/p>\n

detail?\n<\/p>\n

This study source was downloaded by 100000779431045 from CourseHero.com on 08-01-2023 20:45:34 GMT -05:00\n<\/p>\n

https:\/\/www.coursehero.com\/file\/107947927\/Kendallville-Bank-Case-Questionsdocx\/<\/p>\n<\/p><\/div>\n

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The CQC was responsible for making several estimates necessary for Kendallville\u2019s financial\n<\/p>\n

reporting. One of the most important of these was measuring the ALLL. The CQC was lead by\n<\/p>\n

Davis, and also included the corporate controller, the loan review officer, and John Jones, the\n<\/p>\n

senior Vice President. Representatives from both internal and external audits attended frequent\n<\/p>\n

CQC meetings to assess designs and test effectiveness.\n<\/p>\n

9. What did Davis do to the ALLL in the third quarter? Was the change appropriate?\n<\/p>\n

During the third quarter CQC meeting, Davis made several suggestions, which could make a big\n<\/p>\n

impact. He noted economic concerns and suggested that there were positive and negative\n<\/p>\n

economic indicators. Davis explained that he felt it was time to drop the separate commercial\n<\/p>\n

real estate loan by combining them with the commercial real estate loan category for purposes\n<\/p>\n

of the ALLL calculation and utilizing the default rates from the CRE1 loan category for the new\n<\/p>\n

combined portfolio.\n<\/p>\n

10. Do using the historical loss rates from only the CRE1 loans distort the ALLL?\n<\/p>\n

Historical loss has a significant impact, as they determine the reserve needed for impairment in\n<\/p>\n

the loan pools, frequently these pools of loans make up a considerable portion of the bank\u2019s or\n<\/p>\n

credit union\u2019s portfolio and reserve calculation, so gathering and accessing data for historical loss\n<\/p>\n

rates is important to the success of the ALLL calculation. Most financial institutions utilize a\n<\/p>\n

single method to calculate historical loss rates for their FAS 5 pools: the traditional historical loss\n<\/p>\n

rate calculation or migration analysis.\n<\/p>\n

11. What may have motivated Davis to propose dropping the CRE2 category at this time?\n<\/p>\n

These loans fell into Kendallville\u2019s CRE1 category. Occasionally, these customers got involved in\n<\/p>\n

commercial development in larger cities.\n<\/p>\n

This study source was downloaded by 100000779431045 from CourseHero.com on 08-01-2023 20:45:34 GMT -05:00\n<\/p>\n

https:\/\/www.coursehero.com\/file\/107947927\/Kendallville-Bank-Case-Questionsdocx\/<\/p>\n<\/p><\/div>\n

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Kendallville created a new category, CRE2, for these loans, and the business grew rapidly. During\n<\/p>\n

the economic downturn, however, Kendallville increasingly felt the high risk in the CRE2 loans,\n<\/p>\n

which were experiencing higher default rates and as a result, higher than expected loss rates and\n<\/p>\n

charge-offs.\n<\/p>\n

12. If you were Sandra Renford, how would you manage Dan Davis?\n<\/p>\n

Davis needs supervision and professional advice when making decisions that concern\n<\/p>\n

Kendallville. In addition, I would assign a team of four personnel to oversee everything he is\n<\/p>\n

doing. I would also ask him to bring daily reports and update the board on the bank\u2019s progress.\n<\/p>\n

13. What is your assessment of the governance environment at Kendallville?\n<\/p>\n

The governance environment at Kendallville has some setbacks and management is fearful of a\n<\/p>\n

loss, hence forgetting the main objective, which is running the bank smoothly.\n<\/p>\n

14. Is Kendallville Bank a typical company with typical challenges, or is there something unusual\n<\/p>\n

about it?\n<\/p>\n

The annual goals for internal audit focus mostly on operational efficiency opportunities and\n<\/p>\n

identifying weaknesses in the loan underwriting department, which had been developed by\n<\/p>\n

Kmetko and Lee\u2019s predecessor at the beginning of the fiscal year. Lee knew that the internal\n<\/p>\n

auditors needed to interact more directly with the audit committee and that the annual audit\n<\/p>\n

plan needed to be more risk-based, however she struggled with improving the functions. Thus,\n<\/p>\n

