You are a senior auditor working on a client who holds a large portfolio of mortgage obligations. Due to the soft housing market, the client has established a fairly significant loan loss reserve. It is based on loan performance of a sample of loans within the portfolio. You have been asked to verify the reserve balance.

  • Describe what audit procedures should be used to verify that the sampling technique used by the client is effective.
  • Assume that you re-perform some of the loan analysis previously performed by the client and discover that your results of tests do not agree with those documented by the client. What additional audit procedures should be undertaken to ensure that the management estimate used to arrive at the reserve balance is adequate, accurate, and reliable?