Auditing and accounting issues within the case
Baring bank collapsed and faced to bankruptcy due to successful hiding of the position as well as losses recorded in the account 88888 from everyone through deceit.
In 1995 February, Baring Brothers & Co. Ltd. London was collapsed due to the losses of £827 million because; one of the employees of the Baring Bank Nick Leeson trade in unauthorised way in the commodity market of Japan. Nick Leeson was the employee of the Singapore subsidiary of the Baring Bros. & Co. Ltd. (Baring Futures (Singapore) Pvt. Ltd. The action of Nick Leeson entirely wiped out the capital of the bank, which was £200 million. The action leaves the bank unable to fulfil its obligation.
However, the disaster could not be…show more content… In spite of supposed that Leeson was just expected to organize the settlements and accounting departments when he was dispatched to the Singapore office, as well he managed to become a SIMEX floor trader. His being given responsibility regarding both the front office where the trading was executed, and the back office where trades are processed and reconciled in settlements. For that, it permitted Leeson to render the formal internal control procedures ineffective.
For the internal audit of the Baring Bank James Baker was appointed, he used to report directly to Norris. In 1994, a BSL internal audit team visited Singapore to perform a review of the operations of Barings' offices in Singapore and other nearby countries.
Broadhurst had asked the internal auditors to undertake few detail examination of BFS’s transactions and also, test the trades against key documents.
In the audit report they found that there was a lack of communication in between the BFS’s back office and the front…show more content… However, when the auditors found the point further, he mentioned that it was a receivable from New York trader Spear.
On 3 February 1995, Leeson introduced to the auditors a fax message, supposedly from Ronald Baker who was head of Barings Financial Products Group and also one of Leeson's superiors, to affirm the transaction and a fax purportedly from SLK managing director Richard Hogan acknowledging the receivable. It was later found that the documents were forged, but the auditors appeared satisfied.
The external auditors cannot find the losses covered up through false journal entries, creating transactions and composing options. They were easily deceived by Leeson's changes to the books and records of BFS because they had fizzled in the first significant idea which underlies the choice and evaluation of evidence; the concept of quality of evidence. Hatherly mentions that auditors must assess the integrity of the directors and the risk of Director manipulation to assess the quality of evidence created by processes under the Director's