NCF's Case Study

NCF's Case Study

Introduction

New Century Financial Corporation is a financial institution that provides mortgage loan facilities to its customers. Over the past few decades the company has seen a lot of growth and it has also converted from a small company to a big one as now its shares are listed on the New York Stock Exchange. The company had a huge amount of capitalizations in terms of credit and the earnings of the firm also showed a strong financial position of the firm. KPMG are the auditors of the company and it has been found that KPMG has not done the auditing according to the principle standards and that there are certain flaws in the financial statements. The news of misappropriate financial statements had adverse effect on the financial performance of the company as it had to face decline in share prices, loss of customers and interest of the investors. The company also had to face legal challenges in order to prove that company had no intention to prepare misstated financial statements. The report will provide detail of the risks faced by the NCF, what are the items in the financial statements that are linked with the risks directly, what were the financial errors of NCF, how could internal reporting system have controlled the errors and how was it possible that the accounting changes were not detected by the management as well. The financial errors and mistakes found in the financial statements occurred due to audit committee not performing their responsibilities which lead towards defaming of the NCF's image in the market. The report will facilitate in providing and finding the answer of these questions.



Discussion

Organization's market performance in terms of its sales, revenues, shares, debtors and creditors are directly affected by the policies and practices of the company. New Century as a loan providing firm had to ensure that they develop and adapt an accounting system that is transparent and clear so that customers and the investors can have confidence on the firm. Auditing is a method that helps the firms in getting approved by a group of auditors from an auditing firm who carry on an investigation, enquiry and generates report regarding the accounting practices and policies of the firm. They make it sure that all the items shown in the financial statement are included after following al the accounting principles, practices and standards and that there are no malfunctioning in it. Auditors at the end of their auditing generate a report in which they mention all the research and observation regarding the financial statements of the company. The audit report of the firm plays a vital role in increasing the confidence of the investors and the customers that the firm they are trading with or have invested their money has the ability to be trusted that it does not involve in any malfunction or irregularities. Auditing activity also helps the firm in developing a strong internal control system so that the weaknesses or the errors mentioned ...