ValueBuddies.com : Value Investing Forum - Singapore, Hong Kong, U.S.

Monies can be transferred into the bank account before the audit and then t/f back out. Chinese company are good at this type of money TaiChi.

"it appears that banks often have a very close relationship with the company."

"I can tell you there are serious problems in China with regard to certain bank employees who collude with companies,"

http://online.wsj.com/news/articles/SB10...2132347276

(04-02-2014, 03:22 PM)BlueKelah Wrote: [ -> ]Monies can be transferred into the bank account before the audit and then t/f back out. Chinese company are good at this type of money TaiChi.

This type of cash movements can typically be caught by the cash book review. Auditors will review all material cash inflows and outflows from bank accounts for a few selected sample months. Usually the the last month of a financial year is also selected to detect such movements.

(04-02-2014, 04:04 PM)Clement Wrote: [ -> ]

(04-02-2014, 03:22 PM)BlueKelah Wrote: [ -> ]Monies can be transferred into the bank account before the audit and then t/f back out. Chinese company are good at this type of money TaiChi.

This type of cash movements can typically be caught by the cash book review. Auditors will review all material cash inflows and outflows from bank accounts for a few selected sample months. Usually the the last month of a financial year is also selected to detect such movements.

Hi Clement,

let's say that you are the audit partner of a publicly listed Singaporean company.

You have reasons to believe that your client, the publicly listed Singaporean company, is faking its cash balance because:
1) despite having big net cash balances and generating healthy profits, the company's share price has been below its net cash value per share for a couple of years
2) despite being cash rich, the company has consistently done share placements to raise funds. Management says that the funds raised are to be used for general corporate purposes.

You know that the bank confirmation done by your audit team is legit because:
1) the bank confirmation form was personally mailed out by your audit team
2) the bank accounts are accounts maintained with Singapore branch of a big Singaporean bank and you know that the bank do not have incentives to collude with your client to falsify the bank confirmation form.

Of course the bank reconciliation check out ok, but the bank reconciliation always check out OK if your client is faking bank statements.

So that must mean the client is transferring in funds before the cut-off date and then transferring out the funds after the cut-off date.

So in this case how do you show that your client is faking cash balances?

(04-02-2014, 05:09 PM)minimax Wrote: [ -> ]

(04-02-2014, 04:04 PM)Clement Wrote: [ -> ]

(04-02-2014, 03:22 PM)BlueKelah Wrote: [ -> ]Monies can be transferred into the bank account before the audit and then t/f back out. Chinese company are good at this type of money TaiChi.

This type of cash movements can typically be caught by the cash book review. Auditors will review all material cash inflows and outflows from bank accounts for a few selected sample months. Usually the the last month of a financial year is also selected to detect such movements.

Hi Clement,

let's say that you are the audit partner of a publicly listed Singaporean company.

You have reasons to believe that your client, the publicly listed Singaporean company, is faking its cash balance because:
1) despite having big net cash balances and generating healthy profits, the company's share price has been below its net cash value per share for a couple of years
2) despite being cash rich, the company has consistently done share placements to raise funds. Management says that the funds raised are to be used for general corporate purposes.

You know that the bank confirmation done by your audit team is legit because:
1) the bank confirmation form was personally mailed out by your audit team
2) the bank accounts are accounts maintained with Singapore branch of a big Singaporean bank and you know that the bank do not have incentives to collude with your client to falsify the bank confirmation form.

Of course the bank reconciliation check out ok, but the bank reconciliation always check out OK if your client is faking bank statements.

So that must mean the client is transferring in funds before the cut-off date and then transferring out the funds after the cut-off date.

So in this case how do you show that your client is faking cash balances?

Hmmm.. Lets see how normal audit procedures can be used.

1) The cash book review can be extended to cover all 12 months for large inflows and outflows from bank accounts.
2) The post balance sheet date events review can used to detect large outflows from bank accounts up to the date the audit report is signed.

Of course detection is much more difficult if the company is able to disguise the bank transfers used to inflate bank balances.

(04-02-2014, 05:20 PM)Clement Wrote: [ -> ]

(04-02-2014, 05:09 PM)minimax Wrote: [ -> ]

(04-02-2014, 04:04 PM)Clement Wrote: [ -> ]

(04-02-2014, 03:22 PM)BlueKelah Wrote: [ -> ]Monies can be transferred into the bank account before the audit and then t/f back out. Chinese company are good at this type of money TaiChi.

This type of cash movements can typically be caught by the cash book review. Auditors will review all material cash inflows and outflows from bank accounts for a few selected sample months. Usually the the last month of a financial year is also selected to detect such movements.

