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March 26, 2015 ♣ Bank Audits - Case Studies CA Parveen Kumar II Partner II ASA & Associates LLP www.asa.in.

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Presentation on theme: "March 26, 2015 ♣ Bank Audits - Case Studies CA Parveen Kumar II Partner II ASA & Associates LLP www.asa.in."— Presentation transcript:

1 March 26, 2015 ♣ Bank Audits - Case Studies CA Parveen Kumar II Partner II ASA & Associates LLP

2 2 Case Studies Bank Audit Assignments – Run-through Challenges Agenda

3 8 Global Case Studies

4 Bank of Credit and Commerce International (BCCI) was founded in Karachi, in 1972 and registered in Luxembourg, London. It was a major international bank with 30,000 employees and had operations in 78 countries. It was the seventh largest private bank up to 1991 until it was closed

5 Allegations: One of the largest scandals with $ 20-billion-plus-heist. More than $13 billion funds were unaccounted. Other allegations include bribery, support of terrorism, money laundering, smuggling, sale of nuclear technologies etc.

6 Enron Corporation was founded in Houston, Texas in Was one of the world’s leading electricity, natural gas, pulp, paper and communications company (22,000 employees). This most Innovative Company lost its fame in 2001 with its accounting fraud.

7 ALLEGATIONS: The debts of the company were hidden and profits were inflated by more than $1 billion. It offered bribes to foreign governments to win contracts abroad.

8 WorldCom was the United States’ second largest long distance phone company that was founded in the year After 19 years of establishments i.e. in 2002 the company’s accounting scandal came into exposure.

9 ALLEGATIONS: Underreporting interconnection expenses by capitalizing on the balance sheet and $3.8 billion is overstated as capital expenses rather than operating expenses.

10 Tyco international was a global manufacturing company founded in Its operational headquarters is in New Jersey. With 118,000 employees it is composed of security services, safety products, fire protection services, flow control, electrical and metal products.

11 Allegations: CEO Dennis Kozlowski and former CFO Mark H. Swartz were accused of the theft of $600 million from the company in 2002.

12 Kanebo Limited was a textiles and cosmetics group giant in Japan. It was originally established in It has 13,580 employees. In 2003 a major accounting fraud was revealed which was considered as one of the largest frauds in Japan.

13 Allegations: Inflated profits by $2 billion over a five-year period.

14 Parmalat was founded in 1961 in Italy. A multinational Italian dairy and food corporation with more than 15,000 employees. This company collapsed in 2003 with an accounting scandal of $ 20 billion which is considered as one of the biggest- bankruptcy

15 Allegations: Company’s total debt was more than double on the balance sheet. Forgery and bankruptcy are some other allegations

16 AIG was founded in 1919 in Shanghai, China by Cornelius Vander Starr, it went to public in It is a major American Insurance Corporation based in New York City with 116,000 employees.

17 Allegations: The company maintained lucrative payoff agreements, soliciting rigged bids for insurance contracts and inflated financial position by $2.7 billion in 2005.

18 network in 67 countries with 53,000 employees Satyam Computer was founded in 1987 in Hyderabad, India to offer information technology services. The company has a network in 67 countries with 53,000 employees. Recently i.e. on 7 th January, 2009 the accounting scandal came into exposure.

19 Allegations: Inflated cash and bank balances of more than $1.5 billion, overstated debtors’ position of $100 million and understated liability.

20 9 Indian Case Studies

21 What if departure from standard is allowed by the regulator

22 AS – 15 Feb 9, RBI issued circular (DBOD.BP.BC.80/ / ) on reopening of Pension Option to employees of Public Sector Banks and Enhancements in Gratuity limits. In terms of this circular the bank may amortize this expense over a period of 5 years This is departure from requirements of AS 15

23 AS – 15 ICAI Announcement – Since the accounting treatment for such expenditure is prescribed under prudential regulatory framework of the Regulator, the auditors need not qualify their audit report on this account – As per Standard of Audit (SA) 706 – the matter should be brought out by way of “Emphasis of Matter Paragraph” in the audit report “Without qualifying our opinion….

24 Window Dressing (Provisional Balance Sheet) Public Sector Bank - 1

25 Cash Count Public Sector Bank - 2

26 Fund Utilization Public Sector Bank - 3

27 Demand Loans (Securities check) Public Sector Bank - 4

28 Drawing Power (Stock – Job work) Public Sector Bank - 5

29 Surprise Inspection Public Sector Bank - 6

30 Connectivity ATM

31 Interest Calculation Software

32 Bank Audit Assignments Run-through

33 Appointment AcceptancePlanningExecutionReport Document

34 Caution Change in constitution IndebtedSecuritiesAppointment Intimate and Confirm

35 ScopeFeeLimitationTeamConfidentialityResponsibility Acceptance

36 Mail Communication Liability to be limited Jurisdiction Indemnify loss Limitations

37 Investigation ? Update and advice ? Guarantee for future ? Copyright ? Test check ? Loss to third party ? Your Responsibilities ? Limitations

38 Maintaining Books Decision Making Preparation of Financials Policies Responsibilities

39 Planning Audit Master file Audit file – B1 Audit file – B2 Study Master Circular Guidance Note Bank’s Instructions

40 Audit Team Appointment Letter Authority letter, Checklists Study notes, files

41 Memo Compliance Test Substantive checkPlanning

42 Ask For RBI Audit Report PY Balance sheet, Audit File Inspection Reports Guidelines

43 DocumentationWorking PapersRatio AnalysisManagement Representation Execution

44 Careful Assets Classification Provisioning Frauds Suspense & sundry accounts Inter branch accounts

45 REPORT Sign Stamp Manager Sign Stamp Yourself Document all Discussions

46 Standards on Auditing Auditing, Review and Other Standards (‘Standards on Auditing’) are pronouncement issued by the competent authority to provide guidance on audit, review, other assurance and related services engagements. Standards on Auditing are issued with a view to securing compliance by auditor on various matters for the proper discharge of their functions. These Standards are mandatory for auditor to be followed. 46 Institute of Chartered Accountants of India (Auditing and Assurance Standard Board)

47 SA 230 – Audit Documentation Summary Audit Documentation deals with the auditor’s responsibility to prepare audit documentation for an audit of financial statements. Audit documentation means – The record of audit procedures performed, relevant audit evidence obtained, and conclusion the auditor reached. (terms such as ‘working papers’ or ‘work papers’ are also sometimes used) 47 Collecting Evidence ……

48 48 Collecting Evidence …… Audit was Planned According to Standards Basis for conclusion As per regulatory requirements Recording significant items for future Assisting engagement team File Law

49 CHALLENGES Professional Time management Technical update Role and Responsibilities Expectations Regulator Business Environment Training Checklist Approach? Management Tone at the TOP Priorities / Pressures Resources…

50 Thank You #


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