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 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
 Washington Mutual Bank's  Collapse Under An Audit Perspective
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Washington Mutual Bank's Collapse Under An Audit Perspective

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This is my MBA project paper of the External Audit course. The project paper was tapped to the hottest topics of the U.S. economic crisis in 2008, three months after the collapse of the biggest U.S. …

This is my MBA project paper of the External Audit course. The project paper was tapped to the hottest topics of the U.S. economic crisis in 2008, three months after the collapse of the biggest U.S. bank institution.

The author incorporated the audit principles in analyzing the root causes of the U.S. economic crisis and how this disaster can be avoided.

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  • 1. Keller Graduate School of Management Devry University *****WASHINGTON MUTUALS COLLAPSE under an audit perspective AC 555 - EXTERNAL AUDTITING Instructor: Senior Professor Ted Tully Student: Khanh Chau February 2009 San Jose Center *****
  • 2. Index I. Prefix II. Introduction III. Washington Mutual Inc. 1. Washington Mutual Bank profile 2. Key personnel IV. Washington Mutual Banks problems 1. The Power of Yes 2. Wal-Mart banking 3. Referral fees for loans 4. Inflating property value 5. ARMs – Adjustable rate mortgage 6. No income verification V. What make Washington Mutual Bank collapse? 1. Mortgage crisis 2. Changing business strategy 3. Negative financial outlook – Increasing loss reserves 4. Government regulatory – Red flag 5. Public’s high pressure – The boiler 6. Massive outflows – Depletion 7. Receivership VI. The auditors: Deloitte 1. Where were the auditors 2. Was Deloitte aware of financial problems that WaMu faced? 3. What should Deloitte have done? VII. Consequences VIII. Conclusions IX. Appendixes 1. Washington Mutual Bank s financial statements 2005-2007 (abstract) 2. Disclosures of contingent credit risk liabilities 3. Deloittes auditor reports X. ReferencesKhanh Chau - AC555 – Washington Mutual 2
  • 3. I. PREFIX “We hope to do to this industry what Wal- Mart did to theirs, Startbucks did to theirs,Costco did to theirs and Lowe’s-Home Depot did to their industry. And I think if we’ve done ourjob, five years from now you’re not going to call us a bank.” — Kerry K. Killinger, ChiefExecutive of Washington Mutual, 2003 [1]. Yes, Kerry K. Killinger’s dream came true. Five years from 2003, Washington Mutual,Inc., the largest U.S’s saving and loan association, lost its standing in the U.S. banking system. Itwas sold off to JPMorgan Chase on September 25th 2008, which was the biggest failure in theU.S. banking history.II. INTRODUCTION Washington Mutual, Inc. (abbreviated to WaMu), founded on September 25, 1889,headquarters in Seattle, Washington, United States. Washington Mutual Inc. was the formerowner of Washington Mutual Bank, the United States’ largest saving and loan association. Since the early 1990s, Washington Mutual Bank expanded its retail banking and lendingoperations organically and through a series of key acquisitions of retail banks and mortgagecompanies. The majority of growth resulted from acquisitions between 1996 and 2002. OnOctober 1, 2005, the Bank entered the credit card lending business by acquiring ProvidianFinancial Corporation. These acquisitions enabled Washington Mutual Bank to expand acrossthe country, to build its customer base, and to become the largest savings and loan association inthe country. The Bank had four business segments: the Retail Banking Group, the Card ServicesGroup, the Commercial Group, and the Home Loans Group. Washington Mutual Bank is aKhanh Chau - AC555 – Washington Mutual 3
  • 4. leading originator and servicer of both single and multi-family mortgages and a major issuer ofcredit cards [11]. By mid of September 2008, under the fear of credit crunch and financial crisis of AIG,Fannie Mae, and Freddie Mac, American consumers rushed to withdraw their deposit fromWashington Mutual Bank that created a massive deposit outflow with a total of $16.7 billion ineight consecutive days. The incident pushed the company into an extremely critical situation tohave enough time to react through increasing the capital, improving the liquidity, or findingequity partner. Given the Bank’s limited sources of funds and significant negative deposit,government regulatory agency took a quick action to place Washington Mutual Bank under thesupervision of Office of Thrift Supervision (OTS), and then placed into the receivership of theFederal Deposit Insurance Corporation (FDIC). Washington Mutual Inc. with the book valueassets of $307 billions was sold to JP Morgan Chase for $1.9 billions and now it operates as adivision of JP Morgan Chase. The holding company Washington Mutual, Inc. (the former bankowner) subsequently filed for Chapter 11 bankruptcy, ending the history of a 120 year-oldcompany.III. WASHINGTON MUTUAL INC.1. Company Profile [2]  Parent company: Washington Mutual Inc.  Primary executive and business segment headquarters are located in Seattle, Washington.Khanh Chau - AC555 – Washington Mutual 4
  • 5.  Subsidiaries: two banking subsidiaries: WMB and Washington Mutual Bank; and non- banking subsidiaries: Washington Mutual Investments, Inc; Washington Mutual Insurance Services; Washington Mutual Card Services.  Business segments: the Retail Banking Group, the Card Services Group, the Commercial Group and the Home Loans Group.  Total assets as of June 30, 2008: US$307.02 billion.  Branches: 2,239 retail branch offices operating in 15 states.  4,932 owned and branded ATMs.  Employees: 43,198 as of June 30, 2008.2. Key personnel [9] Kerry K Killinger, born in 1949 in Iowa, was formerChairman and former Chief of Executive Officer of WashingtonMutual Bank. Killinger received Bachelor of BusinessAdministration from the University of Iowa in 1970 and MBA in1971. He began his career in the financial services industry in 1972as an investment analyst with Bankers Life Insurance Company of Nebraska, and moved on toMurphey Favre in the 1976, where he first held the position of securities analyst and then waspromoted to vice president position. When Washington Mutual Bank acquired Murphey Favre in 1983, Killing excelledgradually in a higher career ladder. Killing was appointed as Executive Vice President after theacquisition. He was then promoted to Senior Vice President in 1986, to Director in 1988, and toPresident in the same year; Killing moved up to the CEO position in 1990, and the Chairman ofKhanh Chau - AC555 – Washington Mutual 5
