Hey guys, just saw the maker representative call uploaded. I think the process is very neat and we are now in the process of having proper assurance that everything is properly done.Before I start I want to make one thing clear, I always prepare for the worst and hope for the best, having said that, the whole process is in principle very clear & assuring.
One issue that I want to disclose is related to audits, I was a former auditor so one key factor for an audit to be signed is a management representation letter (suggest for everyone interested to check one out) basically it operates as a disclaimer for the auditor and is signed by the client were it states that, among other things, accounting estimates were performed diligently by top management, in order to have back up evidence of the estimates of appraisals (for example) they will request the appraisal report, check it´s effectively signed, read on it & move on unless there is something very clear that it is wrong (they could eventually request their own appraisal and charge it to the client too), the purpose of an audit is not to detect fraud (because if it were they would basically have to redo the entire accounting processes which can´t happen, you must be able as an audit firm to reach a conclusion with the less amount of hours invested by your personnel).
I emphasize on this point because I´ve been an auditor and I´ve been audited and although audit reports assure that the company complies (if it´s a clean report) with the accounting norms, accounting standards & management accounting for decision making do not always come hand in hand.
Perhaps there was no need to disclose this but I wanted to make it clear just in case that the general knowledge of an audit is that “ok, the report is clean, everything is perfect” it may well be or it may not, it´s not an audit´s purpose to determine that. Also an audit does not cover loan to ratio requirements by maker, what they state are if the financial statements are fairly represented and for loans they will likely check if there are indications that they could be subject to an impairment analysis, not that it complies with our own requirements. A particular analysis of loan to equity would fall under the category of an agreed upon procedure, I really like this product for this use since it basically is a focused analysis on a particular item of the balance sheet or business process like, for example loan to equity requirements for approval purposes and they do not need to be performed at year end, same goes for loan disbursement against construction progress. Lastly ref appraisals they are subject to market conditions, @mrabino1 could we request a quarterly review of the appraisals? It doesn´t have to be extensive, perhaps a quarterly update from the construction firm if there are material deviations would suffice, this would also help any potential claim of impairment analysis of the loans that could (or not) be presented by auditors.