ABSTRACT
The centennial Savings in Santa Rosa, California squandered more than $1 million on luxuries such as floral arrangements and pony–skin–covered stools in the thrift’s private bar. The most common audit deficiency cited in the General Accounting Office report was failure to test the collectability of high–risk loans. The Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) made major changes to the federal system of regulating and insuring savings and loans. FIRREA disbanded the Federal Home Loan Bank Board and made the Office of Thrift Supervision responsible for regulating the savings and loan industry. The Federal Deposit Insurance Corporation Improvement Act required all banks to have their annual financial statements audited by independent public accountants. The most common deficiency in the failed banks’ quarterly call reports was inadequate loan loss reserves. The new statement also clarified that “probable” meant “likely to occur” and that creditors should not wait until a loss was virtually certain before establishing a valuation allowance.
