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Is auditing in crisis? — Nana Otuo Acheampong asks 

By: Emmanuel Bruce
Nana Otuo Acheampong

Banking consultant, Nana Otuo Acheampong has asked if the auditing profession was in crisis following a series of scandals that have hit some of the major auditing firms in the world, coupled with the roles that auditing firms played in the collapse of the seven banks in Ghana.

Following the collapse of the seven banks in the country, experts have called into question the credibility of the auditors of the banks who failed to detect the irregularities and flag same in their audited accounts.

Speaking at the annual general conference of the Ghana Bar Association, Nana Otuo asked if globally, the profession was in crisis, stating that regulators, investors and the wider public had lost confidence in the audit market.

“The ‘Big Four’ accounting firms have been hit by one scandal after another. Last June, auditor PwC was fined US$625m in connection with their audit of the collapse of Colonial Bank in 2009. Again in June, KPMG was fined £4.5m over their audit of Quindell. The firm admitted to two counts of misconduct and said it "should have gone further" in challenging the scandal-ridden company's accounts,” he stated.

“In the same June, the Financial Reporting Council brought disciplinary action against Deloitte over their failure to adequately challenge issues with Autonomy’s accounts which led to a US$8.8bn write-down. On Sept 7, last week, the chairman of the UK’s top financial regulator warned accountants that they need to address the issue of audit quality “as a matter of urgency” after a series of scandals and corporate collapses that have thrown a spotlight on failings in the sector,” he added.


Prudent risk management

Also speaking at the conference, the second Deputy Governor of the Bank of Ghana, Mrs Elsie Addo Awadzi said banks currently held over 80 per cent of the total assets of Ghana’s financial system. 

She said it was, therefore, incumbent on them to understand their critical role and the risks they introduce into the financial system and the economy in their daily business practices.

“They must manage their risks prudently,” she stated.


Poor corporate governance 

She said underlying the legacy problems in the banking sector which have recently been witnessed, were years of poor corporate governance, poor risk management practices, related party transactions that were not above board, regulatory non-compliance, and poor supervision, leading to a significant build-up of vulnerabilities in the sector.

She said poor governance and management practices result inevitably in losses which negatively affect liquidity and/or solvency. 

She noted that the problems may be hidden for a while, but the truth will eventually become evident, leading eventually to collapse if remedial actions were not promptly taken. 


Critical look

She said the BoG had in the past year taken a critical look at the banking sector.

“Persistent liquidity challenges that were being experienced by some banks raised red flags that made it imperative for us to take a deeper dive in examining banks, in line with our renewed emphasis on the risk-based supervisory approach,” she stated.

“Our deep dives uncovered shocking realities. Among other things, a number of banks had been dealt fatal blows by some of their own shareholders, some directors and sometimes senior managers through practices that jeopardised the interests of these banks as legal persons in their own right, and those of depositors, creditors, employees and other stakeholders,” she added. — GB