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Report on

Corporate Frauds & the Role of the


auditors: Bangladesh Perspective

Faculty of Business Studies


University of Dhaka

SUBMITTED TO
Tahmina Ahmed
Lecturer
Accounting & Information Systems
University of Dhaka

SUBMITTED BY
Group 18

Date of submission:10.11.14

Group members:
Name

ID

1.Sajjad Hossain Sohan

18022

2.Rubina Akther

18048

3.Mohammad Saadman

18052

4.Rumi Akther

18066

5.Hilary Talukder

18099

November 5, 2014
Tahmina Ahmed
Lecturer
Dept. of Accounting & Information Systems
University of Dhaka
Subject: Submission of report on Corporate fraud & the role of the auditor: Bangladesh
Perspective
Dear Madam,
We are honored and pleased to inform you that as per the requirements, we worked on
the issue of the preparation of a report based on the corporate frauds & the role of the
auditor in Bangladesh perspective. To fulfill the report objective, we analyzed &
reviewed some of the secondary information available on the internet related to the topic..
Based on our classroom knowledge on the related issues, we tried to make the report as
specific and unique as possible. We humbly submit this report for your review and
feedback. Preparation of this report demanded a minimum level of working knowledge of
the process of audit & assurance . We also tried to follow your instructions properly now
and when necessary.

We would like to request you to allow us to submit the report.


Sincerely Yours
Group 18

Table of contents
Chapter one: Introduction to the report
1.1:Executive Summary

6-8
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1.2: Introduction
1.3: Objective
1.4: Scope
1.5: Methodology
1.6: Limitation
Chapter two: Literature Review
2.1: Corporate Fraud definition
2.2: Types of corporate fraud
2.3: Role of the auditors in frauds
2.4: Auditors perspective regarding fraud involvement &consequences

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7
7
7
8
9-13
9
10
10
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2.5: Work done in Bangladesh regarding corporate fraud


Chapter three: Findings
Corporate fraud cases in Bangladesh
Reasons behind corporate frauds & auditors role
Aftermaths of the fraud
highlights of the study.
Chapter four: Recommendations & suggestions.

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14-20
14
16
18
18
20

Chapter five: Conclusion

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Chapter One: Introduction


1.1:Executive Summary
The purpose of this paper is to propose a study on the corporate fraud cases & the role of
auditors in Bangladesh perspective. It is tries to find out the reasons behind auditors
involvement in the frauds & consequences.
For this purpose, we collected & analyzed several research papers & other secondary data
like: newspapers reports. The unavailability of data in Bangladesh perspective was the
main hindrance in preparing the report .
Finishing the report we found out in spite of certain exceptions not much development or
research has been done regarding corporate fraud in Bangladesh. Even among the
available secondary data, only a few actually highlights the poor condition of auditors in
the country. Though Bangladesh bank & other governing bodies like SEC has been more
cautious & have started taking necessary steps recently, they arent sufficient enough to
better the condition. Several steps need to be taken to reduce corporate frauds & auditors
involvement in them.

