Essay on New Century Case

2080 Words Mar 4th, 2012 9 Pages
1.1) Brief of the New Century Financial Corporation Case
Over the past two decades, nearly half of the homeowners obtained their loans through subprime mortgage lending. Subprime mortgages were becoming increasingly ordinary in daily life of business for homeowners over the past two decades. However, numerous lending institutions provided home loans to borrowers who have high credit risks and are not be able to payback the loans. New Century, which is the second largest subprime lender in the country, prospered over the last decade. However, its sudden collapse following the restatement of company’s financial statements, contributed significantly to the subsequent events that eventually lead to the plunge of global financial systems in
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However, the damage has been made and Grant Thornton was also sued by JGI’s trustee. In New Century’s case, KPMG actually discovered the internal control weakness related to the loan repurchase loss reserve, however, KPMG decided not to report to audit committee because they believed the control problems were not significant deficiencies or material weakness. The lack of professional care and skepticism of KPMG contributed significantly to New Century’s bankruptcy.

2.1)Identify the advantages and disadvantages of a heavy concentration of audit clients in one industry or sub industry.
The ability to obtained clients from heavy specialized industry for major accounting firms indicates the firm has the ability to perform outstanding services related to that particular line of services. There are both advantages and disadvantages having a client concentration in a particular industry.
First, having a significant market share of a specialized industry, the accounting firm is able to establish connections with key people from different organizations within that particular industry in order to establish a reputation and obtain future clients. Overtime, the accounting firm will develop a reputation for providing high quality business

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