Case 8. 11 Societe Generale 1) This was the hardest question I delt with in this case, so I went to the basics: Accounting and Auditing in France. I came across the Supreme Council of the Institute of Chartered Accountants(7) and the National Society of Auditors (CNCC). (8) After researching this I simply did a search on the individual websites for “recent developments”, and nothing major came up in regards to the individual organizations. However, on expert-comptables. fr, I came across a press release that was released in regards to the IASB and FASB giving an update to the Memorandum of Understanding.
This press release shows how the IASB and the FASB have plans to commit to a common set of high quality standards. It also laid out several projects over the next few years to reach this common goal of a higher quality, better consistency, and more comparability of financial information to investors worldwide. 2) I do not agree with this reasoning. Although the illegal trading did begin in “late” 2007, the losses did not occur till January of 2008. In the Accounting profession, we realize earnings when they take place.
Let’s say this would have happened legally and not as big of amounts, say $640,000 instead of $6. 4 billion. That loss for the bank would not have been realized in 2007. Not to mention, according to the reading, “During the first few weeks of January 2008, Kerviel made several huge trades… that European stock market … turn sharply higher by late January. Instead, those markets declined. ” (1)That statement shows that the loss of the one billion euros occurred on separate trades made in January, not late 2007. The trades that caused the loss of $6. billion occurred after these trades, therefore the trades occurred in mid-January and not in 2007 at any time. 3) To start fwith IFRS “True and Fair Override” is when a company can depart from international accounting standards under extremely rare circumstances. This means that when following standards, if a financial statement becomes misleading, than a company is allowed to depart from the international accounting standards in order to provide financial statements that are not misleading and give a fair view of the financial statement. 2) As for U. S. GAAP, “This guidance does not exist under the U. S. GAAP hierarchy set forth in FAS 168. ” (3) However is states that Justification for this is found in auditing literature but rarely ever invoked in the U. S. 4) The Statutory Auditors’ Report on Societe Generale’s 2007 Financial Statements included three sections: “I – Opinion on the Consolidated Financial Statements”, “II – Justification of Assessments”, “III – Specific Verification” (4) In an example of a US.
GAAS Standard Audit Report, I found more general information including variations of the three required sections for a French Audit Report. This Report in U. S. GAAS included 7 different titles, providing more information in the actual report and more analysis in the actual report. I would say that the U. S. GAAS report provided plenty of more information but it would seem that the French report is more summarized than the U. S. one. The main differences I would see is the specifications of detail provided.
In the French Report, they did a basic report on the Financials for Societe Generales’ 2007 Financial Statements, and reading it, it seems they simplified it when they could have made it more lengthy and informative considering the scandal that had taken place in 2007(even though it should have been reported in 2008. 5) The primary control objectives discussed in GAAS are to “require the auditor to gain sufficient understanding of the client’s internal control to plan the audit….
The main reason for this evaluation of internal control are to assess risks of material misstatement, identify types of potential misstatements, and determine the nature, timing, and extent of audit procedures. ” (5) The three primary objectives for Societe Generale are “To detect and measure the risks borne by the Company, and ensure they are adequately controlled; To guarantee the reliability, integrity and availability of financial and managerial information; and To verify the quality of the information and communications systems. (1) In a sense, these are very similar, but with very different wording. US GAAS is looking for us to asses and identify material misstatements and the potential risks for these material mistatements, as well as determining the entire auditing procedure and to what extent it will go. In the Societe Generale case, the first objective is also to detect and measure the risks and that they are adequately controlled which is just like the assessing and identifying done by the US GAAS. The main difference between the two is the third objective for Societe Generale.
They are verifying the quality of the ifnormation and communications systems. Although that is done with the US GAAS, it is not discussed as a primary objective, however a more important objective is to fi nd and prevent the material misstatements. 6) India, Denmark, Germany, Switzerland, and the UK all use Joint Audits. In France, it is a requirement, and in South Africa, it have became a requirement for companies operating in the “financial sector. ” It is even used in the U. S. , but only primarily used by the Internal Revenue Services(IRS).
