The Central Bank of Kenya (CBK) allowed audit firm Deloitte to alter and publish Chase Bank’s 2014 financial results as part of Deloitte’s cover-up of the reporting mess it created in the classification of the lender’s controversial Islamic assets, it has emerged.
Documents that Chase Bank directors submitted to Parliament last week show that Deloitte – with the backing of the CBK – not only moved the controversial assets in the bank’s balance sheet from the Other Assets line to Loans and Advances for 2015, but also restated the previous year’s report a year after they were published with the regulator’s approval.
Chase Bank directors told the National Assembly’s finance committee that Deloitte made the changes with the aim of covering up its sudden U-turn on classification of the bank’s Islamic assets that kicked up a storm and caused the lender’s collapse two months ago.
Deloitte, who were Chase Bank’s external auditors for more than 20 years, in March made a surprise about-turn to classify disputed Islamic banking assets as insider borrowing and slapped the mid-sized lender with a qualified audit opinion that caused panic among depositors, leading to its closure.
The changes and restatement of the results were even more intriguing because they were made barely a week after the CBK director of bank supervision, Gerald Nyaoma, wrote to Chase Bank confirming that the lender’s financial statement had conformed to the regulatory rules and authorised their publication on March 30 as required by law.
“We note that the annual returns on the audited financial statements and disclosures for the period ended December 31, 2015 as presented by Chase Bank Kenya conform to the format prescribed by CBK prudential guideline,” said Mr Nyaoma in a letter dated March 30, 2016.
Chase Bank directors, however, submitted to Parliament documents showing that Mr Nyaoma five days later fired another letter to the lender, insisting that it had not made full financial disclosures.
“The errors noted were that there was no mention of the bank’s auditors and whether the auditors issued a qualified or unqualified opinion on the financials,” said Mr Nyaoma in another letter dated April 4, 2016.
Chase Bank’s restated figures showed it had under-reported insider loans by a whopping Sh7.9 billion and ultimately ended up with a surprise Sh743 million full-year loss as opposed to the Sh849 million loss it had declared earlier.
The bank had reported a net profit of Sh2.3 billion for the year ended December 2014.
The documents submitted to Parliament also show that Deloitte’s covert meddling with the 2014 financial statements saw Chase Bank’s loan book for the period to December 2014 rise to Sh64.4 billion from the Sh53.8 billion in statements published a week earlier – a difference of Sh10.6 billion.
The increase was made possible by the movement of what had been classified in the balance sheet as “other assets” worth Sh11.9 billion but was later restated as Sh3.4 billion – the rest of the cash having been moved to directors’ loans and advances.
Accounting professionals said it is illegal for auditors to change the contents of financial statements that had been approved by regulatory authorities and published one year earlier without offering an explanation.
Source: Business Daily