  • 6. company in 1991. Killing was named in the “List of 2001 Banker of The Year” for hisremarkable contribution to the company growth at that time. Between late 1996 and early 2002,Killinger transformed Washington Mutual Bank into the nation’s sixth-largest bank throughseries of acquisitions. When Washington Mutual Bank purchased Long Beach Financial in 1999,a California lender specializing in subprime mortgages by extending loans to borrowers withtroubled credit, Killing hungered to push the company expansion with an amazing advertisingcampaign “The Power of Yes” in 2003. Killinger walked the company to the top of its massivelending in the most favorable economic conditions: upbeat housing price, housing valueappreciation, and booming demand of borrowings. After several consecutive years of rising housing price and massive lending practices atWashington Mutual Bank as well as at many other financial lending institutions, the subprimemortgage crisis appeared on its horizon in late of 2006. By then, Washington Mutual Bankcontinuously faced up mountain losses in mortgage market and steeply declines of its stockprice. On September 8, 2008, at the peak of the company crisis, the Board of Directors forcedKillinger to retire. Killinger has earned over $100 million during his tenure with the companybased on his aggressiveness that sunk the company. He has not returned any money to thecompanys shareholders or employees as of December 2008.IV. WASHINGTON MUTUAL BANK’S PROBLEMS1. The Power of Yes Killinger hungered to grow the company at all costs. He turned a banking company into aloan factory, a Wal-Mart banking that bolstered with its famous amazing advertising campaign“The Power of Yes”. To implement this business strategy, Washington Mutual Bank grewKhanh Chau - AC555 – Washington Mutual 6
  • 7. branches in 38 states at an astonished speed of a growing fast-food chain. It grew 70% in 3 years,reaching to 2,200 branches across the country. Revenue at Washington Mutual Banks home-lending unit swelled from $707 million in 2002 to almost $2 billion in 2003 when “The Power ofYes” campaign started. At that time, Washington Mutual employees well exercised “The Power of Yes” in theirdaily practices. A file would get marked problematic and then somehow get approved. “We’dsay: ‘O.K.! The power of yes.’ ” [1]2. Wal-Mart banking After 2000 and especially after the transition in leadership in 2005, Washington MutualBank focused to the residential lending and related products as a driver of asset accumulationand interest income. In 2006 and 2007, nearly 70% of interest income and 60% of overallaverage assets were generated by residential real-estate loans. Washington Mutual Bank was likea sweatshop with massive production, massive lending, Wal-Mart banking, or loan factory.Employees were always under pressure to process loan applications within a limit time frame. Inmost of the cases, loan officers ran behind the target and did not have enough time to review orto properly evaluate the loan applications. If the loan target felt short, employees were ordered todrive to other Washington Mutual offices to call customers to push the home equity loans. WhenWashington Mutual Bank’s financial scandal unveiled, public was shocked to know that a smalloffice with 108 employees processed several hundred new files a days. Typically, an employeewas required to process at least 10 files daily. “I’d typically spend a maximum of 35 minutes perfile,” one Washington Mutual employee said, “It was just disheartening. Just spit it out and getit done. That’s what they wanted us to do. Garbage in, and garbage out”[1].Khanh Chau - AC555 – Washington Mutual 7
  • 8. With enormous expansion of branches across the country to realize the dream of Wal-Mart banking, loan officers were either unqualified or uninterested to help borrowers understandterms of their loans. Washington Mutual Banks lending practices was focused to meet thequantity of loan applications rather than the quality of loan. Confidential Witness 5 believed that“the majority” of Option ARM borrowers did not understand that their rate and payments wouldgo up after the teaser period (Complaint p. 38)[14].3. Aggressive selling Branches and sales agents were pressed to pump out loans to meet the loan budget. Toreach out to potential borrowers in every location of the country, Washington Mutual Bankturned real- estate agents into a pipeline of loan applications by bringing more borrowers andthen collecting $10,000 referral fees. Money can make the devil dance. Real-estate agents madeeverything possible to fast collect the referral fee. Very often real-estate agents pushedWashington Mutual Banks loan officers to sell riskiest loans to borrowers, who had little Englishand relied heavily on the real-estate agent advices. Many subprime loans were not sought out byborrowers but actively sold to them by brokers and telemarketers. “If you were alive, they wouldgive you a loan. Actually, I think if you were dead, they would still give you a loan.”[1]4. Inflating property value Business ethics seemed not to exist at Washington Mutual Bank. To pump up stock price,Washington Mutual Bank pressured appraisers to provide inflated property values that made theloans appear less risky, enabling Wall Street to bundle them more easily for sale to investors.Earning manipulation was another accounting fraud at Washington Mutual Bank. In November2007, the company faced a class action lawsuit alleging for over-inflating home appraisals whilealso inflating prices. The lawsuit, which was filed on behalf of investors, states, "WaMuKhanh Chau - AC555 – Washington Mutual 8
  • 9. [Washington Mutual] told investors in mid-October 2007 that the company had suffered a 52-percent drop in net income during the third quarter of 2007 and would have to set aside up to$1.3 billion in the fourth quarter of 2007 to cover its losses. These write downs were caused, atleast in part, by the impairment of loan assets that were based on the inflated appraisalsfraudulently orchestrated by WaMu and eAppraiseIT"[13].5. ARMs – Adjustable rate mortgage Washington Mutual Bank aggressively introduced its adjustable rate mortgages ARMs tothe financial market to entice borrowers with a selection of low initial rates. It allowed borrowersto decide how much they want to pay each month. Borrowers, who selected the minimumpayments, were underpaying the interest due that eventually added up to their principal, andcaused the loan exposing to a higher risk. From Washington Mutuals perspective, the variable-rate loans, options of ARMs, wereespecially attractive because Washington Mutual Bank could carry higher fees than other loans,and allowed the company to book profits on interest payments that borrowers deferred.Washington Mutual, in its lending practices, sold many of its loans to investors without worry ofdefaults. A majority of the loans were refinance transactions allowing homeowners to take cashout of their appreciating property or pay off credit card and other debt. Lenders that made therisky loans often sold them to Wall Street investors [22]. Washington Mutual assumed that by thetime loans went bad, they were often in other hands of third party and Washington Mutual Bankcould be sound and safe. This assumption was conflict with the Management’s Discussion andAnalysis of Washington Mutual Banks Annual Report of 2005. In its financial report,Washington Mutual management claimed that, as the nature of lending business, the ContingentCredit Risk Liabilities remained with Washington Mutual Bank, even when the loans were sold.Khanh Chau - AC555 – Washington Mutual 9