Hi Clement,

let's say that you are the audit partner of a publicly listed Singaporean company.

You have reasons to believe that your client, the publicly listed Singaporean company, is faking its cash balance because:
1) despite having big net cash balances and generating healthy profits, the company's share price has been below its net cash value per share for a couple of years
2) despite being cash rich, the company has consistently done share placements to raise funds. Management says that the funds raised are to be used for general corporate purposes.

You know that the bank confirmation done by your audit team is legit because:
1) the bank confirmation form was personally mailed out by your audit team
2) the bank accounts are accounts maintained with Singapore branch of a big Singaporean bank and you know that the bank do not have incentives to collude with your client to falsify the bank confirmation form.

Of course the bank reconciliation check out ok, but the bank reconciliation always check out OK if your client is faking bank statements.

So that must mean the client is transferring in funds before the cut-off date and then transferring out the funds after the cut-off date.

So in this case how do you show that your client is faking cash balances?

Hmmm.. Lets see how normal audit procedures can be used.

1) The cash book review can be extended to cover all 12 months for large inflows and outflows from bank accounts.
2) The post balance sheet date events review can used to detect large outflows from bank accounts up to the date the audit report is signed.

Of course detection is much more difficult if the company is able to disguise the bank transfers used to inflate bank balances.

Yes, but you still can't rely on the cash book review and post balance sheet date events review because what if your client have been providing you with fake bank statements all along?

If you read up on Enron or WorldCom, i think you will know the how the "Real World" works. Most of the Chinese companies are minnows compare to them. Anyway i always think retailers, ikan bilis like us will most probably be the last to know.

(04-02-2014, 05:31 PM)minimax Wrote: [ -> ]

(04-02-2014, 05:20 PM)Clement Wrote: [ -> ]

(04-02-2014, 05:09 PM)minimax Wrote: [ -> ]

(04-02-2014, 04:04 PM)Clement Wrote: [ -> ]

(04-02-2014, 03:22 PM)BlueKelah Wrote: [ -> ]Monies can be transferred into the bank account before the audit and then t/f back out. Chinese company are good at this type of money TaiChi.

This type of cash movements can typically be caught by the cash book review. Auditors will review all material cash inflows and outflows from bank accounts for a few selected sample months. Usually the the last month of a financial year is also selected to detect such movements.

Hi Clement,

let's say that you are the audit partner of a publicly listed Singaporean company.

You have reasons to believe that your client, the publicly listed Singaporean company, is faking its cash balance because:
1) despite having big net cash balances and generating healthy profits, the company's share price has been below its net cash value per share for a couple of years
2) despite being cash rich, the company has consistently done share placements to raise funds. Management says that the funds raised are to be used for general corporate purposes.

You know that the bank confirmation done by your audit team is legit because:
1) the bank confirmation form was personally mailed out by your audit team
2) the bank accounts are accounts maintained with Singapore branch of a big Singaporean bank and you know that the bank do not have incentives to collude with your client to falsify the bank confirmation form.

Of course the bank reconciliation check out ok, but the bank reconciliation always check out OK if your client is faking bank statements.

So that must mean the client is transferring in funds before the cut-off date and then transferring out the funds after the cut-off date.

So in this case how do you show that your client is faking cash balances?

Hmmm.. Lets see how normal audit procedures can be used.

1) The cash book review can be extended to cover all 12 months for large inflows and outflows from bank accounts.
2) The post balance sheet date events review can used to detect large outflows from bank accounts up to the date the audit report is signed.

Of course detection is much more difficult if the company is able to disguise the bank transfers used to inflate bank balances.

Yes, but you still can't rely on the cash book review and post balance sheet date events review because what if your client have been providing you with fake bank statements all along?

These are general procedures. There have been times where special procedures were performed but they are normally agreed in advance with the audit committee.

In the case of totally bogus bank statements, it is very difficult to hide. The company will have to produce a lot of fake journal vouchers, payment vouchers, bank in slips, TT advice etc to correspond with the fake bank statements.

(04-02-2014, 06:07 PM)Clement Wrote: [ -> ]

(04-02-2014, 05:31 PM)minimax Wrote: [ -> ]

(04-02-2014, 05:20 PM)Clement Wrote: [ -> ]

(04-02-2014, 05:09 PM)minimax Wrote: [ -> ]

(04-02-2014, 04:04 PM)Clement Wrote: [ -> ]This type of cash movements can typically be caught by the cash book review. Auditors will review all material cash inflows and outflows from bank accounts for a few selected sample months. Usually the the last month of a financial year is also selected to detect such movements.