Lee was looking forward to a meeting with Renwood and Kmetko to discuss the issue but was\n<\/p>\n

not sure if Kmetko would be very supportive.\n<\/p>\n

15. Was independence of internal audit an issue at Kendallville?\n<\/p>\n

This study source was downloaded by 100000779431045 from CourseHero.com on 08-01-2023 20:45:34 GMT -05:00\n<\/p>\n

https:\/\/www.coursehero.com\/file\/107947927\/Kendallville-Bank-Case-Questionsdocx\/<\/p>\n<\/p><\/div>\n

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Lee had two reports that were profitable and could account, but they were not experienced\n<\/p>\n

enough to challenge the status quo on their own. After Lee took over the function, Lee had a\n<\/p>\n

conversation Kmetko. She explained to him that she was unfamiliar with several aspects of the\n<\/p>\n

job that had been handled by her former boss. This included testing the operating effectiveness\n<\/p>\n

of the controls related to the Allowance for Loan and Lease Losses.\n<\/p>\n

16. Has the corporate culture at Kendallville impacted internal audit\u2019s ability to be objective?\n<\/p>\n

Businesses operate under risky conditions. To achieve its objectives, businesses must implement\n<\/p>\n

management control processes by which administration can motivate employees to reach their\n<\/p>\n

goals.\n<\/p>\n

17. What were the effects of LaSalle\u2019s new business activities on the quarterly review?\n<\/p>\n

Renwood had pushed for steady, \u201csmart\u201d growth, she focused on running the current bank as\n<\/p>\n

effectively and efficiently as possible. To keep profits growing and shareholders satisfied, she\n<\/p>\n

pushed her team hard to compete for new business and to drive down costs wherever possible.\n<\/p>\n

Cost cutting had primarily occurred in back-office, non-facing customer departments to not\n<\/p>\n

undercut business and revenue. While the bank avoided laying off employees for fear of\n<\/p>\n

retaliation, hurting morale or bruising the bank\u2019s reputation, Renwood strongly encouraged her\n<\/p>\n

team to not hire replacements for staff who quit on their own.\n<\/p>\n

18. What should Watkins have done when she realized she was in over her head?\n<\/p>\n

This included evaluation of factors impacting the quantitative component, including how loans\n<\/p>\n

were divided and the look-back periods to use for historical loss rates.\n<\/p>\n

19. Was the overall level of skepticism at Kendallville appropriate?\n<\/p>\n

This study source was downloaded by 100000779431045 from CourseHero.com on 08-01-2023 20:45:34 GMT -05:00\n<\/p>\n

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The level of skepticism at Kendallville was appropriate and necessary because it was on the\n<\/p>\n

verge of experiencing a bigger loss, therefore, in this case, skepticism was needed.\n<\/p>\n

20. What about communication? Who is trying to do it well? Who is avoiding communication?\n<\/p>\n

During the second quarter CQC meeting, Davis explained that he had seen some troubling signs\n<\/p>\n

that the economy was slowing down, but he considered them to be minor negative points in an\n<\/p>\n

overall ongoing recovery. During his presentation, he recommended increasing the look-back\n<\/p>\n

period used to calculate the ALLL from eight quarters to twelve.\n<\/p>\n

21. What actions should the board of directors, audit committee, and compensation committee\n<\/p>\n

take?\n<\/p>\n

The Board of Directors should have included charge-offs and recoveries when they determined\n<\/p>\n

loans were not going to be paid. They should conduct recovery plans on loans with charge-offs.\n<\/p>\n

Furthermore, management should adjust the journal entries to increase or decrease the ALLL\n<\/p>\n

account.\n<\/p>\n

This study source was downloaded by 100000779431045 from CourseHero.com on 08-01-2023 20:45:34 GMT -05:00\n<\/p>\n

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Kendallville Bank Case Questions 1. On a scale 1 to 10, how serious of a problem exists at Kendallville Bank? Kendallville had a serious fraud and integrity problem that affected the bank\u2019s functions. The bank is concerned with financial reporting fraud prevention and detection, there I would rate the severity of this problem a 7. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[16],"tags":[],"class_list":["post-132461","post","type-post","status-publish","format-standard","hentry","category-education"],"_links":{"self":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts\/132461","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/comments?post=132461"}],"version-history":[{"count":0,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts\/132461\/revisions"}],"wp:attachment":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/media?parent=132461"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/categories?post=132461"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/tags?post=132461"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}