1.2 : Introduction
Fraud has become very complicated in this era of technology, and increasingly difficult to
detect, especially when it is collusive in nature and committed by top management who are
capable of concealing it. In this respect, auditors have argued that the detection of fraud should
not be their responsibility (Alleyne and Howard, 2005). Consequently, the term fraud in prior
auditing standards referred to irregularity which incorporated fraudulent financial reporting as
well as employee theft and embezzlement, we limit our focus to management fraud or fraudulent
financial reporting, which relates primarily to managements intentional misrepresentation in
financial statements (Guan, et al., 2008). Generally, frauds relating to financial reporting involve
deliberate distortion of accounting records, falsification of transactions, or misapplication of
accounting principles. Regardless of how the fraud is manifested, it is typically difficult for
auditors to discover since the perpetrators take steps to deliberately conceal the resulting
irregularities. Given the difficulty that auditors face in detecting financial statement fraud,
coupled with their increasing responsibility to detect it, there is a definite need to develop audit
procedures or strategies more specifically focused on fraud detection (Knapp and Knapp, 2001;
Guan, et al., 2008).
Over the last two decades, there have been developments concerning fraud which some have
seen as marking significant extension to audit responsibilities. The accounting profession has
been jeopardized by some unprecedented crises caused by high-profile business and audit
failures like WorldCom, Enron, Cendant, Sunbeam and Waste Management. In Enron debacle
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the criticism of Arther Anderson unearthed the fact that Auditor (Anderson) was a dominant
clientin the Auditees (Enron) Houston office (Taylor and Todd et al. 2003). The above
mentioned issues and concerns squarely lead to the question of upholding auditors independence
and reliability to serve public interest best. In this commentary we would like to unearth the
mechanism so as to formulate a roadmap to repositioning the role of auditors and accountants in
an ever changing corporate world.
In Bangladesh, a number of corporate fraud cases have also arisen. Cases like Hall-Mark,
Destiny 2000,Unipay to U Bangladesh etc have clearly shown the weak position of the audit
profession in the country. However, modern world is constantly undergoing changes to improve
the audit profession & empower the auditors in fraud detection. It is fact that
recently corporate world is taking more measures to combat fraud and launching new antifraud
initiatives and programs by appointing forensic accountant in response to the Sarbanes Oxley
Act of 2002 than to prior years specially because of the occurrence of strong shocking corporate
scandals. Hopefully, the current measures would be sufficient to lessen auditors involvement in
frauds & better the fraud detection process.

1.3 : Objective
The main thrust of this study has concentrated on the issues relevant to the corporate frauds in
Bangladesh and the role of the auditors in them.
So, the specific objectives of this study are as follows:
To evaluate the cases of corporate frauds in Bangladesh.
To find out the roles played by the auditors in those frauds

1.4: Scope
The report is structured to give a best view of the series of events possible. Starting with Chapter
1, the theoretical foundations (i.e; objectives, limitations, methodology). In Chapter 2, the paper
continues to present the secondary data analysis collected from the internet. Chapter 3 dictates
the findings of the study with possible explanations. chapter 4 contains certain recommendations
& finally chapter 5 concludes the report.

1.5: Methodology
In order to achieve the objectives of the study mainly secondary data have been used. The data
was mainly collected from the internet. Different research papers, articles have been used in the
preparation of the paper.

1.6:Limitations
The most significant hurdle faced during the preparation of this report was the unavailability of
data. Access to a clear and sophisticated data set in Bangladesh was very hard as only a few
researches have been done regarding the topic.

Chapter Two: Literature Review


2.1: Corporate fraud definition
Corporate frauds are dishonest or illegal activities that are designed to give an advantage to the
perpetrating individual or company [Investopedia.]
Corporate crime refers to crimes committed either by a corporation or by individuals acting on
behalf of a corporation or other business entity [Wikipedia]
Corporate fraud encompasses violations of the Internal Revenue Code (IRC) and related statutes
committed by large, publicly traded (or private) corporations, and/or by their senior executives.
[Internal Revenue Service, USA]

The term fraud in prior auditing standards referred to irregularity which incorporated
fraudulent financial reporting as well as employee theft and misappropriation of assets, we limit
our focus to management fraud or fraudulent financial reporting, which relates primarily to
managements intentional misrepresentation in financial statements [Guan, et al.( 2008) ].
The term fraud is commonly used to describe a wide variety of dishonest behaviors such as
deception, bribery, corruption, forgery, false representation, collusion and concealment of
material facts. It is usually used to describe the act of depriving a person of something by deceit,
which may involve the misuse of funds or other resources, or the supply of false information.
Actual gain, benefit or loss to another does not have to occur for an act to be fraudulent but there
does have to be intent to make a gain or cause a loss. [Her majestys treasury, UK.(2012)]
Fraud has been defined in the Act to require that the fraudster was dishonest in his/her behavior
and that he/she intended to make a gain or cause a loss to another in one of the following ways:
a) False representation
b) Failing to disclose information
c) Abuse of position [UK Fraud act 2006]

2.2: Types of corporate frauds


Edwin Sutherland's definition of white collar crime is related to notions of corporate crime. In
his landmark definition of white collar crime he offered these categories of crime:

