An Internal Auditor Has Taken an Attributes Sample of a Bank's

Multiple Choice

An internal auditor has taken an attributes sample of a bank's existing loan portfolio. Out of a sample of 60 loans, the auditor found: Four that were not properly collateralized. Five that were not in compliance with bank policies (other than lack of collateralization) . Four that were part of a related-party group, but were set up as separate loan entities. Of the 60 loans selected in the sample, these errors were noted on a total of 10 loans. Several loans had multiple problems. Which of the following conclusions can the auditor reach from these observations? 1. There is sufficient evidence that fraudulent activity is taking place by one or more of the bank's lending officers. 2. The financial statements will be misstated as a result of these actions. 3. There are significant noncompliance audit findings that should be reported.

A) 3 only
B) 1 and 2 only
C) 1 and 3 only
D) 2 and 3 only