Assignment
CLOSURE OF CRANE BANK BY CENTRAL BANK
The former Crane Bank was placed under statutory management by Bank of Uganda (BOU) in September 2016 following a damning audit report that revealed insufficient capital levels, shrinking liquidity ratios, surging loan default levels and gross mismanagement, among others. (12 Feb 2022).
Bank of Uganda (BoU) in exercise of its powers under Section 99 (1) & (2) of the Financial Institutions Act, 2004 placed Crane Bank Ltd under liquidation and ordered the winding up of its affairs. In a public notice issued on November 13, 2020, BoU would be the liquidator of CBL.
Following the closure of Crane Bank, dfcu Bank-with the blessing of the central bank-took over the defunct bank's assets and customer deposits in a contested Shs200 billion deal. (16 Apr 2022).
It should be noted that before its closure, Crane bank had been rated as one of the best banks in East and Central Africa as per an audit report by one of the big Audit firms in town. One of the journalist was heard saying that closure of this bank had something to do with related party transaction dealings.
The Court first overruled the objection by Bank of Uganda that it is immune from being sued under the law governing Banks in Uganda. Court found that Bank of Uganda can be sued for anything done in bad faith. Court found that in the instant case Bank of Uganda was rightly sued as it had acted in bad faith by placing Crane Bank into Liquidation which was after losing the appeal in the Court of Appeal that upheld the high court ruling that Crane Bank under Receivership could not sue and that receivership had ended.
The Court further found that changing the status of Crane Bank (in Receivership) to Crane Bank (in liquidation) would render the appeal before it moot and nugatory (unnecessary). Therefore this was a proper case of granting an injunction restraining bank of Uganda from continuing with the liquidation of Crane Bank.
Court further issued a mandatory injunction against Bank of Uganda restoring the status of Crane Bank to what it was at the time of filing an appeal in the Supreme Court. The Court reasoned that changing the status of Crane Bank to liquidation would defeat the suit.
Court found that placing Crane Bank into liquidation was illegal. Court reasoned that under the law governing banks in Uganda only a licensed Bank can be liquidated. However, Crane Bank had been closed and put under receivership which meant that it ceased being a bank and could not this be put under liquidation.
Court further found that in placing Crane Bank into liquidation, Bank of Uganda was in contempt of court orders. The move was intended to circumvent the decision of Court of Appeal hence aimed at preventing the course of justice before.
The Court thus allowed the Application and issued orders to the effect that Bank of Uganda should not place Crane Bank into liquidation, an order restraining Bank of Uganda from continuing with the liquidation process, an order restoring the status of Crane Bank to what it was at the time of filing a suit and declared that Bank of Uganda was in contempt of Court Orders.
Management of DFCU has been having an Audit firm PKT Associates that has been auditing it for the last 7 years and they now feel with the taking over of the assets of crane bank, a new Audit firm PCW & Co should take up the assignment to audit this bank.
You have been recruited as the internal audit manager for PCW &Co to oversee a team of 20 staff. You will be reporting to the chief internal auditor, the head of the department. The first assignment for the department is to carry out a quarterly audit for the period ended 31 December, 2022.
Task
1. Prepare brief notes for your audit team highlighting the factors you would consider before accepting the new assignment as internal audit of DFCU.
2. Discuss with your audit team the key reasons why you think planning for this audit is of importance.
3. Explain to your Audit team the qualities of the audit evidence that you would expect from them that will act as a basis of your opinion.
4. Identify and explain the potential business risks you are likely to encounter in the assignment.
5. Explain the analytical procedures that should be carried out during the audit of DFCU payroll system.
6. The Accountants Statute forbids accountants from advertising their professional Services. Discuss the circumstances under which advertisement of professional Services may or may not be forbidden.
7. Explain the type of audit you are expected to accomplish in this assignment.
8. With examples, explain the categories of stakeholders that are likely to benefit from the audit report of this assignment?
9. As an auditor, what guidance would you give in relation to the highlighted likely related party transactions prevalent at Crane Bank?