Lincoln Savings and Loan
2. The high audit fee is a direct financial interest that can cause bias. The larger the amount of audit fees paid by the audit client company to the audit firm, the more likelihood that it will impair. The auditor may have to compromise their independence in many ways to ensure that they maintain that particular client, since that client provides them with relatively larger revenue. To address this, the regulators should impose a new requirement that the total fee from one single client should not exceed a certain percentage (<15%) of the total turnover of the audit firm. The regulation could decrease financial dependency and self-interest threat to independence. 4. Control environment also called “internal control environment. It is a term of financial audit, internal audit and Enterprise Risk Management. It means the overall attitude awareness and actions of directors and management regarding the internal control system and its importance to the entity. Control environment is the first of the 5 components of the COSO framework for the management of internal control. The control environment sets the tone of an organization, influencing the control consciousness of its people. It is the foundation for all other components of internal control, providing discipline and structure. Weakness: 1. Rather than admit to company’s insolvency, Charles Keating and the management team invented creative accounting strategies that turned their business that looked highly profitable. 2. Board of directors and internal control department failed to question Lincoln’s lending activity from residential mortgage loans to high-risk land ventures and commercial development projects. 5. A nonrecourse note is a note that prohibits the lender from attempting further restitution from the borrower in case of default. That means that the Lincoln may not receive further compensation for a default loan. Lincoln can only take back the item that was loaned as...
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