During the past 18 months a statewide recession has taken a particularly heavy toll on the economy of a medium-sized community. Due to the difficult financial times, the manager of one of the community's leading banks has become concerned about the value of assets pledged as collateral for business loans that originated and serviced through his bank. Should the borrower default, the bank manager is worried that the collateral may not fully support the loan amount. This would force the bank to foreclose on the loan and seize the collateral. The bank manager has requested than an internal auditor from corporate headquarters run an analysis to determine whether all loans are:

- supported by sufficient collateral,

-property aged with regards to current payments, and

- Accurately categorized as current or non-current.

Question 1

Develop audit procedures that the internal auditor should employ to accomplish this task and explain why.