Gowen Financial

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Background

Gowen Financial

has operations in 45

communities in the Midwest, with headquarters in

Milwaukee

, Wisconsin.

Gowen

's loan portfolio consists primarily of commercial loans, real estate

loans, agricultural loans, and loans to individuals. Credit

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granting authority is primarily centralized

in Madison; however certain seasoned loan officers have decision authority for sma

ll loans in their

local area. Loan portfolio performance, monitoring, and ongoing credit quality assessments for all

loans are performed in Madison.

Gowen

has been an audit client for

five

years. Because of

Gowen

's strong controls over bank

loans, the audi

t team places high reliance on controls (i.e., control risk is assessed at low).

Gowen

Bank earns most of

its

revenue from loan interest income on the loans it originates and services,

typical for most banks like

Gowen

. The audit approach calls for the aud

it team to gain assurance

on the fairness of loan interest income primarily through substantive analytical procedures.

Additional detailed testing will only be performed if analytical procedures suggest interest income

is materially misstated.

Total repor

ted interest income for 2020

is $

35,340,104

and reported net income

before taxes

(NIBT)

for the bank is $

11,894,360

. Tolerable misstatement for

reported interest

income

has been

set at

5

percent of

NIBT

(rounded to the nearest thousand)

for the current yea

r audit.

In addition to comparing current year

to prior year

interest income

, last year's audit team also

developed an expectation for loan interest income using the

average loan volume

(

i.e., beginning

loan volume plus ending loan volume, the sum of which

is divided by 2, unless otherwise noted)

multiplied by

weighted average

interest rate

.

Expected interest is then rounded to the nearest

hundred (e.g., $1,246,543 would be rounded to $1,246,500).

Last year's workpapers indicate that

the average loan volume

agrees to numbers tested elsewhere in the audit file and that the interest

rates used to compute the weighted average rate were comparable to rates published in a Wisconsin

State Banking Commission publication. The strong controls and last year's audit do

cumentation

support the rationale for primarily using substantive procedures to test loan interest income in the

current year.