Question

As auditors (or in any field) we should remain informed about current trends and issues relating to our practice. Share an existing event or trend that connects to the concepts we've covered in this lesson. For example, it may refer to management's assertions, material misstatement, reasonable assurance, or other topics relevant to the content. Provide a summary, as well as an analysis of the situation and an explanation of how it relates to our studies. In your response, please include a link to an article or video about the event or trend to learn more.

Answer 1

Sir

Although there are many events I would like to draw your attention to the IL&FS Crisis held in India.

Facts

• IL&FS was a large infrastructure investment company in India which provides finance for long term projects like dams, bridges, roads.
• It arranges it's financed by short term sources like corporate debt as well as long term sources like debentures.
• I was reading it's annual reports of 2-year consecutive financial years the maturity of debentures is very close to coming.
• For 31/03/2018 the audit report was signed by Deloitte and for 31/03/2018 by EY and both reports were clean.
• Even in pre-crisis year company use a short term finance source to service long term debt obligations.

Case

• The company engages in Infrastructure projects by arranging finance from long term listed securities like debentures.
• Revenue is blocked because of the delay of long infrastructure projects.
• but listed securities maturity time is coming closer.
• To handle the first-year co. service the debt by taking short term finance.
• In next year co. have the obligation to service both listed security as well as corporate short term debt.
• All this cause liquidy crunch for Il&fs.
• Regulators came into play and take necessary actions need to be taken.

Fine Points

• As far as our study is concerned this is the case of gross negligence or maybe even fraud on behalf of Auditors despite the fact both firms have a big team of professionals either nobody is reading the balance sheet or willfully ignore the facts.
• This case is very repetitive in nature we saw the same things in 2009 when companies like AIG issue insurance to investment companies without reading the reports and auditors keep on issuing the clean reports.
• The same case happens again post 2009 when Well Fargo KYC compliance and account opening system collapse even a very reputable news agency headline was I quote " Where was KPMG, Wells Fargo's auditor, while the funny business was going on ?".

Conclusion

• This profession needed to focus on the analysis of statements and systems.
• Roles and responsibility needed to fixed by regulators.