What you need to know:
- Spotlight shifts to CBK, accountants institute over irregularities that hit financier
- The CBK is the primary banking regulator and ICPAK the accountants’ body mandated with regulating auditors.
- The capital markets regulator last Wednesday said its investigations had found the NBK officials liable for misrepresenting the bank’s financial statements
The Central Bank of Kenya (CBK) and the Institute of Certified Public Accountants of Kenya (Icpak) have denied laxity in detecting massive accounting fraud that recently saw eight former senior executives of troubled National Bank of Kenya (NBK) fined millions and banned from holding office.
The CBK is the primary banking regulator and ICPAK the accountants’ body mandated with regulating auditors.
“In keeping with its mandate as the banking sector regulator, the Central Bank of Kenya (CBK) initiated and caused the investigation of allegations of financial and other irregularities at the National Bank of Kenya (NBK) in 2015,” said CBK.
“In light of the magnitude of the malpractices that were revealed to CBK, some immediate actions were taken. These included the statutory external audit, following which the final December 2015 accounts were correctly stated by inter alia ensuring that additional provisions of over Sh2 billion for non-performing loans were effected leading to a loss of Sh1.6 billion,” said CBK.
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Subsequently NBK announced the suspension of six senior management officials, including the CEO.
“The information provided by CMA is indication of what the auditors did. This was a governance issue on the part of National Bank of Kenya,” Edwin Makori ICPAK chief executive told the Business Daily in an interview.
This came as experts raised the red flag that traditional measures of corporate governance may not be foolproof in predicting fraud and regulators need to do more to protect investors.
While Capital Markets Authority (CMA) rules require all the listed entities to publish financial statements on a quarterly basis, there is no requirement to get them audited, a massive loophole that rogue management exploit to cook books.
“Unfortunately there is no specific regulatory body that ensures authenticity of the financial reports published by management on quarterly basis,” said Kunal Ajmera, chief operating officer at consultancy Grant Thornton.
“The reliance is placed on the integrity of the management that the financial statement published by them represents true and fair view of the affairs of the institute they represent.”
The capital markets regulator last Wednesday said its investigations had found the NBK officials liable for misrepresenting the bank’s financial statements for the periods ended June 30, 2015 and September 30, 2015.
The accounting fraud has seen the spotlight shift to the banking regulator and the accountants’ body.