  • 10. This was because the company pledged making payments to remedy the default or repurchasingif the loans became problem [21]. The adjustable-rate mortgages expanded from about 25% of new home loans in 2003 to70% in 2006 represented more than 50% of Washington Mutual’s portfolio. In 2005 and 2006,Washington Mutual Bank pushed the option ARMs most aggressively; during that period, Mr.Killinger received pay of $19 million and $24 million respectively.6. No income verification At Washington Mutual Bank, getting the job done meant lending money to nearly anyonewho asked for it [1]. Borrowers were required to provide their addresses, social securitynumbers, income, assets, and with good credit scores, their loan applications can be processed.Loan officers intentionally or unintentionally ignored the illogical aspects of borrowers’applications. They rarely asked any questions or raised any concerns, just passed through andapproved. In many cases, if bank officers cannot verify the borrowers’ income with blown-upincome and asset, and if any concerned applications brought to higher management levels, thosequestionable applications were simply approved or solved by some internal creative tactics. Aborrower was advised to take himself a photograph, well dressed, in front of his home, thenattached the photo into a Washington Mutual file, loan application was passed through toapprove. A gardener claimed his monthly income of $12,000 in his loan application, “ Yes”.Approved. Another occasion of income verification of an applicant’s assets, the officer sent aletter from a bank showing a balance of about $150,000 in the borrower’s account, but theofficer called the bank to confirm, it was told the balance was only $5,000 [1].Khanh Chau - AC555 – Washington Mutual 10
  • 11. V. WHAT MAKE WASHINGTON MUTUAL BANK COLLAPSE [6] Washington Mutual Banks management stated in its annual report: The Company isexposed to four major categories of risk: credit, liquidity, market, and operational [21]. Thoserisks existed in Washington Mutual Bank daily practices. Operational risk especially exposed toa high level, especially when the company was too aggressive in its selling plan and massiveexpansion within a short period. The nature of the loan business was the credit risk that wasaccelerated to an extreme risky level at Washington Mutuals loan factory, underlying poor creditstandards, lingering underwriting system and ambitious sales target. Washington Mutual Bankwas hit with the negative impact of U.S. mortgage crisis. When the outbreak of loan defaults,housing foreclosure spread out national wide for a long period enough, the economic andfinancial systems became weakening, leading to the U.S financial crisis and causing immensecollapses of financial institution and the U.S. banking system. These incidents presented how themarket risks affect the businesses and as well as the nation as a whole. In that lousy financialpicture, clients were fearful of losing everything. They headed to withdraw their deposits; themassive outflows quickly depleted Washington Mutual Banks resources and capital, put thecompany at a high liquidity risk and forced to bankruptcy. Washington Mutual Bank may notanticipate a badly-ever economic scenario can be happened when all business risks occursimultaneously and at the magnitude of a tsunami that eventually swept out the company in aninstant.1. Mortgage crisis U.S. housing prices were peak in early 2005, downward in 2006, and continued to thelower end pricing. The deflation of housing price made mortgage debt higher than the value ofthe property, causing many homeowners becomes negative equity. With inflated income statedKhanh Chau - AC555 – Washington Mutual 11
  • 12. on the loan applications, loan borrowers faced with the reality that they had never anticipated:they were no longer afforded to pay interest and installment. Delinquencies and defaults rosecontinuously leading to the country sub-prime mortgage crisis. In 2006, Washington MutualBank slowed down their option ARM lending, but the company begun to hurt by its ill-considered loans.2. Changing business strategy Late of 2006, Washington Mutual Bank was actively changing its business strategy torespond to the declining housing and market conditions. The company tightened credit standards,eliminated purchasing subprime mortgage loans, and discontinued underwriting option ARM.Management reduced loans originated for sale and transferred held-for-sale loans to the held-for-investment portfolio. Washington Mutual Bank was to focus shrinking its balance sheet anddeveloping a retail strategy through its branch operations. The company aimed to reduceoverhead cost by resizing its Home Loans business including the elimination of approximately2,600 employee positions, closing approximately 190 home loan centers and sales offices, and 9loan processing and call centers. Late 2006 and 2007, Washington Mutual Bank began to increase its capital and itsreserves through asset shrinkage and the sale of lower-yielding assets. In April 2008,Washington Mutual Bank received $7.0 billion of new capital from the issuance of commonstock. Since December 2007, Washington Mutual Bank infused $6.5 billion into their financialstatements and met the well-capitalized standards through the date of receivership.3. Negative financial outlook - Increasing loss reserves Since its slogan “The Power of Yes” began in 2003, Washington Mutual Bank did a lotof mortgage lending in California and Florida, where both states have had massive foreclosures.Khanh Chau - AC555 – Washington Mutual 12
  • 13. In 2007, the company recorded a $67 million loss and shut down its sub-prime lending unit. Bythe end of June 2008, the company recorded net loss of $6.1 billion for three quarters andanticipated a potential loss of $19 billion on its single-family residential mortgage portfolio.When the market conditions were deteriorating in the secondary mortgage, Washington MutualBank increased loss reserves by about $500 million in September 2008 that was about 30%higher than it had indicated in July of 2008.4. Government regulatory – Red flag A higher loss reserves hurt Washington Mutual Bank’s earnings and jeopardized thecompany financial health. The government regulatory agency, with critical eyes, pointed out thefollowing underlined problems from Washington Mutual Banks negative earning trends:  Total provisions for loan and lease losses expense up 480% year-over-year and 160% sequentially, to $967 million.  Net charge-offs up 170% year-over-year and 55% sequentially, to $421 million.  Non-performing asset ratio up 96 basis points year-over-year and 36 basis points sequentially, to 1.65% of total assets.  Total customer deposits were below $200 billion for the first time in more than a year and a half, down 7.9% year-over-year and 3.5% sequentially.5. Public’s pressure – The boiler The situations became further deteriorated by mid of September 2008 after thecountrywide reported another worsening of foreclosures and delinquents. Public increasedpressure on Washington Mutual Banks lingering financial health as the market conditionscontinued to worsen. Creditors deeply concerned if the financial crisis sunk deeper, how couldKhanh Chau - AC555 – Washington Mutual 13