Misrepresentation in financial statements of corporations


Manipulation in the stock market
Commercial bribery
Bribery of public officials directly or indirectly
Misrepresentation in advertisement and salesmanship
Embezzlement and misappropriation of funds
Misapplication of funds in receiverships and bankruptcies

2.3: Role of the auditors in frauds


According to BSA 240 the Auditor's Responsibilities Relating to Fraud in an Audit of Financial
Statements recognizes that misstatement in the financial statements can arise from either fraud or
error. The distinguishing factor is whether the underlying action that resulted in the misstatement
was intentional or unintentional. Its the responsibility of the auditor to obtain reasonable
assurance that the financial statements are free from material misstatements. Though contrary to
the common perception its not auditors duty to detect & prevent fraud .If auditor identifies any
fraud he needs to report to the management or those charged with governance. However ,there
have been cases around the world where auditors themselves were involved in the frauds.
i)Enron: In case of Enron, the auditors permitted the company to use a new accounting method
called market to market in which its the the price or value of a security is recorded on a daily
basis to calculate profits and losses. Using this method allowed Enron to count projected
earnings from long-term energy contracts as current income. This was money that might not be
collected for many years. It is thought that this technique was used to inflate revenue numbers by
manipulating projections for future revenue.
ii)Worldcom: Fraudulent accounting at WorldCom was a collusive action among top
management and a few accountants, in conjunction with weak controls. According to the
ACFEs 2008 Report to the Nation, the collusion resulted in a median loss over four times
higher than the amount lost in schemes committed by a single perpetrator. The scheme lowered
line costs (the companys largest single expense) by capitalizing them as prepaid capacity and
reversing allowances without sufficient justification. The corporate motive for this fraud was to
meet Wall Streets expectations for growth and also to hide real, deteriorating operative results,
which were caused by the bursting dot-com and telecom bubbles. But there were individual
drivers also: personal financial enrichment through misappropriation of corporate assets
(especially cash) and a mix of other personal targets such as the improvement of social and
business status (for example, CEO, CFO), the advancement of a professional career (for
example, CFO, chief controller), and job security among several senior accountants.

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2.3: Auditors Perspective regarding fraud involvement &Consequences


According to the 2007 Oversight Systems Report on Corporate Fraud, these motives parallel
statistical data about why people say they commit fraud:

Pressure to do whatever it takes to meet goals (81 percent)


Personal gain (72 percent)
I wont get caught (41 percent)
I dont consider it as fraudulent (40 percent)
The belief that regulations can easily be bypassed (21 percent)

Additionally, people are subject to overestimate their capabilities with a tendency to


megalomania as they become more and more successful and admired by the public, as in Ebbers
(worldcom) case. His financial escapades, both business and personal, were legendary.
The reason behind the involvement of the auditors in the frauds is similar to the others of the
management. They become involve in frauds because they want to gain power & monetary
benefit from being involved in the frauds. In most of the biggest accounting scandals auditors are
paid a huge sum of money & been supporting the management for years. Auditors involvement
in the frauds can be better understood by the fraud triangle model of ACFE(Association of
Certified Fraud examiners)-

Pressure

Fraud

Opportunity

Rationalization

Fig: The fraud Triangle

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The fraud triangle originated from Donald Cressey's hypothesis:


Trusted persons become trust violators when they conceive of themselves as having a financial
problem which is non-shareable, are aware this problem can be secretly resolved by violation of
the position of financial trust, and are able to apply to their own conduct in that situation
verbalizations which enable them to adjust their conceptions of themselves as trusted persons
with their conceptions of themselves as users of the entrusted funds or property
So auditors get involved in frauds when there is pressure from the management (often involve
monetary offers) & they want to accept that opportunity & help to rationalize & hide the
accounting frauds by the management .Generally auditors involvement in frauds are hidden for
years .However, some of the cases have been exposed creating some of the biggest accounting
scandals .For ex-The infamous Enron scandal caused the Big 5 to turn into Big 4 causing the
elimination of Arthur Endersen from the biggest five audit firms of the world. All WorldCom
fraudsters were sentenced. Former CEO Bernie Ebbers received 25 years in prison a virtual life
sentence because he was in his mid-60s at the time. The CFO got a five-year prison sentence and
his chief controller one year and one day. In addition, the corrupt senior accountants were jailed
or faced long-term probation. After all these big accounting frauds the Sarbanes Oxley act was
introduced. Sarbanes Oxley act introduced the following provisions to lessen frauds:
1. Under the regulations of the SOX Act and the PCAOB, it is now required for all accounting
firms to be registered and illegal for an unregistered firm to issue audit reports for publiclytraded companies .
2. Firms that had audit clients could no longer offer these same clients additional consulting
services
3. Instead of reporting to the firms executives, auditors now reported to an audit committee of
the firms Board of Directors .
4. At least one member of the committee is legally required to be a financial expert .
5. Partners of an auditing firm can only supervise the same client for five years at a time .

