What is the starting point for conducting a loan audit?

The most appropriate starting point for conducting a loan audit is the loan policy manual. This document outlines the institution's policies and procedures regarding lending practices, risk management, compliance requirements, and overall governance surrounding loan administration. By reviewing the loan policy manual first, auditors can establish the framework against which individual loans and the institution's lending practices will be evaluated.

Beginning with the loan policy manual allows auditors to assess whether specific loans adhere to established policies, identify areas of potential risk, and understand the criteria and guidelines that should be followed during the lending process. This foundational knowledge is critical for ensuring that all subsequent analyses, evaluations, and reviews of loan agreements, financial statements, or credit risk assessments are done in alignment with the institution’s established standards and regulatory requirements.

Other options, such as the loan agreement summary or financial statement analysis, represent valuable elements of the audit process but are better utilized once the guidelines and policies from the loan policy manual are understood and reviewed. Similarly, credit risk assessment is essential, but it is often informed by the policies and procedures outlined in the loan policy manual.