  • 14. Washington Mutual Bank thrive to overcome the crisis and survive? Most probably, WashingtonMutual Bank did not know and cannot find any quick answers to address their problems:  How much further will loan loss reserves increase?  How much more of its assets will end up as nonperforming?  Will total deposits continue to decline?  Given the above, will the company be able to remain liquid? If so, how?  Is Washington Mutual Bank guilty of encouraging inflated appraisals?  Is CEO Kerry Killinger the right man to dig the company out of its problems?  In any healthy capital market, theres a risk/reward trade off.6. Massive outflows – Depletion Eventually the tsunami started its power; Washington Mutual Bank cannot stand andsurvive in its turbulence. When Lehman filed for bankruptcy protection on September 15 th, 2008,Washington Mutual Banks customers began heading for the exits. Over the next 10 days,customers withdrew a total of $16.7 billion in deposits that was about 9% of the thrifts depositsas of June 30 [5]. Such massive outflows depleted the company so quick, caused a sudden cashimbalance, and gave the company limited time to increase capital, improve liquidity, or find anequity partner.7. Receivership Given the Bank’s limited resources of funding and significant deposit outflows,government regulatory agency were highly concerned about Washington Mutual Banks stabilityand safety to continue its businesses and to be able to pay offits obligations and to meet its operating liquidity needs. OfficeKhanh Chau - AC555 – Washington Mutual 14
  • 15. of Thrift Supervision (OTS) decided to place Washington Mutual Bank into receivership onSeptember 25, 2008 and sold to JPMorgan Chase. OTS acted quickly in few days for thisimportant decision to avoid another massive deposit outflows that might pushed another sunk tothe weakening U.S. banking systems. Appointed officials at the FDIC were concerned that if thefailure of Washington Mutual was followed by other bank failures as well, the agency would notbe able to handle the situation [12]. The change had no impact on the bank’s depositors or anycustomers. On the following Friday morning, September 26, 2008, Washington Mutual branchesopen as usual with normal business transaction, but under the name of a JPMorgan Chasedivision.VI. THE AUDITORS- DELOITTE Deloitte Touché Tohmatsu (also branded as Deloitte.) founded in 1845, is one of thelargest professional services firms in the world, one of the Big Four Companies, along withPricewaterhouseCoopers, Ernst & Young, and KPMG. Deloitte has revenue of US$27.4 billionin 2008 and approximately 165,000 professionals at work in 140 countries. Its globalheadquarters are located in New York City, New York ad European headquarters are located inLondon. The company involves in the audit, tax, consulting, and financial advisory services.1. Where were the auditors? Deloitte has been Washington Mutual Bank’s auditors from 2005 to 2007, a period longenough to understand the client’s business risks, to identify the areas of internal controlweaknesses or potential material misstatements. During the course of three years auditing atWashington Mutual Bank, were Deloitte auditors aware of Washington Mutual Bank’s pooraccounting systems, high governance risks, potential litigation or liquidity? When mortgageKhanh Chau - AC555 – Washington Mutual 15
  • 16. crisis spread out in 2006 with increasing immense number of home defaults and delinquenciesnational wide, the mortgage lending industry obviously underlined an extremely high businessrisk areas. Did Deloittes auditors assess maximum business risks and inherent risks in their auditat Washington Mutual Bank? During the audit process from 2007-2008, did Deloittes auditorsnotice Washington Mutual Bank extremely weak balance sheet and income statements throughincreasing higher loss reserves and consecutive negative earnings? Did Deloittes auditors everquestion about Washington Mutual Bank’s ongoing-concern and liquidity problems under thecurrent weakening financial market of 2007 and 2008? Four months after Deloittes auditorsissued a clean report accompanied with Washington Mutual Bank’s 2007 10KA that was filed inMay 2008, Washington Mutual Bank’s quick downfall and instant collapse stunned the publics.Public filed a lawsuit action against Deloitte, claimed that Deloitte auditors did not exercisesufficient care and diligence in their reviews of Washington Mutual Bank’s financial statementsof annual report [18].2. Was Deloitte aware of the financial problems that Washington Mutual faced? To get a clearer picture of Washington Mutual Bank’s financial health during themortgage crisis, the author collects financial data from Hoover’s source [20] and composes atable of financial ratio analysis for the period of 2005-2007, which were the peak and the fall ofWashington Mutual Bank before its collapses. The financial ratios analysis reveals a clearevidence of Washington Mutual Bank’s ongoing concern and weak financial position long beforeits collapse. The analysis indicates an exceptionally high red alert on Washington Mutual Banksfinancial position with awfully unbalanced liquidity and solvency ratios that requiredWashington Mutual Bank immediately increased its reserves and capital to strengthen theirbalance sheet, to meet urgent short-term cash needs and long-term debt obligations.Khanh Chau - AC555 – Washington Mutual 16
  • 17. Table 1- Financial ratios analysis - Washington Mutuals performance and financial healthFinancial ratios Unit Dec 07 Dec 06 Dec 05 NoteLiquidity Negative working capital andCurrent ratio % 0.084 0.082 0.091 extremely low current ratio, current cash debt coverage ratios are ALL IN RED, thatWorking capital $ mio (230,848) (252,352) (258,694) indicated an unfavorableCurrent cash debt liquidity to meet obligations orcoverage ratio unexpected urgent cash needs. Times 0.031 0.026 0.006SolvencyDebt to total assetsratios DA % 0.925 0.922 0.921 Very low ratios of cash debt coverage ratios and free cashCash debt coverage flow available to totalratios Times 0.025 0.023 0.006 liabilities ratios indicated the company unfavorable solvencyFree cash flow $ mio 5,431 4,842 (551) and incapability to meet theFree cash obligations in a long run.flow/current liabilities % 0.022 0.018 (0.002)Management efficiency All weak ratios indicated theNet Profit Margin % -- 13% 16% company poor sales performance from each dollarReturn on asset ROA % (0.000) 0.010 0.010 invested in assets or equity, and the management’s ineffective in using itsReturn on equity ROE (0.003) 0.131 0.126 resources to generate sales. With a little research ofindustry and financial riskindicator, the auditors can easilyidentify the client business risks.Khanh Chau - AC555 – Washington Mutual 17
