Credit Union

-Credit-Union

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Credit Union

-Credit-Union

Uploaded by

robertsiaotong

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A.

Background “Credit Union”

Credit unions are different financial institutions that are owned by their members as
compared to external shareholders. They are run by a board of directors chosen
from among the member and established to meet the financial needs of their
members. Credit unions, when compared to traditional banks, place more emphasis
on creating a sense of community among their members and providing financial
services at reasonable costs than they do on maximizing profits. These financial
institution works under a unique set of rules and regulations that set them apart
from other types of financial institutions like commercial banks. Due to their unique
status, they have to follow a complicated set of regulations meant to uphold ethical
standards and safeguard the rights of each of their members. The credit unions are
subject to specific regulatory requirements that requires strict compliance due to
their structure and mission.

B. Key Audit Matters: Credit Risk

Due to their lending activities, credit unions are susceptible to risks. Credit unions,
in comparison to larger banks, frequently work with a smaller, more localized
member base, which can add unique risks to their credit portfolios. The main
concern associated with these risks is the potential for members to fail to repay on
their loans. This is the point at which auditors must pay close attention to credit
risk. To add more because credit risk directly affects the credit union's financial
stability, it is an important topic. The credit union's ability to lend in the future may
be impacted, financial losses may result, and the interests of its members may
ultimately be compromised if a significant amount of its loans are not repaid. Since
credit unions are membership-based organizations rather than commercial banks
focused on profits, it is critical to their sustainability and operational integrity that
they successfully manage this risk.

C. Procedures to perform

Examining and Review the loan documentation

Initially, verify that all loan agreements are present and complete.

Verify that these agreements' terms, interest rates, and other details comply with
the credit union's policies and standards.
The assessment of Loan Categorization

Examine the credit union's loan classification system, including whether the loans
are classified as performing or non-performing.

Examine the methods used to determine these classifications, which include risk
assessments and compliance to relevant regulations.

Assessment of Provisions for Loan Losses

Look into the credit union's loan loss provisions calculation process.

To determine whether these provisions are appropriate, compare them to industry

standards and loss experiences from the past.

Testing the Recoverability of Loans

To determine whether a sample of loans is likely to be recoverable, test it.

Examine the credit union's process for identifying loans that are impaired and
whether the impairment provisions are proper.

Assessing of the Management of Collateral

Examine the protocols for performing and assessing collateral.

Make sure the collateral is properly valued and documented.

D. Other important procedures to perform

Testing for Compliance

Make sure that credit unions strictly comply to all applicable laws, rules, and
guidelines, including any local laws or industry-specific regulations.
Evaluation of Internal Controls

Assess the efficiency of the internal financial reporting controls at the credit union.
Test controls for the origination, approval, and monitoring of loans.