1. Institute of Chartered Accountants (Ghana)
Institute of Chartered Accountants (Ghana)
Corporate failures in Ghana, the role of Auditors and Accountants
27 June 2018

2. Content The Corporate Life Cycle Recent examples of Corporate Failure
The role of the Auditor
The role of Management and Directors
The response to recent failures
The way forward
Conclusion
Q&A
ICAG - Corporate Failures and Role of Auditors
June 2018

3. IN TROUBLE BUT IN CONTROL
The Corporate Life Cycle
IDEA
M&A ACTIVITY
GOING PUBLIC
RAPID GROWTH
DEMISE CURVE
MATURITY
TURNAROUND
IN TROUBLE,
NOT AWARE
IN TROUBLE BUT IN CONTROL
LOST CONTROL
Businesses go through different learning curves as they grow and mature. What started as FANTASTIC FORESIGHT either disappears forever or becomes a real business.
But whether or not the foresight was correct, EVERY business goes through some form of demise – whether it the whole group or a just a subsidiary or business unit.
Most (you will be pleased to know) come out of it. HOWEVER:
The higher up the demise curve you are when you recognise you are in trouble, the more chance you have of controlling the solution
The problem is that most corporations are in self-denial and are further down the curve than they realise - which means when they do find out, the reality becomes very FAST MOVING – and it gets even faster!
The skill set required in this space is SITUATIONAL - i.e. not particularly geared to functional or sector
It requires general management skills dealing with time-critical issues in a resource constrained environment.
Learning point: Understand the culture that grew the business; recognise that culture may not handle demise very well.
LIQUIDATION
LOST THE BUSINESS
ICAG - Corporate Failures and Role of Auditors
June 2018

4. Recent Examples of Corporate Failure
ICAG - Corporate Failures and Role of Auditors
June 2018

5. A number of high profile organisations have failed in the recent past..
ICAG - Corporate Failures and Role of Auditors
June 2018

6. 5 major Nigerian banks collapsed between 2008-2009
ICAG - Corporate Failures and Role of Auditors
June 2018

7. Internationally, various organisations have suffered the same fate….
ICAG - Corporate Failures and Role of Auditors
June 2018

8. The role of the Auditor ICAG - Corporate Failures and Role of Auditors
June 2018

9. Date
International Standards on Auditing define the purpose of an “audit”…….
The purpose of an audit is to enhance the degree of confidence of intended users in the financial statements.
This is achieved by the expression of an opinion by the auditor on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework.
In the case of most general purpose frameworks, that opinion is on whether the financial statements are presented fairly, in all material respects, or give a true and fair view in accordance with the framework.
An audit conducted in accordance with ISAs and relevant ethical requirements enables the auditor to form that opinion.
ICAG - Corporate Failures and Role of Auditors
June 2018

10. Date
International Standards on Auditing also define the role of the Auditor….
To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework; and
To report on the financial statements, and communicate as required by the ISAs, in accordance with the auditor’s findings.
In all cases when reasonable assurance cannot be obtained and a qualified opinion in the auditor’s report is insufficient in the circumstances for purposes of reporting to the intended users of the financial statements, the ISAs require that the auditor disclaim an opinion or withdraw (or resign) from the engagement, where withdrawal is possible under applicable law or regulation
ICAG - Corporate Failures and Role of Auditors
June 2018

11. Date
However, stakeholders also expect Accountants to play a safeguarding role
Various stakeholders depend on Accountants to help safeguard and protect assets against loss, mismanagement, misappropriation and theft.
Accountants do this through our varied roles including:
Auditors,
corporate accountants,
risk management professionals,
budget officers,
treasurers etc.
Accountants are positioned to bring fairness and equity to all manner of transactions and thus giving confidence to various stakeholders
ICAG - Corporate Failures and Role of Auditors
June 2018

12. The role of Management and Directors
ICAG - Corporate Failures and Role of Auditors
June 2018

13. Date
In the context of an audit, management and Directors have the following responsibilities…….
Preparation of financial statements in accordance with applicable financial reporting framework
Internal control as may be deemed necessary to enable the preparation of financial statements that are free form material misstatement, whether due to fraud or error
Provide the auditor with access to all information of which they are aware and that is relevant to the financial statements
Additional information that the auditor may request
Unrestricted access to persons within the organisation from whom the auditor determines it necessary to obtain audit evidence
ICAG - Corporate Failures and Role of Auditors
June 2018

14. The Companies Act defines a Director and their duties as follows…
Date
The Companies Act defines a Director and their duties as follows…
Definition of Director
“persons, by whatever name called, who are appointed to direct and administer the business of the company”
Duties of a Director
a fiduciary relationship towards the company, must observe the utmost good faith towards the company in any transaction
act at all times in the best interest of the company to preserve assets, further business and promote the purposes for which it was formed
In considering transactions or course of action, have regard to the interest of employees as well as member towards it or on its behalf
ICAG - Corporate Failures and Role of Auditors
June 2018

15. The Way Forward ICAG - Corporate Failures and Role of Auditors
June 2018

16. Date
We can expect increased regulation, legislation and enhanced supervision going forward….
Sarbanes Oxley Act, 2002
OECD Principles on Corporate Governance, 2004
Mandatory Audit Firm Rotation
Central Bank of Nigeria Code Corporate Governance
Bank of Ghana Corporate Governance Guidelines and other regulations/guidelines
Review by GARIA of existing insolvency legislation to enable a rescue culture
ICAG - Corporate Failures and Role of Auditors
June 2018

17. Conclusion
ICAG - Corporate Failures and Role of Auditors
June 2018

18. Accountants can help mitigate the risk of failure by rigorously applying professional standards....
As external auditors, Accountants help in ensuring;
accounting framework used in preparing financial information is acceptable
greater transparency in reporting to investors
improved corporate governance
financial reporting meet all compliance requirements as set by the regulatory bodies
In internal audit, Accountants help to ensure controls function as envisaged by management and Directors
ICAG - Corporate Failures and Role of Auditors
June 2018

19. Of particular importance is our ethical requirements as professionals….
Integrity
Objectivity
Professional competence and due care
Confidentiality
Professional behaviour
ICAG - Corporate Failures and Role of Auditors
June 2018

20. To minimise the risk of collapse, businesses should remain focused on the fundamentals….
Clients/customers and markets
Strategy
Leadership
People
Processes – esp. Governance and Risk Management
Systems
ICAG - Corporate Failures and Role of Auditors
June 2018

21. Comments/Q&A....
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