  • 18. The Accounting & Governance Risk (AGR®) rating is a good indicator. The ARG, developed byindustry experts, is an assessment of the quality and transparency of corporate behavior. TheAGR scores are based on statistical analysis of accounting and governance risk factors. Lowerscores indicate heightened corporate integrity risk, an increased likelihood of future litigation,material financial restatements, or impaired equity performance. Monthly AGRs of WashingtonMutual Inc. during the period March 2006 to June 2008 have been all in red indicating ”veryaggressive” approaches in Washington Mutual Inc. s accounting and governance risk, includingits subsidiary Washington Mutual Bank. Washington Mutual, Inc. is currently rated as having Very Aggressive Accounting &Governance Risk (AGR), receiving an AGR Score of 21 out of a possible 100. This places themin the 4th percentile among all companies, indicating higher Accounting & Governance Risk(AGR) than 96% of companies. The forensic risk summary table below highlights materials risks,if any, and lists the most critical business issue for each risk. AGR Impact shows the deductionsfrom a perfect 100 AGR score due to flagged matrics. [16]RISK AGR® TOP ISSUE IMPACTCorporate Governance Events -49.35 Avg Ratio of Incentive to Annual Comp of CEO & CFOHigh Risk Events -14.077 RestructuringRevenue Recognition -15.572 Non-Interest Income/Non-Interest ExpensesExpense Recognition -0 N/AAsset-Liability Valuation -0 N/A With little effort to do the research for the Washington Mutuals ARG score, couple withapplying analytical procedure and financial ratio analysis, Deloitte auditors could obviously findout the aggressive level of Washington Mutual’s accounting and governance risks. If Deloitteauditors exercised enough professional care and acted differently in their audit planning, auditKhanh Chau - AC555 – Washington Mutual 18
  • 19. procedures, and audit opinion, Deloitte auditors would be able to send a red flag earlier to thepublic to alert about Washington Mutual Bank’s business risks that may help financial usersmade different investment decisions.3. What should Deloitte have done? The investigation of Washington Mutual Bank lawsuit is on progress. The materialweaknesses of internal control and accounting frauds at Washington Mutual Bank will bescrutinized and soon unveiled to the public. At this point, in the scope of a project paper of theExternal Auditing class, the author’s attempt to outline the visible failures of Deloittes auditorsin their audit practices at Washington Mutual Bank and what they should have done differentlyto avoid the U.S. financial crisis. The author takes a closer look and analyzes the followingsources of documents: (1) evidences or witnesses involved in the lawsuit unveiled on media; (2)Washington Mutual Banks 10K of 2005. The authors rational to select the annual report of 2005as the peak year of Washington Mutual Bank in its home lending businesses when the housingmarket flourished and Washington Mutual Bank was still in good standing as a going-concern.The author would like to address the following possible weakness areas of Deloittes auditprocedures, audit practices to highlight Deloitte‘s potential miss-application in assessing clientbusiness risks. An appropriate assessment of risk is the foundation of a high quality audit. Today’sproposals are intended to strengthen that foundation, which should result in improvementsthroughout the audit”[8]. Professional skepticism should be maintained through out the audit. The fast growingsales in home loan business and booming assets of Washington Mutual’s balance sheets sent aKhanh Chau - AC555 – Washington Mutual 19
  • 20. signal of potential misstatements or internal weaknesses. With professional skepticism, Deloittesauditors should have raised sustainable concerns about (1) Washington Mutual Bank’saggressiveness; (2) what and how the company maintained and achieved a tremendous fast-paced organic growth 5 years in rows; (3) was there any hidden motivation of executivecompensation that exposed the company to an extreme challenging business risk? Employeescomplaints repeatedly stated that policy dictated from the highest levels encourage aggressiveselling, wholesale noncompliance with company underwriting standards, fictitious appraisals,and “tremendous pressure from the sales guys to approve loans” and that, with the involvementof WaMu management, even questionable loans “usually got taken care of one way or another.”(Complaint p. 36) [14]. If Deloitte auditors were to study Washington Mutual Banks policy andbusiness plan carefully and to exercise sufficient due diligent, they should have noticed thosealerts. Clues of Employment dissatisfaction and turnover of key senior personnel can beidentified through obtaining an understanding of the client’s business, touring around the factory,talking with people, and observing employment disagreement if it did exist. When WashingtonMutual Banks scandal brought to light, a lot of employee complaints unveiled to the public andthe quality of auditors’ observation was really in question! Did the auditors detect the clues ofinternal employment dissatisfaction and high staff turnover at a high level of senior executive atWashington Mutual Bank? Confidential Witness 17, a former Senior Vice President ofEnterprise Risk Management, “explained that various Risk Reports were delivered toWashington Mutual Bank’s senior management during 2006 ‘specifically quantified the fact thatthe Company was exceeding certain risk parameters as dictated by [WaMu’s] riskguidelines’”… CW 17 and other senior, experienced risk management leaders chose to leave theKhanh Chau - AC555 – Washington Mutual 20