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2.3: Work done in Bangladesh regarding corporate fraud


There havent been any significant work done regarding corporate fraud in Bangladesh.
However, some of the banking frauds have caused Bangladesh Bank to be extra cautious. The
central bank has taken some 'effective' regulatory initiatives including installation of software for
checking fraud and forgery in the country's banking sector.
Under the latest moves, the Bangladesh Bank (BB) will introduce the software - integrated
supervision system (ISS) for collection of financial statements on monthly basis from all bank
branches across the country. The foreign exchange branch, officially known as authorized dealer
(AD) branch, and headquarters of all banks have already been instructed to provide their key
indicators including credit and deposit positions using the ISS .Bangladesh Bank has formed a
four-member committee, headed by a deputy general manager, to update its procedural
guidelines for inspectors for improving their quality of inspection. According to BB The
amended guidelines will help the inspectors to identify various irregularities in the banking
sector through using latest techniques .The check-list for core risk management guidelines
inspection will be reviewed under the amended guidelines aiming to minimize financial risks of
the banks.
The central bank earlier identified six core risk areas in the banking sector. The risk factors are:
credit, asset and liability, foreign exchange, information technology, internal control and
compliance, and money laundering.
Besides, inspection strategies of the central bank have been amended to address the recent
foreign exchange irregularities using accepted bills and inland bill purchases (IBPs) in both
foreign and local currencies.
During the inspection of AD branches, the inspectors will collect different information including
foreign bills' purchases (FBPs), loans against trust receipts (LTRs), payment against documents
(PADs), loan against imported merchandise (LIM), forced loans and off-balance exposures.

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Chapter Three: Findings of the study


3.1: Corporate fraud cases in Bangladesh
Economic experts believe that after the massive scam in the share market, which visibly has
ruined lives of at least 3 million people in Bangladesh, the next catastrophe that is set to take
place in the country is from the fraudulent Multi Level Marketing [MLM] Companies.
Meanwhile, one of the major MLM Companies in Bangladesh. Bangladesh government has
already instructed various intelligence agencies in the country to gather comprehensive
information on the alleged fraudulent activities as well as financial irregularities of the Multi
Level Marketing Companies. Bangladesh Bank, at the directives of the Governor has also started
investigation into the cases. Some of the cases are discussed below:
Destiny 2000 Ltd: There are specific allegations against Destiny Multi Purpose Cooperative
Society for openly operating as a bank, without any permission of license issued by the
Bangladesh government. the company is selling non-existing trees to the innocent people by
offering them high profit. Destiny 2000 Limited has already collected an amount equivalent to
US$ 7 billion [nearly 50 thousand crore Taka] from the public by selling fictitious shares of their
so-called plantation projects in Bangladesh.The promoters of Destiny 2000 Limited are
continuing to illegally transfer millions of dollars to various countries in the world, using private
channels via China.
Unipay2u:Unipay2u has already disappeared robbing few hundred millions of Taka from the
innocent people by alluring them with high profit promises. Another large cooperative society
named JUBOK, which also started illegal banking, was recently shut down by the government
and legal proceedings are now undergoing against the promoters of JUBOK for their illegal
activities.
Jubok:A large cooperative society named JUBOK, which also started illegal banking, was shut
down on 2011 shut down by the government and legal proceedings are now undergoing against
the promoters of JUBOK for their illegal activities .
Dolancer:An outsourcing company Dolancer is also apparently involved in fraud by charging
people 100 dollars to be a member & falsely showing in the description that the company is 20
years old.While actually the company was incorporated on 25 feb 2011
Hallmark :Many wonder if, but not all agree that the failure of Sonali Bank, Ruposhi Bangla
Branch to prevent the fraudulent misappropriation of Tk.3,607 crores by Hallmark Group
(Tk.2,668 crores) and others is the biggest scandal in the banking industry. In recent times,
several such frauds -- (a) misappropriation of Tk.622 coroes by one Nurunnabi in Chittagong in
2007 through a false local letter of credit, (b) embezzlement of Tk.596 crores withdrawn without
cheque from Oriental Bank in 2006 (alleged Hawa Bhaban connection), and (c) transfer of
Tk.300 crores by forgery from five banks by one Om Prokash in 2002 -- were not as heinous as
bank defrauding. Perhaps more damaging has been the transfer in their personal accounts of
more than Tk.4,500 crores by the powers that be from the mother account of the infamous
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Destiny Group before the eyes of the banking authorities several months into the first sighting of
the alleged fraudulent and illegal deposit taking from the members of the public.
Apart from these cases, one of the major sectors of corporate fraud in BD is share transfer
Properties worth millions can be transferred by forging two or three signatures & RJSC(Registrar
of Joint Stock Company doesnt check the documents properly.
.Here is a table showing fraud cases in Bangladesh & their victims(It was collected On sample
basis)Company name

