Icpak deflects blame, shields auditors over Chase Bank fall

The accountants’ body on Tuesday shifted blame on the role external auditors played in the collapse of Chase Bank, saying the lender’s directors were squarely responsible for the fall.

Speaking in the wake of accusations that the lender’s auditors failed to detect and prevent massive irregularities touching on insider lending, the Institute of Certified Public Accountants of Kenya (Icpak), the body mandated to regulate the profession in the country, absolved the external checkers of any complicity in the collapse.

“While it is very common to put the spotlight on the role of various regulators and the external auditors, the primary responsibility for fair presentation of the financial results is that of the board of directors. The Kenyan Companies Act is very clear on the duties and responsibilities of the board of directors of any company, whether a bank or otherwise,” said Icpak chairman Fernandes Barasa in a statement on Tuesday.

His statement comes at a time when the role of external auditors has come under mounting scrutiny.

They have been blamed for either sleeping on the job or colluding with rogue directors in the abuse of various banking processes, which has caused problems for three lenders - Chase Bank, Dubai Bank and Imperial Bank.

BANK DIRECTORS

Mr Barasa, however, said the blame lay squarely in the hands of bank directors, adding that in the case of the three institutions, external auditors were limited in their roles of providing oversight duties.

“It is worth to appreciate that external audit is just that – external – it is not part of internal control and not a substitute, therefore, for good corporate governance. At best, external auditors spend a limited number of days/weeks focused on key financial information and financial statement presentation. It is not designed like a forensic audit that seeks to validate the authenticity of every single transaction. Neither is it designed as internal audit which seeks to critically review compliance with internal policies and procedures and regulatory requirements,” said Mr Barasa.

He insisted that International Standards on Auditing (ISAs) make it clear that the external statutory auditor is not responsible for the prevention and detection of fraud.

“ISAs explicitly state that “owing to the inherent limitations of an audit, there is an unavoidable risk that some material misstatements of the financial statements may not be detected even though the audit is properly planned and performed,” said Mr Barasa.

In the case of Chase Bank and other troubled lenders, the accounting body chief said relevant directors were obliged to present a true financial position of the lender.

“Contrary to common belief, financial statements of an institution are not prepared by and owned by auditors - auditors simply audit the financial statements as prepared by the board of directors in accordance with the International Standards on Auditing.

Such procedures at best only provide reasonable and not absolute assurance on the financial statements, a fact that is clearly stated on the auditor’s report,” said Mr Barasa in the statement.