  • 21. company during the class period rather than be parties to the policies being directed by top-levelexecutives [14]. Observation, documentation and walk-through process are important steps of auditprocess. A deep study of corporate policy, loan application combined with observation of client’sdaily practices and a walk-through process may help to identify the current negligence, frauds,and internal weaknesses at Washington Mutual in its loan lending and risk standard practices.Missing important information on borrowers loan applications, unmatched income againstborrowers profession can reveal a poor internal control in loan granting and credit granting.Underwriting and risk management standards were other problematic areas indicatingmaterially weakened or ignored with the increasing commitment during the period beginning in2005. [14] Analytical procedure should be undertaken extensively in both audit planning andcompleting processes. In the analytical procedure process, the auditors should have researchedthe industry related information, obtained client’s AGR risk scores, analyzed and comparedclient’s financial ratios with industry averages. There were many clear and obvious evidences ofWashington Mutual Banks high business risks: U.S. weakening mortgage lending industry in2007 when subprime mortgage crisis spread out national wide; Washington Mutual Banks poorrating of accounting and governance risk; Washington Mutual Banks red alert of financial ratios.These evidences would have driven Deloittes auditors to assess a maximum of client’s businessrisk, inherent risk, control risk, and to perform audit planning with greater professional care andethical practices. The auditors are required to issue an opinion about the fairness of presentation of theclients financial report under the audit. One scope of audit was to scrutinize and analyze theKhanh Chau - AC555 – Washington Mutual 21
  • 22. disclosures and its adequacy of clients financial report. In the Management Discussion andAnalysis session of Washington Mutual Banks financial report of 2005 and in the disclosure ofContingent Credit Risk Liabilities, Washington Mutual Bank management stated the retainingcredit risk exposure on those loans sold to third party remained Washington Mutual Banksresponsibility as contingent risk liabilities. Washington Mutual assumed that the company wouldbe sound and safe in its subprime mortgage lending to unqualified borrowers and the risks ofloan default were shifted to third parties. That assumption was lingering and inconsistent withwhat Washington Mutual Bank management disclosed in its annual report that statedWashington Mutual Bank would engage to buy back default loans when negative scenario was tobe happened. Despite the company claimed that was a normal business practice of a lendingcompany, but it was a strong indication of an extreme risky business. The above analysis shows abundant evidences of Deloitte auditors’ negligence andineffective in its audit practices. If Deloitte auditors acted differently with due care process,complied with audit standards at the very earlier years of their audit life at this client, they shouldhave assessed maximum of inherent risk, acceptable audit risk, control risk in the audit;expanded tests of business transactions, tests of details balances; increased sample size, changedaudit procedures with different approaches to uncover the accounting frauds and internal controlweaknesses at Washington Mutual Bank. Most important, it would be helpful to WashingtonMutual to change or to modify its business practices and to prevent its disastrous collapse andlitigation.VII. CONSEQUENCES When Washington Mutual Bank collapsed, the public was shocked knowing the secret ofWashington Mutuals business practices during the last 5 years. Washington Mutual Banks stockKhanh Chau - AC555 – Washington Mutual 22
  • 23. price plummeted dramatically from some thirty dollars down to few cents before WashingtonMutual Bank was sold to Chase. Direct investors in Washington Mutual Banks securities andrelated derivatives lost substantial money, and seek to claim relief from these losses. Deloitte hasbeen named as a defendant in a securities lawsuit against Washington Mutual Bank. The class-action complaint, filed Aug 5 by New York-based Bernstein Litowitz Berger & Grossmann LLP,alleges Deloitte didn’t exercise sufficient care and diligence in its reviews of Washington MutualBank’s financial statements in annual reports. Washington Mutual Banks collapse was the biggest bank failure in the American history.Its a tragedy for its 43,000 employees, investors, and perhaps even depositors who handed thebank over $100,000. Home borrowers, who got the loans from Washington Mutual Bank, wentto foreclosure and lost their homes, because they cannot afford to pay piles of interests andadding-up principals. It was heartbreak because they would never know and never understandhow their loan interest was to calculate. Other home borrowers, who still can keep their homes,become negative in home equity when their property values are below the loan valuations.Inflated home appraisal hurt the homeowners who now have to pay more for the homes than itsworth and they would be impossible to get refinance from their inflated properties. The extreme risky and unethical practices of Washington Mutual Bank in home loanlending business was one of the roots of the U.S. mortgage crisis that has triggered mortgagedelinquencies and foreclosures spreading around the country, affected almost everyone. The fearof foreclosure, jobless, uncertainty, mentality distress among American people and the weakenedU.S. consumer spending to the ever historical low; businesses lowered production capacity orwent bankruptcy; unexpected unemployment rate is raising everyday.Khanh Chau - AC555 – Washington Mutual 23
  • 24. On a larger scale, the mortgage crisis negatively has impacted to U.S. financial market,U.S. banking systems; push the U.S. into a deeper economic recession. U.S. government hassigned hundreds billion dollars of bailout to rescue the economic, sunk the country in a deeperforeign debts that will affect the future generation of U.S. taxpayers. Every of us pay for thehome mortgage crisis. The sub prime mortgage crisis is threatening to put the U.S. economy intoa recession. This primer tracks how the subprime crisis unfolded, affecting first the real estatemarket and now the economy overall. It gives you definitions of important terms. It also explainshow interest rates and real estate play an integral role in the U.S. economy. Finally, it givesresources for those who are suffering from the sub prime mortgage crisis directly.VIII.CONCLUSION The public has yet another high-profile auditing failure, loss of confidence in the market,and no directly effective remedy. It could be useful to examine the lessons from WashingtonMutual Bank and Deloitte’s failure: the decisions that brought them to collapse, the warningsignored, the laws broken, and what this bank failure says about the audit industry [15].Lawenforcement and punishment on Washington Mutual and Deloitte will be soon publicized. Howabout government authorities and oversight agencies in this collapse? What did SEC, PCAOB,FED do their oversight responsibilities on those business activities that have affected the publicat large? Is there the loophole of the law? "The law does not discourage banks from lending tohome buyers who do not qualify for traditional loans. Indeed, Washington Mutuals regulatorencouraged the practices, as it opened the possibility of home ownership to a wider segment ofthe population and permitted Washington Mutual to earn higher returns for investors in exchangefor taking on increased risk.’’[19]. Public need appropriate answers and resolutions to thosequestions.Khanh Chau - AC555 – Washington Mutual 24