Aside from the IRS using it, all of the countries mentioned are in the Western Hemisphere and deal more with the International Auditing Standards than US GAAS or any US Auditing Procedures. (6) 7) Some risk factors common to a bank client include: Overall Credit Quality, Credit Concentration Exposure, Capital Requirements, Liquidity, Regulatory Developments, and Reputational Risk. (7) Credit Concentration Exposure, Regulatory Developments and Reputational Risk are controlled items. Liquidity is a Detection item.
Overall Credit Quality and Capitla Requirements are Inherent. Liquidity can be both a control and a Detection item, however I chose Detection item because Liquidity can involve loans for different things such as houses and cars. It can also involved things such as property the bank owns and how much it is sold for, which is more of a controlled item. Overall Credit Quality is something that can be more inherent because of the fact that they don’t have direct control over it, and it is not something that can be liquidated.
Capital Requirements fall into the same category for liquidity. A bank also can’t really control the capital requirements provided to them, if they have some of their own they may be able to control them, depending on the government controls set forth for them. As for my controlled items, I chose control for all of them because the bank can control the Exposure of their Credit Concentration, just as I as a human can control who is allowed to check my credit score. The reputation of the bank can also be controlled by it by how they portray theirselves and conduct businesses.
A thing like a scandal because of fraudulent financial statements would be a huge reputational risk. Regulatory developments for a bank can be controlled, but not fully. The bank can put theirselves in position to help the process of these developments both for banks nationally, and for their own banking company. Reference http://aaahq. org/meetings/AUD2010/SocieteGenerale-InstructionalCase. pdf (1) http://hasaanfazal. blogspot. com/2010/03/acca-what-is-meaning-of-true-and-fair. html (2) http://www. ifrsaccounting. com/ifrsconsiderations. html (3) ttp://docs. google. com/viewer? a=v&q=cache:gm1j-UhLjgwJ:www. aicpa. org/InterestAreas/GovernmentalAuditQuality/Resources/DownloadableDocuments/IllustrativeAuditorsReportsUnderGASFINAL. pdf+example+of+a+standard+audit+report+issued+under+GAAS&hl=en&gl=us&pid=bl&srcid=ADGEESjEeWhOt_xiNH4FhWcwXm6Wbfri8blFDovCwEpjEMOlxc8eP3j9HBgw zBbsr7YYQoI-Xk-RGpv9AFTeaOCg3gyWYfFqwLluDZVnQxdWwwQ1X6YHrWKbYKPg5dCHIc7agct HO8Pa&sig=AHIEtbRUAp4bITupAl84-k9IL1z3FbhMTw (4) http://docs. google. com/viewer? a=v&q=cache:U0I5SUHfUbgJ:www. ga-pdnet. org/Non_VerifiableProducts/CourseNotes/2010/au1/module05. pdf+Primary+GAAS+Internal+Control+Objectives&hl=en&gl=us&pid=bl&srcid=ADGEEShm2RF4_entusCsxptjw9aSfPo9v5ooqXuFBg4xIIMtFUU_rM957iuz JDPEwB1Nx3oMg409FHo2_hpLhIcppiIB6HWWxGQaKlsbMTwcxFviHD0Q7WU–sP36PLYAvnh5yjHrsYf&sig=AHIEtbRNrZ_YO16p2oZpE4LbV-9pegAq-A (5) http://en. wikipedia. org/wiki/Joint_audit (6) http://www. ababj. com/briefing/three-key-steps-community-banks-can-take-to-mitigate-the-risk-of-failure. html (7) http://translate. google. com/translate? l=en&sl=fr&u=http://www. experts-comptables. fr/&ei=fli3TvnCNMmU2AWH1v3MDQ&sa=X&oi=translate&ct=result&resnum=1&sqi=2&ved=0CCcQ7gEwAA&prev=/search%3Fq%3Dcsoec%26hl%3Den%26biw%3D1536%26bih%3D807%26prmd%3Dimvns (8) http://translate. google. com/translate? hl=en&sl=fr&u=http://www. cncc. fr/&ei=rFi3To3fAuOU2wWY6e3MDQ&sa=X&oi=translate&ct=result&resnum=1&ved=0CBwQ7gEwAA&prev=/search%3Fq%3DCNCC%2Bfrance%26hl%3Den%26biw%3D1536%26bih%3D807%26prmd%3Dimvns (9)