‘internal audits – case studies’ ♣ parveen kumar (partner) asa & associates llp...
TRANSCRIPT
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‘Internal Audits – Case Studies’
♣
Parveen Kumar (Partner)ASA & Associates LLP chartered accountants www.asa.in
November, 2014
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Some Numbers...
Estimated loss from Fraud - 5% of a company’s annual revenue
Potential projected global fraud loss > $3.5 trillion
87% of occupational fraudsters - never been charged or convicted of a fraud-related offense84% never been punished or terminated by an employer
44% of Fraud Cases detected by means of 'tips & chance’
Median loss from frauds committed by:1. Owner/executives - $573,000, 2. Managers - $180,000 and by employees -$60,000
[Source: ACFE, 2012 Report to the Nation]
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
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.
Enron Corporation was founded in Houston, Texas in 1985. 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.
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.
ALLEGATIONS:
Underreporting interconnection expenses by capitalizing on the balance sheet and $3.8 billion is overstated as capital expenses rather than operating expenses.
WorldCom was the United States’ second largest long distance phone company that was founded in the year 1983 as LDDS. After 19 years of establishments i.e. in 2002 the company’s accounting scandal came into exposure.
Tyco international was a global manufacturing company founded in 1960. 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.
Allegations:
CEO Dennis Kozlowski and former CFO Mark H. Swartz were accused of the theft of $600 million from the company in 2002.
Kanebo Limited was a textiles and cosmetics group giant in Japan. It was originally established in 1887. It has 13,580 employees. In 2003 a major accounting fraud was revealed which was considered as the largest fraud in Japan.
Allegations:
Inflated profits by $2 billion over a five-year period.
Parmalat was founded in 1961 in Italy. It is a multinational Italian dairy and food corporation with more than 15,000 employees. This leading company collapsed in 2003 with an accounting scandal of $ 20 billion which is considered as one of the biggest bankruptcy.
Allegations:
Company’s total debt was more than double on the balance sheet. Forgery and bankruptcy are some other allegations
AIG was founded in 1919 in Shanghai, China by Cornelius Vander Starr, it went to public in 1969. It is a major American Insurance Corporation based in New York City with 116,000 employees.
Allegations:
The company maintained lucrative payoff agreements, soliciting rigged bids for insurance contracts and inflated financial position by $2.7 billion in 2005.
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. Very recently i.e. on 7th January, 2009 the accounting scandal came into exposure.
Allegations:
Inflated cash and bank balances of more than $1.5 billion (INR 7,000 crore), overstated debtors’ position of $100 million and understated liability.
India works on a multi-regulator model
Reserve Bank (RBI)
NBFCs
…FC AAA.C XXX
LC..C
MCAState RegistrarOf Chit Funds
RBI regulates deposittaking activity
XXXNidhi
ZZZZChit Fund C.
NationalHousing
BankIRDA SEBI
CCCCHFC SBC MF
XX co.YY
Infrastructure
General Insurance ABC
Financial Statements
Ind AS
IFRSAS
Company Law
Regulators – RBI, SEBI,
IRDA….
To Help User Take Decisions
Tax Standards
Cost Standards
Dep Rate Changed from past
ProperDisclosures
Increased Profits of 1 Billion+
LISTED COMPANY
Income Tax to SCH XIV
AS-6
AS-5
Your View………???????
Pu
rpose
AS-1
Internal Auditing?
• “Eyes and Ears”• “Policeman”• “Watchdog”• “Consultant”• “Catalyst”
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II PURPOSE II
Audit PlanAudit Plan
Gather Evidence/Documents Gather Evidence/Documents
Opening Meeting with ClientOpening Meeting with Client
Record Results (Draft report)Record Results (Draft report)
Develop ChecklistsDevelop Checklists
Discussion with ClientDiscussion with Client
Final Report SubmissionFinal Report Submission
Approach-C
onducting the Audit
Approach-C
onducting the Audit
Entity objectives can be viewed in the context of four categories:
1. Strategic 2. Operations3. Reporting4. Compliance
Approach -2 (Use of COSO framework)
Approach -3 (Risk Analysis Audit Approach) Sample Chart
Summary of Controls and Gaps identified under SOX - Tracking Sheet
Area Critical Activities
Category of Risk
Open Gaps in Jun' 06
Closed by user in JAS'
06
Closed by user in ON'
06
Closure accepted
by IA
Closure not accepted by
IA
Closure being tested by IA / IT
Security
Gaps due for closure in
Dec' 06
Gaps closed in Dec' 06 - Due for
IA testing
Gaps closure - Mar' 06
High Medium Low Revenue and Accounts Receivables
26 3 2 5 1 1 4 Fixed Assets 22 4 2 6 1 1 1 1 4 Travel 24 11 4 15 5 1 6 14 1Payroll 18 13 5 18 3 2 1 14 3 3Accounts Payable 11 2 2 0 2 Financial Closing 29 3 3 1 1 3 Regulatory Compliance
62 2 5 7 3 2 1 6 Treasury 10 0 0 IT Controls 25 1 5 6 3 1 2 3 1IT Application Controls (AP and GL)
18 3 3 2 1 1 2 Totals
245 1 40 24 65 19 3 2 12 8 50 3 5
Internal Audit – Controls Review Team
Yes No Comment
I Quality Control
1. Does the Unit-Paints participate in external QA programmes?
2. Are they adequate for the range of tests performed?
3. Are the results of external QA programmes: circulated?
reviewed?
actioned appropriately?
4. Are records maintained for external QA programmes?
5. Are internal QC procedures adequate and appropriate for the range of tests
performed?
6. Are internal QC procedures documented?
7. Are records maintained for internal QC programmes?
Sample-Internal Audit Checklist
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