  • 25. IX. APPENDIXESAPPENDIX 1 – WASHINGTON MUTUAL INC – FINANCIAL STATEMENTSTable 2- Washington Mutual, Inc. - Income statements 2005 – 2007Source of Hoovers.com.proxy.devryu.edu [20] ($ mio) Dec 07 Dec 06 Dec 05Revenue 26,523 26,454 21,667 Cost of Goods Sold 6,610 6,263 3,728 Gross Profit 19,913 20,191 17,939 Gross Profit Margin 75.10% 76.30% 82.80% SG&A Expense 14,195 8,966 5,871 Depreciation & Amortization 504 827 2,656Operating Income 5,214 10,398 9,412Operating Margin 19.70% 39.30% 43.40%Nonoperating Income -- -- --Nonoperating Expenses 4,702 5,523 3,974Income Before Taxes 309 4,770 5,438Income Taxes 376 1,656 2,006Net Income After Taxes -67 3,114 3,432Continuing Operations -67 3,114 3,432Discontinued Operations -- 444 --Total Operations -67 3,558 3,432Total Net Income -67 3558 3432Net Profit Margin -- 13.40% 15.80%Table 3 - Washington Mutual, Inc. - Statement of cash flow - 2005-2007Source of Hoovers.com.proxy.devryu.edu [20] Dec 07 Dec 06 Dec 05Net Operating Cash Flow 7,697 7,269 1,765Net Investing Cash Flow 12,228 168 -14,618Net Financing Cash Flow -17,313 -6,703 14,612 Net Change in Cash 2,612 734 1,759Depreciation & Amortization 504 827 2,656Capital Expenditures -321 -441 -607Cash Dividends Paid -1,945 -1,986 -1,709Khanh Chau - AC555 – Washington Mutual 25
  • 26. Table 4 - Washington Mutual, Inc. - Balance sheet statements - 2005-2007Source of Hoovers.com.proxy.devryu.edu [20]Total Assets Dec 07 Dec 06 Dec 05 Cash 14,205 15,125 19,350 Net Receivables 6,876 7,507 6,507 Inventories -- -- -- Other Current Assets -- -- -- Total Current Assets 21,081 22,632 25,857 Net Fixed Assets 3,758 3,522 3,538 Other Noncurrent Assets 303,074 320,134 314,178Total Assets 327,913 346,288 343,573Liabilities and Shareholders Equity Accounts Payable -- -- -- Short-Term Debt 70,003 61,028 91,384 Other Current Liabilities 181,926 213,956 193,167 Total Current Liabilities 251,929 274,984 284,551 Long-Term Debt 38,958 32,852 23,777 Other Noncurrent Liabilities 12,442 11,483 7,966Total Liabilities 303,329 319,319 316,294Shareholders Equity Preferred Stock Equity 3,392 492 -- Common Stock Equity 21,192 26,477 27,279Total Equity 24,584 26,969 27,279Shares Outstanding (mil.) 113 113 113Table 5 - Historical FinancialsSource of Hoovers.com.proxy.devryu.edu [20] Net Year Assets Income as Employees Income % of ($ mil.) ($ mil.) Assets Dec 2007 327,913.00 -67 0.00% 49,403 Dec 2006 346,288.00 3,558.00 1.00% 49,824 Dec 2005 343,573.00 3,432.00 1.00% 60,798Khanh Chau - AC555 – Washington Mutual 26
  • 27. Table 6- Computation of WaMu’s financial ratios for period 2005 - 2007(Source Hoover’s data from table 2- table 3 – table 4 [20])I. Financial strengthLiquidity Dec 08 Dec 07 Dec 06 Dec 05Current ratio 0.08 0.08 0.09 Total Current Assets 21,081 22,632 25,857 Total Current Liabilities 251,929 274,984 284,551Working capital -230,848 -252,352 -258,694Current cash debt coverage ratio 0.03 0.03 0.01 Net Operating Cash Flow 7,697 7,269 1,765 Total Current Liabilities 251,929 274,984 284,551Solvency Dec 08 Dec 07 Dec 06 Dec 05Debt to total assets ratios DA 0.93 0.92 0.92 Total Liabilities 303,329 319,319 316,294 Total Assets 327,913 346,288 343,573Cash debt coverage ratios 0.03 0.02 0.01 Net Operating Cash Flow 7,697 7,269 1,765 Total Liabilities 303,329 319,319 316,294Free cash flow 5,431 4,842 -551 Net Operating Cash Flow 7,697 7,269 1,765 Capital Expenditures -321 -441 -607 Cash Dividends Paid -1,945 -1,986 -1,709II. Profitability Dec 08 Dec 07 Dec 06 Dec 05 Asset turnover ratio 0.08 0.08 0.06 Net sales 26,523 6,454 21,667 Total Assets 327,913 346,288 343,573Net Profit Margin -- 13% 16%III. Management efficiency Washington Mutual, Inc. Industry S&P 500 Dec 08 Dec 07 Dec 06 Dec 05 Dec 08 Dec 08ROA (1.98) (0.00) 0.01 0.01 0.06 5.83 Net income -67 3,558 3,432 Total Assets 327,913 346,288 343,573Return on Assets - 5 Yr. Avg. 0.81 0.53 6.22ROE (0.00) 0.13 0.13 Total Equity 24,584 26,969 27,279 Net income -67 3,558 3,432Total Debt to Equity (MRQ) 12.34 11.84 11.59 Total Liabilities 303,329 319,319 316,294 Total Equity 24,584 26,969 27,279Return on Equity - 5 Yr. Avg. 10.99 9.45 16.10Khanh Chau - AC555 – Washington Mutual 27
  • 28. APPENDIX 2 - DISCLOSURE OF CONTINGENT CREDIT RISK LIABILITIES “In the ordinary course of business, the Company sells loans to third parties but retainscredit risk exposure on those loans. When loans are sold with retained credit risk provisionsattached to the sale, the Company commits to stand ready to perform, if the loan defaults, bymaking payments to remedy the default or repurchasing the loan. The Company also sells loanswithout retained credit risk that it may be required to repurchase for violation of arepresentation or warranty made in connection with the sale of the loan that has a materialadverse effect on the value of the loan, or if the Company agreed to repurchase the loan in theevent of a first payment or early payment default. When a loan sold to an investor withoutretained credit risk fails to perform according to its contractual terms, the investor will typicallyreview the loan file to search for errors that may have been made in the process of originatingthe loan. If errors are discovered and it is determined that such errors constitute a violation of arepresentation or warranty made to the investor in connection with the loan’s sale, then theCompany will be required to either repurchase the loan or indemnify the investor for lossessustained if the violation had a material adverse effect on the value of the loan”Khanh Chau - AC555 – Washington Mutual 28
  • 29. APPENDIX 3- DELOITTE’s AUDITOR REPORTSREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Shareholders ofWashington Mutual, Inc.We have audited management’s assessment, included in the accompanying Management’sReport on Internal Control Over Financial Reporting, that Washington Mutual, Inc. andsubsidiaries (the “Company”) maintained effective internal control over financial reporting as ofDecember 31, 2005, based on criteria established in Internal Control – Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. TheCompany’s management is responsible for maintaining effective internal control over financialreporting and for its assessment of the effectiveness of internal control over financial reporting.Our responsibility is to express an opinion on management’s assessment and an opinion on theeffectiveness of the Company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company AccountingOversight Board (United States) (“PCAOB”). Those standards require that we plan and performthe audit to obtain reasonable assurance about whether effective internal control over financialreporting was maintained in all material respects. Our audit included obtaining an understandingof internal control over financial reporting, evaluating management’s assessment, testing andevaluating the design and operating effectiveness of internal control, and performing such otherprocedures as we considered necessary in the circumstances. We believe that our audit providesa reasonable basis for our opinions.A company’s internal control over financial reporting is a process designed by, or under thesupervision of, the company’s principal executive and principal financial officers, or personsKhanh Chau - AC555 – Washington Mutual 29