Victims

Existing
Workers

Total

Destiny 2000
Ltd

25

30

Speak Asia

Unipay to U
Bangladesh

E links

17

19

Dolancer

Lifeway Private
Ltd

Rich Business
system Ltd

Online Add click 9

10

Total

22

90

68

Universal
people

Total
respondent

10

100

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3.2: Reasons behind corporate failures & auditors roleAt first, we analyze the infamous Hallmark scandal by the Destiny 2000 Ltd. A scam of this
magnitude could be possible because of the following reasons:
1. Weakness in the management of the bank
2. Weakness in internal oversight and control and
3. Most of all, due to collusion of some insiders in the bank and outsiders .
The situation also reflects the lack of governance and overall control of the Banks Board of
Directors, because they should have exercised their supervision and control over such a huge
amount of loan. Usually, banks conduct audit of a branch once a year, sometimes twice. So here
it is important to look into how the Board of Directors as well as the management led by the
managing director supervised the process of providing such a huge amount to a single company.
Generally, the monitoring and control by the bank's Board of Directors and its Audit Committee
and the Asset Liability Management Committee (ALCO) are imperative in such a big
transaction. If proper audit had been conducted in this case why did the management (managing
director and the staff below that) and the Board of Directors not examine the audit report? And if
they did, then why had they not expressed their opinion or take action against the perpetrators? If
audit reports were not placed before the Board, why the Board did not take action at the right
time? This is an instance of an amazing combination of abject lack of supervision, control,
unwillingness to take action, failure of policy direction, greed, forgery and corruption.
According to the audit report, as of May 31 2012, the bank had disbursed Tk 3,699 crore as loan,
of which Tk 3,606 crore was disbursed without maintaining banking rules.The report said the
branch manager did not follow the banking rules while sanctioning and disbursing the loans. He
had also taken advantage of the loose supervision by the principal and general managers offices
and the head office. He had adopted unauthorised ways to disburse the huge amount of money as
his clients wished.
On the other hand, the report said, the branch officials intentionally refrained from maintaining
relevant documents properly. The top management, including the managing director and general
managers office, also did not monitor and evaluate the growth in loan disbursement by the
Ruposhi Bangla Hotel branch, the functional audit report said. The functional audit report said
the top management of the bank had remained mysteriously silent for a year, since February
2011, although the signs of irregularities in the branch came to light through various internal
inspections.
In 2009 and 2010, an internal inspection team detected gross irregularities in international trade
of the branch and submitted a report in February 2011, but the International Foreign Trade
Division of the bank did not take any steps in this regard. Besides, the foreign trade division also
did not monitor the abnormal loan disbursement growth, 1,938 percent in some categories, the
report added.
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Such a scandal highlights certain points:


1.Auditors are helpless in the hands of the top management. Even though the regular audit
team(external) reported suspicious activities from year to year, they couldnt stop managements
illegal activities.
2.Auditors lack the courage to act as the whistle blower. The auditors couldve used the media to
know about this matter but they didnt.
3. Rather than monitoring the branch properly, the top management in different times appraised
the branchs activities. The audit report quoted one of the banks internal reports that read:
AKM Azizur Rahman is managing the branch efficiently with his extraordinary talent, foresight
and banking knowledge .So this shows that even internal auditors were involved in the scandal.
Anothe one of the biggest corporate scandals in the history of Bangladesh is share market
collapse in 2011. Millions of small investors have lost all their investments due to the stock
market crash. The crash is deemed to be a scam and exacerbating due to government failure.
When investors pay a part of the future market contracting in cash or selected instruments in an
account with a broker is called Margin. To make sure the obligations of the investor when the
contract expires, more margins are necessary if value of the contract decreases. The process is
called 'margin call'. On the 'Black Monday', price movement of future contracts created record
amount of margin calls for firms which were about 10 times the average size. Collected
payments are paid to the investors, whose position had gained. Some investors lost their ability
to enter new positions due to margin calls and some needing extension of credit to make the
payment. As investors were unable to pay margins, brokers placed emergency margin calls with
exposed option positions, which were assumed to be liquidated due to failure of meeting margin
calls. On the other hand, maximum big investors quit their investment selling their shares. As a
result, small investors panicked and they were selling their shares in spite the losses. It occurred
repeatedly which possibly prompted selling pressure in the market and the markets were not able
to handle these sale orders.
.Within December 2010 and January 2011, the DGEN index fell from 8,500 by 1,800 points, a
total 21% fall, with masterminds of the crash making about BDT 50 billion ($ 667 million) out of
the scam. The market fell by 5% on 12 June, before taking a 4% plunge on 11 October, sending
the market into further turmoil. The fall finally triggered small investors to go on a fast-untodeath on 16 October after forming the Bangladesh Capital Market Investors' Council
Opposition politicians declared their solidarity with the protesters. The market stood at around
5,500 index points in October 2011 from 8,900 only a year ago.
A probe committee was formed to investigate the stock market crash on 24 January 2011,[2] with
former Bangladesh Bank Governor Ibrahim Khaled heading the four-man high-powered
committee.
The committee provided their findings after three months, on 7 April. It identified an array of
chicanery performed by some 60 influential individuals that resulted in the recent market crash.
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The committee interviewed all members of both the DSE and CSE, and consulted journalists and
analysts before presenting their report. The committee found various irregularities, including the
existence of omnibus accounts, that allowed some market players to make exorbitant profits at
the expense of the retail investors. Among the 60 identified primarily included chairman of
Beximco and the mastermind of the 1996 market crash Salman F Rahman, former DSE president
Rakibur Rahman, SEC chairman Ziaul Khandaker, SEC member Mansur Alam and BNP
politician Mosaddek Ali Falu. The report mentioned that pro-government business tycoons,
including Salman and Rakibur, exerted influence within the SEC by influencing the appointment
of its members. The report ended with recommendations to reform the SEC drastically and asked
the government to publish the names of the influential players and to remain cognizant in
countering their influences
This situation also shows the helpless condition of the auditors in the country. The auditors of the
companies couldve reported the suspicious trasnsfer of shares of the company, but they didnt. It
also shows that SEC(Securities Exchange Commmision) do not monitor the auditing process

3.3: Aftermaths of the frauds


After such scandals the bodies in charge with governance has taken some significant steps:
1. BSEC brought amendments to the Securities and Exchange Commission Rules 1987 for reauditing financial reports at its own cost, if such reports are found faulty) .
2. Under the amended guidelines, the Bangladesh Securities and Exchange Commission (BSEC)
said it may appoint an auditor in the public interest to undertake special audit of the financial
statements of a listed company in consultations with respective primary regulators, if felt
necessary. Auditor will have to submit the audit report to the commission within two months
from the date of its appointment.
3.Under the latest moves, the Bangladesh Bank (BB) will introduce the software - integrated
supervision system (ISS) for collection of financial statements on monthly basis from all bank
branches across the country

