Holding auditors of failed Sharia-based banks accountable

The Bangladesh Bank (BB) has reportedly dissolved the boards of five failed Sharia-based banks in the process of merger, appointed new administrators after removing their MDs and has been requested by the Financial Institutions Division to take legal actions against their owners, board members and others to blame for the said crisis-hit private banks. There is no question that those criminals of the financial sector deserve to be held to account and the BB so far has taken the right step against the offenders. In this connection, questions have also arisen about the role of the auditors of those troubled banks. The job of the auditors was to keep the management of those banks on track by providing them correct advice on the effectiveness of their risk management, internal controls and governance issues. 

Their responsibility was also to ensure that the banks complied with the latest legal and regulatory requirements and that their financial statements were reliable and presented a true and fair picture of those banks' financial position to the stakeholders. Notably, among others, a bank's stakeholders include its investors, creditors and customers. But in the case of the auditors of the failed banks in question, they rather cooperated year after year with the management in concealing their massive theft through issuing clean audit opinions. They have been playing such criminal roles despite the fact that there were clear evidences of pervasive misstatements, massive non-performing loans (NPLs) and capital shortfalls of those banks.

In that case, the banking regulator should also take steps as necessary to identify those auditors, both internal and external, and start taking measures as necessary to bring them to justice. Against this backdrop, the Finance Adviser has reportedly indicated that the authorities are examining the circumstances under which the investors of the said failing Sharia-based banks made their investment decisions based on their (of those banks') published accounts. Understandably, the investors had been induced to make their decisions relying on those banks' audit reports which evidently convinced them about the depositories' apparently strong financial health. As assured by the Finance Adviser, the government would address the genuine grievances of the investors. They eminently deserve considerations from the authorities concerned. This is for the simple reason that the small investors in banks and similar other financial institutions as well as non-financial business ventures, represent a large segment of society which include even people who risk their retirement benefits and life savings in the hope that the investment would ensure a modest income for them to fall back on in time of need.  But time and again they have systematically been cheated by fraudulent business houses in cahoots with the government officials such as those in Securities and Exchange Commission who are supposed to look after the interests of the investors. It's no surprise then that with crash of the stock market many such investors were rendered penniless overnight. Unable to stand the loss, some even reportedly committed suicide.   

So, those who bought the shares of the Sharia-based banks in question definitely expected some earning out of their investments. The investors cannot be blamed for their decisions of being encouraged to buy shares of banks whose financial statements showed profit. Hopefully, the government would  consider coming up with some measures to compensate at least the small investors.  Finally, it is expected that the authorities concerned would take exemplary measures against the management as well as the auditors who collaborated with the owners in hollowing out the Sharia-based banks in question.