Hi Clement,

let's say that you are the audit partner of a publicly listed Singaporean company.

You have reasons to believe that your client, the publicly listed Singaporean company, is faking its cash balance because:
1) despite having big net cash balances and generating healthy profits, the company's share price has been below its net cash value per share for a couple of years
2) despite being cash rich, the company has consistently done share placements to raise funds. Management says that the funds raised are to be used for general corporate purposes.

You know that the bank confirmation done by your audit team is legit because:
1) the bank confirmation form was personally mailed out by your audit team
2) the bank accounts are accounts maintained with Singapore branch of a big Singaporean bank and you know that the bank do not have incentives to collude with your client to falsify the bank confirmation form.

Of course the bank reconciliation check out ok, but the bank reconciliation always check out OK if your client is faking bank statements.

So that must mean the client is transferring in funds before the cut-off date and then transferring out the funds after the cut-off date.

So in this case how do you show that your client is faking cash balances?

Hmmm.. Lets see how normal audit procedures can be used.

1) The cash book review can be extended to cover all 12 months for large inflows and outflows from bank accounts.
2) The post balance sheet date events review can used to detect large outflows from bank accounts up to the date the audit report is signed.

Of course detection is much more difficult if the company is able to disguise the bank transfers used to inflate bank balances.

Yes, but you still can't rely on the cash book review and post balance sheet date events review because what if your client have been providing you with fake bank statements all along?

These are general procedures. There have been times where special procedures were performed but they are normally agreed in advance with the audit committee.

In the case of totally bogus bank statements, it is very difficult to hide. The company will have to produce a lot of fake journal vouchers, payment vouchers, bank in slips, TT advice etc to correspond with the fake bank statements.

Yes, you are right. But assuming that your client has faked the bank statements and all supporting documentation and yet the bank confirmation tally with the cash balance on the fake bank statements, this leads you to believe that your client has been moving funds in before the cut-off date and moving funds out after the cut-off date, how do you catch your client doing that?

(04-02-2014, 06:20 PM)minimax Wrote: [ -> ]

(04-02-2014, 06:07 PM)Clement Wrote: [ -> ]

(04-02-2014, 05:31 PM)minimax Wrote: [ -> ]

(04-02-2014, 05:20 PM)Clement Wrote: [ -> ]

(04-02-2014, 05:09 PM)minimax Wrote: [ -> ]Hi Clement,

let's say that you are the audit partner of a publicly listed Singaporean company.

You have reasons to believe that your client, the publicly listed Singaporean company, is faking its cash balance because:
1) despite having big net cash balances and generating healthy profits, the company's share price has been below its net cash value per share for a couple of years
2) despite being cash rich, the company has consistently done share placements to raise funds. Management says that the funds raised are to be used for general corporate purposes.

You know that the bank confirmation done by your audit team is legit because:
1) the bank confirmation form was personally mailed out by your audit team
2) the bank accounts are accounts maintained with Singapore branch of a big Singaporean bank and you know that the bank do not have incentives to collude with your client to falsify the bank confirmation form.

Of course the bank reconciliation check out ok, but the bank reconciliation always check out OK if your client is faking bank statements.

So that must mean the client is transferring in funds before the cut-off date and then transferring out the funds after the cut-off date.

So in this case how do you show that your client is faking cash balances?

Hmmm.. Lets see how normal audit procedures can be used.

1) The cash book review can be extended to cover all 12 months for large inflows and outflows from bank accounts.
2) The post balance sheet date events review can used to detect large outflows from bank accounts up to the date the audit report is signed.

Of course detection is much more difficult if the company is able to disguise the bank transfers used to inflate bank balances.

Yes, but you still can't rely on the cash book review and post balance sheet date events review because what if your client have been providing you with fake bank statements all along?

These are general procedures. There have been times where special procedures were performed but they are normally agreed in advance with the audit committee.

In the case of totally bogus bank statements, it is very difficult to hide. The company will have to produce a lot of fake journal vouchers, payment vouchers, bank in slips, TT advice etc to correspond with the fake bank statements.

Yes, you are right. But assuming that your client has faked the bank statements and all supporting documentation and yet the bank confirmation tally with the cash balance on the fake bank statements, this leads you to believe that your client has been moving funds in before the cut-off date and moving funds out after the cut-off date, how do you catch your client doing that?

If there is a reason to suspect a doctored bank statement, it is possible to (with the audit committee's consent) request for a independent bank statement from the bank.

For an example of this kind of fraud taking place and the audit procedures, you can look at the special auditor's report on Hongwei Technologies Ltd.