Date of Award

Fall 1998

Document Type


Degree Name

Doctor of Business Administration (DBA)



First Advisor

Clyde L. Posey


Because of recent failures, the AICPA Banking Committee has developed a normative model citing specific variables for auditors to use in bank audits. This research has examined that AICPA model.

In addition, the Auditing Principles Board has identified several areas of concern for auditing internal control structures. Research into size and regulation from other sources has indicated that both are significant modifiers of financial models. Regulations now require banks and holding companies of more than $500 million in assets to submit to an annual independent audit.

The primary purpose of this research was to determine whether the AICPA normative model should be expanded to include size and regulation as explanatory variables for loan losses in national banks. A secondary purpose was to explore the economy of scale enigma in banking. A final purpose was to examine the AICPA model to determine which identified variables were statistically significant in explaining loan losses.

Analysis of covariance indicated that size and regulation did not interact to produce varying levels of effects on loan losses. In addition, a study of the financial information for 236 banks revealed that regulation has no significant impact on bank loan losses. No apparent difference was determined between different size holding companies. The conclusion was made that regulation requiring audits for banks could not be confirmed as explaining a difference in loan loss determination.

Analysis of covariance indicated that size was a significant influence in explaining loan losses. A significant difference in loan losses was determined between small and medium national banks in this study.

This difference was further explored to reveal that medium banks had larger loan losses than small banks. This diseconomy of scale is inconsistent with most, but not all, previous research in this area.

Seven of the AICPA model variables, consumer loans, lagged loan losses, non-accruing loans, management quality, changes in construction loans, consumer loans and non-accruing loans, were found to be significant influencing loan losses. In addition, a significant trend variable indicated that the model has missing elements that have not yet been determined.

Included in

Accounting Commons