1. What is the role of professional skepticism in auditing financial statements? Do you think the auditors were skeptical enough in evaluating the operations of Imperial Valley?
2. a. Assume the auditors decide to support management’s position and reduce the amount of loan write-offs. The decision was made in part because of concerns that regulators might force the bank to close its doors and many customers would have nowhere else to go to borrow money. Evaluate the auditors’ stage of moral reasoning in making this decision.
b. Assume instead that the auditors insist on a higher level of loan write-offs and reserve for loan losses. What level of reasoning are they at in making this decision?
3. Evaluate the facts of the case from the perspective of materiality and risk assessment. How does your evaluation help in determining the appropriate audit opinion to give in the Imperial Valley case? What opinion do you think is appropriate in this case? Why?
4. Assume you were asked to review the information in this case as the advisory partner on the audit of Imperial Valley Thrift & Loan. Using the relevant steps in the decision-making model presented in Chapter 2, analyze the case and come up with a decision on what type of opinion to recommend to management.