1.

Your client is finance company, which is a subsidiary of a group whom major business in
retail company. The retail products are electronics and furniture home appliances. They sell
the product to end user by provide credit and installments. Your client is financial company
that handling the credit. In order to cover the credit from the customer, your client needs
funding. They earn funding from bank loans and issue medium term notes. Start from
several years ago, the retail business has decreased, due to a changing trend, where end
users switch from retail to online shopping. These conditions make the client's bank loan and
medium-term notes become non-performing loan. The client use account receivable from
retail customer as loan collateral to the bank. According to the information you got from
your partner, which is a forensic accountant, there is indication that many of the current
year account receivable that used as loan collateral were fictitious. You aware that your
auditor’s independent report is crucial to the user of your client financial statement, first the
bank, second the medium-term notes holders, and securities rating agency.
Questions:
a. Illustrate what kinds of audit procedure you will conduct to audit client “nonperforming
loan”!
b. What you do, if true that many loan collaterals were fictitious?
c. What kinds of auditor’s independent report, you are going to provide to this client
if the client persist and no future plan to refinancing the debt?