  • 30. performing similar functions, and effected by the company’s board of directors, management andother personnel to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generallyaccepted accounting principles. A company’s internal control over financial reporting includesthose policies and procedures that (1) pertain to the maintenance of records that, in reasonabledetail, accurately and fairly reflect the transactions and dispositions of the assets of the company;(2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles,and that receipts and expenditures of the company are being made only in accordance withauthorizations of management and directors of the company; and (3) provide reasonableassurance regarding prevention or timely detection of unauthorized acquisition, use ordisposition of the company’s assets that could have a material effect on the financial statements.Because of the inherent limitations of internal control over financial reporting, including thepossibility of collusion or improper management override of controls, material misstatementsdue to error or fraud may not be prevented or detected on a timely basis. Also, projections of anyevaluation of the effectiveness of the internal control over financial reporting to future periodsare subject to the risk that the controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures may deteriorate.In our opinion, management’s assessment that the Company maintained effective internal controlover financial reporting as of December 31, 2005, is fairly stated, in all material respects, basedon the criteria established in Internal Control – Integrated Framework issued by the Committeeof Sponsoring Organizations of the Treadway Commission. Also, in our opinion, the Companymaintained, in all material respects, effective internal control over financial reporting as ofKhanh Chau - AC555 – Washington Mutual 30
  • 31. December 31, 2005, based on the criteria established in Internal Control – IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission.We have also audited, in accordance with the standards of the PCAOB, the consolidatedfinancial statements as of and for the year ended December 31, 2005 of the Company, and ourreport dated March 8, 2006, expressed an unqualified opinion on those consolidated financialstatements./s/ Deloitte & Touche LLPSeattle, WashingtonMarch 8, 2006Khanh Chau - AC555 – Washington Mutual 31
  • 32. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Shareholders ofWashington Mutual, Inc.We have audited the accompanying consolidated statements of financial condition ofWashington Mutual, Inc. and subsidiaries (the “Company”) as of December 31, 2005 and 2004,and the related consolidated statements of income, stockholders’ equity and comprehensiveincome, and of cash flows for each of the three years in the period ended December 31, 2005.These consolidated financial statements are the responsibility of the Company’s management.Our responsibility is to express an opinion on these consolidated financial statements based onour audits.We conducted our audits in accordance with the standards of the Public Company AccountingOversight Board (United States) (“PCAOB”). Those standards require that we plan and performthe audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the consolidated financial statements. An audit also includesassessing the accounting principles used and significant estimates made by management, as wellas evaluating the overall financial statement presentation. We believe that our audits provide areasonable basis for our opinion.In our opinion, such consolidated financial statements present fairly, in all material respects, thefinancial position of the Company as of December 31, 2005 and 2004, and the results of itsoperations and its cash flows for each of the three years in the period ended December 31, 2005,in conformity with accounting principles generally accepted in the United States of America.Khanh Chau - AC555 – Washington Mutual 32
  • 33. We have also audited, in accordance with the standards of the PCAOB, the effectiveness of theCompany’s internal control over financial reporting as of December 31, 2005, based on thecriteria established in Internal Control – Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission, and our report dated March 8, 2006,expressed an unqualified opinion on management’s assessment of the effectiveness of theCompany’s internal control over financial reporting and an unqualified opinion on theeffectiveness of the Company’s internal control over financial reporting./s/ Deloitte & Touche LLPSeattle, WashingtonMarch 8, 2006 (August 4, 2006 as to the effects of restatement discussed in Note 2)Khanh Chau - AC555 – Washington Mutual 33
  • 34. X. REFERENCES1. http://www.nytimes.com/2008/12/28/business/28wamu.html?hp=&pagewanted=all2. Office of Thrift Supervision FACT SHEET OTS3. http://www.reuters.com/finance/stocks/chart?symbol=WAMUQ.PK4. http://www.npr.org/templates/story/story.php?storyId=951051125. http://online.wsj.com/article/SB122238415586576687.html6. http://www.fool.com/investing/dividends-income/2008/01/14/worst-stock-for-2008-washington-mutual.aspx7. http://finance.pro2net.com/x63579.xml8. http://www.sec.gov/Archives/edgar/data/933136/000110465906053228/a06-17516_110ka.htm#ExhibitsFinancialStatementSchedul_1846239. http://en.wikipedia.org/wiki/Kerry_Killinger10. http://en.wikipedia.org/wiki/Subprime_lending11. http://en.wikipedia.org/wiki/United_States_housing_bubble12. http://www.pr-inside.com/washington-mutual-shareholders-have-banded-r892883.htm13. http://www.lawyersandsettlements.com/features/wamu-appraisal-securities-fraud.html14. http://www.bizjournals.com/seattle/stories/2008/10/13/story9.html15. http://choosingdemocracy.blogspot.com/2008/12/how-finance-capital-created-economic.html16. http://finapps.forbes.com/finapps/AccountingRisk.do?tkr=wm17. http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=9844618. http://www.lawyersandsettlements.com/features/washington_mutual_angry.html19. http://seattlepi.nwsource.com/business/398621_wamu04.html20.http://premium.hoovers.com.proxy.devry.edu/subscribe/tools/report/builder/report.xhtml?ID=ffffrhrrsxkxfcjfjs&country_id=76&Sections[]=4&Sections[]=6&Sections[]=7&Sections[]=8&Sections[]=10&Sections[]=11&Sections[]=12&Sections[]=13&Sections[]=17&Format=HTML&Build.x=22&Build.y=621. Washington Mutual annual report 200522. http://www.brookings.edu/papers/2007/10_mortgage_industry_downs.aspxKhanh Chau - AC555 – Washington Mutual 34

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