The Central Bank of Kenya (CBK) allowed audit
firm Deloitte to alter and publish Chase Bank’s
2014 financial results as part of Deloitte’s cover-
up of the reporting mess it created in the
classification of the lender’s controversial
Islamic assets, it has emerged.
Documents that Chase Bank directors submitted
to Parliament last week show that Deloitte –
with the backing of the CBK – not only moved
the controversial assets in the bank’s balance
sheet from the Other Assets line to Loans and
Advances for 2015, but also restated the
previous year’s report a year after they were
published with the regulator’s approval.
Chase Bank directors told the National
Assembly’s finance committee that Deloitte
made the changes with the aim of covering up
its sudden U-turn on classification of the bank’s
Islamic assets that kicked up a storm and
caused the lender’s collapse two months ago.
Deloitte, who were Chase Bank’s external
auditors for more than 20 years, in March made a
surprise about-turn to classify disputed Islamic
banking assets as insider borrowing and slapped
the mid-sized lender with a qualified audit
opinion that caused panic among depositors,
leading to its closure.
The changes and restatement of the results
were even more intriguing because they were
made barely a week after the CBK director of
bank supervision, Gerald Nyaoma, wrote to Chase
Bank confirming that the lender’s financial
statement had conformed to the regulatory rules
and authorised their publication on March 30 as
required by law.
“We note that the annual returns on the audited
financial statements and disclosures for the
period ended December 31, 2015 as presented
by Chase Bank Kenya conform to the format
prescribed by CBK prudential guideline,” said Mr
Nyaoma in a letter dated March 30, 2016.
Chase Bank directors, however, submitted to
Parliament documents showing that Mr Nyaoma
five days later fired another letter to the lender,
insisting that it had not made full financial
disclosures.
“The errors noted were that there was no
mention of the bank’s auditors and whether the
auditors issued a qualified or unqualified opinion
on the financials,” said Mr Nyaoma in another
letter dated April 4, 2016.
Chase Bank’s restated figures showed it had
under-reported insider loans by a whopping Sh7.9
billion and ultimately ended up with a surprise
Sh743 million full-year loss as opposed to the
Sh849 million loss it had declared earlier.
The bank had reported a net profit of Sh2.3
billion for the year ended December 2014.
The documents submitted to Parliament also
show that Deloitte’s covert meddling with the
2014 financial statements saw Chase Bank’s
loan book for the period to December 2014 rise
to Sh64.4 billion from the Sh53.8 billion in
statements published a week earlier – a
difference of Sh10.6 billion.
The increase was made possible by the
movement of what had been classified in the
balance sheet as “other assets” worth Sh11.9
billion but was later restated as Sh3.4 billion –
the rest of the cash having been moved to
directors’ loans and advances.
Accounting professionals said it is illegal for
auditors to change the contents of financial
statements that had been approved by regulatory
authorities and published one year earlier without
offering an explanation. Why the CBK allowed Deloitte to push through
such an accounting move and authorise its
publication is the question Chase Bank directors
are now asking Parliament to investigate.
Source: Business Daily
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