3.4: Highlights of the study


After going through the entire above mentioned portions, the following points become clear:
i) It is almost impossible for the internal auditors to go against managements will. In the
Hallmark scandal the internal auditor had given positive feedback to the management activities
even though they were full of fraudulent activities.
ii)Most of the auditors are reserved in nature & are not willing to involve themselves in the fraud
exposal .
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iii) There is inadequacy in most of the audit methodologies. Most audits represent a snapshot of a
given point in time - in other words, they don't show the situation before or after an audit
iv) There is a limited supply of experienced auditors with the necessary range of skills required.
So sometimes companies hire incompetent auditors & thus the audit quality is compromised.
v) The SEC & RJSC do not go through the audit reports properly & thus miss a number of
significant points.
vi) Even external auditors who are expected to be independent are helpless in the hands of the
top management. Even though the regular audit team (external) of Destiny 2000 Ltd reported
suspicious activities from year to year, they couldnt stop managements illegal activities.
vii) Properties worth millions can be transferred by forging two or three signatures & RJSC
(Registrar of Joint Stock Company doesnt check the documents proper

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Chapter Four: Recommendations & Suggestions


The following steps can be taken to improve the auditors condition in Bangladesh & lessen
corporate fraudsi) Ensure independence of the audit committee: Companies should better their condition to
ensure the independence of the audit committee so that internal auditors can work more
successfully.
ii) Disclose of suspicious activities :Audit firms need to be more open minded & willing to
disclose suspicious activities of the client even if not stopped after continuous reporting.
iii)Subject all public companies to a forensic audit on a regular basis: A forensic audit is the
most aggressive and costly way to detect fraud. A forensic audit is a much more detailed audit
involving the evaluation of all company records and the questioning of all company employees.
Public companies would be required to undergo a forensic audit on a regular basis (e.g., every
three to five years).
iv)Subject all public companies to a forensic audit on a random basis: A less costly version of
the preceding proposal would be to subject a sample of public companies to a forensic audit on a
random basis. Although this recommendation might uncover fewer frauds, the possibility of
being scrutinized in such detail could have a significant deterrent effect.
v)Other choice-based options :Another possibility would be to enlist more participants in
selecting the intensity of the audit for fraud. As an example ,the possibility of investors deciding
on the type of fraud detection effort they want the auditors to perform. The shareholders could
base this decision on information presented to them regarding the costs of the different types of
audits as well as the historical experience of the company with respect to fraud. Alternatively,
the board of directors or the audit committee could decide on the intensity level of fraud
detection.
vi) Betterment of governance process: Clearly the governance process of Bangladesh is poor.It
needs to be strengthened. Those in charge of governance need to be more cautious.

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Chapter Five: Conclusion


Fraud causes tremendous losses to the business world and creates morale problems in the
workplace. These losses are serious problems to organizations that need to be managed,
controlled and monitored. In this concern, the auditor has a responsibility to plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether caused by error or fraud. Because of the nature of audit evidence and the
characteristics of fraud, the auditor is able to obtain reasonable, but not absolute assurance that
material misstatements are detected. Therefore, the role of the auditor is not to detect fraud, but
in planning an audit so that there is reasonable expectation of discovery.
Auditors must always keep in mind that fraud is committed by top management may be more
prevalent and harder to detect because an employee may be less likely to object if he is ordered
to make false entries, and less likely to report his knowledge that the other person is doing so. In
general, fraud detection is the responsibility of management, who controls the day-to-day
running of the organizations. Auditors are not responsible for preventing and uncovering fraud.
Auditors must do continuous risk assessment and tailoring of their audit strategy to suit. The
attitude of professional skepticism also implies management must also be considered as a risk
factor. Inspite of the reserved nature of the audit profession, as a citizen of the country auditors
need to act more willing in fraud exposal & try to maintain the honesty & straightforwardness.

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