The main objective of the loan and advance audit is to ensure completeness and accuracy
Auditors should check the existence of the loan and advances to ensure that they actually exist and are in accordance with legal requirements
Key assertions for loan and advances audit are described below:
What risks should auditors consider when auditing loans and advances?
Some of the inherent risks that auditors should consider when auditing loans and advances of financial institutions are: Credit risk: The risk that a borrower will default on a loan or not repay it according to the agreed terms
What should a loan auditor do?
Auditor should select a sample of transactions and re-perform calculation of interest income to verify rate of interest from agreement and check the number of days for which interest income is charged
They should review and check the loan agreements and legal documents to verify the terms and conditions of the loans and advances
Auditing loans
US Federal Housing Administration mortgage insurance
An FHA insured loan is a US Federal Housing Administration mortgage insurance backed mortgage loan that is provided by an FHA-approved lender. FHA mortgage insurance protects lenders against losses. They have historically allowed lower-income Americans to borrow money to purchase a home that they would not otherwise be able to afford. Because this type of loan is more geared towards new house owners than real estate investors, FHA loans are different from conventional loans in the sense that the house must be owner-occupant for at least a year. Since loans with lower down-payments usually involve more risk to the lender, the home-buyer must pay a two-part mortgage insurance that involves a one-time bulk payment and a monthly payment to compensate for the increased risk. Frequently, individuals refinance or replace their FHA loan to remove their monthly mortgage insurance premium. Removing mortgage insurance premium by paying down the loan has become more difficult with FHA loans as of 2013.
Loan-to-value ratio
Financial term used by lenders
The loan-to-value (LTV) ratio is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased.
An FHA insured loan is a US Federal Housing Administration
US Federal Housing Administration mortgage insurance
An FHA insured loan is a US Federal Housing Administration mortgage insurance backed mortgage loan that is provided by an FHA-approved lender. FHA mortgage insurance protects lenders against losses. They have historically allowed lower-income Americans to borrow money to purchase a home that they would not otherwise be able to afford. Because this type of loan is more geared towards new house owners than real estate investors, FHA loans are different from conventional loans in the sense that the house must be owner-occupant for at least a year. Since loans with lower down-payments usually involve more risk to the lender, the home-buyer must pay a two-part mortgage insurance that involves a one-time bulk payment and a monthly payment to compensate for the increased risk. Frequently, individuals refinance or replace their FHA loan to remove their monthly mortgage insurance premium. Removing mortgage insurance premium by paying down the loan has become more difficult with FHA loans as of 2013.
Loan-to-value ratio
Financial term used by lenders
The loan-to-value (LTV) ratio is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased.
